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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended December 31, 1997
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission File Number 1-12823
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LaSalle Re Holdings Limited
(Exact name of registrant as specified in its charter)
Bermuda Not applicable
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(State or other Jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
Continental Building, 25 Church Street, Hamilton HM12, Bermuda
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(Address of principal executive offices)
441-292-3339
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(Registrant's Telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] Not applicable [ ]
The number of the Registrant's Common Shares (par value $1.00 per share)
outstanding as of January 30, 1998 was 15,165,259.
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LaSalle Re Holdings Limited
INDEX TO FORM 10-Q
PART I - FINANCIAL INFORMATION
Page
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ITEM 1. Unaudited Consolidated Financial Statements.
Consolidated Balance Sheets
December 31, 1997 and September 30, 1996...................... 3
Consolidated Statements of Operations
Three Months ended December 31, 1997 and 1996................. 4
Consolidated Statements of Changes in Shareholders' Equity
Three Months ended December 31, 1997 and 1996................. 5
Consolidated Statements of Cash Flows
Three Months ended December 31, 1997 and 1996................. 6
Notes to Unaudited Consolidated Financial Statements.......... 7
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition................. 9
PART II - OTHER INFORMATION
Item 1. Legal Proceedings............................................. 15
Item 2. Changes in Securities and Use of Proceeds..................... 15
Item 3. Defaults upon Senior Securities............................... 15
Item 4. Submission of Matters to a Vote of Security Holders........... 15
Item 5. Other Information............................................. 15
Item 6. Exhibits and Reports on Form 8-K.............................. 15
Signatures............................................................. 16
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<TABLE>
<CAPTION>
LaSalle Re Holdings Limited
Consolidated Balance Sheets
(Expressed in thousands of United States Dollars, except share and per share data)
Unaudited
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December 31, 1997 September 30, 1997
<S> <C> <C>
Assets
Cash and cash equivalents $ 48,948 $ 54,761
Investments held as available for sale at fair value 519,573 498,282
(amortized cost $515,456 : $495,705)
Accrued investment income 13,967 12,684
Reinsurance balances receivable 54,492 80,041
Deferred acquisition costs 8,879 11,932
Prepaid reinsurance premiums 3,674 5,837
Other assets 25,819 22,551
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Total assets $675,352 $686,088
======== ========
Liabilities
Reserve for losses and loss expenses $ 45,186 $ 45,491
Unearned premium reserve 59,161 88,490
Other liabilities 25,501 22,823
Dividend payable 11,341 10,703
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Total liabilities 141,189 167,507
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Minority interest 96,557 93,355
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Shareholders' equity
Share capital authorized in the aggregate 100,000,000
shares, par value $1
Preferred shares
(issued & outstanding, 3,000,000 Series A
preferred shares par value $1,
liquidation preference $25 per share) 3,000 3,000
Common shares
(issued & outstanding, 15,133,915:15,073,914 par value $1) 15,134 15,074
Additional paid in capital 300,322 299,964
Unrealized gain on investments 3,251 2,035
Retained earnings 115,899 105,153
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Total shareholders' equity 437,606 425,226
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Total liabilities, minority interest and
shareholders' equity $675,352 $686,088
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3
</TABLE>
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<TABLE>
<CAPTION>
LaSalle Re Holdings Limited
Consolidated Statements of Operations
(Expressed in thousands of United States Dollars, except share and per share data)
Unaudited
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Three Months Ended
December 31, 1997 December 31, 1996
<S> <C> <C>
Revenues
Gross premiums written $9,624 $5,237
Premiums ceded 1,460 0
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Net premiums written 11,084 5,237
Change in unearned premiums 26,835 37,886
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Net premiums earned 37,919 43,123
Net investment income 8,452 8,148
Net realized gains on investments 404 31
Other income 63 0
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Total revenues 46,838 51,302
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Expenses
Losses and loss expenses incurred 8,698 10,837
Underwriting expenses 6,174 7,115
Operational expenses 2,090 3,304
Corporate expenses 0 839
Interest expense 563 67
Exchange (gain) loss (366) 1,093
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Total expenses 17,159 23,255
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Income before minority interest 29,679 28,047
Minority interest 5,901 6,907
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Net income $23,778 $21,140
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Earnings per Common Share $1.47 $1.23
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Earnings per Common Share - assuming dilution $1.34 $1.16
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======================================================================================
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
LaSalle Re Holdings Limited
Consolidated Statements of Changes in Shareholders' Equity
(Expressed in thousands of United States Dollars, except share and per share data)
Unaudited
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Three Months Ended
December 31, 1997 December 31, 1996
<S> <C> <C>
Preferred shares par value $1
Balance at beginning and end of period $3,000 $0
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Common shares par value $1
Balance at beginning of period $15,074 $16,517
Exercise of share options 50 0
Issue of shares - employee stock purchase plan 10 0
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Balance at end of period $15,134 $16,517
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Additional paid in capital
Balance at beginning of period $299,964 $254,638
Issue of shares - employee stock purchase plan 358 7
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Balance at end of period $300,322 $254,645
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Unrealized loss on investments
Balance at beginning of period $2,035 $(2,136)
Unrealized gain in period 1,216 3,071
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Balance at end of period $3,251 $935
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Retained earnings
Balance at beginning of period $105,153 $84,089
Net Income 23,778 21,140
Common share dividends (11,341) (11,727)
Preferred share dividends (1,641) 0
Exercise of share options (50) 0
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Balance at end of period $115,899 $93,502
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Total shareholders' equity $437,606 $365,599
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</TABLE>
5
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<TABLE>
<CAPTION>
LaSalle Re Holdings Limited
Consolidated Statements of Cash Flows
(Expressed in thousands of United States Dollars)
Unaudited
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Three Months Ended
Cash flows from operating activities December 31, 1997 December 31, 1996
<S> <C> <C>
Net income $23,778 $21,140
Adjustments to reconcile net income to
cash provided by operating activities:
Minority interest in net income 5,901 6,907
Amortization of investment premium 245 517
Net gain on sale of investments (404) (31)
Unrealized loss on foreign exchange (651) 466
Changes in:
Reinsurance balances receivable 26,422 26,004
Deferred acquisition costs 3,053 4,380
Prepaid reinsurance premiums 2,163 0
Accrued investment income (1,283) (939)
Other assets (3,268) (143)
Reserve for losses and loss expenses (527) (4,506)
Unearned premium reserve (29,329) (37,886)
Other liabilities 2,508 574
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Cash provided by operating activities 28,608 16,483
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Cash flows from investing activities
Purchase of investments (162,706) (85,650)
Proceeds on the sale of marketable securities 133,114 53,671
Proceeds on the maturity of marketable securities 10,000 23,000
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Cash applied to investing activities (19,592) (8,979)
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Cash flows from financing activities
Issue of shares 368 7
Dividends paid (15,197) (5,682)
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Cash applied to financing activities (14,829) (5,675)
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Net (decrease) increase in cash and cash equivalents (5,813) 1,829
Cash and cash equivalents at beginning of period 54,761 46,990
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Cash and cash equivalents at end of period $48,948 $48,819
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</TABLE>
6
<PAGE>
LaSalle Re Holdings Limited
Notes to Unaudited Consolidated Financial Statements
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1. General
The accompanying unaudited interim consolidated financial statements have been
prepared pursuant to the rules and regulations for reporting on Form 10-Q.
Accordingly, certain information and footnotes required by general accepted
accounting principles for complete financial statements are not included herein.
The interim financial statements should be read in conjunction with the LaSalle
Re Holdings Limited Annual Report on Form 10-K for the fiscal year ended
September 30, 1997.
Interim statements are subject to possible adjustments in connection with the
annual audit of the Company's financial statements for the full year: in the
Company's opinion, all adjustments necessary for a fair presentation of these
interim statements have been included and are of a normal and recurring nature.
Unless the context otherwise requires, references herein to the "Company"
include LaSalle Re Holdings Limited and its subsidiary, LaSalle Re Limited
("LaSalle Re") and its subsidiaries LaSalle Re Corporate Capital Ltd.
("LaSalle Re Capital") and LaSalle Re (Services) Limited. The consolidated
financial statements include the results of the Company and the Company's share
of LaSalle Re and its subsidiaries for all periods presented.
2. Accounting Policies
Earnings per share have been calculated in accordance with Statement of
Financial Accounting Standards No. 128 ("SFAS 128"). Earnings per share are
calculated by dividing income available to common shareholders by the weighted
average number of common shares outstanding. For the purposes of this
calculation, the exchangeable non-voting shares of LaSalle Re ("Exchangeable
Non-Voting Shares") are considered outstanding common shares of the Company due
to the exchangeable nature of the shares. Earnings per share assuming dilution
are computed by dividing income available to common shareholders by the sum of
all dilutive potential common shares outstanding during the period of
calculation. Prior period calculations have been restated to give effect to
SFAS 128.
3. Earnings per Share
Earnings per share have been calculated in accordance with SFAS 128:
<TABLE>
<CAPTION>
1997 1996
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<S> <C> <C>
Net income $ 23,778 $ 21,140
Add back: minority interest 5,901 6,907
Less: Series A preferred share (1,641) ( 0)
dividends ----------- -----------
Income available to common
shareholders $ 28,038 $ 28,047
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Weighted average number of shares
outstanding:
Common shares 15,090,139 15,073,315
Exchangeable Non-Voting Shares 4,018,146 7,653,969
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19,108,285 22,727,284
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</TABLE>
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7
<PAGE>
LaSalle Re Holdings Limited
Notes to Unaudited Consolidated Financial Statements
<TABLE>
<CAPTION>
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<S> <C> <C>
Earnings per share $ 1.47 $ 1.23
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Income available to common
shareholders $ 28,038 $ 28,047
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Weighted average number of
common shares outstanding: 19,108,285 22,727,284
Plus: incremental shares from
assumed:
exercise of options 1,674,419 1,479,096
exercise of stock
appreciation rights 79,653 57,244
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Adjusted weighted average
number of common shares
outstanding 20,862,357 24,263,624
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Earnings per share
assuming dilution $ 1.34 $ 1.16
============ =============
</TABLE>
As of December 31, 1997, the Company had 2,447,362 options outstanding and had
granted 340,872 stock appreciation rights. As of December 31, 1996, the Company
had 2,499,348 options outstanding and had granted 340,872 stock appreciation
rights.
4. Reinsurance
The effect of reinsurance on premiums written and earned is as follows:
<TABLE>
<CAPTION>
Three months ended Three months ended
December 31, 1997 December 31, 1996
<S> <C> <C> <C> <C>
Written Earned Written Earned
Assumed $ 9,624 $ 38,953 $ 5,237 $43,123
Ceded 1,460 (1,034) 0 0
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Net premiums $11,084 $ 37,919 $ 5,237 $43,123
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</TABLE>
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8
<PAGE>
LaSalle Re Holdings Limited
Management's Discussion and Analysis of Operations
and Financial Condition
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The following is a discussion and analysis of the Company's results of
operations for the three months ended December 31, 1997 and 1996 and financial
condition as of December 31, 1997. This discussion and analysis should be read
in conjunction with the attached unaudited consolidated financial statements and
notes thereto of the Company and the audited consolidated financial statements
and notes thereto contained in the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1997.
General
The Company primarily writes property catastrophe reinsurance on a worldwide
basis through its subsidiary, LaSalle Re. Property catastrophe reinsurance
contracts cover unpredictable events such as hurricanes, windstorms, hailstorms,
earthquakes, fires, industrial explosions, freezes, riots, floods and other
man-made or natural disasters. Therefore, there can be significant volatility
in the Company's results from fiscal quarter to quarter and fiscal year to year.
Through LaSalle Re Capital, the Company also provides capital support to
selected Lloyd's syndicates which individually write the following lines of
business: direct and facultative property insurance: marine reinsurance: and
professional indemnity, directors and officers insurance and bankers blanket
bond business. In addition, as a result of the Company's limited operating and
claims history, the financial data included herein are not necessarily
indicative of the results of operations or financial condition of the Company in
the future.
Results of Operations - for the three months ended December 31, 1997 and 1996
Traditionally, premiums written in the quarter ended December 31 are
significantly lower than premiums written in other quarters in the fiscal year,
as no major renewal date occurs during the quarter. Gross premiums written for
the quarter ended December 31, 1997 were $9.6 million compared to $5.2 million
for the quarter ended December 31, 1996, an increase of 84.6%. This increase was
primarily due to premiums of $6.5 million written by LaSalle Re Capital in the
quarter ended December 31, 1997. As LaSalle Re Capital commenced underwriting
January 1, 1997, there is no comparison for the quarter ended December 31, 1996.
The Company's property catastrophe book experienced a reduction in premiums
written of $0.6 million for the quarter ended December 31, 1997 compared to
December 31, 1996, due principally to the competitive rate environment, which
has led to a lower number of international contracts being written. In addition,
the Company experienced a reduction in reinstatement premiums of $0.9 million
for the quarter ended December 31, 1997 compared to December 31, 1996, due to
more favorable loss experience.
Premiums ceded for the quarter ended December 31, 1997 were $(1.5) million
compared to nil in the quarter ended December 31, 1996. This was attributable
to the quarterly recognition of a return premium provision on the reinsurance
protection purchased by LaSalle Re. As LaSalle Re did not purchase reinsurance
prior to January 1, 1997, there is no comparison for the quarter ended
December 31, 1996.
As a result of the above, net premiums written for the quarter ended December
31, 1997 were $11.1 million compared to $5.2 million for the quarter ended
December 31, 1996.
Net premiums earned for the quarter ended December 31, 1997 were $37.9 million
compared to $43.1 million for the same quarter in 1996. The 12.1% decrease was
the result of a reduction in premiums written from calendar year 1996 to
calendar year 1997. Premiums on property catastrophe excess of loss contracts
are earned on a pro rata basis over the period coverage is
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9
<PAGE>
LaSalle Re Holdings Limited
Management's Discussion and Analysis of Operations
and Financial Condition
================================================================================
provided, which is generally 12 months. Under proportional property
catastrophe contracts, the risks underlying the contracts incept throughout the
policy period and premiums generally are earned over 18 months.
Ceded premiums amortized of $1.0 million for the quarter ended December 31, 1997
relate to protection purchased by both LaSalle Re and LaSalle Re Capital. As
these protections became effective as of January 1, 1997, there is no comparison
for the quarter ended December 31, 1996.
Net investment income increased 4.9% to $8.5 million for the quarter ended
December 31, 1997 from $8.1 million for the quarter ended December 31, 1996.
Annualized investment income as a percentage of the average market value of
invested assets was 6.0% for the quarter ended December 31, 1997 compared to
5.9% for the quarter ended December 31, 1996. The increase in net investment
income was attributable to a larger average investment base.
Net realized gains on investments were $0.4 million during the quarter ended
December 31, 1997 compared to $0.03 million during the quarter ended December
31, 1996. In accordance with generally accepted accounting principles,
unrealized gains and losses on the Company's investment portfolio are not
recognized in the Company's consolidated results of operations but are reflected
as a separate component of shareholders' equity.
The following table sets forth the Company's combined ratios for the quarters
ended December 31, 1997 and 1996:
December 31, 1997 December 31, 1996
--------------------------------------
Loss and loss expense ratio 22.9% 25.1%
Expense ratio 21.8% 24.3%
Combined ratio 44.7% 49.4%
Losses and loss expenses incurred represents losses paid and reserves
established in respect of specific losses and loss expenses reported by cedents
and expected loss development and additions to incurred-but-not-reported loss
reserves.
The Company incurred losses and loss expenses of $8.7 million during the quarter
ended December 31, 1997 compared with $10.8 million during the quarter ended
December 31, 1996. The main components of losses and loss expenses incurred
during the quarter ended December 31, 1997 related primarily to losses incurred
by LaSalle Re Capital and various risk losses. The main components of losses
and loss expenses incurred during the quarter ended December 31, 1996 related to
development for Hurricane Fran, winter storm activity in the United States, the
United Kingdom and Northern Europe and the triggering of annual aggregate loss
covers.
The expense ratio includes underwriting expenses and operational expenses.
Underwriting expenses include brokerage, commissions, excise taxes and other
costs related to underwriting reinsurance contracts. Underwriting expenses as a
percentage of net earned premiums were 16.3% for the quarter ended December 31,
1997 compared to 16.5% for the quarter ended December 31, 1996. As a percentage
of net premiums earned, fees accrued pursuant to the Underwriting Services
Agreement were 4.4% for the quarter ended December 31, 1997 compared to 4.6% for
the quarter ended December 31, 1996. The Company's brokerage, ceding and profit
commissions were comparable for the quarters ended December 31, 1997 and 1996 at
11.9%.
Operational expenses as a percentage of earned premiums were 5.5% during the
quarter ended December 31, 1997 compared with 7.7% for the quarter ended
December 31, 1996. The
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10
<PAGE>
LaSalle Re Holdings Limited
Management's Discussion and Analysis of Operations
and Financial Condition
================================================================================
reduction in operational expenses from $3.3 million for the quarter ended
December 31, 1996 to $2.1 million for the quarter ended December 31, 1997 was
principally due to the cessation of the Administrative Services Agreement with
Aon Risk Consultants (Bermuda) Ltd. ("ARC"), effective October 1, 1997. As of
such date, all of the personnel assigned to the Company by ARC became employees
of the Company and the Company assumed the functions previously performed by
ARC. In addition, the Company experienced a decrease in the level of executive
compensation. This was primarily due to compensation booked in respect of stock
appreciation rights. During the quarter ended December 31, 1996, the Company
expensed $0.7 million in respect of stock appreciation rights compared to $0.1
million during the quarter ended December 31, 1997.
The Company did not incur any corporate expenses during the quarter ended
December 31, 1997. Corporate expenses for the quarter ended December 31, 1996
were $0.8 million which included costs associated with the Company's secondary
public offering (except the underwriting discount) and the formation costs of
LaSalle Re Capital. All corporate expenses are charged to income in the period
they are incurred.
Interest expense was $0.6 million during the quarter ended December 31, 1997
compared with $0.1 million in the quarter ended December 31, 1996. The increase
in interest expense was due to financing charges associated with the deposit
portion of LaSalle Re's ceded reinsurance contract. Other interest expenses
related to the ongoing commitment fees payable on the Company's credit facility.
As at December 31, 1997, there were no borrowings under this facility.
Foreign exchange gains in the quarter ended December 31, 1997 were $0.4 million
compared to losses of $1.1 million in the quarter ended December 31, 1996. The
gains in the quarter ended December 31, 1997 were principally due to an increase
in the value of the US dollar against sterling. In 1996, the losses were due to
a decrease in the value of the US dollar against sterling which created
unrealized losses on the Company's sterling receivable balances.
The Company's basic earnings per share were $1.47 for the quarter ended December
31, 1997 compared to $1.23 for the quarter ended December 31, 1996. Earnings
per share assuming dilution were $1.34 for the quarter ended December 31, 1997
compared to $1.16 for the quarter ended December 31, 1996.
Liquidity and Capital Resources
As a holding company, the Company's assets consist primarily of all of the
outstanding voting stock of LaSalle Re. The Company's cash flows depend
primarily on dividends and other permitted payments from LaSalle Re and its
subsidiaries.
LaSalle Re's sources of funds consist of net premiums written, investment income
and proceeds from sales and redemptions of investments. Cash is used primarily
to pay losses and loss expenses, brokerage, commissions, excise taxes,
administrative expenses and dividends. Under the Insurance Act, 1978, amendments
thereto and related regulations of Bermuda, LaSalle Re is prohibited from paying
dividends of more than 25% of its opening statutory capital and surplus unless
it files an affidavit stating that it will continue to meet the required
solvency margin and minimum liquidity ratio requirements and from declaring or
paying any dividends without the approval of the Bermuda Minister of Finance if
it failed to meet its required margins in the previous fiscal year. The
Insurance Act also requires LaSalle Re to maintain a minimum solvency margin and
minimum liquidity ratio and prohibits dividends which would result in a breach
of these requirements. In addition, LaSalle Re is prohibited under the Insurance
Act from reducing its total opening statutory capital by more than 15% without
the approval of the Minister of Finance.
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11
<PAGE>
LaSalle Re Holdings Limited
Management's Discussion and Analysis of Operations
and Financial Condition
- --------------------------------------------------------------------------------
LaSalle Re currently meets these requirements. In addition, the payment of
dividends by LaSalle Re is subject to the rights of holders of the Exchangeable
Non-Voting Shares to receive a pro rata share of any dividend and to its need to
maintain shareholders' equity adequate to support the level of LaSalle Re's
insurance operations.
Operating activities provided net cash of $26.6 million for the quarter ended
December 31, 1997 and $16.5 million for the quarter ended December 31, 1996.
Cash flows from operations in future years may differ substantially from net
income. Cash flows are affected by loss payments, which, due to the nature of
the reinsurance coverage provided by LaSalle Re, are generally expected to
comprise large loss payments on a limited number of claims and can therefore
fluctuate significantly from year to year. The irregular timing of these
large loss payments can create significant variations in operating cash flows
between periods. LaSalle Re funds such payments from cash flows from operations
and sales of investments.
As a result of the potential for large loss payments, LaSalle Re maintains a
substantial portion of its assets in cash and investments. As of December 31,
1997, 84.2% of its total assets were held in cash and investments. To further
mitigate the uncertainty surrounding the amount and timing of potential
liabilities and to minimize interest rate risk, LaSalle Re maintains a short
average duration for its investment portfolio. The modified average duration of
the portfolio was 3.07 years at December 31, 1997. At December 31, 1997, the
fair value of the Company's total investment portfolio, including cash, was
$568.5 million.
The Company has adopted the Statement of Financial Accounting Standard No. 115
("SFAS 115") to account for its marketable securities. In accordance with SFAS
115, all of the Company's investments are classified as "available for sale".
Under this classification, investments are recorded at fair market value and any
unrealized gains or losses are reported as a separate component of shareholders'
equity. The unrealized gain on the investment portfolio net of amounts
attributable to minority interest was $3.25 million at December 31, 1997
compared to a gain of $2.0 million at September 30, 1997.
As of December 31, 1997, 81.1% of the securities held in the Company's
investment portfolio were fixed-income securities rated "AA" or better and 99.8%
were fixed-income securities rated "A" or better by Standard & Poor's Rating
Services or Moody's Investors Services, Inc. No single investment comprised more
than 5% of the overall portfolio. In respect of the portfolio's Far East and
Asian exposure, at December 31, 1997 the Company held bonds with a total market
value of $48.5 million, which had total unrealized gains of $0.1 million. During
January 1998, the Company sold approximately $10 million, par value, of these
bonds generating small realized gains. Of those bonds still held, approximately
75% of the exposure is to AAA rated issuers, with the remaining exposure to at
least AA rated issuers.
Reinsurance balances receivable were $54.5 million at December 31, 1997 compared
to $80.0 million at September 30, 1997. This reduction reflected the
seasonality of premiums written, with the Company traditionally writing a low
level of premiums in the quarter ended December 31, compared to other calendar
quarters. This also explains the decrease in unearned premiums and deferred
acquisition costs from $88.5 million and $11.9 million, respectively, as at
September 30, 1997 to $59.2 million and $8.9 million, respectively, at December
31, 1997. Included within reinsurance balances receivable at December 31, 1997
was $16.5 million which related to the business written by LaSalle Re Capital,
compared to $11.3 million as at September 30, 1997.
Prepaid reinsurance premiums relate to the reinsurance coverage placed by the
Company at January 1, 1997.
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12
<PAGE>
LaSalle Re Holdings Limited
Management's Discussion and Analysis of Operations
and Financial Condition
================================================================================
Other assets increased from $22.6 million as at September 30, 1997 to $25.8
million as at December 31, 1997. This was primarily due to the purchase of
fixed assets in connection with the termination of the Administrative Services
Agreement and the deposit portion of the ceded reinsurance contract, which is
accounted for in accordance with SFAS No. 113.
Other liabilities increased from $22.8 million as at September 30, 1997 to $25.5
million as at December 31, 1997. The increase of $2.7 million was primarily due
to the payable established for the purchase of the fixed assets from ARC. The
purchase price of the assets were $1.5 million, which is payable in four
installments.
On December 31, 1997, the Company paid a dividend of $0.5469 per share to
holders of record of Series A preferred shares on October 31, 1997. As of
December 31, 1997, dividends due but not yet declared on the Series A preferred
shares amounted to $0.5 million. On December 19, 1997, the Company declared a
common share dividend of $0.75 per share to shareholders of record on January 2,
1998 payable on January 16, 1998. The actual amount and timing of any future
Common Share dividends is at the discretion of the Board. The declaration and
payment of any dividends is dependent upon the profits and financial
requirements of the Company and other factors, including certain legal,
regulatory and other restrictions. There can be no assurance that the Company's
dividend policy will not change or that the Company will declare or pay any
dividends in future periods.
In accordance with the terms of certain reinsurance contracts, the Company has
posted letters of credit in the amount of $9.8 million as of December 31, 1997
as compared to $8.7 million as of September 30, 1997 to support outstanding loss
reserves. In connection with LaSalle Re Capital's support of three Lloyd's
syndicates, with effect from January 1, 1997 the Company posted letters of
credit in the amount of $16.0 million (equivalent to (GBP) 9.8 million). All
letters of credit are secured by a lien on the Company's investment portfolio
equal to 115% of the amount of the outstanding letters of credit.
At December 31, 1997, reserves for unpaid losses and loss expenses were $45.2
million. The Company has no material commitments for capital expenditures.
The Company has in place a $100 million committed line of credit from a
syndicate of banks. The proceeds from the credit facility may only be used to
buy preferred shares of LaSalle Re which, in turn, may use the proceeds of such
purchase to meet current cash requirements. The facility matures December 1,
2000, and is secured by a pledge ("legal mortgage") of all the capital stock of
LaSalle Re held by the Company, including any preferred shares that may be
issued by LaSalle Re to the Company. The line of credit contains various
covenants, including limitations on incurring additional indebtedness;
prohibitions of dividends and other restricted payments that would cause the
Company's tangible net worth (total shareholders' equity and minority interest)
to fall below $375 million for calendar years 1997 and 1998, and $400 million
thereafter; restriction of dividends per fiscal quarter to 12.5% of consolidated
net income of the Company for the immediately preceding fiscal year;
restrictions on the sale or lease of assets not in the ordinary course of
business; maintenance of a ratio of consolidated total debt to consolidated
tangible net worth of no more than 0.40 to 1.00; maintenance of tangible net
worth at the end of each fiscal year of the greater of $300 million or 70% of
net premiums written; maintenance of statutory capital of LaSalle Re at the end
of each fiscal year of at least $300 million; and maintenance of a ratio of net
premiums written to statutory capital at the end of any fiscal quarter for the
four fiscal quarters then ended of no more than 1.00 to 1.00 in each case. In
order for the Company to pay
================================================================================
13
<PAGE>
LaSalle Re Holdings Limited
Management's Discussion and Analysis of Operations
and Financial Condition
================================================================================
dividends in excess of 50% of net income, the Company would have to renegotiate
certain terms of its credit facility. As of December 31, 1997, the credit
facility had not been utilized.
Management has formed a year 2000 taskforce to assess the extent to which the
Company's computer systems (and third parties' computer systems that are
material to the Company's operations such as the computer systems of brokers and
service providers) are capable of correctly processing information relating to
dates in and after the year 2000. Until the taskforce completes its assessment,
the Company cannot estimate the costs of making any modifications to the
Company's computer systems that may be needed or the extent to which any failure
to process date information correctly could have a material adverse effect on
the Company's business, operations or financial condition.
The Company's financial condition and results of operations are influenced by
both internal and external forces. Loss payments, investment returns and
premiums may be impacted by changing rates of inflation and other economic
conditions. Cash flows from operations and the liquidity of its investment
portfolio are, in the opinion of the Company, adequate to meet the expected cash
requirements of the Company over the next 12 months.
Cautionary Statement Regarding Forward-Looking Statements
This report contains certain forward-looking statements within the meaning of
Section 27A of the United States Securities Act of 1933, as amended, and Section
21E of the United States Securities Exchange Act of 1934, as amended. Forward-
looking statements are statements other than historical information or
statements of current condition. Some forward-looking statements may be
identified by use of terms such as "believes", "anticipates", "intends", or
"expects". These statements relate to the plans of the Company for future
operations, including the dividend policy pursuant to which the Company intends
to distribute as dividends to holders of common shares and Exchangeable Non-
Voting Shares in each fiscal year 50% to 60% of the amount by which its net
income (before minority interest) from the prior fiscal year exceeds the amount
of dividends payable on Series A preferred shares in the current fiscal year. In
light of the risks and uncertainties inherent in all future projections, these
statements should not be regarded as a representation that the objectives will
be achieved. Many factors could cause actual results to differ materially from
those in the forward-looking statements, including, but not limited, to the
following: catastrophic events of unanticipated frequency or severity; changes
in the demand for or supply of property catastrophe reinsurance; actions of
competitors; changes in the Company's financial ratings; changes in insurance or
tax laws or regulations or governmental interpretations thereof; changes in
foreign economic conditions including currency rate fluctuations; a major
decrease in the cession of business from CNA Financial Corporation ("CNA"); or
the termination of the Underwriting Services Agreement with an affiliate of CNA.
The Company undertakes no obligation to release publicly the results of any
future revisions it may make to forward-looking statements to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
================================================================================
14
<PAGE>
- --------------------------------------------------------------------------------
LaSalle Re Holdings Limited
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits - The following exhibits are filed as part of this report on
Form 10-Q:
3.1 Memorandum of Association (Incorporated by reference to Exhibit
3.1 to Registration Statement on Form S-1 (File No. 33-97304)).
3.2 Bye-Laws (Incorporated by reference to Exhibit 3.1 to Form 10-Q
for the quarterly period ended December 31, 1995 (File No.
0-27216)).
27 Financial Data Schedule
(b) Reports on Form 8-K - The following report on Form 8-K was filed
during the quarter ended December 31, 1997:
Item Reported Date of Report
Sale of equity securities pursuant to
Regulation S October 16, 1997
- --------------------------------------------------------------------------------
15
<PAGE>
================================================================================
LaSalle Re Holdings Limited
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date:____________________ LASALLE RE HOLDINGS LIMITED
/s/ Andrew Cook
---------------
Name: Andrew Cook
Title: Senior Vice President & Chief
Financial Officer
Date:____________________ /s/ Victor H. Blake
-------------------
Name: Victor H. Blake
Title: Chairman, President & Chief
Executive Officer
Date:____________________ /s/ Andrew Cook
---------------
Name: Andrew Cook
Title: Senior Vice President & Chief
Financial Officer
================================================================================
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> DEC-31-1997
<DEBT-HELD-FOR-SALE> 0
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 519,573
<CASH> 48,948
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 8,879
<TOTAL-ASSETS> 675,352
<POLICY-LOSSES> 45,186
<UNEARNED-PREMIUMS> 59,161
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
<COMMON> 15,134
0
3,000
<OTHER-SE> 419,472
<TOTAL-LIABILITY-AND-EQUITY> 675,352<F1>
37,919
<INVESTMENT-INCOME> 8,452
<INVESTMENT-GAINS> 404
<OTHER-INCOME> 63
<BENEFITS> 8,698
<UNDERWRITING-AMORTIZATION> 6,174
<UNDERWRITING-OTHER> 2,287
<INCOME-PRETAX> 29,679
<INCOME-TAX> 0
<INCOME-CONTINUING> 29,679
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 29,679
<EPS-PRIMARY> 1.47<F2>
<EPS-DILUTED> 1.34<F3>
<RESERVE-OPEN> 0<F4>
<PROVISION-CURRENT> 0<F4>
<PROVISION-PRIOR> 0<F4>
<PAYMENTS-CURRENT> 0<F4>
<PAYMENTS-PRIOR> 0<F4>
<RESERVE-CLOSE> 0<F4>
<CUMULATIVE-DEFICIENCY> 0<F4>
<FN>
<F1> Includes minority interest
<F2> Basic EPS, following adoption of SFAS 128
<F3> Diluted EPS, following adoption of SFAS 128
<F4> Amounts for Securities Act Industry Guide 6 and Exchange Act Industry Guide
4 disclosures are not provided because the Company's loss reserves do not
exceed one-half of the consolidated common shareholders' equity.
</FN>
</TABLE>
