<PAGE>
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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 June 30, 1999
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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
----------------------------------- --------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
Continental Building, 25 Church Street, Hamilton HM12, Bermuda
--------------------------------------------------------------
(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 August 5, 1999 was 15,538,554.
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<PAGE>
LaSalle Re Holdings Limited
INDEX TO FORM 10-Q
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ITEM 1. Unaudited Consolidated Financial Statements
Consolidated Balance Sheets
June 30, 1999 and September 30,1998............................... 3
Consolidated Statements of Operations and Comprehensive Income
Three Months and Nine Months ended June 30, 1999 and 1998......... 4
Consolidated Statements of Changes in Shareholders' Equity
Three Months and Nine Months ended June 30, 1999 and 1998......... 5
Consolidated Statements of Cash Flows
Nine Months ended June 30, 1999 and 1998.......................... 6
Notes to Unaudited Consolidated Financial Statements.............. 7
ITEM 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition..................... 10
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings................................................. 23
ITEM 2. Changes in Securities and Use of Proceeds......................... 23
ITEM 3. Defaults upon Senior Securities................................... 23
ITEM 4. Submission of Matters to a Vote of Security Holders............... 23
ITEM 5. Other information................................................. 23
ITEM 6. Exhibits and Reports on Form 8-K.................................. 23
Signatures................................................................. 24
</TABLE>
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<PAGE>
<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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June 30, 1999 September 30, 1998
<S> <C> <C>
Assets
Cash and cash equivalents $153,986 $ 85,281
Investments held as available for sale at fair value 402,349 521,476
(amortized cost $408,334 : $503,531)
Accrued investment income 11,168 11,056
Reinsurance balances receivable 110,229 86,779
Deferred acquisition costs 13,843 13,444
Prepaid reinsurance premiums 22,849 7,584
Outstanding losses recoverable from reinsurers 2,135 0
Other assets 41,704 31,670
------------ ------------
Total assets $758,263 $757,290
============ ============
Liabilities
Reserve for losses and loss expenses $132,552 $ 97,942
Unearned premium reserve 87,366 83,119
Other liabilities 50,411 29,241
Dividend payable 5,821 11,366
------------ ------------
Total liabilities 276,150 221,668
------------ ------------
Minority interest 95,309 105,569
------------ ------------
Shareholders' equity
Share capital authorised 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, 15,593,554 : 15,178,791 par value $1) 15,594 15,179
Additional paid in capital 294,766 295,578
Accumulated other comprehensive income
Unrealized (loss) gain on investments (4,585) 13,838
Deferred compensation (659) 0
Retained earnings 78,688 102,458
------------ ------------
Total shareholders' equity 386,804 430,053
------------ ------------
Total liabilities, minority interest and
shareholders' equity $758,263 $757,290
============ ============
</TABLE>
See accompanying notes to unaudited consolidated financial statements
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3
<PAGE>
LaSalle Re Holdings Limited
Consolidated Statements of Operations and Comprehensive Income
(Expressed in thousands of United States Dollars,
except share and per share data)
Unaudited
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<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, 1999 June 30, 1998 June 30, 1999 June 30, 1998
<S> <C> <C> <C> <C>
Revenues
Gross premiums written $20,802 $26,769 $121,244 $131,024
Premiums ceded (9,561) 1,991 (27,009) (8,975)
------------ ------------ ------------ ------------
Net premiums written 11,241 28,760 94,235 122,049
Change in unearned premiums 20,827 13,293 11,018 (171)
------------ ------------ ------------ ------------
Net premiums earned 32,068 42,053 105,253 121,878
Net investment income 8,539 8,732 25,317 25,767
Net realized gains on investments 152 515 1,742 2,532
Other income 0 0 0 63
------------ ------------ ------------ ------------
Total revenues 40,759 51,300 132,312 150,240
------------ ------------ ------------ ------------
Expenses
Losses and loss expenses incurred
(net of recoveries of $4,120, $0,
$4,120, $0) 24,789 23,607 105,579 52,243
Underwriting expenses 6,149 6,815 18,118 19,189
Operational expenses 3,740 2,120 8,583 7,724
Corporate expenses 44 139 351 139
Interest expense 439 392 1,343 1,394
Exchange loss (gain) 140 54 (252) (324)
------------ ------------ ------------ ------------
Total expenses 35,301 33,127 133,722 80,365
------------ ------------ ------------ ------------
Income (loss) before minority interest 5,458 18,173 (1,410) 69,875
Minority interest 893 3,480 (1,480) 13,671
------------ ------------ ------------ ------------
Net income 4,565 14,693 70 56,204
Other comprehensive income
Unrealized (losses) gains on securities (7,218) 1,274 (14,063) 2,160
Less: reclassification adjustments
for (losses) included in net income (406) (342) (4,360) (727)
------------ ------------ ------------ ------------
Total other comprehensive (loss) income (7,624) 932 (18,423) 1,433
------------ ------------ ------------ ------------
Comprehensive (loss) income ($3,059) $15,625 ($18,353) $57,637
============ ============ ============ ============
Earnings (losses) per common share $0.19 $0.86 ($0.32) $3.39
============ ============ ============ ============
Earnings (losses) per common share
- assuming dilution $0.19 $0.78 ($0.32) $3.09
============ ============ ============ ============
</TABLE>
See accompanying notes to unaudited consolidated financial statements
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4
<PAGE>
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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<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, 1999 June 30, 1998 June 30, 1999 June 30, 1998
<S> <C> <C> <C> <C>
Preferred shares par value $1
Balance at beginning and end of period $3,000 $3,000 $3,000 $3,000
======== ======== ======== ========
Common shares par value $1
Balance at beginning of period $15,783 $15,165 $15,179 $15,074
Exercise of share options 0 0 6 81
Issue of shares 63 11 726 21
Share repurchase (252) 0 (317) 0
-------- -------- -------- --------
Balance at end of period $15,594 $15,176 $15,594 $15,176
======== ======== ======== ========
Additional paid in capital
Balance at beginning of period $297,249 $300,345 $295,578 $299,964
Issue of shares 1,480 380 1,712 761
Compensation awards (329) 0 (20) 0
Share repurchase 0 0 (1,015) 0
Change in minority interest (3,634) 0 (1,489) 0
-------- -------- -------- --------
Balance at end of period $294,766 $300,725 $294,766 $300,725
======== ======== ======== ========
Accumulated other comprehensive income
Balance at beginning of period $3,039 $2,536 $13,838 $2,035
Unrealized (loss) profit in period (7,575) 932 (18,507) 1,433
Change in minority interest (49) 0 84 0
-------- -------- -------- --------
Balance at end of period $(4,585) $3,468 $(4,585) $3,468
======== ======== ======== ========
Deferred compensation
Issue of shares $(1,091) $0 $(1,091) $0
Amortization 432 0 432 0
-------- -------- -------- --------
Balance at end of period $(659) $0 $(659) $0
======== ======== ======== ========
Retained earnings
Balance at beginning of period $82,939 $120,601 $102,332 $105,153
Net Income 4,565 14,693 70 56,204
Common share dividends (5,821) (11,370) (17,648) (34,070)
Preferred share dividends (1,641) (1,641) (4,923) (4,923)
Exercise of share options 0 0 (509) (81)
Share repurchase (2) 0 (274) 0
Change in minority interest (1,352) 0 (360) 0
-------- -------- -------- --------
Balance at end of period $78,688 $122,283 $78,688 $122,283
======== ======== ======== ========
Total shareholders' equity $386,804 $444,652 $386,804 $444,652
======== ======== ======== ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements
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5
<PAGE>
LaSalle Re Holdings Limited
Consolidated Statements of Cash Flows
(Expressed in thousands of United States Dollars)
Unaudited
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<TABLE>
<CAPTION>
Nine Months Ended
June 30, 1999 June 30, 1998
<S> <C> <C>
Cash flows from operating activities
Net income $70 $56,204
Adjustments to reconcile net income to
cash provided by operating activities:
Minority interest in net income (1,480) 13,671
Amortization of investment premium 425 701
Net gain on sale of investments (1,742) (2,532)
Unrealized loss (gain) on foreign exchange 226 (648)
Changes in:
Accrued investment income (119) 27
Reinsurance balances receivable (24,207) (22,434)
Deferred acquisition costs (399) (2,810)
Prepaid reinsurance premiums (15,265) (5,126)
Outstanding losses recoverable from reinsurers (2,135) 0
Other assets (10,128) (10,226)
Reserve for losses and loss expenses 35,243 19,198
Unearned premium reserve 4,247 5,297
Other liabilities 22,769 16,955
-------- --------
Cash provided by operating activities 7,505 68,277
-------- --------
Cash flows from investing activities
Purchase of investments (178,124) (319,564)
Proceeds on the sale of investments 274,637 293,119
Proceeds on the maturity of investments 0 35,000
-------- --------
Cash provided by investing activities 96,513 8,555
-------- --------
Cash flows from financing activities
Issue of shares 1,551 783
Dividends paid (34,856) (47,230)
Share repurchases (1,346) 0
Option exercises (662) 0
-------- --------
Cash applied to financing activities (35,313) (46,447)
-------- --------
Net increase in cash and cash equivalents 68,705 30,385
Cash and cash equivalents at beginning of period 85,281 54,761
-------- --------
Cash and cash equivalents at end of period $153,986 $85,146
======== ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements
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6
<PAGE>
LaSalle Re Holdings Limited
Notes to Unaudited Consolidated Financial Statements
(Expressed in thousands of United States Dollars, except share and per share
data)
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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 generally 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, 1998.
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.
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7
<PAGE>
LaSalle Re Holdings Limited
Notes to Unaudited Consolidated Financial Statements
(Expressed in thousands of United States Dollars, except share and per share
data)
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2. Earnings per Share
Earnings per share have been calculated in accordance with SFAS No. 128:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Net income $ 4,565 $ 14,693 $ 70 $ 56,204
Add back: minority interest 893 3,480 (1,480) 13,671
Less: Series A preferred share
dividends (1,641) (1,641) (4,923) (4,923)
------------ ------------ ------------ ------------
Income (loss) available to common
shareholders $ 3,817 $ 16,532 $ (6,333) $ 64,952
------------ ------------ ------------ ------------
Weighted average number of shares
outstanding:
Common shares 15,401,821 15,167,816 15,554,141 15,138,550
Exchangeable non-voting shares 4,694,636 4,018,146 4,546,099 4,018,146
------------ ------------ ------------ ------------
Weighted average number of shares
outstanding: 20,096,457 19,185,962 20,100,240 19,156,696
============ ============ ============ ============
Earnings (losses) per share $ 0.19 $ 0.86 $ (0.32) $ 3.39
============ ============ ============ ============
Income (loss) available to common
shareholders $ 3,817 $ 16,532 $ (6,333) $ 64,952
------------ ------------ ------------ ------------
Weighted average number of common
shares outstanding: 20,096,457 19,185,962 20,100,240 19,156,696
Plus: incremental shares from assumed
exercise of options 335,719 1,772,511 Note 1 1,739,551
exercise of stock appreciation rights 53,799 88,064 Note 1 83,623
Plus: contingently issuable shares 47,480 38,455 Note 1 13,983
------------ ------------ ------------ ------------
Adjusted weighted average number of
common shares outstanding 20,533,455 21,084,992 20,100,240 20,993,853
============ ============ ============ ============
Earnings (losses) per share assuming dilution $ 0.19 $ 0.78 $ (0.32) $ 3.09
============ ============ ============ ============
</TABLE>
Note 1
The incremental shares from assumed exercises of options, SARs and the
contingently issuable shares have not been included in the above computation as
they have an antidilutive effect on (losses) earnings per share.
As of June 30, 1999, the Company had 1,029,514 options outstanding and had
granted 340,872 stock appreciation rights. As of June 30, 1998, the Company had
2,416,457 options outstanding and had granted 340,872 stock appreciation rights.
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8
<PAGE>
LaSalle Re Holdings Limited
Notes to Unaudited Consolidated Financial Statements
(Expressed in thousands of United States Dollars, except share and per share
data)
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3. Reinsurance
The effect of reinsurance on premiums written and earned is as follows:
<TABLE>
<CAPTION>
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
June 30, 1999 June 30, 1998 June 30, 1999 June 30, 1998
Written Earned Written Earned Written Earned Written Earned
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Assumed $20,802 $38,600 $26,769 $43,505 $121,244 $116,997 $131,024 $124,364
Ceded (9,561) (6,532) 1,991 (1,452) (27,009) (11,744) (8,975) (2,486)
------- ------- ------- ------- -------- -------- -------- --------
Net Premiums $11,241 $32,068 $28,760 $42,053 $ 94,235 $105,253 $122,049 $121,878
======= ======= ======= ======= ======== ======== ======== ========
</TABLE>
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9
<PAGE>
LaSalle Re Holdings Limited
Management's Discussion and Analysis of Results 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 and nine months ended June 30, 1999 and 1998 and
financial condition as of June 30, 1999. 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, 1998.
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. Due to the nature of the business written by the Company, the
financial data included herein is 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 June 30, 1999 and 1998
Gross premiums written for the quarter ended June 30, 1999 were $20.8 million
compared to $26.8 million for the quarter ended June 30, 1998, a decrease of
22.4%. The Company's property catastrophe book experienced a reduction in gross
premiums written of $8.5 million for the quarter ended June 30, 1999 compared to
the quarter ended June 30, 1998. Of this reduction, $6.9 million resulted from
the Company's reduction of its line sizes on two international quota share
contracts. The reduction in gross premiums written on the property catastrophe
book was partly offset by a fronting arrangement that produced $2.6 million of
gross premiums written. This fronting arrangement was provided for three
companies: two of these companies have claims paying ratings from Standard &
Poor's Ratings Services of "A-"; the other company is rated "A" by A.M. Best
Company. Other lines of business remained relatively consistent, with gross
premiums written for the quarter ended June 30, 1999 at $10.9 million compared
to $11.0 million for the quarter ended June 30, 1998.
Premiums ceded for the quarter ended June 30, 1999 were $9.6 million compared to
$(2.0) million for the quarter ended June 30, 1998. Of the $11.6 million
increase, $6.7 million was ceded to a property catastrophe quota share
arrangement with CNA Re and $2.5 million related to the fronting arrangement. In
addition, given the current pricing environment, the Company has continued to
purchase various reinsurance protections.
As a result of the above, net premiums written for the quarter ended June 30,
1999 were $11.2 million compared to $28.8 million for the quarter ended June 30,
1998.
Net premiums earned for the quarter ended June 30, 1999 were $32.1 million
compared to $42.1 million for the same quarter in 1998. The decline in premiums
earned of $10.0
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10
<PAGE>
LaSalle Re Holdings Limited
Management's Discussion and Analysis of Results of Operations
and Financial Condition
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million was primarily due to the increase in ceded premium. Ceded premiums
amortized were $6.5 million for the quarter ended June 30, 1999 compared to $1.5
million for the quarter ended June 30, 1998.
Net investment income was $8.5 million for the quarter ended June 30, 1999
compared to $8.7 million for the quarter ended June 30, 1998. Annualized
investment income as a percentage of the average market value of invested assets
was 5.8% for the quarter ended June 30, 1999 compared to 6.2% for the quarter
ended June 30, 1998. The fall in the investment income generated from the
investment portfolio of $0.6 million was attributable to a fall in market
yields. This was partly offset by income generated on an equity account
maintained in accordance with the terms of the Company's multi-year excess of
loss reinsurance program and investment income from LaSalle Re Capital.
Net realized gains on investments were $0.1 million during the quarter ended
June 30, 1999 compared to $0.5 million during the quarter ended June 30, 1998.
The following table sets forth the Company's combined ratios for the quarters
ended June 30, 1999 and 1998:
<TABLE>
<CAPTION>
June 30, 1999 June 30, 1998
--------------------------------------
<S> <C> <C>
Loss and loss expense ratio 77.3% 56.1%
Expense ratio 30.8% 21.2%
Combined ratio 108.1% 77.3%
</TABLE>
Losses and loss expenses incurred represent 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, net of recoveries, of $24.8
million during the quarter ended June 30, 1999 compared with $23.6 million
during the quarter ended June 30, 1998. Of the losses incurred during the
quarter ended June 30, 1999, $6.0 million related to the Australian hailstorm
and $6.0 million, net of recoveries, related to the Oklahoma tornadoes. The
remaining $12.8 million related to smaller losses and the establishment of
reserves for other events that occurred during the quarter but have not yet been
reported. Losses and loss expenses in the quarter ended June 30, 1998 related to
claims from adverse weather conditions that affected the United States, United
Kingdom and parts of Europe and an increase in loss reserves with respect to the
other lines of business being written by the Company.
Effective October 1, 1998, the Underwriting Services Agreement, under which CNA
Bermuda had provided the Company with underwriting services, was terminated. On
that date, all of the personnel assigned to the Company by CNA Bermuda became
employees of the Company and the underwriting function formerly performed by CNA
Bermuda was assumed by the Company directly. In connection with the termination
of the Underwriting Services Agreement, the Company entered into an Underwriting
Support Services Agreement with CNA Re Services Company and CNA Bermuda. With
effect from October 1, 1998, LaSalle Re has agreed to pay an annual retainer of
$0.3 million and an underwriting profit commission equal to 1.67% of the
aggregate net underwriting profits of LaSalle Re, where certain conditions are
met. For the 1997 fiscal
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11
<PAGE>
LaSalle Re Holdings Limited
Management's Discussion and Analysis of Results of Operations
and Financial Condition
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year LaSalle Re paid fees under the Underwriting Services Agreement at a rate of
1.5% of the gross written and collected premium per fiscal year; and an
underwriting profit commission equal to 4.0% of the aggregate net underwriting
profits of LaSalle Re, where certain conditions were met.
Underwriting expenses as a percentage of net premiums earned were 19.2% for the
quarter ended June 30, 1999 compared to 16.2% for the quarter ended June 30,
1998. The increase in the ratio of 3.0% was primarily due to the increased
amount of amortized ceded reinsurance that reduced net premiums earned. For the
quarter ended June 30, 1999 underwriting expenses as a percentage of gross
premiums earned were 15.9% for the quarter ended June 30, 1999 compared to 15.7%
for the quarter ended June 30, 1998.
As a percentage of gross earned premiums, fees accrued pursuant to the
Underwriting Support Services Agreement decreased from 2.6% for the quarter
ended June 30, 1998 to 0.9% for the quarter ended June 30, 1999. This decrease
was offset by the inclusion of the underwriters' compensation cost in
underwriting expenses following their transfer to the Company. This has
increased the percentage of underwriting expenses to gross premiums earned by
1.8%. The Company's level of brokerage fees and ceding commissions have remained
relatively consistent at 13.2% of gross premiums earned compared to 13.1% of
gross premiums earned for the corresponding quarter in 1998.
Operational expenses were $3.7 million for the quarter ended June 30, 1999
compared to $2.1 million for the quarter ended June 30, 1998. As a percentage of
net premiums earned, operational expenses were 11.7% during the quarter ended
June 30, 1999 compared to 5.0% for the quarter ended June 30, 1998. The increase
in operational expenses of $1.6 million was principally due to an increase in
the level of executive compensation booked. During the quarter ended June 30,
1999, the Company recorded an expense of $0.6 million in respect of stock
appreciation rights and severance costs compared to a credit of $0.4 million
during the quarter ended June 30, 1998. The remaining increase in operational
expenses is due to increased legal fees and an increase in the costs associated
with LaSalle Re Capital.
Interest expense remained relatively constant at $0.4 million during the quarter
ended June 30, 1999 and June 30, 1998. Interest expense included financing
charges associated with the deposit portion of LaSalle Re's ceded reinsurance
contract and other interest expenses related to the ongoing commitment fees
payable on the Company's credit facility. As at June 30, 1999, there were no
borrowings under this facility.
The Company's earnings per share were $0.19 for the quarter ended June 30, 1999
compared to $0.86 for the quarter ended June 30, 1998. Earnings per share
assuming dilution were $0.19 for the quarter ended June 30, 1999 compared to
$0.78 for the quarter ended June 30, 1998.
- --------------------------------------------------------------------------------
12
<PAGE>
LaSalle Re Holdings Limited
Management's Discussion and Analysis of Results of Operations
and Financial Condition
- --------------------------------------------------------------------------------
Results of Operations - for the nine months ended June 30, 1999 and 1998
Gross premiums written for the nine months ended June 30, 1999 were $121.2
million compared to $131.0 million for the nine months ended June 30, 1998, a
decrease of 7.5%. The Company's property catastrophe book experienced a
reduction in gross premiums written of $13.7 million for the nine months ended
June 30, 1999 compared to the nine months ended June 30, 1998. Of this
reduction, $10.1 million related to a decline in the level of gross premiums
written on the international book of business. In turn, $6.9 million of this
reduction resulted from the Company's reduction of its line sizes on two
international quota share contracts. During the nine months ended June 30, 1999,
the Company has experienced a change in the mix of international property
catastrophe business assumed, with the Company reducing its line sizes on pro-
rata contracts and increasing gross premiums written from direct business. The
Company has continued to place an emphasis on accessing clients directly as pro
rata contracts have a less efficient cost structure. This remaining reduction on
the property catastrophe book of business was due to continuing competitive
rates, which have led to lower priced premiums in comparison to those written in
the nine months ended June 30, 1998, and the non-renewal of contracts in certain
cases where the Company considered business to be under-priced.
For the nine months ended June 30, 1999, gross premiums written in other lines
of business totaled $37.3 million or 30.8% of gross premiums written compared to
$41.8 million or 31.9% of gross premiums written for the nine months ended June
30, 1998. The decrease was primarily due to reduced gross premiums written by
LaSalle Re Capital of $2.7 million, which was caused by a change in estimated
premium writings.
The reduction in gross premiums written was partly offset by fronting
arrangements, entered into in the current fiscal year, which produced $3.1
million of gross premiums written. These fronting arrangements were primarily
provided for three companies: two of these companies have claims paying ratings
from Standard & Poor's Ratings Services of "A-"; the other company is rated "A"
by A.M. Best Company. In addition, the Company experienced an increase of $5.1
million in premium adjustments and reinstatements.
Premiums ceded for the nine months ended June 30, 1999 were $27.0 million
compared to $9.0 million in the nine months ended June 30, 1998. Of the $18.0
million increase, $6.7 million was ceded to a property catastrophe quota share
arrangement with CNA Re, $3.0 million related to fronting arrangements and $5.9
million related to increased premiums ceded through LaSalle Re Capital. In
addition, given the current pricing environment the Company has continued to
purchase various reinsurance protections.
As a result of the above, net premiums written for the nine months ended June
30, 1999 were $94.2 million compared to $122.0 million for the nine months ended
June 30, 1998.
Net premiums earned for the nine months ended June 30, 1999 were $105.3 million
compared to $121.9 million for the same period in 1998. The decline in premiums
earned of $16.6 million was due to two factors: an increase in ceded premiums
amortized from $2.5 million for the nine months ended June 30, 1998 to $11.7
million for the nine months ended June 30, 1999 and a continued decrease in the
level of gross premiums written on the Company's core property catastrophe
business.
- --------------------------------------------------------------------------------
13
<PAGE>
LaSalle Re Holdings Limited
Management's Discussion and Analysis of Results of Operations
and Financial Condition
- --------------------------------------------------------------------------------
Net investment income remained reasonably constant for the nine months ended
June 30, 1999 and June 30, 1998 at $25.3 million and $25.8 million,
respectively. Annualized investment income as a percentage of the average market
value of invested assets was 5.7% for the nine months ended June 30, 1999
compared to 6.1% for the nine months ended June 30, 1998. The fall in the
investment income generated from the investment portfolio of $1.5 million was
attributable to a fall in market yields. This has been partly offset by income
generated on an equity account maintained in accordance with the terms of the
Company's multi-year excess of loss reinsurance program and investment income
from LaSalle Re Capital.
Net realized gains on investments were $1.7 million for the nine months ended
June 30, 1999 compared to $2.5 million for the nine months ended June 30, 1998.
During the nine months ended June 30, 1999, the Company sold longer maturity
bonds and reinvested the proceeds in shorter maturity bonds and money market
instruments. This measure was designed to protect the total returns on the
portfolio in an increasing yield environment. In this environment, the
unrealized gain on the investment portfolio declined from $13.8 million at
September 30, 1998 to a loss of $4.6 million at June 30, 1999. It is anticipated
that the measure taken to shorten interest rate sensitive assets will reduce the
potential for significant capital gains while generating future income returns
at money market rates or better. The gains in the nine months ended June 30,
1999 resulted primarily from a credit spread enhancement exercise undertaken
during the period. In addition, the Company realized small gains on the sale of
bonds with Far East and Asian exposure.
The following table sets forth the Company's combined ratios for the nine months
ended June 30, 1999 and 1998:
<TABLE>
<CAPTION>
June 30, 1999 June 30, 1998
--------------------------------------
<S> <C> <C>
Loss and loss expense ratio 100.3% 42.9%
Expense ratio 25.4% 22.0%
Combined ratio 125.7% 64.9%
</TABLE>
Losses and loss expenses incurred represent 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, net of recoveries, of $105.6
million during the nine months ended June 30, 1999 compared with $52.2 million
during the nine months ended June 30, 1998. Of the losses incurred for the nine
months ended June 30, 1999, a significant portion related to the strengthening
of prior year reserves. Approximately $16 million was incurred in respect of
Hurricane Georges, which occurred in September 1998. In addition, the Company
recorded approximately $14 million of additional case reserves for large
reported losses. These losses arose from causes that could not have been
reasonably anticipated when the Company established its incurred-but-not-
reported loss reserves. Included in the additional case reserves was a loss of
$6.5 million on a property stop loss contract. This contract had an incidental
auto warranty coverage component that produced a full limit loss to the
contract. Also included were losses of $4.5 million on auto property damage stop
loss contracts. Given the Company's recent loss experience, the Company reviewed
the assumptions used in
- --------------------------------------------------------------------------------
14
<PAGE>
LaSalle Re Holdings Limited
Management's Discussion and Analysis of Results of Operations
and Financial Condition
- --------------------------------------------------------------------------------
setting incurred-but-not-reported loss reserves. These assumptions have been
revised to reflect both new information and a more prudent reserving philosophy.
As a result, the Company recorded an additional $20 million of incurred-but-not-
reported losses during the nine months ended June 30, 1999. These reserves
relate to all lines of business written by the Company. Losses and loss expenses
incurred on events that have occurred during the nine months ended June 30, 1999
include $6.0 million related to the Australian hailstorm and $6.0 million, net
of recoveries, related to the Oklahoma tornadoes. The main components of losses
and loss expenses incurred during the nine months ended June 30, 1998 related
to: claims derived from adverse weather conditions; aggregate stop loss
protection losses; satellite failures and various risk losses.
Effective on October 1, 1998, the Underwriting Services Agreement, under which
CNA Bermuda had provided the Company with underwriting services, was terminated.
On that date, all of the personnel assigned to the Company by CNA Bermuda became
employees of the Company and the underwriting function formerly performed by CNA
Bermuda was assumed by the Company directly. In connection with the termination
of the Underwriting Services Agreement, the Company entered into an Underwriting
Support Services Agreement with CNA Re Services Company and CNA Bermuda. With
effect from October 1, 1998, LaSalle Re has agreed to pay an annual retainer of
$0.3 million and an underwriting profit commission equal to 1.67% of the
aggregate net underwriting profits of LaSalle Re, where certain conditions are
met. For the 1997 fiscal year, LaSalle Re paid fees under the Underwriting
Services Agreement at a rate of 1.5% of the gross written and collected premium
per fiscal year; and an underwriting profit commission equal to 4.0% of the
aggregate net underwriting profits of LaSalle Re, where certain conditions were
met.
Underwriting expenses as a percentage of net premiums earned were 17.2% for the
nine months ended June 30, 1999 compared to 15.7% for the nine months ended June
30, 1998. The increase in the ratio of 1.5% was primarily due to the increased
amount of amortized ceded reinsurance that reduced net premiums earned.
Underwriting expenses as a percentage of gross premiums earned were 15.5% for
the nine months ended June 30, 1999 compared to 15.1% for the nine months ended
June 30, 1998.
As a percentage of gross earned premiums, fees accrued pursuant to the
Underwriting Support Services Agreement decreased from 3.1% for the nine months
ended June 30, 1998 to 1.3% for the nine months ended June 30, 1999. This
decrease was offset by the inclusion of the underwriters' compensation cost in
underwriting expenses following their transfer to the Company. This has
increased the percentage of underwriting expenses to gross premiums earned by
1.4%. For the nine months ended June 30, 1999, the Company's brokerage, ceding
and profit commissions increased to 12.8% of gross premiums earned from 12.0%
for the corresponding period in 1998. The increase was partly due to, the effect
of increased earned premiums on the business underwritten by LaSalle Re Capital,
whose expense ratio was approximately 20%, and an increase in the average cost
of property catastrophe proportional business.
Operational expenses were $8.6 million for the nine months ended June 30, 1999,
compared to $7.7 million for the nine months ended June 30, 1998. As a
percentage of net premiums earned, operational expenses were 8.2% during the
nine months ended
- --------------------------------------------------------------------------------
15
<PAGE>
LaSalle Re Holdings Limited
Management's Discussion and Analysis of Results of Operations
and Financial Condition
- --------------------------------------------------------------------------------
June 30, 1999 compared to 6.3% for the nine months ended June 30, 1998. The
increase in operational expenses of $0.9 million was principally due to an
increase in the level of executive compensation booked. During the nine months
ended June 30, 1999, the Company recorded a credit of $1.2 million in respect of
stock appreciation rights compared to a charge of $0.6 million during the nine
months ended June 30, 1998. This reduction was offset by increased salary costs
of approximately $1.5 million principally relating to the change in the
Underwriting Services Agreement, with the Company assuming responsibility for
the salaries of the underwriting support staff and the chief operating officer
for the nine months ended June 30, 1999. In addition, during the nine months
ended June 30, 1999, the Company incurred additional charges of $1.0 million
relating to LaSalle Re Capital, software licenses, costs associated with the
hiring of new employees and legal fees.
The Company incurred corporate expenses of $0.4 million during the nine months
ended June 30, 1999 compared to $0.1 million for the nine months ended June 30,
1998. The costs incurred in the nine months ended June 30, 1999 related to the
preparation and filing of a registration statement for an offering of preferred
shares. The registration statement was subsequently withdrawn prior to becoming
effective. The costs incurred in the nine months ended June 30, 1998 related to
costs associated with the Company's investigation of potential transactions.
Interest expense was consistent during the nine months ended June 30, 1999
compared with the nine months ended June 30, 1998 at $1.4 million. Interest
expense included financing charges associated with the deposit portion of
LaSalle Re's ceded reinsurance contract and other interest expenses related to
the ongoing commitment fees payable on the Company's credit facility. As at June
30, 1999, there were no borrowings under this facility.
Foreign exchange gains were $0.3 million in the nine months ended June 30, 1999
and the nine months ended June 30, 1998. The gains in the nine months ended June
30, 1999 were due to realized foreign exchange gains made on transactions
processed during the period. The realized gains related primarily to the
settlement of Sterling liabilities and the receipt of Japanese Yen receivable
balances in a period which saw a strengthening of the United States Dollar
against these currencies. The gains in the nine months ended June 30, 1998 were
principally due to an increase in the value of the United States Dollar against
Sterling.
The Company's losses per share were $0.32 for the nine months ended June 30,
1999 compared to earnings of $3.39 for the nine months ended June 30, 1998.
Losses per share assuming dilution were $0.32 for the nine months ended June 30,
1999 compared to earnings of $3.09 for the nine months ended June 30, 1998.
- --------------------------------------------------------------------------------
16
<PAGE>
LaSalle Re Holdings Limited
Management's Discussion and Analysis of Results of Operations
and Financial Condition
- --------------------------------------------------------------------------------
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 (the "Insurance Act"),
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 that
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.
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
reinsurance operations.
Operating activities provided net cash of $7.5 million for the nine months ended
June 30, 1999 and $68.3 million for the nine months ended June 30, 1998. 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 June 30, 1999,
73.4% of its total assets were held in cash and investments, which totaled
$556.3 million. Cash and cash equivalents were $154.0 million at June 30, 1999
compared to $85.3 million at September 30, 1998. The increase is a result of the
Company's current investment strategy of selling longer maturity bonds and
reinvesting the proceeds in shorter maturity bonds and money market instruments,
a move designed to protect the total returns on the portfolio in an increasing
yield environment. This has reduced the modified average duration of the
portfolio from 3.1 years at September 30, 1998 to 2.2 years at June 30, 1999.
As of June 30, 1999, 77.8% of the securities held in the Company's investment
portfolio were fixed-income securities rated "AA" or better and 94.4% were
fixed-income securities rated "A" or better by Standard & Poor's Ratings
Services or Moody's
- --------------------------------------------------------------------------------
17
<PAGE>
LaSalle Re Holdings Limited
Management's Discussion and Analysis of Results of Operations
and Financial Condition
- --------------------------------------------------------------------------------
Investors Service, Inc. No single investment comprised more than 5% of the
overall portfolio. As at June 30, 1999, issuers from the Far East and Asia
represented 3.6% of the investment portfolio. These bonds had an insignificant
aggregate unrealized loss and were all rated AAA.
Reinsurance balances receivable were $110.2 million at June 30, 1999 compared to
$86.8 million at September 30, 1998. The increase was due to the seasonality of
gross premiums written and the inclusion of reinsurance balances receivable
related to the business written by LaSalle Re Capital. At June 30, 1999, these
receivable balances were $42.3 million compared to $31.2 million as at September
30, 1998. Given the three-year accounting methodology utilized by Lloyd's, these
balances will not be received until after the year 2000.
Prepaid reinsurance premiums increased from $7.6 million as at September 30,
1998 to $22.8 million as at June 30, 1999. The increase of $15.2 million was
primarily due to the new property catastrophe quota share with CNA Re and the
reinsurance protections purchased through LaSalle Re Capital. The quota share
with CNA has resulted in the $2.1 million disclosed as losses recoverable from
reinsurers.
Other assets increased from $31.7 million as at September 30, 1998 to $41.7
million as at June 30, 1999. This was primarily due to the deposit portion of
the ceded reinsurance contract, together with the movement on the associated
profit commission.
At June 30, 1999, reserves for unpaid losses and loss expenses were $132.6
million compared to $97.9 million at September 30, 1998. During the nine months
ended June 30, 1999, the Company increased its reserves for unpaid losses and
loss expenses, following a revision of the assumptions used in setting incurred-
but-not-reported loss reserves. In addition, included in the reserve for unpaid
losses and loss expenses at June 30, 1999 was an amount of $16.1 million
compared to $6.7 million at September 30, 1998 in respect of the business
underwritten by LaSalle Re Capital. Given the three-year accounting methodology,
these losses will not be settled until after the year 2000. The Company has no
material commitments for capital expenditures.
Other liabilities increased from $29.2 million as at September 30, 1998 to $50.4
million as at June 30, 1999. The increase of $21.2 million was primarily due to
liabilities established for the purchased reinsurance protections and operating
expenses of LaSalle Re Capital.
On June 1, 1999, the Company paid a dividend of $0.5469 per share to holders of
record of Series A preferred shares on April 30, 1999. As of June 30, 1999,
dividends due but not yet declared on the Series A preferred shares amounted to
$0.5 million. On June 18, 1999, the Company declared a common share dividend of
$0.375 per share to shareholders of record on July 2, 1999, payable on July 16,
1999. 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. On April
21, 1999, the Company announced its intention to discontinue, as of the new
fiscal year beginning October 1, 1999, its formula driven dividend policy of
paying 50% of prior year's net income in dividends. The Company will
- --------------------------------------------------------------------------------
18
<PAGE>
LaSalle Re Holdings Limited
Management's Discussion and Analysis of Results of Operations
and Financial Condition
- --------------------------------------------------------------------------------
instead move to a regular quarterly dividend declared by the Board. There can be
no assurance 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 $22.2 million as of June 30, 1999 as
compared to $8.3 million as of September 30, 1998 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 $15.4 million (equivalent to (Pounds)9.8 million). In
addition, in connection with the Japanese earthquake swap, the Company has
posted a letter of credit of $3.0 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. 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 that, 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;
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 of at least
$400 million at the end of calendar year 1999 and thereafter; 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. The Company may pay dividends and make other restricted payments so
long as, after giving effect to such restricted payments, no event of default
has occurred. Dividends and restricted payments are limited to 50% of
consolidated net income for its immediately preceding fiscal year less amounts
paid on the Series A preferred shares. In order for the Company to pay
dividends in excess of 50% of consolidated net income, the Company would have to
renegotiate certain terms of its credit facility. As of June 30, 1999, the
credit facility had not been utilized.
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.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131
"Disclosures about Segments of an Enterprise and Related Information." This
statement is effective for financial statements issued for periods beginning
after December 15, 1997 and requires the Company to report financial and
descriptive information about its reportable operating segments. This standard
will require additional disclosure and will
- --------------------------------------------------------------------------------
19
<PAGE>
LaSalle Re Holdings Limited
Management's Discussion and Analysis of Results of Operations
and Financial Condition
- --------------------------------------------------------------------------------
be adopted by the Company for the year ended September 30, 1999. This statement
is not applicable to interim periods in the first year of adoption.
In February 1998, the Financial Accounting Standards Board issued SFAS No. 132
"Employers' Disclosures about Pensions and other Postretirement Benefits". This
statement is effective for fiscal years beginning after December 15, 1997. As
the provisions of the statement need not be applied to immaterial items, the
Company considers it unlikely the statement will change its disclosures
significantly.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities". This statement
is effective for all fiscal quarters of fiscal years beginning after June 15,
2000. Given the limited number of transactions currently entered into by the
Company that are covered by the Statement, the Company does not anticipate any
significant changes to its current financial reporting.
The AICPA issued Statement of Position, 98-7 "Deposit Accounting" which is
effective for financial statements with fiscal years ending after June 15, 1999.
Currently the Company is investigating the potential impact this standard will
have on the accounting treatment for Company's multi year excess of loss
reinsurance program. The first loss is substantially funded and therefore has
been accounted for as a financing arrangement and recorded as a deposit in the
balance sheet.
Year 2000 Issue
The Company has given priority to making its computer systems ready to process
dates in and after the year 2000 ("Year 2000 ready"). The Company does not
believe that it faces any material Year 2000 issues with respect to its non-
information technology systems.
The Company has completed its testing of the Year 2000 version of the Senator
underwriting management system and found it to be Year 2000 ready. In addition,
the Company has upgraded the RSG reinsurance system to the Year 2000 version,
completed its testing to ensure Year 2000 readiness and has made corrections of
a remedial nature to other software and hardware components and infrastructure.
The Company is currently reviewing enterprise-wide spreadsheet and database
files for potential Year 2000 problems and is making corrections where
applicable. This process is scheduled to be completed by the end of the current
fiscal year. The Company has budgeted $0.3 million for the overall Year 2000
effort and has expensed $0.2 million to date. Given the current level of
estimated and actual costs, it is not anticipated that the costs of achieving
Year 2000 readiness will have a material impact on the Company's future results.
The Company is working to obtain assurances that its external brokers and
suppliers will be Year 2000 ready. The Company has distributed a Year 2000
questionnaire to its suppliers and brokers. As of June 30, 1999, approximately
95% of suppliers and brokers, including the Company's major suppliers and
brokers, had provided adequate response to this questionnaire. The Company is
following up with suppliers and brokers who have not given adequate responses
and intends in September 1999 to make a
- --------------------------------------------------------------------------------
20
<PAGE>
LaSalle Re Holdings Limited
Management's Discussion and Analysis of Results of Operations
and Financial Condition
- --------------------------------------------------------------------------------
decision as to whether or not to continue the business relationship with those
brokers and suppliers who have not responded to the Year 2000 readiness
questionnaire.
The Company also assesses the effect of the Year 2000 issue on the business it
underwrites, considering the exposure to Year 2000 related losses on a contract
by contract basis at the time of underwriting.
The Company's most reasonably likely worst case scenario would be the failure of
the Company's computerized reinsurance systems to process transactions. As a
contingency plan, the Company intends, prior to January 1, 2000, to extract a
hard copy from its computerized reinsurance systems of all information required
to initiate a manual system for processing transactions in the event of a system
failure. The Company believes that it would have the necessary resources to
function on a manual basis, if so required.
Quantitative and Qualitative Disclosure about Market Risk
The Company made disclosures relating to its market risks in the Form 10-K for
the year ended September 30, 1998. Given the Company's current investment
strategy of selling longer maturity bonds and reinvesting the proceeds in
shorter maturity bonds and money market instruments, the modified average
duration of the portfolio has decreased from 3.1 years at September 30, 1998 to
2.2 years at June 30, 1999. The Company has increased its cash and cash
equivalents from $85.3 million, (par value $55.5 million) to $154.0 million,
(par value $113.7 million) with a weighted average interest rate of 4.8% rather
than 5.8%. In addition, there has been a movement in the Company's holdings of
fixed maturity instruments as disclosed below (expressed in millions of US
dollars):
<TABLE>
<CAPTION>
Weighted
average interest Weighted average
Par value Par value rate interest rate
Year of maturity June 30, 1999 September 30, 1998 June 30, 1999 September 30, 1998
- ---------------- ------------- ------------------ ------------- ------------------
<S> <C> <C> <C> <C>
1999 10.0 11.7 5.6% 6.2%
2000 63.0 66.6 6.1% 6.0%
2001 73.0 60.0 6.0% 6.3%
2002 91.0 127.5 6.3% 6.2%
2003 71.0 78.0 5.7% 5.8%
2004 48.2 15.0 6.0% 6.2%
2005 0.0 3.0 0.0% 5.9%
2006 0.0 5.0 0.0% 5.9%
2007 0.0 14.5 0.0% 5.7%
2008 13.0 63.0 6.2% 5.7%
2009 13.0 0.0 0.0% 0.0%
2013 0.0 29.7 6.2% 6.4%
</TABLE>
- --------------------------------------------------------------------------------
21
<PAGE>
LaSalle Re Holdings Limited
Management's Discussion and Analysis of Results of Operations
and Financial Condition
- --------------------------------------------------------------------------------
Cautionary Statement Regarding Forward-Looking Statements
This report includes forward-looking statements. Forward-looking statements are
statements other than historical information or statements of current condition.
These forward-looking statements are based on the Company's current plans and
objectives for future operations, including the Company's dividend policy. Some
forward-looking statements may be identified by the use of words or phrases such
as "believes," "anticipates," "intends," "may," "estimates," "expects" and
similar expressions. Forward-looking statements are subject to risks and
uncertainties and actual results may vary materially from those included within
the forward-looking statements. Many factors could cause actual results to
differ materially from those in the forward-looking statements, including the
following: catastrophic events of unanticipated frequency or severity; changes
in the demand for or supply of property catastrophe reinsurance; actions of
competitors; decisions or actions of rating agencies; changes in insurance or
tax laws or regulations or governmental interpretations thereof; fluctuations in
foreign currency exchange rates or the failure of a counterparty to perform
under any of our foreign exchange contracts or swap agreements; a major decrease
in the cession of business to the Company from CNA or termination of the
existing quota share reinsurance arrangement with CNA; and any failure of the
Company's computer systems or the computer systems of third parties that are
material to the Company's operations (such as the computer systems of service
providers, suppliers and brokers) to process correctly information relating to
dates in and after the year 2000. 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.
- --------------------------------------------------------------------------------
22
<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 3.2 to Form 10-Q
for the quarterly period ended March 31, 1998 (File No.
1-12823)).
27 Financial Data Schedule
(b) Reports on Form 8-K - No reports were filed during the quarter ended
June 30, 1999.
- --------------------------------------------------------------------------------
23
<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: August 5, 1999 LASALLE RE HOLDINGS LIMITED
--------------
/s/ Guy Hengesbaugh
-------------------
Name: Guy Hengesbaugh
Title: President and Chief Executive Officer
(Principal Financial Officer)
- --------------------------------------------------------------------------------
24
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> SEP-30-1999 SEP-30-1999
<PERIOD-START> APR-01-1999 OCT-01-1998
<PERIOD-END> JUN-30-1999 JUN-30-1999
<DEBT-HELD-FOR-SALE> 402,349 402,349
<DEBT-CARRYING-VALUE> 0 0
<DEBT-MARKET-VALUE> 0 0
<EQUITIES> 0 0
<MORTGAGE> 0 0
<REAL-ESTATE> 0 0
<TOTAL-INVEST> 402,349 402,349
<CASH> 153,986 153,986
<RECOVER-REINSURE> 0 0
<DEFERRED-ACQUISITION> 13,843 13,843
<TOTAL-ASSETS> 758,263 758,263
<POLICY-LOSSES> 132,552 132,552
<UNEARNED-PREMIUMS> 87,366 87,366
<POLICY-OTHER> 0 0
<POLICY-HOLDER-FUNDS> 0 0
<NOTES-PAYABLE> 0 0
0 0
3,000<F3> 3,000<F3>
<COMMON> 15,594 15,594
<OTHER-SE> 368,210 368,210
<TOTAL-LIABILITY-AND-EQUITY> 758,263<F1> 758,263<F1>
32,068 105,253
<INVESTMENT-INCOME> 8,539 25,317
<INVESTMENT-GAINS> 152 1,742
<OTHER-INCOME> 0 0
<BENEFITS> 24,789 105,579
<UNDERWRITING-AMORTIZATION> 6,149 18,118
<UNDERWRITING-OTHER> 4,363 10,025
<INCOME-PRETAX> 5,458 (1,410)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 5,458 (1,410)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 5,458 (1,410)
<EPS-BASIC> 0.19 (0.32)
<EPS-DILUTED> 0.19 (0.32)
<RESERVE-OPEN> 0<F2> 0<F2>
<PROVISION-CURRENT> 0<F2> 0<F2>
<PROVISION-PRIOR> 0<F2> 0<F2>
<PAYMENTS-CURRENT> 0<F2> 0<F2>
<PAYMENTS-PRIOR> 0<F2> 0<F2>
<RESERVE-CLOSE> 0<F2> 0<F2>
<CUMULATIVE-DEFICIENCY> 0<F2> 0<F2>
<FN>
<F1> Includes minority interest
<F2> Amounts for Securities Act Industry Guide 6 and Exchange Act Industry Guide
4 disclosures are not provided because of the Company's loss reserves do
not exceed one-half of the consolidated common shareholders' equity
<F3> Represents 3,000,000 Series A preferred shares, par value $1 liquidation
preference $25 per share.
</FN>
</TABLE>
