<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM 10-K
---------------
(Mark
One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1999
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 (I.R.S. Employer
Incorporation or Organization) Identification No.)
Continental Building, 25 Church Street, Hamilton HM 12, Bermuda
(Address of Principal Executive Offices)
Telephone Number: 441-292-3339
(Registrant's telephone number, including area code)
---------------
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
<TABLE>
<S> <C>
Common Shares, par value $1.00 per
share The New York Stock Exchange, Inc.
Series A Preferred Shares, par value
$1.00 per share The New York Stock Exchange, Inc.
</TABLE>
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] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the shares of all classes of voting stock of
the registrant held by non-affiliates of the registrant on December 1, 1999
was approximately $131,980,541, computed upon the basis of the closing sales
price of the Common Shares on that date. For the purposes of this computation,
shares held by directors (and shares held by any entities in which they serve
as officers) and officers of the registrant have been excluded. Such exclusion
is not intended, nor shall it be deemed, to be an admission that such persons
are affiliates of the registrant.
As of December 1, 1999, there were outstanding 15,603,570 Common Shares of
$1.00 par value, of the registrant.
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of the registrant's annual report to shareholders for the fiscal
year ended September 30, 1999 (the "1999 Annual Report") are incorporated
by reference in Part II of this Form 10-K.
2. Portions of the registrant's definitive proxy statement relating to the
Annual General Meeting of Shareholders to be held on February 17, 2000 (the
"2000 Proxy Statement"), to be filed with the Securities and Exchange
Commission not later than 120 days after the end of the registrant's fiscal
year pursuant to Regulation 14A, are incorporated by reference in Part III
of this Form 10-K.
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<PAGE>
LASALLE RE HOLDINGS LIMITED
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
Item Number
---- ------
PART I
<C> <S> <C>
1. BUSINESS......................................................... 10K- 2
2. PROPERTIES....................................................... 10K-19
3. LEGAL PROCEEDINGS................................................ 10K-19
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.............. 10K-19
EXECUTIVE OFFICERS OF THE COMPANY................................ 10K-19
PART II
5. MARKET FOR THE COMMON SHARES AND RELATED STOCKHOLDER MATTERS..... 10K-20
6. SELECTED FINANCIAL DATA.......................................... 10K-21
7. MANAGEMENTS' DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION.............................................. 10K-21
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK........ 10K-31
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA...................... 10K-32
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE............................................. 10K-58
PART III
10. DIRECTORS AND EXECUTIVE OFFICERS................................. 10K-58
11. EXECUTIVE COMPENSATION........................................... 10K-58
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT... 10K-58
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................... 10K-58
PART IV
14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. 10K-59
</TABLE>
10K-1
<PAGE>
PART I
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 ("LaSalle Re
Services").
Note On 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. Some
forward-looking statements may be identified by the use of words or phrases
such as "believes," "anticipates," "intends," "may," "estimates," "expects,"
"plans" 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; consolidation in the
reinsurance industry; decisions or actions of rating agencies; changes in
insurance or tax laws or regulations or governmental interpretations thereof;
fluctuations in interest rates; fluctuations in foreign currency exchange
rates; a major decrease in the cession of business to the Company from CNA
Financial Corporation and its affiliates (collectively, "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.
ITEM 1. BUSINESS
General development of the business
The Company is a property and casualty reinsurer writing worldwide
specialist products with an emphasis on catastrophe cover. 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. The Company also seeks
to take advantage of pricing opportunities that may occur in other lines of
reinsurance. These lines currently include property risk excess, property pro
rata treaty, casualty, marine, aviation, satellite, terrorism, and political
risk coverages.
LaSalle Re was incorporated in Bermuda in October 1993 with an initial
capitalization of $373.1 million from institutional and other investors (the
"Founding Shareholders"). It commenced operations on November 22, 1993.
LaSalle Re Holdings Limited was incorporated in Bermuda in September 1995 to
act as an investment holding company for LaSalle Re.
LaSalle Re has two wholly owned subsidiaries, LaSalle Re Services, which
acts as a representative office for the Company in the United Kingdom, and
LaSalle Re Capital, which was incorporated in Bermuda in November 1996 to
provide capital support to selected syndicates at Lloyd's. LaSalle Re Capital
was accepted as a corporate member ("Corporate Member") of Lloyd's in December
1996 and, with effect from January 1, 1997, has participated in three Lloyd's
syndicates. In November 1995, the Company and LaSalle Re consummated an offer
(the "Exchange Offer") pursuant to which, among other things, the Founding
Shareholders exchanged their capital stock in LaSalle Re for Common Shares of
the Company and, in certain circumstances, Exchangeable Non-Voting Shares of
LaSalle Re. The Exchangeable Non-Voting Shares are held by certain Founding
Shareholders who would otherwise hold, or cause another shareholder to hold,
directly, indirectly or constructively, in excess of 9.9% of the voting power
of the Company or LaSalle Re. The Exchangeable Non-
10K-2
<PAGE>
Voting Shares are exchangeable, at the option of the holder, for Common Shares
on a one-for-one basis, unless the board of directors of the Company (the
"Board") determines such exchange may cause actual or potential adverse tax
consequences to the Company or any shareholder. The Exchangeable Non-Voting
Shares will at all times rank as to assets, dividends and in all other
respects on a parity with the common shares of LaSalle Re, except that they do
not have the right to vote on any matters except as required by Bermuda law
and in connection with certain actions by the Company. The holders of the
Exchangeable Non-Voting Shares constitute the minority holding in LaSalle Re.
In November 1995, the Company and certain Founding Shareholders consummated
an initial public offering of 4,312,500 Common Shares (the "Initial Public
Offering"). Of these shares, 2,920,500 were sold by Founding Shareholders and
1,392,000 by the Company. The proceeds from the sale of the 1,392,000 shares
sold by the Company were used to enable LaSalle Re to redeem shares of its
capital stock (the "Redemption"). Upon the consummation of the Exchange Offer,
the Initial Public Offering and the Redemption, the Company beneficially owned
100% of the outstanding voting stock, which constituted 63% of the outstanding
capital stock, of LaSalle Re.
In December 1996, the Company completed a secondary offering of Common
Shares (the "Secondary Offering"). In connection with the Secondary Offering,
certain Founding Shareholders of LaSalle Re exchanged 2,119,110 of their
Exchangeable Non-Voting Shares for Common Shares. As a result of this
exchange, the Company increased its beneficial ownership of the outstanding
capital stock of LaSalle Re from 63% to 73%.
In March 1997, the Company issued 3,000,000 Series A Preferred Shares in a
public offering (the "Preferred Offering"). The Series A Preferred Shares, par
value $1.00 per share, carry a liquidation preference of $25.00 per share,
plus accrued and unpaid dividends, if any, to the date of liquidation.
Dividends on the Series A Preferred Shares are payable in an amount per share
equal to 8.75% of the liquidation preference per annum (equivalent to $2.1875
per share). Net proceeds from the Preferred Offering after underwriting
discounts and commissions were $72.6 million.
In May 1997, the Company completed a $100 million tender offer (the "Tender
Offer") whereby it purchased for cancellation 3,703,703 of its Common Shares
at a price of $27.00 per share. The Tender Offer was made to all holders of
Common Shares and Common Share equivalents, which included Exchangeable Non-
Voting Shares and options to purchase Common Shares and Exchangeable Non-
Voting Shares. Pursuant to the Tender Offer, 2,163,538 Exchangeable Non-Voting
Shares were exchanged for Common Shares and 95,679 options for Exchangeable
Non-Voting Shares were exercised and exchanged for Common Shares. As a result
of these exchanges, the Company increased its beneficial ownership of the
outstanding capital stock of LaSalle Re from 73% to 79%. The Company has
continually beneficially owned 100% of the outstanding voting stock of LaSalle
Re.
With effect from October 1, 1997, the administrative services agreement
("Administrative Services Agreement"), under which Aon Risk Consultants
(Bermuda) Ltd. ("ARC") provided the Company with actuarial and financial
reporting, accounting, office space and other administrative services, was
terminated. All of the personnel assigned to the Company by ARC became
employees of the Company and services performed by ARC were assumed by the
Company. In connection with the termination of the agreement, the Company
agreed to purchase all of the fixed assets owned by ARC and utilized by the
Company for a purchase price of $1.5 million. In addition, the Company agreed
to assume the current leasing agreements.
Effective on October 1, 1998, the underwriting services agreement (the
"Underwriting Services Agreement") under which CNA (Bermuda) Services Limited
("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 (the "Underwriting
Support Services Agreement") with CNA Re Services Company ("CRSC") and CNA
Bermuda. Under the Underwriting
10K-3
<PAGE>
Support Services Agreement, CRSC and CNA Bermuda provide the Company with
various support services upon request, including (1) underwriting personnel to
assist the Company's underwriting staff on a temporary basis, (2) assistance
with actuarial, financial and statistical analysis and reporting, (3) support
on data processing and other technical matters, (4) access to the CNA
reinsurance underwriting database and technology as pertinent to the Company's
business, (5) advice on insurance industry customs and practices and (6)
advice to the Company's human resources department.
Business segments
The Company writes property and casualty reinsurance on a worldwide basis
through its operating subsidiary, LaSalle Re. The Company also writes selected
other lines of reinsurance when it believes that market conditions are
favorable. The Company has two reportable segments: reinsurance operations and
Lloyd's. The reinsurance segment provides reinsurance for property catastrophe
and for other lines of business that have similar characteristics, namely high
severity and low frequency. These lines currently include property risk
excess, property pro rata treaty, casualty, marine, aviation, satellite,
terrorism and political risk coverages. The Lloyd's segment is written through
LaSalle Re Capital, which provides capital support to selected Lloyd's
syndicates. The lines of business written by the selected syndicates include
direct and facultative property insurance, marine insurance and reinsurance,
professional indemnity, directors and officers insurance and bankers blanket
bond business.
Complete financial information about segments is presented in Note 14 to
the Company's consolidated financial statements. The following table sets
forth the Company's gross premiums written and number of contracts written by
business segment and type of reinsurance for the years indicated (dollars in
millions):
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
September 30, 1999 September 30, 1998 September 30, 1997
------------------ ------------------ ------------------
Gross Gross Gross
Premiums Number of Premiums Number of Premiums Number of
Written Contracts Written Contracts Written Contracts
-------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Reinsurance segment:
Property catastrophe
reinsurance:
Excess of loss........ $ 81.4 717 $ 82.7 719 $110.4 802
Pro rata.............. 11.1 8 21.6 10 34.4 10
Other lines of business:
Property--risk excess
and pro rata......... 4.9 62 10.5 76 9.0 80
Casualty.............. 6.1 26 5.7 28 4.0 36
Space, marine and
aviation............. 5.4 31 7.4 47 7.7 35
Miscellaneous......... 4.4 43 6.3 57 2.1 37
Fronted premiums,
adjustments,
reinstatement premiums
and no claims bonuses.. 3.3 -- 0.1 -- (10.3) --
------ --- ------ --- ------ -----
116.6 887 134.3 937 157.3 1,000
Lloyd's segment:
LaSalle Re Capital.... 22.4 -- 21.0 -- 14.1 --
------ --- ------ --- ------ -----
Total............... $139.0 887 $155.3 937 $171.4 1,000
====== === ====== === ====== =====
</TABLE>
Reinsurance Segment
Property Catastrophe
The largest portion of the Company's business consists of property
catastrophe excess of loss contracts. Property catastrophe excess of loss
reinsurance provides coverage when total losses and loss expenses from a
single occurrence of a covered peril under a portfolio of primary insurance
contracts exceed the attachment point specified in the reinsurance contract
with the primary insurer. Some of the Company's property catastrophe
10K-4
<PAGE>
excess of loss policies limit coverage to one occurrence in a policy year, but
most policies provide for coverage of a second occurrence after the payment of
a reinstatement premium. The Company also writes a minimal amount of aggregate
property catastrophe excess of loss contracts that cover more than one
catastrophe during any one contract year.
The Company writes property catastrophe pro rata reinsurance treaties when
it believes that rates and volume are attractive. In these programs, the
Company assumes a specified proportion of the exposure under a portfolio of
excess of loss property catastrophe reinsurance contracts written by the
ceding reinsurer and receives an equal proportion of the premium received by
the cedent. The cedent generally receives a ceding commission, based upon the
premiums ceded to the reinsurer, and may also be entitled to receive a profit
commission based on the ratio of losses, loss expenses and the reinsurer's
expenses to premiums ceded. The Company generally requires that its property
catastrophe pro rata contracts have aggregate exposure limits per occurrence
on a zonal basis. The Company usually obtains detailed information concerning
each underlying contract and the exposures underlying the risks it assumes
and, as appropriate, audits the premiums associated with the cessions.
However, the Company is dependent upon the cedent's underwriting, pricing and
claims administration to yield an underwriting profit.
Other Lines of Business
The Company's property risk excess of loss contracts cover a cedent's loss
on a single "risk" in excess of the cedent's attachment point, rather than
covering multiple risks as does property catastrophe reinsurance. A "risk" in
this context might mean the insurance coverage on one building or a group of
buildings or the insurance coverage under a single policy, which the reinsured
treats as a single risk. In property pro rata reinsurance treaties, the
Company assumes a proportional part of the original premiums and losses of the
reinsured on non-catastrophe reinsurance contracts. In property pro rata
reinsurance, the reinsurer generally pays the ceding company a ceding
commission. The ceding commission generally is based on the ceding company's
cost of acquiring the business being reinsured (including commissions, premium
taxes, assessments and miscellaneous administrative expenses) and also may
include a profit factor.
In addition to property risk excess of loss and pro rata treaties, the
Company also writes other lines of reinsurance, which currently include
casualty, marine, aviation, satellite, terrorism and political risk. The
Company's underwriting strategy with respect to these lines of business is to
target those lines which demonstrate relatively low historical levels of
attritional loss. Excess of loss contracts are written above a significant
attachment point and therefore could be impacted only by large market losses
such as the destruction of an oil drilling platform (marine coverage) or an
airline disaster (aviation coverage). Pro rata contracts, where the Company
has proportional responsibility for the first dollar of its cedents' losses,
could be impacted by the cedents' expected loss ratios as well as by large
market losses. Claims on those contracts could arise from physical damage,
casualty and major political and trade crises.
Casualty excess of loss reinsurance protects cedents from losses that arise
from multiple insureds or from one large severe event. The Company does not
write casualty excess of loss business at a level where frequency of loss is
anticipated. Marine and aviation coverages can be triggered by physical damage
perils and may also entail casualty coverages arising from the same loss
event. Satellite reinsurance protects the reinsured primarily for losses
arising from launch failure and in-orbit breakdown. Terrorism reinsurance
provides coverage against major terrorist incidents involving damage to
property. Political risk includes coverages for losses arising from contract
frustration, confiscation, repatriation and international trade credit
transactions.
Fronting arrangements, adjustment premiums, reinstatement premiums and no
claims bonuses
Fronting is an arrangement whereby the Company issues a contract on a risk
for, and at the request of, the insured with the intent of reinsuring the
entire risk with another reinsurer. The risk assumed by the Company is
primarily credit risk. During the year ended September 30, 1999, the Company
provided fronting arrangements for three companies, of which two had claims
paying ratings of "A-" from Standard & Poor's Ratings Services ("S&P") and the
other had a rating of "A" from A. M. Best Company ("A.M. Best").
10K-5
<PAGE>
Due to the changing nature of the Company's exposure under an excess of
loss contract, certain contracts contain adjustable premium clauses. The
Company receives an initial deposit premium, with the final premium calculated
at the end of the contract period using a pre-negotiated percentage of the
ceding company's gross net annual premium income. The adjustment premium is
the difference between the initial deposit and the revised premium and can be
either an additional or return premium.
In addition, the Company receives adjustment premiums on its property
catastrophe pro rata reinsurance treaties. The Company estimates premiums
written using reports received from ceding companies adjusted for previous
years' experiences of actual premiums against estimated premiums. These
estimates are revised during the contract period as more information as to
actual premiums written by the ceding companies is received. Any differences
between the estimate and the revised information are recorded as adjustments
during the period the revised information is received.
Some excess of loss contracts contain a no claims bonus clause. Where no
claim is made under the contract, the ceding company is entitled to a pre-
determined return premium, which is referred to as a "no claims bonus". A
liability for the "no claims bonus" is established at the same time the gross
written premium is recorded. If a loss occurs, the no claims bonus is reversed
in the period in which the loss is reported to the Company.
Lloyd's segment
The Company formed LaSalle Re Capital to provide capital support on an
underwriting year basis to selected Lloyd's syndicates. The Company has
provided capital support to three syndicates for the 1999, 1998 and 1997
underwriting years of approximately $31.9 million ((Pounds)19.4 million),
$27.4 million ((Pounds)16.8 million) and $28.2 million ((Pounds)16.8 million),
respectively. Through this support, for the year ended September 30, 1999, the
Company has written gross premiums of approximately $3.4 million for the 1998
underwriting year and approximately $19.0 million for the 1999 underwriting
year. Capital support does not necessarily equate to premium income, due to
different levels of capital utilization by the syndicates. These syndicates
individually write the following lines of business: direct and facultative
property insurance; marine insurance and reinsurance; and professional
indemnity, directors and officers' insurance and bankers blanket bond
business. LaSalle Re Capital provides capital support to the syndicates
through letters of credit totaling (Pounds)9.8 million ($16.1 million).
Geographic Diversification
The Company seeks to diversify its property catastrophe exposures across
geographic zones in order to optimize its spread of risk. For the year ended
September 30, 1999, excluding the premiums written by LaSalle Re Capital,
fronted premiums, adjustment premiums, reinstatement premiums and no claims
bonuses, 53% of the Company's gross premiums written represented U.S.-based
risks. Within the United States, the Company's largest exposure on a zonal
basis is the West Coast, including Hawaii and Alaska. The remaining 47% of
gross premiums written were spread in other territories around the world. This
distribution of risk is subject to change and is dependent upon rates
available in various zones. As a result of long-term relationships between the
Company's management and certain clients and brokers, the Company has
developed a strong base of regional business in the U.S. This business assists
the Company in diversifying its U.S.-based risks and makes more efficient use
of its capital by limiting multi-zone exposures. In the year ended September
30, 1999, this regional business represented a significant component of the
Company's U.S.-based gross premiums written.
10K-6
<PAGE>
The following table sets forth the percentage of the Company's gross
premiums written allocated to the zone of exposure at the dates indicated
(dollars in millions):
<TABLE>
<CAPTION>
September 30, 1999 September 30, 1998 September 30, 1997
------------------- ------------------- -------------------
Percentage Percentage Percentage
Gross of Gross Gross of Gross Gross of Gross
Premiums Premiums Premiums Premiums Premiums Premiums
Geographic Area Written Written Written Written Written Written
- --------------- -------- ---------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
United States........... $ 60.1 53.0% $ 64.4 48.0% $ 75.3 44.9%
Europe (excluding the
U.K.).................. 9.5 8.4 14.4 10.7 18.6 11.1
United Kingdom.......... 9.8 8.6 11.7 8.7 15.2 9.1
Japan................... 2.9 2.6 3.2 2.4 7.0 4.2
Australasia............. 4.5 4.0 3.3 2.5 6.4 3.8
Worldwide(1)............ 14.1 12.4 21.8 16.2 20.9 12.5
Worldwide (excluding the
U.S.)(2)............... 5.4 4.8 7.5 5.6 12.6 7.5
Other................... 7.0 6.2 7.9 5.9 11.6 6.9
------ ----- ------ ----- ------ -----
113.3 100.0% 134.2 100.0% 167.6 100.0%
===== ===== =====
LaSalle Re Corporate
Capital................ 22.4 21.0 14.1
Fronted premiums,
adjustments,
reinstatement premiums
and no claims bonuses.. 3.3 0.1 (10.3)
------ ------ ------
Total................. $139.0 $155.3 $171.4
====== ====== ======
</TABLE>
- --------
(1) The category "Worldwide" consists of contracts that cover more than one
zone, at least one of which is in the U.S.
(2) The category "Worldwide (excluding the U.S.)" consists of contracts that
cover more than one zone (none of which is in the U.S.). The exposure in
this category for business written to date is predominantly from Europe and
Japan.
Program Limits
Property catastrophe reinsurance is usually arranged in a series of layers,
which form an individual program. The Company may write one or more of these
layers with each layer constituting a separate contract. The following table
sets forth the number of the Company's property catastrophe excess of loss
programs written in the year ended September 30, 1999 by aggregation of
program limits:
<TABLE>
<CAPTION>
Number of
Programs
---------
<S> <C>
Greater than $30 million but less than $35 million.............. 2
$25-30 million.................................................. 3
$20-25 million.................................................. 4
$15-20 million.................................................. 7
$10-15 million.................................................. 16
$7.5-10 million................................................. 18
$5-7.5 million.................................................. 39
$2.5-5 million.................................................. 70
Less than $2.5 million.......................................... 127
---
Total......................................................... 286
===
</TABLE>
10K-7
<PAGE>
Underwriting
The Company's principal underwriting strategy is to underwrite property
catastrophe exposures within clearly defined parameters that permit thorough
analysis and appropriate pricing of each of the Company's reinsurance
contracts. In many cases, this includes analysis of a reinsurance contract
based on the expected incremental return on equity in relation to the
Company's overall portfolio of reinsurance contracts.
The Underwriting/Actuarial Committee of the Board has set limits on the
Company's aggregate loss exposure. The Company uses various methods to
evaluate and monitor its exposure to loss. The Company diversifies its
property catastrophe exposures worldwide and within each geographic zone and
also maintains exposure limits within each geographic zone. Aggregate
exposures also are controlled and monitored on a real-time basis using
computer-based rating and control systems. The Company participates at
attachment levels that are expected to exceed normal loss frequency. In
addition, the Company regularly reevaluates its pricing to ensure that the
terms and conditions of its business are the best available in the market.
The Company obtains information from brokers, potential cedents and other
sources, as appropriate, in order to make informed underwriting decisions. A
potential cedent generally is not accepted without a thorough examination of
its historical record, management, overall financial condition, business
strategy, underwriting policies and risk management systems. The Company also
seeks to select clients with disciplined catastrophe management programs. The
Company seeks to build long-term relationships with its clients because the
Company believes that it can underwrite renewal business with greater
precision.
The Company uses computer-based modeling systems to estimate exposure to
loss and evaluate pricing adequacy of its reinsurance programs. These models
are also used in the analysis of projected return on equity and the monitoring
of aggregate exposures within geographic zones.
For U.S.-based risks, the Company has developed a proprietary model called
L-CAM(TM) (LaSalle Catastrophe Analysis Model). L-CAM(TM) incorporates the
output of commercially available catastrophe simulation models and the
Company's internally-generated models. The commercially available models
include (1) AIR--CATRADER(TM), which uses market share data derived from zip
code and/or county aggregate data to develop individual contract and portfolio
loss scenarios and (2) RMS--RiskLink(TM), which derives portfolio loss
scenarios based on detailed risk location data provided by the primary
insurer. Models developed by the Company and used in L-CAM(TM) include (1) the
Modified Historical Event Model, which fits a Pareto loss distribution to over
45 years of catastrophe loss data, adjusted for inflation and demographic
shifts, (2) the Market Loss Pricing Model, which uses underwriting-zone market
share information to develop attachment and exhaustion probabilities from
which pricing input is determined, and (3) the Industry Peer Model, which is a
portfolio management tool selecting treaties in force with similar
characteristics for pricing considerations.
For non-U.S. based property catastrophe risks, the Company has developed a
proprietary model called LASER (LaSalle Excess of Loss Rating). LASER
incorporates the output of commercially available catastrophe simulation
models and the Company's internally-generated models and mathematical
techniques. The commercially available models include (1) AIR--CATRADER(TM),
which uses market share data derived from zip code and/or county aggregate
data to develop individual contract and portfolio loss scenarios and (2) RMS--
RiskLink(TM), which derives portfolio loss scenarios based on detailed risk
location data provided by the primary insurer. Models developed by the Company
and used in LASER include (1) Pareto base layer loss distributions
extrapolated through the primary insurer's excess of loss program structure,
(2) the Historical Claims Index method, which recalibrates portfolio
historical losses, adjusting for growth in premium, inflation and changes in
underlying aggregate sums insured, and (3) Exposure Rating, where probable
maximum losses and return periods are assigned for each catastrophe peril, by
geographic zone, to determine exposure pricing for each vertical layer within
an excess of loss program.
For the other lines of reinsurance, the Company uses internal rating
techniques that incorporate, among other things, exposure and experience
ratings and thorough analysis of loss ratios and underwriting expenses
associated with the business to be reinsured. The Company carefully structures
the terms and conditions of its contracts to restrict coverage to the specific
perils intended.
10K-8
<PAGE>
The results of these analyses are measured against the Company's current
portfolio and other known treaties in the market and combined with
management's knowledge of the client and the current reinsurance market
environment. Pricing and participation decisions are then made based on the
estimated exposure of losses and the potential impact of each contract on
incremental return on equity. In addition, the underwriting of all new
exposures is reviewed by the Chief Underwriting Officer of the Company.
Prior to October 1, 1998, underwriting services were provided to the
Company by CNA Bermuda pursuant to the Underwriting Services Agreement. A
staff of seven professionals with extensive experience in the reinsurance
industry served as the Company's underwriting team in Bermuda. This agreement
was terminated on October 1, 1998. 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 CRSC
and CNA Bermuda. Under the Underwriting Support Services Agreement, which
expires on September 30, 2001, CRSC provides underwriting support services to
the Company on a daily or hourly fee basis when and as requested by the
Company. The Company pays CNA Bermuda a $0.3 million annual retainer, which is
credited against CRSC's daily or hourly fees and associated travel expenses.
In recognition of the contribution made by CNA Bermuda to the development of
the Company's business, the Company has agreed, subject to certain conditions,
to pay CNA Bermuda, during the term of the Underwriting Support Services
Agreement, an underwriting profit commission of 1.67% of the aggregate net
underwriting profits of LaSalle Re for each fiscal year for which LaSalle Re's
loss ratio was 70% or less.
Reinsurance Protections Purchased
The Company utilizes various reinsurance protections to reduce its exposure
to large losses.
The Company has purchased an excess of loss program which provides coverage
of $75.0 million in excess of the first $75.0 million of losses per occurrence
for a first loss event and $60.0 million excess of $75.0 million per
occurrence on the second loss event and $52.5 million excess of $125.0 million
per occurrence on the third loss event over a three-year period ended December
31, 2001 subject to a maximum aggregate recovery of $187.5 million. Coverage
for the first loss is substantially funded by way of annual and reinstatement
premium obligations. Accordingly, this part of the coverage has been recorded
as a financing arrangement. The coverage is provided by a company that
currently holds a claims paying ability rating of AA from S&P.
In addition, the Company has a three year quota share arrangement with CNA,
which incepted April 1, 1999. The Company cedes an adjustable proportion of
U.S. property catastrophe premium, net of acquisition costs, to the
arrangement, which was negotiated on normal commercial terms and includes an
override commission and profit commission payable to the Company. CNA has a
claims paying ability rating of A+ from S&P.
The Company has also purchased other non-proportional excess of loss
protections, which provide for the recovery of losses from reinsurers in
excess of certain retentions that are related to the magnitude of market
losses. The Company reviews the claims paying ability of each reinsurer for
adequacy before each cover is placed. LaSalle Re Capital also participates in
the reinsurance coverages purchased by the syndicates it supports.
In addition, as part of the Company's capital protection strategy, the
Company entered into a $100 million multi-year Catastrophe Equity Put
("CatEPut") option program effective July 1, 1997. The CatEPut option is a
capital replacement tool that will enable the Company to put up to $100
million of equity, through the issue of convertible preferred shares to the
option writers at pre-negotiated terms, in the event of a major catastrophe or
series of large catastrophes that cause substantial losses to the Company or
its subsidiaries.
10K-9
<PAGE>
Marketing
The Company markets its reinsurance products worldwide primarily through
reinsurance brokers. By marketing its products primarily through the broker
network, the Company limits the expense of establishing and maintaining
worldwide offices and marketing operations. The Company believes that its
broker relationships permit it to obtain business and monitor developments in
various lines of reinsurance in order to increase its writings when market
conditions in those lines are favorable.
The Company maintains an office in London, England through LaSalle Re
Services. LaSalle Re Services introduces prospective customers to the Company
and provides an important liaison with brokers in the London market. LaSalle
Re Services assists in the distribution of marketing literature and collects
information for LaSalle Re on demand and developments in the London
reinsurance market. In addition, LaSalle Re Services plays a key role in the
Company's marketing efforts in Europe.
The Company strives to develop strong relationships with its brokers and
clients. Retention of clients permits the Company to use experience regarding
a client's underwriting practices and risk management systems to underwrite
its own business with greater precision. The Company targets brokers and
clients that it believes will enhance the risk/return composition of its
portfolio, are capable of supplying detailed and accurate underwriting data
and can potentially add diversification to the Company's book of business. In
addition, the Company meets frequently in Bermuda and elsewhere outside of the
United States with brokers and senior representatives of clients and
prospective clients.
The Company focuses on providing high quality service by promptly
responding to underwriting submissions, designing customized programs and
offering lead terms when circumstances warrant and paying valid claims within
an average of five days. The Company believes that it has established a
reputation with its brokers and clients for high quality service.
Additionally, the Company believes that its level of capital and surplus
offers financial security and demonstrates to brokers and clients a high level
of commitment to property catastrophe reinsurance.
The Company received 1,941 contract submissions in the year ended September
30, 1999 as compared to 2,022 in the year ended September 30, 1998. The
Company is highly selective in accepting risks, extending coverage on only
887, or 45.7%, of the contract submissions received in the year ended
September 30, 1999. The Company extended coverage on 937 contracts, or 46.3%,
of the contract submissions received in the year ended September 30, 1998.
Subsidiaries and affiliates of Aon Corporation (collectively, "Aon") were
brokers for 18.1% and 17.4% of the Company's gross written premiums in the
years ended September 30, 1999 and 1998, respectively. Guy Carpenter &
Company, Inc., together with its affiliates, generated 20.6% and 17.1% of the
Company's gross premiums written for the years ended September 30, 1999 and
1998, respectively. No other broker accounted for more than 10% of the
Company's gross premiums written for the years ended September 30, 1999 and
1998.
Consistent with its emphasis on disciplined underwriting practices, the
Company is not obligated to accept any business from Aon or CNA, or any
business recommended by LaSalle Re Services. No intermediary has the authority
to bind the Company on any business.
Reserves
The Company establishes loss reserves for the ultimate settlement costs of
all losses and loss expenses incurred with respect to business written by it.
United States generally accepted accounting principles ("GAAP") do not permit
the Company to establish reserves with respect to its property catastrophe
reinsurance until an event occurs that may give rise to a claim. As a result,
only loss reserves applicable to losses incurred up to the reporting date may
be set aside, with no allowance for the provision of a contingency reserve to
account for expected future losses.
10K-10
<PAGE>
The derivation of loss reserves involves the actuarial and statistical
projection at any given time of the Company's expectations of the ultimate
settlement of loss and loss expenses. These loss projections become necessary,
primarily, as a result of time lags associated with reinsurance loss
reporting. These lags are principally attributable both to claimant delays in
reporting to the primary carrier as well as primary and reinsurance company
delays in gathering statistics and subsequently reporting cession details to
the Company. As a result, in addition to the loss estimates reported by
primary insurers on known claims, actuarially projected estimates of reserves
applicable to both the development (growth) of known claims as well as the
emergence of new claims reports related to loss events which have been
incurred but not reported ("IBNR losses") prior to the evaluation date must be
developed. In addition to the impact of reporting lags upon the accuracy of
estimated loss liabilities, other factors have significant impact upon the
ultimate settlement of insured losses, including loss cost inflation, trends
in the amount of insurance purchased to the full value of insured properties
and trends in the size and demographics of insured populations. Loss reserve
estimates are not precise in that they necessarily involve an attempt to
predict the ultimate outcome of future loss reporting and settlement
activities.
To establish appropriate loss reserves, the Company uses a combination of
data sources and commercially available catastrophe models. These models are
employed upon the occurrence of an event to arrive at estimates of losses to
the Company. In addition, grouped and individual contract data illustrating
the loss development history for prior similar events, as well as actual loss
emergence experience of the underlying insurers, are analyzed to assist in the
determination of suitable loss reserves. The data derived from the industry
sources, and supplemented with the client specific information, are then used
to arrive at estimates of loss emergence patterns and initial estimates of
ultimate loss ratios. These parameters are then applied, on a contract-by-
contract basis, to arrive at estimates of ultimate losses. These loss
estimates are then supplemented with the results derived from the catastrophe
models, and final loss estimates are selected and reduced for losses reported
to the Company to arrive at IBNR losses as of the date of evaluation. The
reserves for LaSalle Re Capital are separately derived primarily from an
analysis using expected loss ratios which is supplemented, when available, by
actuarial evaluations produced for the individual syndicates.
To establish appropriate loss reserves, the Company uses both proprietary
and commercially available catastrophe models. These models are employed upon
the occurrence of an event to arrive at an estimate of losses to the Company
as a result of the event. Where loss reports have been received from ceding
companies, these reports are used in conjunction with the results produced
from the catastrophe models to determine the appropriate loss reserves for an
event. In addition, loss emergence patterns and initial estimates of ultimate
loss ratios which are derived from a combination of data sources, including
industry sources and the Company's own loss experience and exposure, are
applied to homogenously grouped data to determine estimates of ultimate losses
and hence suitable loss reserves for these groups.
The reserves are prepared quarterly by the Company's actuary and reviewed
by the Company's executive officers and the Board. To the extent that reserves
develop upward or downward, the results are reflected in the net income in the
period in which the reserve deficiency or redundancy is evaluated. There can
be no assurance that the final loss settlements will not exceed the Company's
loss reserve and have a material adverse effect upon the Company's financial
condition and results of operations in a particular period.
Investments
Composition of Portfolio
The Board has implemented a set of investment guidelines designed to meet
the Company's liquidity requirements and return objectives. The guidelines are
intended to be conservative, stressing preservation of principal, yield
enhancement through the identification of value and market inefficiencies,
market liquidity and risk reduction. The primary objective of the investment
portfolio, as set forth in the guidelines, is to maximize investment returns
consistent with these policies. The Company's investment guidelines are
reviewed periodically and are subject to change at the discretion of the
Board.
10K-11
<PAGE>
The following table summarizes the composition of the Company's investment
portfolio as of September 30, 1999 and 1998 (dollars in millions):
<TABLE>
<CAPTION>
September 30,
--------------------------
1999 1998
------------ ------------
Fair % of Fair % of
Type of Investment Value Total Value Total
------------------ ------ ----- ------ -----
<S> <C> <C> <C> <C>
Fixed maturities:
Non-U.S. government bonds and agencies...... $ 30.6 5.5% $ 38.4 6.3%
U.S. government bonds and agencies.......... 94.1 16.9 141.2 23.3
Corporate bonds............................. 234.1 42.0 309.0 50.9
Mortgage-backed securities.................. 0.0 0.0 30.2 5.0
Other debt.................................. 5.0 0.9 2.7 0.4
------ ----- ------ -----
Subtotal.................................. 363.8 65.3 521.5 85.9
Cash and cash equivalents................... 193.2 34.7 85.3 14.1
------ ----- ------ -----
Total cash and investments................ $557.0 100.0% $606.8 100.0%
====== ===== ====== =====
</TABLE>
Quality of Portfolio
The Company's investment guidelines restrict investments in securities
below an "AA" grade rating to 20% of the total portfolio, including managed
cash and cash equivalents, and permit only 10% of the total portfolio to be
invested in securities having a "BBB" grade rating. The guidelines also allow
up to $10 million to be invested in risk based investments such as catastrophe
bonds. These bonds may carry a rating below "BBB". In addition, the guidelines
restrict investments in a single issuer to no greater than 5% of the market
value of the portfolio (except for U.S. and U.K. Government issues) and, with
respect to country of issue, to no greater than 25% of the market value of the
portfolio, except for U.S. and supernational borrowers.
The following table summarizes the composition of the Company's fixed
maturity portfolio by rating as assigned by S&P or Moody's Investors Services
Inc. ("Moody's") as of September 30, 1999 and 1998 (dollars in millions):
<TABLE>
<CAPTION>
September 30,
--------------------------
1999 1998
------------ ------------
Fair % of Fair % of
Rating Value Total Value Total
------ ------ ----- ------ -----
<S> <C> <C> <C> <C>
AAA............. $157.8 43.3% $363.0 69.6%
AA.............. 119.6 32.9 88.1 16.9
A............... 69.0 19.0 59.5 11.4
BBB............. 12.4 3.4 2.6 0.0
BB.............. 5.0 1.4 8.3 2.1
------ ----- ------ -----
$363.8 100.0% $521.5 100.0%
====== ===== ====== =====
</TABLE>
Maturity and Duration of Portfolio
The Company's investment guidelines specify a one to four year duration for
the Company's investment portfolio, reflecting the need to maintain a liquid,
short duration portfolio to assure the Company's ability to pay claims on a
timely basis. The Company currently has a target duration for the portfolio of
three years and, at September 30, 1999, the modified average duration of the
portfolio was 1.8 years. The Company expects to periodically reevaluate the
target duration in light of market conditions, including the level of interest
rates, and estimates of the duration of its liabilities.
10K-12
<PAGE>
The following table summarizes the contractual maturities of the Company's
fixed maturity portfolio as of September 30, 1999 and 1998 (dollars in
millions):
<TABLE>
<CAPTION>
September 30,
--------------------------
1999 1998
------------ ------------
Fair % of Fair % of
Rating Value Total Value Total
------ ------ ----- ------ -----
<S> <C> <C> <C> <C>
Due in less than one
year................... $ 12.0 3.3% $ 24.8 4.8%
Due in one to five
years.................. 309.5 85.1 348.9 66.9
Due in five to ten
years.................. 42.3 11.6 117.6 22.6
------ ----- ------ -----
363.8 100.0 491.3 94.3
Mortgage-backed
securities............. 0.0 0.0 30.2 5.7
------ ----- ------ -----
$363.8 100.0% $521.5 100.0%
====== ===== ====== =====
</TABLE>
Equity Securities/Real Estate
Pursuant to the Company's investment guidelines, the Company's investment
portfolio may not contain any direct investments in real estate, mortgage
loans or equity securities.
Foreign Currency Exposures
As at September 30, 1999, all of the Company's fixed maturity portfolio was
denominated in U.S. dollars. The investment guidelines allow up to 5% of the
market value of the portfolio at the time of purchase to be invested in hedged
international bonds. Under this type of investment, the currency risk is
negated through the use of forward contracts with the Company only being
exposed to the interest rate risk on the bond purchased.
In an effort to manage other areas of exposure to foreign currency exchange
rate fluctuations, the Company from time to time enters into foreign exchange
contracts. These contracts generally involve the exchange of one currency for
U.S. dollars at some future date. At September 30, 1999 and 1998, the Company
had no principal amounts outstanding under foreign exchange contracts. See
"Quantitative and Qualitative Disclosure About Market Risk."
Investment Manager
LaSalle Re has entered into an investment management agreement (the
"Investment Management Agreement") with Aon Advisors (UK) Limited ("Aon
Advisors"). Pursuant to the terms of the Investment Management Agreement, the
Company pays Aon Advisors a flat fee equal to 0.16375% per annum of the assets
under management. Prior to July 1, 1997, the Company paid Aon Advisors a fee
equal to 0.35% per annum of the first $100 million of assets under management,
0.25% per annum of the next $100 million of assets under management in excess
of $100 million and 0.15% per annum of any additional assets under management
in excess of $200 million. The terms of the Investment Management Agreement
were determined in arm's length commercial negotiations. The performance of,
and the fees paid to, Aon Advisors under the Investment Management Agreement
are reviewed periodically by the Investment Committee of the Board.
Competition
The property catastrophe reinsurance industry is highly competitive. The
Company competes, and will continue to compete, with major U.S. and non-U.S.
insurers and property catastrophe reinsurers, including other
10K-13
<PAGE>
Bermuda-based property catastrophe reinsurers and CNA. Some of these
competitors have greater financial and organizational resources than the
Company. A recent trend in the property catastrophe reinsurance industry has
been the utilization of the capital markets in structuring reinsurance
agreements using catastrophe bonds, swaps and other types of derivative
instruments. There may be established or new companies of which the Company is
not aware who may be planning to enter the property catastrophe reinsurance
market or existing reinsurers who may be planning to raise additional capital.
In addition, Lloyd's began to allow capital from corporate investors in 1994.
Competition in the types of reinsurance business that the Company underwrites
is based on many factors, including rates and other terms and conditions
offered, services provided, ratings assigned by independent rating agencies,
speed of claims payment and reputation, the perceived financial strength and
experience of the reinsurer in the line of reinsurance to be written.
LaSalle Re currently has a rating of "A" (Excellent) from A.M. Best, which
represents the fourth highest in the rating scale used by A.M. Best. LaSalle
Re currently has a claims paying ability rating from S&P of "A-", which
represents the seventh highest in the rating scale used by S&P. These ratings
are based on factors of concern to cedents and brokers and are not directed
toward the protection of investors. These ratings are neither a rating of
securities nor a recommendation to buy, hold or sell such securities.
Insurance ratings are one factor used by brokers and cedents as a means of
assessing the financial strength and quality of reinsurers. In addition, a
cedent's own rating may be adversely affected by the lack of a rating of its
reinsurer. Therefore, a cedent may elect to reinsure with a competitor of the
Company that has a higher insurance rating. Similarly, the lowering or loss of
a rating in the future could adversely affect the Company's ability to
compete.
Other than being a corporate member of selected Lloyd's syndicates, the
Company is not licensed or admitted as an insurer in any jurisdiction other
than Bermuda and has no plans to become so licensed or admitted. Because
jurisdictions in the United States do not permit insurance companies to take
credit for reinsurance obtained from unlicensed or non-admitted insurers on
their statutory financial statements unless security is posted, the Company's
reinsurance contracts generally require it to post a letter of credit or
provide other security for outstanding claims and/or unearned premiums. In
order to post these letters of credit, the Company generally is required to
provide the issuing banks with collateral equal to such amounts. As a result
of the size of the Company's capitalization, the Company does not believe that
its non-admitted status in any jurisdiction has, or should have, a material
adverse effect on its ability to compete or obtain business in the property
catastrophe reinsurance market in which it operates, principally because many
of the Company's competitors are not admitted or licensed in United States
jurisdictions. However, there can be no assurance that increased competitive
pressure from current reinsurers and future market entrants or the Company's
non-admitted status will not adversely affect the Company.
Employees
As of December 1, 1999, the Company employed 32 people. The Company
believes that its employee relations are satisfactory. None of the Company's
employees are subject to collective bargaining agreements, and the Company
knows of no current efforts to implement such agreements at the Company.
Regulation
Bermuda
The Insurance Act 1978, as amended, and related regulations (the "Insurance
Act"). As a holding company, the Company is not subject to Bermuda insurance
regulations. However, LaSalle Re and LaSalle Re Capital are regulated by the
Insurance Act, which provides that no person shall carry on an insurance
business in or from within Bermuda unless registered as an insurer under the
Insurance Act by the Minister of Finance. Under the Insurance Act, insurance
business includes reinsurance business. The Minister, in deciding whether to
grant registration, has broad discretion to act as he thinks fit in the public
interest. The Minister is required by the Insurance Act to determine whether
the applicant is a fit and proper body to be engaged in the insurance business
and, in particular, whether it has, or has available to it, adequate knowledge
and expertise. The registration of an
10K-14
<PAGE>
applicant as an insurer is subject to its complying with the terms of its
registration and such other conditions as the Minister may impose at any time.
The Insurance Act distinguishes between insurers carrying on long-term
business and insurers carrying on general business. There are four
classifications of insurers carrying on general business, with Class 4
insurers subject to the strictest regulation. LaSalle Re is registered as a
Class 4 insurer in Bermuda and is regulated as such under the Insurance Act.
The Insurance Act imposes on Bermuda insurance companies solvency and
liquidity standards and auditing and reporting requirements and grants to the
Minister powers to supervise, investigate and intervene in the affairs of
insurance companies. Although LaSalle Re Capital is governed by the Insurance
Act, it is exempted from complying with most of the filings required to be
made by insurance companies by section 57 of the Insurance Act.
Significant aspects of the Bermuda insurance regulatory framework are set
forth below.
Cancellation of Insurer's Registration. An insurer's registration may be
canceled by the Minister on certain grounds specified in the Insurance Act,
including failure of the insurer to comply with its obligations under the
Insurance Act or, if in the opinion of the Minister after consultation with
the Insurance Advisory Committee appointed by the Minister, the insurer has
not been carrying on business in accordance with sound insurance principles.
Independent Approved Auditor. Every registered insurer must appoint an
independent auditor who will annually audit and report on the statutory
financial statements and the statutory financial return of the insurer. In the
case of LaSalle Re, both the statutory financial statements and the statutory
financial return are required to be filed annually with the Registrar of
Companies, who is the chief administrative officer under the Insurance Act.
The independent auditor of the insurer must be approved by the Minister and
may be the same person or firm that audits the insurer's financial statements
and reports for presentation to its shareholders.
Loss Reserve Specialist. As a Class 4 insurer, LaSalle Re is required to
submit an annual loss reserve opinion when filing the annual statutory
financial return. This opinion must be issued by a loss reserve specialist.
The loss reserve specialist, who will normally be a qualified casualty
actuary, must be approved by the Minister.
Statutory Financial Statements. An insurer must prepare statutory financial
statements annually. The Insurance Act prescribes rules for the preparation
and substance of such statutory financial statements, which include, in
statutory form, a balance sheet, income statement, statement of capital and
surplus and detailed notes thereto. The insurer is required to give detailed
information and analyses regarding premiums, claims, reinsurance and
investments. The statutory financial statements are not prepared in accordance
with GAAP and are distinct from the financial statements prepared for
presentation to the insurer's shareholders under the Companies Act 1981 of
Bermuda (the "Companies Act"), which financial statements may be prepared in
accordance with GAAP. LaSalle Re is required to submit the statutory financial
statements as part of the annual statutory financial return. However, the
statutory financial statements and the statutory financial return do not form
part of the public records maintained by the Registrar.
Annual Statutory Financial Return. LaSalle Re is required to file annually
with the Registrar a statutory financial return no later than four months
after its financial year end unless specifically extended. The statutory
financial return includes, among other matters, a report of the approved
independent auditor on the statutory financial statements of the insurer; a
declaration of the statutory ratios; a solvency certificate; the statutory
financial statements themselves; the opinion of the approved loss reserve
specialist and certain details concerning ceded reinsurance. The solvency
certificate and the declaration of the statutory ratios must be signed by the
principal representative and at least two directors of LaSalle Re who are
required to state whether the minimum solvency margin and, in the case of the
solvency certificate, the minimum liquidity ratio have been met, and the
independent approved auditor is required to state whether in its opinion it
was reasonable for them to so state
10K-15
<PAGE>
and whether the declaration of the statutory ratios complies with the
requirements of the Insurance Act. The statutory financial return must include
the opinion of the loss reserve specialist in respect of the loss and loss
expense provisions of LaSalle Re. Where LaSalle Re's accounts have been
audited for any purpose other than compliance with the Insurance Act, a
statement to that effect must be filed with the statutory financial return.
Minimum Solvency Margin. The Insurance Act provides that the statutory
assets of an insurer must exceed its statutory liabilities by an amount
greater than the prescribed minimum solvency margin, which varies with the
type of business and class of registration of the insurer and the insurer's
net premiums written and loss reserve level. As a registered Class 4 insurer,
LaSalle Re is required to maintain a minimum solvency margin equal to the
greatest of (1) $100 million, (2) 50% of its net premiums written (without
deducting more than 25% of gross premiums written when computing net premiums
written) and (3) 15% of its loss and other certain insurance reserves. At
September 30, 1999, LaSalle Re's actual statutory capital and surplus was
$446.9 million, compared to its minimum solvency margin requirement of $100
million.
Minimum Liquidity Ratio. The Insurance Act provides a minimum liquidity
ratio for general business. An insurer engaged in general business is required
to maintain the value of its relevant assets at not less than 75% of the
amount of its relevant liabilities. Relevant assets include cash and time
deposits, quoted investments, unquoted bonds and debentures, first liens on
real estate, investment income due and accrued, accounts and premiums
receivable and reinsurance balances receivable. There are certain categories
of assets which, unless specifically permitted by the Minister, do not
automatically qualify as relevant assets, such as unquoted equity securities,
investments in and advances to affiliates, real estate and collateral loans.
The relevant liabilities are total general business insurance reserves and
total other liabilities less deferred income tax and sundry liabilities (by
interpretation, those not specifically defined).
Supervision, Investigation and Intervention. The Minister may appoint an
inspector with extensive powers to investigate the affairs of an insurer if
the Minister believes that an investigation is required in the interest of the
insurer's policyholders or persons who may become policyholders. In order to
verify or supplement information otherwise provided to him, the Minister may
direct an insurer to produce documents or information relating to matters
connected with the insurer's business.
If it appears to the Minister that there is a risk of the insurer becoming
insolvent or that it is in breach of the Insurance Act or any conditions
imposed upon its registration, the Minister may direct the insurer not to take
on any new insurance business; not to vary any insurance contract if the
effect would be to increase the insurer's liabilities; not to make certain
investments; to realize certain investments; to maintain in or transfer to the
custody of a specified bank, certain assets; not to declare or pay any
dividends or other distributions or to restrict the making of such payments;
and/or to limit its premium income.
Principal Representative. An insurer is required to maintain a principal
office in Bermuda and to appoint and maintain a principal representative in
Bermuda. For the purpose of the Insurance Act, the principal office of LaSalle
Re is at the Company's offices at 25 Church Street, Hamilton HM 12 Bermuda,
and Clare E. Moran is the principal representative of LaSalle Re. Without a
reason acceptable to the Minister, an insurer may not terminate the
appointment of its principal representative, and the principal representative
may not cease to act as such, unless 30 days' notice in writing to the
Minister is given of the intention to do so. It is the duty of the principal
representative, within 30 days of his reaching the view that there is a
likelihood of the insurer for which he acts becoming insolvent or its coming
to his knowledge, or his having reason to believe, that a reportable "event"
has occurred, to make a report in writing to the Minister setting out all the
particulars of the case that are available to him. Examples of such a
reportable "event" include failure by the reinsurer to comply substantially
with a condition imposed upon the reinsurer by the Minister relating to a
solvency margin or a liquidity or other ratio.
Class 4 Insurer. LaSalle Re is registered as a Class 4 insurer and, as
such: (1) is required to maintain a minimum statutory capital and surplus
equal to the greatest of $100 million, 50% of its net premiums written
(without deducting more than 25% of gross premiums written when computing net
premiums written) and 15%
10K-16
<PAGE>
of its loss and other insurance reserves; (2) is required to file annually
within four months following the end of the relevant financial year with the
Registrar, inter alia, a statutory financial return together with a copy of
its annual statutory financial statements and an opinion of a loss reserve
specialist in respect of its loss and loss expense provisions; (3) is
prohibited from declaring or paying any dividends during any financial year if
it is in breach of its minimum solvency margin or minimum liquidity ratio or
if the declaration or payment of such dividends would cause it to fail to meet
such margin or ratio (if it has failed to meet its minimum solvency margin or
minimum liquidity ratio on the last day of any financial year, LaSalle Re will
be prohibited, without the approval of the Minister, from declaring or paying
any dividends during the next financial year); (4) is prohibited from
declaring or paying in any financial year dividends of more than 25% of its
total statutory capital and surplus (as shown on its previous financial year's
statutory balance sheet) unless it files (at least 7 days before payment of
such dividends) with the Registrar an affidavit stating that it will continue
to meet the required margins; (5) is prohibited, without the prior approval of
the Minister, from reducing by 15% or more its total statutory capital, as set
out in its previous year's financial statements; and (6) is required, at any
time it fails to meet its solvency margin, within 30 days (45 days where total
statutory capital and surplus falls to $75 million or less) after becoming
aware of that failure or having reason to believe that such failure has
occurred to file with the Minister a written report containing certain
information.
Certain Other Considerations. As "exempted" companies, the Company, LaSalle
Re and LaSalle Re Capital may not, without the express authorization of the
Bermuda legislature or a license granted by a Minister, participate in certain
business transactions, including: (1) the acquisition or holding of land in
Bermuda (except that required for its business and held by way of lease or
tenancy agreement for a term not exceeding 50 years or that used to provide
accommodation or recreational facilities for its officers and employees and
held with the consent of the Minister for a term not exceeding 21 years); (2)
the taking of mortgages on land in Bermuda in excess of $50,000; or (3) the
carrying on of business of any kind in Bermuda, except in certain limited
circumstances such as doing business with another exempted undertaking in
furtherance of business carried on outside Bermuda.
The Bermuda government encourages foreign "entities" like the Company that
are based in Bermuda but do not operate in competition with local businesses.
As well as having no restrictions on the degree of non-Bermudian ownership,
the Company, LaSalle Re and LaSalle Re Capital are not currently subject to
taxes on their income or dividends or to any foreign exchange controls in
Bermuda. In addition, there currently is no capital gains tax in Bermuda, and
profits can be accumulated by the Company, LaSalle Re and LaSalle Re Capital,
as required, without limitation under general Bermuda law.
The Companies Act prohibits a company from declaring or paying a dividend,
or making a distribution out of contributed surplus, if there are reasonable
grounds for believing that (1) the company is, or would after the payment be,
unable to pay its liabilities as they come due; or (2) the realizable value of
the company's assets would thereby be less than the aggregate of its
liabilities and shareholders' equity. This restriction applies to the Company,
LaSalle Re and LaSalle Re Capital as Bermuda exempted companies.
LaSalle Re Capital
LaSalle Re Capital became a Corporate Member of Lloyd's in December 1996
and commenced underwriting effective January 1, 1997. LaSalle Re Capital is
only licensed to carry on business related to Lloyd's. As a Corporate Member,
LaSalle Re Capital is subject to the regulatory jurisdiction of the Council of
Lloyd's (the "Council"). Unlike other financial markets in the U.K., Lloyd's
is not currently subject to direct U.K. government regulation under The
Financial Services Act of 1986 (although this position is due to change during
the year 2000 as explained below). Instead, Lloyd's is self regulating by
virtue of The Lloyd's Act of 1982, through bye-laws, regulations and codes of
conduct prescribed by the Council, which governs the market. Under the
Council, there are two boards, the Market Board and the Regulatory Board. The
Market Board is led by working members of the Council and is responsible for
strategy and policy signing. The Regulatory Board is responsible for the
regulation of the market, compliance and the protection of policyholders.
10K-17
<PAGE>
As a Corporate Member of Lloyd's, LaSalle Re Capital is required to file
audited financial statements and an annual return, which is part of the annual
declaration of compliance process. The annual declaration of compliance sets
out the financial position of the Corporate Member and confirms details of its
directors and controllers. In addition, LaSalle Re Capital is required to file
an audited solvency return either confirming the value of funds at Lloyd's
("FAL") held by the member as at the previous December 31, or that it held no
FAL at that date. Lloyd's will compare the value of a Corporate Member's FAL
derived from the solvency return with its underwriting assets and liabilities
as reported by the syndicates on which it participates. Where a negative
solvency position is disclosed, the Corporate Member is required to provide
sufficient additional funds to cover the shortfall. As at December 1, 1999,
LaSalle Re Capital had filed a solvency return for the 1997 and 1998
underwriting years.
Regulation of the Lloyd's market is due to change during the year 2000,
once the Financial Services and Markets Bill (the "Bill") has been enacted.
The Bill will implement substantial reform of the regulation of the entire
financial services industry in the United Kingdom and includes provision for
the regulation by the new Financial Services Authority (the "FSA") of the
Society of Lloyd's itself and the Lloyd's market. When the Bill becomes law,
the regulatory functions currently carried out by the Council will be split
into two categories: those that will in future be carried out directly by the
FSA and those in respect of which the FSA will require Lloyd's to continue to
exercise its powers under FSA direction. Within the latter category will be
the prudential supervision of Lloyd's insurance business by the fixing and
monitoring of compliance with solvency requirements. In relation to this and
other areas of delegated authority, the FSA will require Lloyd's to exercise
its powers under the supervision of, and in accordance with standards and
guidance to be prescribed by, the FSA and will monitor Lloyd's to ensure that
it does so.
Under the terms of its license as a "member of a recognised association of
underwriters" under the Bermuda Insurance Act, LaSalle Re Capital is required
to meet and maintain the solvency requirements of Lloyd's. LaSalle Re Capital
is also required to send to the Bermuda Registrar of Companies, within 30 days
after submission of the annual solvency return and declaration of compliance
to Lloyd's, a copy of those documents together with a copy of the audited
annual statements of each of the syndicates in which LaSalle Re Capital
participates. Further, LaSalle Re Capital must also appoint and maintain a
principal representative in Bermuda.
United States, United Kingdom and Other
LaSalle Re is registered as an insurer and is subject to regulation and
supervision in Bermuda. LaSalle Re is not admitted or authorized to do
business in any jurisdiction except Bermuda. The insurance laws of each state
of the United States do not directly regulate the sale of reinsurance within
their jurisdictions by alien insurers, such as LaSalle Re. Nevertheless, the
sale of reinsurance by alien reinsurers, such as LaSalle Re, to insurance
companies domiciled or licensed in United States jurisdictions is indirectly
regulated by state "credit for reinsurance" laws that operate to deny
financial statement credit to ceding insurers unless the non-admitted alien
reinsurer posts acceptable security for ceded liabilities and agrees to
prescribed contract provisions, such as insolvency and intermediary clauses.
The Company conducts its business at its principal offices in Bermuda and does
not maintain an office in the United States, and its personnel do not solicit,
advertise, settle claims or conduct other insurance activities in the United
States. All policies are issued and delivered and premiums are received
outside the United States. The Company does not believe that it is subject to
the insurance laws of any state in the United States. From time to time, there
have been congressional and other initiatives in the United States regarding
the supervision and regulation of the insurance industry, including proposals
to supervise and regulate alien reinsurers. While none of these proposals have
been adopted to date on either the federal or state level, there can be no
assurance that federal or state legislation will not be enacted subjecting the
Company to supervision and regulation in the United States, which could have a
material adverse effect on the Company. In addition, no assurance can be given
that if the Company were to become subject to any laws of the United States or
any state thereof or of any other country at any time in the future, it would
be in compliance with such laws.
10K-18
<PAGE>
LaSalle Re does not intend to maintain an office or to solicit, advertise,
settle claims or conduct other insurance activities in any jurisdiction other
than Bermuda where the conduct of such activities would require that LaSalle
Re be so admitted. Consistent with this policy, LaSalle Re established LaSalle
Re Services as a subsidiary in the United Kingdom to operate a London "contact
office" at the London Underwriting Center. LaSalle Re Services is not
registered as an insurer in England or in any other jurisdiction. The Company
believes that LaSalle Re Services is not required to be registered as an
insurance company in the United Kingdom, and that the activities of LaSalle Re
Services do not cause the Company to be subject to regulation as an insurance
company in the United Kingdom.
ITEM 2. PROPERTIES
The Company's executive offices, which are leased, are located in Hamilton,
Bermuda. In addition, the Company leases office space in London, England.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of shareholders of the Company during
the fourth fiscal quarter of the fiscal year ended September 30, 1999.
EXECUTIVE OFFICERS OF THE COMPANY
Set forth below are the names, ages, positions and certain other
information concerning the current executive officers of the Company.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<C> <C> <S>
Guy D. Hengesbaugh. 41 President and Chief Executive Officer
Senior Vice President and Chief Underwriting
Mark C. Stockton... 40 Officer
Clare E. Moran..... 31 Senior Vice President, Treasurer and Interim
Chief Financial Officer
</TABLE>
Guy D. Hengesbaugh was promoted to President and Chief Executive Officer of
the Company and LaSalle Re in July 1999. He previously served as Executive
Vice President and Chief Underwriting Officer of the Company since its
organization in September 1995, President and Chief Operating Officer of
LaSalle Re since September 1998, and Executive Vice President and Chief
Underwriting Officer of LaSalle Re from its organization in October 1993 to
September 1998. Mr. Hengesbaugh is a director of LaSalle Re and of R.V.I.
Guaranty Co. Ltd., a Bermuda-based residential insurer. He has 14 years of
experience in underwriting management in Chicago, London and Bermuda.
Mark C. Stockton was promoted to Senior Vice President and Chief
Underwriting Officer in July 1999. He previously served as a Vice President of
the Company since January 1996. He joined the Company as an Assistant Vice
President and Underwriter in November 1994. Mr. Stockton has 21 years of
experience in the reinsurance industry, working in the London market until his
arrival in Bermuda in 1994. He holds the title of Chartered Insurer and
qualified as an Associate of the Chartered Insurance Institute in 1985.
Clare E. Moran was promoted to the position of Senior Vice President,
Treasurer and Interim Chief Financial Officer in October 1999. She previously
served as Vice President, Finance, since September 1998. Ms. Moran joined the
Company in July 1995 as Assistant Controller. Prior to joining the Company,
she was employed by KPMG Peat Marwick in Bermuda, where she specialized in
reinsurance and insurance. Miss Moran qualified as a Chartered Accountant in
the U.K. in 1991.
10K-19
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
The Common Shares are quoted on The New York Stock Exchange under the
symbol "LSH".
The following table sets forth, for the periods indicated, the high and low
sale prices for the Common Shares as reported by The New York Stock Exchange.
<TABLE>
<CAPTION>
High Low
------ ------
<S> <C> <C>
Quarter ended December 31, 1998............................ $25.88 $19.50
Quarter ended March 31, 1999............................... 22.25 14.75
Quarter ended June 30, 1999................................ 18.25 12.12
Quarter ended September 30, 1999........................... 18.38 13.63
Quarter ended December 31, 1997............................ $35.63 $32.00
Quarter ended March 31, 1998............................... 42.00 31.13
Quarter ended June 30, 1998................................ 42.25 34.88
Quarter ended September 30, 1998........................... 39.06 26.63
</TABLE>
As of December 1, 1999, there were 158 holders of record of the Common
Shares.
The following table sets forth for the fiscal quarters of the two most
recent fiscal years all dividends declared during each such period.
<TABLE>
<CAPTION>
Fiscal year ended Dividend
September 30, Fiscal quarter per share
----------------- ---------------- ---------
<S> <C> <C>
1999 First quarter... $0.375
Second quarter.. $0.375
Third quarter... $0.375
Fourth quarter.. $0.000
1998 First quarter $0.750
Second quarter.. $0.750
Third quarter... $0.750
Fourth quarter.. $0.750
</TABLE>
On April 21, 1999, the Company announced its intention to discontinue its
formula-based policy of paying 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 preferred shares of the Company in the current
fiscal year as dividends to holders of Common Shares and Exchangeable Non
Voting shares.
The actual amount and timing of any future dividends is at the discretion
of the Board and is dependent upon the profits and financial requirements of
the Company, as well as loss experience, business opportunities and any other
factors that the Board deems relevant. In addition, if the Company has funds
available for distribution, it may nevertheless determine that such funds
should be retained for the purposes of replenishing capital, expanding premium
writings or other purposes. There can be no assurance that the Company will
declare or pay any dividends.
The Company is a holding company whose principal source of income is cash
dividends and other permitted payments from LaSalle Re. The payment of
dividends by LaSalle Re to the Company is restricted under Bermuda law and
regulation, including Bermuda insurance law. Under the Insurance Act, LaSalle
Re is prohibited from paying dividends of more than 25% of its opening
statutory capital and surplus unless it files with the Bermuda Registrar of
Companies an affidavit (at least 7 days before payment of such dividends)
stating that it will continue to meet the required solvency margin and minimum
liquidity ratio requirements and from declaring or paying
10K-20
<PAGE>
any dividends without the prior approval of the Minister of Finance if it
failed to meet its required margins on the last day of 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 opening total statutory
capital by 15% or more without the prior approval of the Minister of Finance.
ITEM 6. SELECTED FINANCIAL DATA
Information with respect to this item may be found in the section captioned
"Selected Financial Data" contained in the 1999 Annual Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
The following is a discussion and analysis of the Company's results of
operations and financial condition. This discussion and analysis should be
read in conjunction with the Company's audited consolidated financial
statements and related notes.
Results of Operations
Year Ended September 30, 1999 Compared with Year Ended September 30, 1998
Gross premiums written for the year ended September 30, 1999 were $139.0
million compared to $155.3 million for the year ended September 30, 1998, a
decrease of 10.5%. The table below summarizes the Company's gross premiums
written by line of business (expressed in millions of dollars).
<TABLE>
<CAPTION>
Year ended Year ended
September 30, September 30,
1999 1998 Change
------------- ------------- ------
<S> <C> <C> <C>
Reinsurance segment:
U.S. property catastrophe.................. $ 52.1 $ 55.2 $ (3.1)
International property catastrophe......... 40.4 49.0 ( 8.6)
------ ------ ------
Total property catastrophe................. 92.5 104.2 (11.7)
Other lines................................ 20.8 30.0 (9.2)
Fronted premiums, reinstatements,
adjustments and no claims bonuses......... 3.3 0.1 3.2
------ ------ ------
116.6 134.3 (17.7)
Lloyd's segment:
LaSalle Re Capital......................... 22.4 21.0 1.4
------ ------ ------
Total gross premiums written............... $139.0 $155.3 $(16.3)
====== ====== ======
</TABLE>
The Company's property catastrophe book experienced a reduction in gross
premiums written of $11.7 million for the year ended September 30, 1999
compared to the year ended September 30, 1998. Of this reduction, 73.5% or
$8.6 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 year ended September 30, 1999, the Company
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 placed
an emphasis on accessing clients directly because pro rata contracts have a
less efficient cost structure. The remaining reduction on the property
catastrophe book of business was due to continuing competitive rates. Based on
the Company's experience, rates for U.S. and international property
catastrophe business written in the year ended September 30, 1999 were
approximately 7.5% to 10% and 12.5% to 15%, respectively, below those
experienced in the year ended September 30, 1998. Because of these reduced
rates, premiums were lower in comparison to those written in the year ended
September 30, 1998, and the Company chose not to renew contracts in some cases
where it considered business to be underpriced.
10K-21
<PAGE>
For the year ended September 30, 1999, gross premiums written in other
lines of business, including LaSalle Re Capital, totaled $43.2 million, or
31.1% of gross premiums written, compared to $51.0 million, or 32.8% of gross
premiums written, for the year ended September 30, 1998. The decrease was
primarily due to reduced gross premiums written in property pro-rata due to
cancelled contracts and a reduction in the line sizes written on satellite
business.
The reduction in gross premiums written was partly offset by an increase of
$3.3 million in the aggregate level of fronted premiums, reinstatements,
adjustments and no claims bonuses written in the year ended September 30, 1999
compared to the year ended September 30, 1998. This increase was principally
due to fronting arrangements, entered into in the fiscal year ended September
30, 1999, 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 S&P of "A-"; the other company
is rated "A" by A.M. Best.
Premiums ceded for the year ended September 30, 1999 were $28.2 million
compared to $7.8 million in the year ended September 30, 1998. Of the $20.4
million increase, $8.1 million was ceded to a property catastrophe quota share
arrangement with CNA Re, $3.0 million related to fronting arrangements and
$5.2 million related to increased premiums ceded through LaSalle Re Capital.
In addition, the Company continued to purchase various reinsurance protections
because of the current pricing environment.
As a result of the above, net premiums written for the year ended September
30, 1999 were $110.8 million compared to $147.5 million for the year ended
September 30, 1998.
Net premiums earned for the year ended September 30, 1999 were $126.6
million compared to $154.6 million for the same period in 1998. The decline in
premiums earned of $28.0 million was due to two factors: an increase in ceded
premiums amortized from $6.1 million for the year ended September 30, 1998 to
$18.5 million for the year ended September 30, 1999 and a continued decrease
in the level of gross premiums written on the Company's core property
catastrophe business. Premiums on property catastrophe excess of loss
contracts are earned over the period coverage is provided, which is generally
12 months. Under proportional property catastrophe contracts, with the risks
underlying the contracts incepting throughout the contract period, premiums
are generally earned over 18 months. Premiums on other lines of business are
earned over the period for which coverage is provided, which generally ranges
between 12 months and 60 months. Premiums written by LaSalle Re Capital are
earned over a period of 18-24 months from the inception date of the underlying
contracts.
Net investment income remained reasonably constant for the years ended
September 30, 1999 and September 30, 1998 at $33.8 million and $34.3 million,
respectively. Annualized investment income as a percentage of the average
market value of invested assets was 5.6% for the year ended September 30, 1999
compared to 6.0% for the year ended September 30, 1998. The decrease in the
investment income generated from the investment portfolio of $2.2 million was
primarily attributable to lower market yields. This decrease 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 $0.6 million for the year ended
September 30, 1999 compared to $5.6 million for the year ended September 30,
1998. During the year ended September 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 $4.1 million at September 30, 1999. The
Company anticipates 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 year ended September 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.
10K-22
<PAGE>
The following table sets forth the Company's combined ratios for the years
ended September 30, 1999 and 1998:
<TABLE>
<CAPTION>
September 30, September 30,
1999 1998
------------- -------------
<S> <C> <C>
Loss and loss expense ratio................... 103.6% 61.8%
Expense ratio................................. 26.5% 20.4%
Combined ratio................................ 130.1% 82.2%
</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 $131.1
million during the year ended September 30, 1999 compared with $95.5 million
during the year ended September 30, 1998. Of the losses incurred for the year
ended September 30, 1999, a significant portion related to the strengthening
of prior year reserves. Approximately $14.5 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 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 $16 million of incurred-but-not-reported losses during the year
ended September 30, 1999. These reserves relate to all lines of business
written by the Company. Losses and loss expenses, net of recoveries, incurred
on events that occurred during the year ended September 30, 1999 include $6.0
million related to an Australian hailstorm, $6.0 million related to Oklahoma
tornadoes, $6.9 million related to Hurricane Floyd, $2.6 million related to
the Turkish earthquake and $4.1 million related to Typhoon Olga. The main
components of losses and loss expenses incurred during the year ended
September 30, 1998 related to Hurricane Georges and 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 specified conditions are met. For the 1998 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 specified conditions were met.
Underwriting expenses as a percentage of net premiums earned were 17.5% for
the year ended Septermber 30, 1999 compared to 14.6% for the year ended
September 30, 1998. The increase in the ratio of 2.9% 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 year ended September 30, 1999 compared to 14.1% for the year
ended September 30, 1998.
10K-23
<PAGE>
As a percentage of gross earned premiums, fees accrued pursuant to the
Underwriting Support Services Agreement decreased from 2.2% for the year ended
September 30, 1998 to 1.0% for the year ended September 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 ratio of underwriting expenses to gross premiums earned by 1.6%.
For the year ended September 30, 1999, the Company's brokerage, ceding and
profit commissions increased to 12.8% of gross premiums earned from 11.8% 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 $11.4 million for the year ended September 30,
1999 compared to $8.9 million for the year ended September 30, 1998. As a
percentage of net premiums earned, operational expenses were 9.0% during the
year ended September 30, 1999 compared to 5.8% for the year ended September
30, 1998. The increase in operational expenses of $2.5 million was principally
due to an increase in the level of executive compensation booked. During the
year ended September 30, 1999, the Company recorded a credit of $1.5 million
in respect of stock appreciation rights compared to a credit of $0.6 million
during the year ended September 30, 1998. This reduction was offset by
increased compensation costs of approximately $2.1 million, due in part to
additional compensation costs following the change in the CNA Underwriting
Services Agreement, a change in the method of compensating employees and the
payment of severance costs. The remaining increase in expenses of $1.3 million
was due to additional costs relating to travel, staff recruitment, software
modeling and LaSalle Re Capital.
The Company incurred corporate expenses of $0.8 million during the year
ended September 30, 1999 compared to $0.5 million for the year ended September
30, 1998. The costs incurred in the year ended September 30, 1999 related to
costs associated with the Company's investigation of potential transactions
and 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 year ended September 30, 1998
related to costs associated with the Company's investigation of potential
transactions.
Interest expense was $1.7 million for the year ended September 30, 1999
compared to $1.9 million for the year ended September 30, 1998. Interest
expense primarily 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 September 30, 1999, there were no borrowings outstanding under
this facility.
The Company's losses per Common Share were $(0.61) for the year ended
September 30, 1999 compared to earnings per Common Share of $3.06 for the year
ended September 30, 1998. Losses per Common Share assuming dilution were
$(0.61) for the year ended September 30, 1999 compared to earnings per Common
Share of $2.80 for the year ended September 30, 1998.
10K-24
<PAGE>
Year Ended September 30, 1998 Compared with Year Ended September 30, 1997
Gross premiums written decreased 9.4% to $155.3 million for the year ended
September 30, 1998 from $171.4 million for the year ended September 30, 1997.
The table below summarizes the Company's gross premiums written by line of
business (expressed in millions of dollars).
<TABLE>
<CAPTION>
Year ended Year ended
September 30, September 30,
1998 1997 Change
------------- ------------- ------
<S> <C> <C> <C>
Reinsurance segment:
U.S. property catastrophe............ $ 55.2 $ 71.6 $(16.4)
International property catastrophe... 49.0 73.1 (24.1)
------ ------ ------
Total property catastrophe........... 104.2 144.7 (40.5)
Other lines.......................... 30.0 22.9 7.1
Reinstatements, adjustments and no
claims bonuses...................... 0.1 (10.3) 10.4
------ ------ ------
134.3 157.3 (23.0)
Lloyd's segment:
LaSalle Re Capital................... 21.00 14.1 6.9
------ ------ ------
Total gross premiums written......... $155.3 $171.4 $(16.1)
====== ====== ======
</TABLE>
The overall decrease in gross premiums written was primarily due to a 28.0%
reduction in gross premiums written in the Company's core property catastrophe
business from $144.7 million for the year ended September 30, 1997 to $104.2
million for the year ended September 30, 1998. Of this reduction,
approximately 60.0% related to the international property catastrophe book and
40.0% related to the U.S. property catastrophe book. The reduction was greater
in the international property catastrophe book because the Company reduced its
line sizes on some proportional treaties pursuant to its policy of reducing
aggregate exposures in a declining rate environment. This accounted for
approximately $7.7 million of the decrease in the international property
catastrophe book. Approximately 25% of the decrease in the U.S. property
catastrophe book related to a multi-year contract that was written in the year
ended September 30, 1997 for which no written premium was recorded in the year
ended September 30, 1998. The remaining decrease in the total property
catastrophe book was due to continuing competitive rates. Based on the
Company's experience, rates for property catastrophe business written in the
year ended September 30, 1998 were approximately 15% and 10% below those
experienced in the year ended September 30, 1997 for international and U.S.
property catastrophe business, respectively. Because of these reduced rates,
premiums were lower in comparison to those written in the year ended September
30, 1997, and the Company chose not to renew contracts in some cases where it
considered business to be underpriced. For the year ended September 30, 1998,
the Company experienced a 6.3% reduction in the number of property catastrophe
contracts written from 1,000 in the year ended September 30, 1997 to 937
contracts for the year ended September 30, 1998.
The decline in gross premiums written by the Company was partially offset
by an increase of $14.0 million in respect of gross premiums written in other
non-property catastrophe lines. The increase was primarily due to increased
gross premiums written by LaSalle Re Capital, which commenced underwriting as
a corporate member of Lloyd's in January 1997, the second quarter of the 1997
fiscal year. For the year ended September 30, 1998, LaSalle Re Capital wrote
gross premiums of $21.0 million compared to $14.1 million for the year ended
September 30, 1997. Also, the Company increased the size of its terrorism and
political risks book, which accounted for approximately $1.0 million of gross
premiums written for the year ended September 30, 1997 compared with
approximately $4.4 million for the year ended September 30, 1998.
In addition, for the year ended September 30, 1997, $10.3 million relating
to adjustment premiums, reinstatement premiums and no claims bonuses produced
a reduction in gross premiums written. In the year
10K-25
<PAGE>
ended September 30, 1998, there was a positive adjustment to gross premiums
written of $0.1 million. This was principally due to insignificant premium
adjustments and, as a result of increased loss activity, to increased
reinstatement premiums and lower no claims bonuses.
Premiums ceded for the year ended September 30, 1998 were $7.8 million
compared to $7.7 million for the year ended September 30, 1997. These ceded
premiums related to reinsurance protection purchased by LaSalle Re with effect
from January 1, 1997 and to various reinsurance protections purchased by
LaSalle Re Capital. Ceded premiums amortized increased from $1.9 million in
the year ended September 30, 1997 to $6.1 million for the year ended September
30, 1998. This increase was due primarily to the reinsurance protections
purchased by LaSalle Re Capital, which were amortized in line with the
premiums earned by LaSalle Re Capital.
Net premiums earned decreased 5.7% to $154.6 million for the year ended
September 30, 1998 from $163.9 million for the year ended September 30, 1997.
This decrease was the result of reduced premiums earned on the Company's core
property catastrophe business that were partially offset by increased earned
premiums on the business written by LaSalle Re Capital.
Net investment income increased 3.6% to $34.3 million for the year ended
September 30, 1998 from $33.1 million for the year ended September 30, 1997.
This increase was attributable to a larger average investment base compared to
the year ended September 30, 1997. Annualized investment income as a
percentage of the average market value of invested assets was 6.0% for the
year ended September 30, 1998 compared to 6.1% for the year ended September
30, 1997.
Net realized gains on investments were $5.6 million for the year ended
September 30, 1998 compared to $0.6 million for the year ended September 30,
1997. During the year ended September 30, 1998, the Company realized gains on
investments as part of an exercise undertaken to increase the credit quality
of the portfolio. In addition, during the last quarter of the year ended
September 30, 1998, the Company took advantage of market conditions by
realizing some of the large unrealized gains in the portfolio. The proceeds
from this exercise were reinvested in securities with marginally lower yields.
Other income was derived from a contract under which the Company provided
certain reinsurance related services. This contract was not renewed on January
1, 1998.
The following table sets forth the Company's combined ratios for the years
ended September 30, 1998 and 1997:
<TABLE>
<CAPTION>
September 30, September 30,
1998 1997
------------- -------------
<S> <C> <C>
Loss and loss expense
ratio.................... 61.8% 19.0%
Expense ratio............. 20.4% 23.6%
Combined ratio............ 82.2% 42.6%
</TABLE>
Losses and loss expenses incurred increased 206.2% from $31.2 million for
the year ended September 30, 1997 to $95.5 million for the year ended
September 30, 1998. This increase was due to an increase in the number of
worldwide catastrophic events that affected the Company during the year ended
September 30, 1998. The largest loss event to affect the Company was Hurricane
Georges, which occurred in September 1998. The Company established a $25
million loss provision for this event that represented 26% of the losses
incurred for the year ended September 30, 1998. In addition, throughout the
year ended September 30, 1998, the Company incurred losses in respect of
various weather-related events, notably U.K. Midland floods ($7.0 million),
Canadian winter freeze ($4.3 million) and various U.S. storms ($2.4 million).
The Company sustained a number of claims relating to aggregate stop loss and
excess of loss contracts, which accounted for approximately $16.8 million, or
18%, of losses incurred. A large percentage of these aggregate losses incurred
in the year ended September 30, 1998 related to losses that had occurred in
prior years. This was due to the extended loss reporting
10K-26
<PAGE>
periods on these contracts, a number of which had a period of 24 months after
the expiry of the contract within which to report losses. Also, as a result of
increasing other lines of business, the Company incurred losses relating to
LaSalle Re Capital ($5.0 million), satellite coverages ($3.0 million), various
risk excess coverages ($3.0 million) and political risks coverages ($1.7
million). As a result of the current year loss activity, the Company increased
the level of incurred-but-not-reported reserves. Losses and loss expenses
incurred during the year ended September 30, 1997 primarily included $12.0
million for floods in Eastern Europe, $6.1 million in respect of various
international windstorms and winter storm activity in the United States and
$4.6 million adverse development on Hurricane Fran (which occurred in
September 1996).
Underwriting expenses decreased 12.9% from $26.0 million for the year ended
September 30, 1997 to $22.7 million for the year ended September 30, 1998. As
a percentage of net premiums earned, underwriting expenses were 14.6% for the
year ended September 30, 1998 compared to 15.9% for the year ended September
30, 1997. Fees accrued pursuant to the Underwriting Services Agreement as a
percentage of net premiums earned decreased to 2.3% for the year ended
September 30, 1998 from 4.0% for the year ended September 30, 1997. This
decrease was due to the higher loss activity and lower premium earnings in the
year ended September 30, 1998 compared with the year ended September 30, 1997.
The Company's level of brokerage fees and ceding commissions increased to
12.3% of net premiums earned for the year ended September 30, 1998 from 11.8%
of net premiums earned for the year ended September 30, 1997. The increase was
partly due to an increase in earned premiums written by LaSalle Re Capital,
whose expense ratio was approximately 20%, and partly due to an increase in
the average cost of writing proportional business.
Operational expenses decreased 29.4% from $12.7 million for the year ended
September 30, 1997 to $8.9 million for the year ended September 30, 1998. As a
percentage of net premiums earned, operational expenses were 5.7% during the
year ended September 30, 1998 compared to 7.7% for the year ended September
30, 1997. Effective October 1, 1997, the Administrative Services Agreement
with ARC was terminated and all of the personnel assigned to the Company by
ARC became employees of the Company, with the Company assuming the functions
previously performed by ARC. This generated a reduction in operational
expenses of approximately $2.3 million, as the fees paid to ARC were in excess
of the additional costs assumed by the Company. In addition, the Company
experienced a reduction in executive compensation of approximately $2.4
million, due partly to a decline in the fair value of stock appreciation
rights and partly to reduced bonus provisions. These decreases were offset by
increased costs of $1.0 million relating to LaSalle Re Capital and fees paid
to directors.
Corporate expenses decreased 72.2% from $1.8 million for the year ended
September 30, 1997 to $0.5 million for the year ended September 30, 1998. The
costs incurred in the year ended September 30, 1998 related to costs
associated with the Company's investigation of potential merger and
acquisition transactions. Corporate expenses for the year ended September 30,
1997 included costs associated with the Secondary Offering, the Preferred
Offering, the Tender Offer, the formation costs of LaSalle Re Capital, the
Company's move to the New York Stock Exchange and fees incurred with respect
to the CatEPut. Corporate expenses do not include the underwriting discounts
associated with the various offerings. These costs were borne by the selling
shareholders in the Secondary Offering. In respect of the Preferred Offering,
the underwriting discount was charged to additional paid-in capital.
Interest expense increased 11.8% from $1.7 million in the year ended
September 30, 1997 to $1.9 million for the year ended September 30, 1998. The
increase was due to additional financing charges associated with the deposit
portion of LaSalle Re's ceded reinsurance contract in the year ended September
30, 1998. As the contract incepted January 1, 1997, only three quarters of the
annual charge was included in the year ended September 30, 1997. Other
interest expenses related to the annual administration fee and the ongoing
commitment fees payable on the Company's credit facility. As at September 30,
1998, there were no borrowings under this facility.
Foreign exchange gains in the year ended September 30, 1998 were negligible
at $0.2 million compared to losses of $3.0 million in the year ended September
30, 1997. The losses in the year ended September 30, 1997 resulted from the
unfavorable closing of a sterling forward contract, and an overall
strengthening of the U.S. dollar against the major foreign currencies in which
the Company wrote premiums.
10K-27
<PAGE>
Earnings per Common Share were $3.06 for the year ended September 30, 1998
and $5.55 for the year ended September 30, 1997. Earnings per Common Share
assuming dilution were $2.80 for the year ended September 30, 1998 and $5.14
for the year ended September 30, 1997. The weighted average number of shares
outstanding used in the calculation of earnings assuming dilution decreased
from 22,998,936 for the year ended September 30, 1997 to 20,919,405 for the
year ended September 30, 1998. The decrease in the weighted average number of
shares outstanding resulted primarily from the repurchase of shares in the
Tender Offer in April 1997.
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, LaSalle
Re is prohibited from paying dividends of more than 25% of its opening
statutory capital and surplus unless it files with the Bermuda Registrar of
Companies an affidavit (at least 7 days before payment of such dividends)
stating that it will continue to meet the required minimum solvency margin and
minimum liquidity ratio requirements and from declaring or paying any
dividends without the prior approval of the Bermuda Minister of Finance if it
failed to meet its required margins on the last day of 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 opening total statutory
capital by 15% or more 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 $19.6 million for the year ended
September 30, 1999 and $96.0 million for the year ended September 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 these 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 September
30, 1999, 75.7% of its total assets were held in cash and investments, which
totaled $557.0 million. Cash and cash equivalents were $193.2 million at
September 30, 1999 compared to $85.3 million at September 30, 1998. The
increase was 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 1.8 years at September 30, 1999.
As of September 30, 1999, 76.2% of the securities held in the Company's
investment portfolio were fixed-income securities rated "AA" or better and
95.2% were fixed-income securities rated "A" or better by S&P or Moody's. No
single investment comprised more than 5% of the overall portfolio. As at
September 30, 1999, issuers from the Far East and Asia represented 5.1% of the
investment portfolio. These bonds had an insignificant aggregate unrealized
loss and were all rated AAA.
Reinsurance balances receivable were $93.2 million at September 30, 1999
compared to $86.8 million at September 30, 1998. The increase was due the
inclusion of reinsurance balances receivable related to the
10K-28
<PAGE>
business written by LaSalle Re Capital. At September 30, 1999, these
receivable balances were $46.0 million compared to $28.1 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 $17.3 million as at September 30, 1999. The increase of $9.7
million was primarily due to the new property catastrophe quota share
arrangement with CNA Re, the increased reinsurance protections purchased
through LaSalle Re Capital and an increase in the number of the reinsurance
protections bought by LaSalle Re. At September 30, 1999, the Company had $9.1
million of losses recoverable from reinsurers compared to $nil in 1998.
Other assets increased from $31.7 million as at September 30, 1998 to $37.6
million as at September 30, 1999. This was primarily due to the associated
profit commission due on the multi-year excess of loss reinsurance contract.
At September 30, 1999, reserves for unpaid losses and loss expenses were
$146.5 million compared to $97.9 million at September 30, 1998. During the
year ended September 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 September 30, 1999 was $18.7
million in respect of the business underwritten by LaSalle Re Capital,
compared to $6.7 million at September 30, 1998. 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
$37.3 million as at September 30, 1999. The increase of $8.1 million was
primarily due to liabilities established for the purchased reinsurance
protections.
In accordance with the terms of certain reinsurance contracts, the Company
has posted letters of credit in the amount of $21.6 million as of September
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 $16.1 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 paid dividends on its Common Shares of $0.75 per share in
October 1998 and $0.375 per share in each of January, April and July 1999. The
Company paid a quarterly dividend of $0.5469 per share to holders of record of
Series A preferred shares in December 1998 and March, June and September 1999.
As of September 30, 1999, dividends due but not yet declared on the Series A
preferred shares amounted to $0.5 million.
LaSalle Re Capital is committed to provide capital support for the 2000
underwriting year to the same syndicates it supported in prior years. The
total level of support is not expected to change materially from that provided
in 1999.
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 voting common
stock of LaSalle Re held by the Company, plus any preferred shares that the
Company may purchase from LaSalle Re with proceeds from the facility. 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
10K-29
<PAGE>
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. However, dividends and
restricted payments are limited to 50% of consolidated net income for the
Company's immediately preceding fiscal year less amounts paid on the Series A
preferred shares. As of September 30, 1999, there were no borrowings under the
credit facility.
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 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 beginning after June 15,
1999. The Company does not expect that this standard will have a significant
impact on the current financial reporting.
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. Furthermore, the Company has reviewed enterprise-wide
spreadsheet and database files for potential Year 2000 problems and has made
corrections where applicable. The Company has budgeted $0.3 million for the
overall Year 2000 effort and has expensed $0.2 million to date.
The Company distributed a Year 2000 readiness questionnaire to its external
suppliers and brokers. As of December 1, 1999, approximately 98% of suppliers
and brokers, including all of the Company's major suppliers and brokers, had
provided adequate response to this questionnaire. The Company has decided not
to continue its business relationship with those few 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 from its computerized reinsurance systems a hard copy 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.
10K-30
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company's major market risk exposure is to changes in interest rates,
primarily in the United States, since the Company has a portfolio of fixed
maturity investments, all of which are denominated in U.S. dollars. A change
in interest rates would affect the fair value of the Company's investments and
would lead to fluctuations in "Accumulated Other Comprehensive Income" on the
balance sheet. The Company limits this risk by setting a maximum portfolio
duration of four years, which is stipulated in the Company's investment
guidelines. It does not use derivative financial instruments to manage market
risk in its U.S. dollar denominated portfolio. The aggregate hypothetical loss
generated from an immediate adverse parallel shift in the treasury yield curve
of 100 basis points would cause a decrease in the total return of 1.8% (1998:
3.1%), which equates to a decrease in the market value of approximately $9.8
million (1998: $18.7 million) on a portfolio valued at $541.1 million at
September 30, 1999 (1998: $594.4 million). This calculation is based on an
immediate time horizon in order to reflect the worst-case scenario. The change
in the aggregate hypothetical loss calculation from 1998 to 1999 is due to the
Company having sold longer maturity bonds and reinvested the proceeds in
shorter maturity bonds and money market instruments during the year ended
September 30, 1999. This measure was designed to protect the total returns on
the portfolio in an increasing yield environment. 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.
In addition, the Company has foreign currency risk on both reinsurance
balances receivable and reinsurance balances payable (including payables
relating to losses). The Company does not currently utilize derivative
instruments to manage the Company's exposure to foreign currency movements. In
the past, the Company has used forward contracts to eliminate the risk;
however, given the uncertainty in cash flows, this was not deemed to be an
efficient management technique. As of September 30, 1999, the majority of the
Company's net receivable/payable position was denominated in U.S. dollars. As
at September 30, 1999, the largest foreign currency exposure was sterling, as
the Company had a net payable balance of (Pounds)13.3 million (1998:
receivable $14.1 million). A 5% increase or decrease in the year-end
sterling/U.S. dollar exchange rate would produce a gain or loss, respectively,
of $0.7 million (1998: $1.2 million). The Company has only a limited amount of
net receivable balances in other currencies and, therefore, no other currency
movement has been considered.
10K-31
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
LASALLE RE HOLDINGS LIMITED
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
INDEPENDENT AUDITORS' REPORTS............................................ 10K-33
CONSOLIDATED BALANCE SHEETS.............................................. 10K-35
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME........... 10K-36
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY............... 10K-37
CONSOLIDATED STATEMENTS OF CASH FLOWS.................................... 10K-38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS............................... 10K-39
</TABLE>
10K-32
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
LaSalle Re Holdings Limited
We have audited the accompanying consolidated balance sheet of LaSalle Re
Holdings Limited and subsidiaries as of September 30, 1999, and the related
consolidated statements of operations and comprehensive income, changes in
shareholders' equity, and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of LaSalle Re Holdings Limited
and subsidiaries as of September 30, 1999 and the results of their operations
and their cash flows for the year then ended in conformity with accounting
principles generally accepted in the United States of America.
DELOITTE & TOUCHE
November 5, 1999
10K-33
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
LaSalle Re Holdings Limited
We have audited the accompanying consolidated balance sheet of LaSalle Re
Holdings Limited and subsidiaries as of September 30, 1998, and the related
consolidated statements of operations and comprehensive income, changes in
shareholders' equity, and cash flows for the years in the two-year period then
ended. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of LaSalle Re
Holdings Limited and subsidiaries as of September 30, 1998, and the results of
their operations and their cash flows for each of the years in the two-year
period ended September 30, 1998, in conformity with accounting principles
generally accepted in the United States of America.
KPMG
Chartered Accountants
Hamilton, Bermuda
October 26, 1998
10K-34
<PAGE>
LASALLE RE HOLDINGS LIMITED
CONSOLIDATED BALANCE SHEETS
Years ended September 30, 1999 and 1998
(Expressed in thousands of United States Dollars, except share and per share
data)
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Assets
Cash and cash equivalents................................... $193,151 $ 85,281
Investments held as available for sale at fair value........ 363,825 521,476
-------- --------
(amortized cost 1999: $369,179; 1998: $503,531)
Total investments and cash.................................. 556,976 606,757
Accrued investment income................................... 10,075 11,056
Reinsurance balances receivable............................. 93,163 86,779
(related party 1999: $(72); 1998: $8,729)
Deferred acquisition costs.................................. 11,911 13,444
Prepaid reinsurance premiums................................ 17,310 7,584
Outstanding losses recoverable from reinsurers.............. 9,100 0
(related party 1999: $4,100; 1998: $0)
Other assets................................................ 37,572 31,670
-------- --------
Total assets................................................ $736,107 $757,290
======== ========
Liabilities
Outstanding losses and loss expenses........................ $146,552 $ 97,942
Unearned premiums........................................... 77,049 83,119
Other liabilities........................................... 37,254 29,241
(related party 1999: $8,202; 1998: $3,831)
Dividend payable............................................ 0 11,366
-------- --------
Total liabilities........................................... 260,855 221,668
-------- --------
Minority interest........................................... 93,055 105,569
-------- --------
Shareholders' equity
Share capital authorized in the aggregate 100,000,000
shares, par value $1 Preferred shares...................... 3,000 3,000
(par value $1, liquidation preference $25 per share, issued
& outstanding, 3,000,000 Series A Preferred Shares)
Common shares............................................... 15,600 15,179
(par value $1 issued & outstanding, 1999: 15,600,262; 1998:
15,178,791)
Additional paid in capital.................................. 293,709 295,578
Accumulated other comprehensive income...................... (4,113) 13,838
Deferred compensation....................................... (516) 0
Retained earnings........................................... 74,517 102,458
-------- --------
Total shareholders' equity.................................. 382,197 430,053
-------- --------
Total liabilities, minority interest and shareholders'
equity..................................................... $736,107 $757,290
======== ========
</TABLE>
See accompanying notes to consolidated financial statements
10K-35
<PAGE>
LASALLE RE HOLDINGS LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
Years ended September 30, 1999, 1998 and 1997
(Expressed in thousands of United States Dollars, except share and per share
data)
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Revenues
Premiums written................................. $139,010 $155,316 $171,386
(related party 1999: $8,369; 1998: $16,917;
1997: $21,408)
Premiums ceded................................... (28,191) (7,815) (7,693)
-------- -------- --------
(related party 1999: $8,091; 1998: $0; 1997: $0)
Net premiums written............................. 110,819 147,501 163,693
Change in unearned premiums and prepaid
reinsurance premiums............................ 15,796 7,119 240
-------- -------- --------
Net premiums earned.............................. 126,615 154,620 163,933
Net investment income............................ 33,847 34,288 33,109
Net realized gains on investments................ 615 5,575 555
Other income..................................... 0 63 188
-------- -------- --------
(related party 1999: $0; 1998: $63; 1997: $188)
Total revenues................................... 161,077 194,546 197,785
-------- -------- --------
Expenses
Losses and loss expenses incurred................ 131,147 95,539 31,199
(net of recoveries of $11,085; 1998 & 1997: $0)
Underwriting expenses............................ 22,219 22,661 26,018
(related party 1999: $3,769; 1998: $6,318; 1997:
$9,857)
Operational expenses............................. 11,358 8,932 12,656
(related party 1999: $0; 1998: $44; 1997:
$6,212)
Corporate expenses............................... 788 517 1,770
Interest expense................................. 1,714 1,881 1,678
Exchange (gains) losses.......................... (470) (216) 2,996
-------- -------- --------
Total expenses................................... 166,756 129,314 76,317
-------- -------- --------
(Loss)/income before minority interest........... (5,679) 65,232 121,468
Minority interest................................ (2,845) 13,426 24,391
-------- -------- --------
Net (loss)/income................................ $ (2,834) $ 51,806 $ 97,077
Other comprehensive income
Unrealized (losses) gains on securities.......... (9,638) $ 12,715 $ 3,592
Less: reclassification adjustments for (gains)
losses included in net (loss)/income............ (8,313) $ (912) $ 304
-------- -------- --------
Total other comprehensive (loss)/income.......... (17,951) 11,803 3,896
-------- -------- --------
Comprehensive (loss)/income...................... $(20,785) $ 63,609 $100,973
======== ======== ========
(Loss)/earnings per common share................. $ (0.61) $ 3.06 $ 5.55
======== ======== ========
(Loss)/earnings per common share--assuming
dilution........................................ $ (0.61) $ 2.80 $ 5.14
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements
10K-36
<PAGE>
LASALLE RE HOLDINGS LIMITED
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Years ended September 30, 1999, 1998 and 1997
(Expressed in thousands of United States Dollars, except share and per share
data)
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Preferred shares par value $1
Balance at beginning and end of year............. $ 3,000 $ 3,000 $ 3,000
======== ======== ========
Common shares par value $1
Balance at beginning of year..................... $ 15,179 $ 15,074 $ 14,398
Issuance of shares............................... 732 155 1
Share repurchase................................. (317) (50) (3,704)
Exercise of share options........................ 6 0 0
Change in minority interest...................... 0 0 4,379
-------- -------- --------
Balance at end of year........................... $ 15,600 $ 15,179 $ 15,074
======== ======== ========
Additional paid in capital
Balance at beginning of year..................... $295,578 $299,964 $221,968
Issuance of shares............................... 1,398 1,490 70,177
Share repurchase................................. (779) (790) (44,990)
Change in minority interest...................... (1,068) (3,274) 54,664
Equity put option premium........................ (1,420) (1,812) (1,855)
-------- -------- --------
Balance at end of year........................... $293,709 $295,578 $299,964
======== ======== ========
Accumulated other comprehensive income
Balance at beginning of year..................... $ 13,838 $ 2,035 $ (1,861)
Unrealized (loss)/gain in year................... (17,886) 11,851 4,354
Change in minority interest...................... (65) (48) (458)
-------- -------- --------
Balance at end of year........................... $ (4,113) $ 13,838 $ 2,035
======== ======== ========
Deferred compensation
Issuance of shares............................... $ (1,092) $ 0 $ 0
Amortization..................................... 576 0 0
-------- -------- --------
Balance at end of year........................... $ (516) $ 0 $ 0
======== ======== ========
Retained earnings
Balance at beginning of year..................... $102,458 $105,153 $ 72,943
Net (loss)/income................................ (2,834) 51,806 97,077
Common share dividends........................... (17,543) (44,641) (44,860)
(1999: $1.125; 1998: $3.00; 1997: $2.84 per
share)
Preferred share dividends........................ (6,563) (6,563) (2,807)
(1999: $2.19; 1998: $2.19; 1997: $0.94 per
share)
Share repurchase................................. (204) (719) (33,807)
Exercise of share options........................ (508) (133) 0
Change in minority interest...................... (289) (2,445) 16,607
-------- -------- --------
Balance at end of year........................... $ 74,517 $102,458 $105,153
======== ======== ========
Total shareholders' equity................... $382,197 $430,053 $425,226
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements
10K-37
<PAGE>
LASALLE RE HOLDINGS LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended September 30, 1999, 1998 and 1997
(Expressed in thousands of United States Dollars, except share and per share
data)
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities
Net (loss)/income............................ $ (2,834) $ 51,806 $ 97,077
Adjustments to reconcile net income to cash
provided by operating activities:
Minority interest in net (loss)/income..... (2,845) 13,426 24,391
Amortization of investment premium......... 516 863 1,725
Net realized gains on sale of investments.. (615) (5,575) (555)
Unrealized losses/(gains) on foreign
exchange.................................. 193 (594) 937
Changes in:
Accrued investment income.................. 981 1,628 1,527
Reinsurance balances receivable............ (6,354) (6,590) (10,495)
Deferred acquisition costs................. 1,533 (1,512) (1,468)
Prepaid reinsurance premiums............... (9,726) (1,747) (5,837)
Outstanding losses recoverable from
reinsurers................................ (9,100) 0 0
Other assets............................... (5,916) (9,156) (20,981)
Outstanding losses and loss expenses....... 48,403 52,218 (4,242)
Unearned premiums.......................... (6,070) (5,372) 5,596
Other liabilities.......................... 11,387 6,613 10,968
--------- --------- ---------
Cash provided by operating activities........ 19,553 96,008 98,643
--------- --------- ---------
Cash flows from investing activities
Purchase of investments...................... (195,935) (427,283) (364,989)
Net sales of short term investments.......... 0 0 116
Proceeds on the sale of investments.......... 305,671 389,170 282,449
Proceeds on the maturity of investments...... 24,710 35,000 79,000
--------- --------- ---------
Cash provided by (applied to) investing
activities.................................. 134,446 (3,113) (3,424)
--------- --------- ---------
Cash flows from financing activities
Net proceeds from subscriptions to share
capital..................................... 1,163 4,802 72,682
Payment of dividends......................... (44,096) (63,267) (54,338)
Share repurchase............................. (1,346) (1,560) (103,442)
Equity put option premium.................... (1,850) (2,350) (2,350)
--------- --------- ---------
Cash applied to financing activities......... (46,129) (62,375) (87,448)
--------- --------- ---------
Net increase in cash and cash equivalents.... 107,870 30,520 7,771
Cash and cash equivalents at beginning of
year........................................ 85,281 54,761 46,990
--------- --------- ---------
Cash and cash equivalents at end of year..... $ 193,151 $ 85,281 $ 54,761
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements
10K-38
<PAGE>
LASALLE RE HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended September 30, 1999, 1998 and 1997
(Expressed in thousands of United States Dollars, except share and per share
data)
1. General
The Company was incorporated on September 20, 1995 under the laws of
Bermuda to act as an investment holding company. LaSalle Re Limited ("LaSalle
Re") was incorporated on October 26, 1993 under the laws of Bermuda and
commenced operations on November 22, 1993. LaSalle Re is licensed under the
Insurance Act, 1978 as amended by the Insurance Amendment Act, 1995 of Bermuda
(the "Act") to write insurance business and operates as a multi-line
reinsurance company, with emphasis on property catastrophe business.
Property catastrophe reinsurance covers unpredictable events such as
hurricanes, windstorms, hailstorms, earthquakes, fires, industrial explosions,
freezes, riots, floods and other man-made or natural disasters. Because the
Company has large aggregate exposures to these risks, the Company expects that
its claims experience will be characterized by relatively low frequency and
high severity claims. The occurrence of claims from catastrophic events is
likely to result in substantial volatility in the Company's financial results
for any particular period. The Company endeavors to manage its exposures to
catastrophic events by limiting the amount of its exposure in each geographic
zone worldwide and requiring that its property catastrophe contracts provide
for aggregate limits and attachment points.
On August 26, 1994, LaSalle Re incorporated a subsidiary company in the
United Kingdom, LaSalle Re (Services) Limited, to act as a representative
office for the Company. In addition, on June 11, 1996, LaSalle Re incorporated
a subsidiary company in Bermuda, LaSalle Re Corporate Capital Ltd., to provide
capital support to selected Lloyd's syndicates.
In November 1995, the Company and LaSalle Re consummated an offer (the
"Exchange Offer") pursuant to which, among other things, the founding
shareholders of LaSalle Re (the "Founding Shareholders") exchanged their
capital stock of LaSalle Re for common shares of the Company (the "Common
Shares") and, in certain circumstances, exchangeable non-voting shares of
LaSalle Re (the "Exchangeable Non-Voting Shares"). The Exchange Offer was
accounted for as if it were a pooling of interests of combining enterprises
under common control.
On November 27, 1995, the Company and certain Founding Shareholders also
consummated an initial public offering of 4,312,500 Common Shares. Of these
shares, 2,920,500 were sold by Founding Shareholders and 1,392,000 by the
Company. The proceeds from the sale of 1,392,000 shares sold by the Company
were used to enable LaSalle Re to redeem shares of its capital stock.
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. Significant accounting policies
The accompanying consolidated financial statements are prepared in
accordance with United States generally accepted accounting principles
("GAAP"). The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the reported
and disclosed amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the period. Actual results
could differ from those estimates. The estimates most susceptible to
significant change are those used in determining the liability for unpaid
losses and loss expenses and the amount of ultimate premiums written.
10K-39
<PAGE>
LASALLE RE HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following are the significant accounting policies adopted by the
Company:
(a) Principles of consolidation
The consolidated financial statements include the financial statements of
LaSalle Re Holdings Limited, LaSalle Re Limited and its subsidiaries, LaSalle
Re (Services) Limited and LaSalle Re Corporate Capital Ltd. All significant
inter-company balances and transactions have been eliminated in consolidation.
(b) Minority interest
Minority interest represents the Founding Shareholders' ownership of the
Exchangeable Non-Voting Shares in LaSalle Re. These shares are held by certain
Founding Shareholders who would otherwise hold, or cause another shareholder
to hold, directly, indirectly or constructively, in excess of 9.9% of the
voting power of the Company or LaSalle Re. The Exchangeable Non-Voting Shares
in LaSalle Re are exchangeable, at the option of the holder, for Common Shares
of the Company, on a one-for-one basis, unless the board of directors of the
Company determines such exchange may cause actual or potential adverse tax
consequences to the Company or any shareholder. The Exchangeable Non-Voting
Shares will at all times rank as to assets, dividends and in all other
respects on a parity with the Common Shares of LaSalle Re, except that they do
not have the right to vote on any matters except as required by Bermuda law
and in connection with certain actions by the Company.
Changes in the minority interest of LaSalle Re as a result of the exchange
of such shares for shares in the Company are recorded at historic cost by
transferring an appropriate portion of the minority interest to the various
components of shareholders' equity. The minority's share of income as recorded
in the income statement is calculated using the minority's ownership
percentage as at the balance sheet date. Minority interest as reported in the
consolidated balance sheets represents the minority's current proportionate
share of LaSalle Re and its subsidiaries' net assets.
(c) Premiums earned and deferred acquisition costs
Premiums written are estimated by management based upon reports received
from ceding companies. These estimates are adjusted where a contract contains
a no claims bonus with a provision for the potential liability recorded
simultaneously with the written premium. In addition, estimates are subject to
review with adjustments recorded in the period in which the actual amounts are
determined. Premiums on property catastrophe excess of loss contracts are
earned on a pro rata basis over the period the coverage is provided, which is
generally 12 months. Under pro rata property catastrophe contracts, the risks
underlying the contracts incept throughout the policy period and premiums
generally are earned over an 18 month period. Premiums written by LaSalle Re
Corporate Capital Ltd. are derived from reports submitted to the Company by
the syndicates. These premiums are earned in accordance with the related
underlying risk attachment periods, which average between 18-24 months.
Unearned premiums represent the portion of premiums written which are
applicable to the unexpired terms of the policies in force.
Acquisition costs, mainly brokerage, commissions, underwriting fees and
excise taxes related to unearned premiums, are deferred and amortized to
income over the period in which the premiums are earned. Future earned
premiums, anticipated losses and loss adjustment expenses and anticipated
investment income related to those premiums are considered in determining the
recoverability of deferred acquisition costs.
(d) Reinsurance
In the normal course of business, the Company seeks to reduce its exposure
to losses that may arise from catastrophes and cause unfavorable underwriting
results by reinsuring certain levels of risks with other reinsurers.
10K-40
<PAGE>
LASALLE RE HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In accordance with Statement of Financial Accounting Standard ("SFAS") No.
113 "Accounting and Reporting for Reinsurance of Short-Duration and Long-
Duration Contracts", contracts providing indemnification against loss or
liability relating to insurance risk have been accounted for as reinsurance.
Reinsurance premiums are reported as prepaid reinsurance premiums and
amortized over the contract period in proportion to the amount of reinsurance
protection provided. Where the contract provides for return premiums, these
are accrued based on loss experience through to the balance sheet date.
Reinsurance contracts, which do not satisfy the conditions for reinsurance
accounting under SFAS No. 113, are accounted for as deposits.
Amounts recoverable from reinsurers are estimated in a manner consistent
with the claim liability associated with the reinsured policies.
(e) Losses and loss expenses
The liability for outstanding losses and loss expenses is based on reports
and individual case estimates received from ceding companies. An amount is
included for losses and loss expenses incurred but not reported on the basis
of reports received from ceding companies and an actuarial analysis, performed
by the Company and reviewed by an independent firm of actuaries. The amount
included as losses incurred in respect of business written by LaSalle Re
Corporate Capital Ltd. is derived from an analysis of expected loss ratios.
Given the inherent nature of major catastrophic events, considerable
uncertainty underlies the assumptions and associated estimated reserves for
losses and loss expenses. These estimates are reviewed regularly and, as
experience develops and new information becomes known, the reserves are
adjusted as necessary. Such adjustments, if any, are reflected in results of
operations in the period in which they are determined and are accounted for as
changes in estimates. Due to the inherent uncertainty in estimating the
liability for losses and loss expenses, there can be no assurance that the
ultimate liability will not exceed recorded amounts, with a resulting material
effect on the Company. Based on the current assumptions used in calculating
the liability, management believes that the Company's recorded amount is
adequate to meet its future obligations.
Liabilities are recorded without consideration of potential salvage or
subrogation recoveries that are estimated to be immaterial. Such recoveries,
when realized, are reflected as a reduction of losses incurred.
(f) Investments
The Company's investments comprise fixed interest securities and short term
investments, such as certificates of deposit or commercial paper. All
investments are considered to be available for sale under the definition
included in SFAS No. 115 "Accounting and Reporting for Certain Investments in
Debt and Equity Securities". As such, they are reported at fair value with
unrealized gains and losses, net of amounts attributable to the minority
interest, reported as other comprehensive income.
Purchases and sales of investments are accounted for on the trade date of
the transaction.
(g) Investment income
Investment income, net of investment expenses, is accrued to the balance
sheet date and includes amortization of premiums and accretion of discounts
relative to fixed interest securities purchased at prices different to par
value.
Realized gains or losses on sales of investments are determined on the
basis of specific identification and are included in the consolidated
statements of operations and comprehensive income.
10K-41
<PAGE>
LASALLE RE HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(h) Translation of foreign currencies
The U.S. dollar is the Company's functional currency. Foreign currency
monetary assets and liabilities are translated at exchange rates in effect at
the balance sheet date. Unearned premiums and deferred acquisition costs are
translated at historic exchange rates. Foreign currency revenues and expenses
are translated at the exchange rates in effect at the date of the transaction.
Exchange gains and losses are included in the determination of net income, as
they arise.
In prior years, the Company has entered into foreign exchange contracts to
manage the currency risks associated with the receipt of non-U.S. dollar
insurance premiums. Realized and unrealized gains and losses on these
contracts were included in the determination of net income as they arose.
(i) Fair value of financial instruments
Fair value disclosures with respect to certain financial instruments are
separately included herein, where appropriate.
The carrying values of other financial instruments, including cash and cash
equivalents, reinsurance balances receivable, accrued investment income,
promissory note receivable and other liabilities, approximate their fair value
due to the short term nature of the balances.
(j) Other income
Other income relates to fees earned in respect of reinsurance services
provided.
(k) Corporate expenses
Corporate expenses are recorded on an accruals basis.
(l) Cash and cash equivalents
For the purposes of the consolidated statements of cash flows, the Company
considers all time deposits, certificates of deposit and commercial paper with
an original maturity of 90 days or less as equivalent to cash.
(m) Stock incentive compensation plans
The Company has adopted SFAS No. 123 "Accounting for Stock-Based
Compensation". As allowed under this standard, the Company accounts for stock
option grants in accordance with APB opinion No. 25, "Accounting for Stock
Issued to Employees". Compensation expense for stock option grants is
recognized to the extent that the fair value of the stock exceeds the exercise
price of the option at the measurement date. Any resulting compensation
expense is recorded over the shorter of the vesting or service period.
Pro forma disclosure of net income and earnings per share as if the fair
value based method of SFAS No. 123 had been adopted is provided in Note 10 to
the consolidated financial statements.
(n) Earnings per common share
Earnings per Common Share have been calculated in accordance with SFAS 128
"Earnings per Share". Earnings per Common Share are calculated by dividing net
income available to common shareholders by the
10K-42
<PAGE>
LASALLE RE HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 Common Share
assuming dilution is computed by dividing net income available to common
shareholders by the sum of the weighted average number of Common Shares
outstanding and the dilutive potential Common Shares outstanding during the
period of calculation. 1997 calculations have been restated to give effect to
SFAS 128.
(o) Accounting pronouncements
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 beginning after June 15,
1999. The Company does not expect that this standard will have a significant
impact on the current financial reporting.
3. Investments and Investment Income
(a) Investments
All fixed interest securities and short term investments are considered as
available for sale. The fair values are based on quoted market prices at the
reporting date for those, or similar, investments. As at September 30, 1999
and 1998, the estimated fair values and amortized cost of investments are as
follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
1999 Cost Gains Losses Value
---- --------- ---------- ---------- --------
<S> <C> <C> <C> <C>
U.S. government and agencies.... $ 95,584 $ 36 $(1,530) $ 94,090
Non U.S. government and
agencies....................... 31,041 21 (395) 30,667
Corporate....................... 237,527 297 (3,761) 234,063
Other debt...................... 5,027 5 (27) 5,005
-------- ------- ------- --------
$369,179 $ 359 $(5,713) $363,825
======== ======= ======= ========
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
1998 Cost Gains Losses Value
---- --------- ---------- ---------- --------
<S> <C> <C> <C> <C>
U.S. government and agencies.... $134,832 $ 6,349 $ 0 $141,181
Non U.S. government and
agencies....................... 37,239 1,233 (90) 38,382
Corporate....................... 299,101 9,869 (3) 308,967
Mortgage-backed securities...... 29,649 581 0 30,230
Other debt...................... 2,710 10 (4) 2,716
-------- ------- ------- --------
$503,531 $18,042 $ (97) $521,476
======== ======= ======= ========
</TABLE>
The unrealized loss on investments of $4,113 (1998: gain of $13,838) which
includes an unrealized loss of $5 on cash and cash equivalents is included in
accumulated other comprehensive income in the consolidated balance sheet. This
amount is disclosed net of the minority's interest of $1,246 (1998: $4,107).
10K-43
<PAGE>
LASALLE RE HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Investments held at September 30, 1999 mature as follows:
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
--------- -------
<S> <C> <C>
Less than one year.... 12,024 12,005
1-5 years............. 312,265 309,490
5-10 years............ 44,890 42,330
------- -------
369,179 363,825
======= =======
</TABLE>
The following table summarizes the composition of the fair value of
available for sale securities by ratings assigned by Standard & Poor's Ratings
Services or Moody's Investors Services Inc.
<TABLE>
<CAPTION>
1999 1998
----- -----
<S> <C> <C>
AAA....................... 43.3% 69.6%
AA........................ 32.9% 16.9%
A......................... 19.0% 11.4%
BBB....................... 3.4% 0.0%
BB........................ 1.4% 2.1%
----- -----
100.0% 100.0%
===== =====
</TABLE>
In the normal course of reinsurance operations, the Company's bankers have
issued letters of credit totaling $21,577 (1998: $8,303) in favor of ceding
insurance companies to secure the Company's obligations under various
reinsurance contracts. In connection with LaSalle Re Corporate Capital Ltd.'s
support of three Lloyd's syndicates, the Company has posted letters of credit
in the amount of $16,137 (1998: $16,616). In addition, in connection with a
swap agreement, the Company has posted a letter of credit of $3,000 (1998:
$3,000). At September 30, 1999, $46,821 (1998: $32,107) of fixed interest
securities have been pledged as collateral for these letters of credit.
(b) Net investment income
Net investment income for the years ended September 30, 1999, 1998 and 1997
was derived from the following sources:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Cash and short term investments............... $ 6,477 $ 3,649 $ 4,342
U.S. government and agencies fixed interest
securities................................... 2,046 3,627 5,933
Non U.S. government and agencies fixed
interest securities.......................... 6,598 7,548 3,531
Corporate fixed interest securities........... 15,836 19,784 20,456
Mortgage-backed securities.................... 1,092 477 0
Other......................................... 2,664 154 0
------- ------- -------
Gross investment income....................... 34,713 35,239 34,262
Investment expenses (Note 12)................. (866) (951) (1,153)
------- ------- -------
$33,847 $34,288 $33,109
======= ======= =======
</TABLE>
Net realized gains (losses) comprise $4,082 realized gains and $3,467
realized losses (1998: $6,085 and $510; 1997: $1,881 and $1,326 respectively).
Proceeds received from the sale of available for sale securities during the
year ended September 30, 1999 were $305,671 (1998: $389,170; 1997: $282,449).
10K-44
<PAGE>
LASALLE RE HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
4. Reinsurance
The Company utilizes various reinsurance protections to reduce its exposure
to large losses.
The Company has purchased an excess of loss program which provides coverage
of $75,000 in excess of the first $75,000 (1998: $100,000 in excess of the
first $100,000) of losses per occurrence for a first loss event and $60,000
excess of $75,000 (1998: $100,000 in excess of $100,000) per occurrence on the
second loss event and $52,500 excess of $125,000 (1998: $100,000 in excess of
$150,000) per occurrence on the third loss event over a three-year period
ended December 31, 2001, subject to a maximum aggregate recovery of $187,500
(1998: $300,000).
Coverage for the first loss is substantially funded by way of annual and
reinstatement premium obligations. Accordingly, this part of the coverage has
been recorded as a financing arrangement. The consideration paid, net of
associated financing charges, is recorded as a deposit (as part of other
assets in the consolidated balance sheet) and is adjusted at the balance sheet
date to reflect the net present value of expected future cash flows under that
portion of the contract. Interest expense includes finance charges of $1,331
(1998: $1,666; 1997: $1,470), which are being amortized over the period of the
contract using the interest method.
In addition, in 1999, the Company entered into a quota share arrangement
which cedes a proportion of the Company's property catastrophe business to a
founding shareholder. The Company has also purchased other non-proportional
excess of loss protections, which provide for the recovery of losses from
reinsurers in excess of certain retentions and loss warranties.
The ceding of the reinsurance does not legally discharge the Company from
its liability to its reinsureds, since the Company is required to pay losses
and bear collection risk if the reinsurers fail to meet their obligations
under the reinsurance agreements. The effect of reinsurance on premiums
written and earned is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------------ ------------------ ------------------
Written Earned Written Earned Written Earned
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Assumed................. $139,010 $145,080 $155,316 $160,688 $171,386 $165,789
Ceded................... (28,191) (18,465) (7,815) (6,068) (7,693) (1,856)
-------- -------- -------- -------- -------- --------
Net Premiums............ $110,819 $126,615 $147,501 $154,620 $163,693 $163,933
======== ======== ======== ======== ======== ========
</TABLE>
5. Outstanding losses and loss expenses
Activity in the liability for losses and loss expenses during the years
ended September 30, 1999, 1998 and 1997 is summarized as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Balance as of October 1..................... $ 97,942 $ 45,491 $ 49,875
-------- -------- --------
Incurred related to:
Current year.............................. 82,537 79,014 22,095
Prior year events......................... 48,610 16,525 9,104
-------- -------- --------
131,147 95,539 31,199
-------- -------- --------
Paid related to:
Current year.............................. (12,821) (12,934) (3,216)
Prior year................................ (78,816) (30,154) (32,367)
-------- -------- --------
(91,637) (43,088) (35,583)
-------- -------- --------
Losses recoverable as of September 30....... 9,100 0 0
-------- -------- --------
Balance as of September 30.................. $146,552 $ 97,942 $ 45,491
======== ======== ========
</TABLE>
10K-45
<PAGE>
LASALLE RE HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The prior year development in 1999 was due to several factors. Firstly, the
Company increased reserves by $14,500 in respect of Hurricane Georges, which
occurred in September 1998. This followed an increase in the size of the
market loss. Secondly, in March 1999 the Company recorded outstanding loss
reserves totaling approximately $11,000 on three stop loss contracts. These
losses arose from causes which could not have been reasonably anticipated when
incurred but not reported losses were previously established. Thirdly, as a
result of higher than previously anticipated losses on international
catastrophe business, the Company strengthened its incurred but not reported
losses by approximately $16,000 to reflect this trend.
In 1998 the prior year development related to a loss reported during the
year on a 1996 aggregate stop loss contract. This contract had a period of 24
months after the expiry of the contract within which to report losses.
Following this notification the Company also established reserves for the 1997
renewal of this contract. The prior year development in 1997 relates primarily
to an additional liability on Hurricane Fran, which occurred in September
1996.
As at September 30, 1999, the Company's gross reserve for incurred but not
reported losses was $68,665 compared to $52,200 at September 30, 1998.
6. Earnings per common share
The following earnings per Common Share amounts have been disclosed in
accordance with the requirements of SFAS No. 128:
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Net (loss)/income.......................... $ (2,834) $ 51,806 $ 97,077
Add back: minority interest................ (2,845) 13,426 24,391
Less: Series A preferred share dividends... (6,563) (6,563) (3,354)
---------- ---------- ----------
(Loss) income available to common
shareholders.............................. $ (12,242) $ 58,669 $ 118,114
---------- ---------- ----------
Weighted average number of Common Shares
outstanding:
Common Shares............................ 15,628,650 15,145,112 15,567,521
Exchangeable Non-Voting Shares........... 4,584,505 4,018,146 5,703,212
---------- ---------- ----------
Weighted average number of Common Shares
outstanding............................... 20,213,155 19,163,258 21,270,733
---------- ---------- ----------
(Loss) earnings per Common Share........... $ (0.61) $ 3.06 $ 5.55
========== ========== ==========
(Loss) income available to common
shareholders.............................. (12,242) $ 58,669 $ 118,114
Weighted average number of Common Shares
outstanding............................... 20,213,155 19,163,258 21,270,733
Plus: incremental shares from assumed:
exercise of options.................... Note 1,653,233 1,661,391
exercise of stock appreciation rights.. Note 80,516 66,812
contingently issuable shares........... Note 22,398 0
---------- ---------- ----------
Adjusted weighted average number of Common
Shares outstanding........................ 20,213,155 20,919,405 22,998,936
---------- ---------- ----------
(Loss) earnings per Common Share assuming
dilution.................................. $ (0.61) $ 2.80 $ 5.14
========== ========== ==========
</TABLE>
Note: The incremental shares from assumed exercises of options, stock
appreciation rights and contingently issuable shares have not been included in
the above computation as they have an antidilutive effect on losses per Common
Share.
As of September 30, 1999, the Company had 1,029,514 options outstanding
(1998: 1,873,782; 1997: 2,550,537) and had granted 340,872 (1998 and 1997:
340,872) stock appreciation rights.
10K-46
<PAGE>
LASALLE RE HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
7. Other assets
Included in other assets is a promissory note receivable. In connection
with the terms of an employment contract, LaSalle Re advanced $695 for the
purpose of purchasing a property in Bermuda. The advance is evidenced by a
promissory note, which bears interest at the rate of 8% per annum and is
repayable in full at the earlier of the termination date of the individual's
employment contract or the date of sale of the property. Under the employment
contract, LaSalle Re will assume any gain or loss on the disposition of the
property.
As discussed in Note 4, other assets also include a deposit relating to
funded reinsurance.
8. Share capital and additional paid-in capital
The authorized share capital of the Company is 100,000,000 shares of par
value $1 each. This aggregate figure includes both common and preferred
shares. As of September 30, 1999 and 1998, the following Common Shares have
been issued and fully paid.
(a) Common shares
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Number issued and fully paid. 15,600,262 15,178,791
Share capital...... $ 15,600 $ 15,179
Additional paid in capital. $ 223,426 $ 225,295
</TABLE>
A holder of a common share is entitled to one vote for each share held. There
are various restrictions on the ability of certain shareholders to dispose of
their shares.
(b) Preferred Shares
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Number issued and
fully paid........... 3,000,000 3,000,000
Share capital......... $ 3,000 $ 3,000
Additional paid in
capital.............. $ 70,283 $ 70,283
</TABLE>
Series A Preferred Shares, have a par value of $1.00 per share and are
entitled to a liquidation preference of $25.00 per share ($75,000 in total).
Dividends are cumulative at 8.75% of the liquidation preference per annum
(equivalent to an annual rate of $2.1875 per share). On or after March 27,
2007, these shares will be redeemable, in whole or in part, at the option of
the Company at a redemption price of $25.00 per share.
(c) Catastrophe equity put
The Company has entered into a $100 million multi-year Catastrophe Equity
Put ("CatEPut") option program which enables the Company to raise up to $100
million of equity, through the issue of convertible Series B Preferred Shares
to the option writers. The preferred shares can be redeemed by the Company at
any time over the five years following their issue. In addition, the option
writers can convert their preferred shares into Common Shares of the Company
at any time after they have been outstanding for five years. Conversion is at
the greater of the book value of the Company at the date of conversion or the
market value of the Common Shares based on the 30-day trading average prior to
conversion. The Company is obligated to pay a net option
10K-47
<PAGE>
LASALLE RE HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
premium of $1,850 (1998: $1,850) per annum. The net option premium is charged
to additional paid in capital, net of the minority's interest of $430 (1998:
$424). In 1998, $422 of the option premium was payable to affiliates of
shareholders of the Company.
9. Shareholder share options
The Company has issued options to purchase Common Shares to certain
shareholders and their affiliates and LaSalle Re has issued options to
purchase Exchangeable Non-Voting Shares. These options became exercisable on
October 1, 1996 and may be exercised until November 22, 2003.
During the year ended September 30, 1999, a total number of 909,000 options
were exercised in cashless transactions resulting in the issuance of 653,274
Common Shares. In addition, 268 options were repurchased at a value of $7.97
per option. As at September 30, 1999, 563,078 options to purchase Exchangeable
Non-Voting Shares of LaSalle Re were outstanding.
During the year ended September 30, 1998, a total number of 177,255 options
were exercised in cashless transactions resulting in the issuance of 132,588
Common Shares. In addition, 454,500 options were exercised at an exercise
price of $6.78, which resulted in the issuance of 454,500 Exchangeable Non-
Voting Shares. As at September 30, 1998, LaSalle Re had 1,472,346 options to
purchase Exchangeable Non-Voting Shares outstanding.
The original exercise price of the options was $16.67 per share, (which was
equal to the fair value of the Company's shares at the grant date), minus
dividend adjustments. The current exercise price is $6.03. As the options were
granted to certain of the Founding Shareholders and their affiliates as an
inducement to purchase stock in LaSalle Re, no compensation expense has been
recorded in connection with the options.
10. Stock Incentive Compensation and Employee benefit plans
(a) Stock appreciation rights
In consideration for entering into an employment agreement with LaSalle Re,
the Company's former Chief Executive Officer and current Chairman of the Board
(the "Executive") was granted a total of 340,872 Stock Appreciation Rights
(SARs) during 1994. Upon exercise, the SARs entitle the Executive to a cash
payment equal to the value of the SARs as of the exercise date. Alternatively,
at the Company's sole discretion, the SARs will entitle the Executive to
either (i) the number of Special Non-Voting Shares of LaSalle Re equal to the
aggregate value of the SARs divided by the fair value of a Common Share at the
exercise date, or (ii) upon payment of the base value for each SAR, the number
of Special Non-Voting Shares of LaSalle Re equal to the number of SARs
exercised.
The value of each SAR equals the fair market value of a Common Share less
the base value on the exercise date, subject to anti-dilution adjustments. The
fair market value shall be determined by the board of directors of the
Company, but shall be based on the market price of the Common Shares. The base
value of each SAR at the time of issuance was $16.67, minus dividend
adjustments. The current base value is $6.03.
The number of SARs which can be exercised is dependent upon the internal
rate of return achieved during a predefined period and is based upon the
financial performance of LaSalle Re from inception to November 27, 1995 and
LaSalle Re Holdings Limited's consolidated performance from that date forward.
As at September 30, 1999, the number of SARs exercisable is 92,035. During the
fiscal year ended September 30, 1999, the fair value of the SARs has decreased
and therefore the Company has recorded a reduction in the total liability
relating to the SARs of $1,490 (1998: reduction $548; 1997: charge $1,611).
10K-48
<PAGE>
LASALLE RE HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(b) Long term incentive plan
In November 1995, the Company adopted a Long Term Incentive Plan (the
"Incentive Plan") which permits the award of various incentives to employees
of the Company, related companies and directors of the Company. The maximum
number of shares that may be issued under the Incentive Plan is 1,000,000.
(i) Share options
Under the Incentive Plan, the options granted vest ratably in five annual
installments over 5 years from the grant date, except for 85,218 options
granted in 1997 which vest ratably in three annual installments over 3 years
from the date of grant. The options can be exercised over a 10-year period,
commencing on the vesting date. For certain option grants, the Plan has an
anti-dilution provision, which awards the option holder a number of shares of
restricted stock in the event that a dividend, when added to the value of all
cash dividends previously paid within the same fiscal year, exceeds 5% of the
average book value per share for the prior four quarters. As at September 30,
1999, 46,459 shares of restricted stock (1998: 26,995) were awarded. The
restricted stock vests when the underlying options are exercised and is
forfeited if the options expire unexercised. The Company has recorded an
expense of $565 (1998: $374; 1997: $264) relating to compensation on these
options. The following table is a summary of the options granted and
outstanding during 1999, 1998 and 1997.
<TABLE>
<CAPTION>
1999 1998 1997
------------------ ----------------- ----------------
Weighted Weighted Weighted
Number average Number average Number average
of Exercise of Exercise of Exercise
shares price shares price shares price
-------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding--beginning
of year................ 401,436 $24.96 446,436 $ 25.28 163,218 $19.25
Granted................. 233,000 $25.11 10,000 $ 31.63 283,218 $28.75
Exercised............... (19,800) $19.25 0 $ 0.00 0 $ 0.00
Forfeited............... (148,200) $27.10 (55,000) $(28.75) 0 $ 0.00
-------- ------ ------- ------- ------- ------
Outstanding--end of
year................... 466,436 $24.90 401,436 $ 24.96 446,436 $25.28
======== ====== ======= ======= ======= ======
</TABLE>
Of the 466,436 options outstanding, 78,131 options are presently
exercisable at $19.25, 88,812 are presently exercisable at $28.75 and 2,000
are presently exercisable at $31.63. The remaining options are not presently
exercisable and have a weighted average vesting period of 3.74 years.
The weighted average fair value of options granted during 1999 is $10.38
(1998: $12.21; 1997:$8.18) per share. The fair value of the option grant in
1999 is estimated on the date of grant using the Black-Scholes option pricing
model with the following assumptions: dividend yield of 4% per annum; expected
volatility of 27%; expected life of 7 years; and a risk free interest rate of
6.2%.
The Company applies APB Opinion 25 and Related Interpretations in
accounting for the Incentive Plan. Accordingly, a compensation cost has been
recognized based on the intrinsic value of the options at the measurement
date. The net income and earnings per Common Share would have been reduced to
the pro forma amounts indicated below had compensation cost been determined
based on the fair value of the options at the grant date consistent with SFAS
No 123:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C> <C>
Net income................................ As reported $(2,834) $51,806 $97,077
Pro forma $(3,458) $51,350 $96,647
Earnings per Common Share, assuming
dilution................................. As reported $ (0.61) $ 2.80 $ 5.14
Pro forma $ (0.64) $ 2.78 $ 5.12
</TABLE>
10K-49
<PAGE>
LASALLE RE HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(ii) Share awards
Pursuant to the provisions of the Incentive Plan awards of restricted stock
vest over 5 years from the date of award with 33 1/3% vested on the third
anniversary date of the award date, 66 2/3% vested on the fourth anniversary
date of the award and 100% vested on the fifth anniversary date of the award.
However, there are 30,000 shares of restricted stock which vest ratably in two
annual installments over 2 years from the date of award. During the restricted
period the employee receives dividends in the form of additional shares of
restricted stock. During 1999 the Company awarded 55,000 shares of restricted
stock (1998:Nil) with a value of $1,423 (1998:$Nil) to certain executive
officers. At the time of the award the market value of the shares is recorded
as deferred compensation and is presented as a separate component of
shareholders' equity. The deferred compensation is charged to the income
statement over the vesting period. For the year ended September 30, 1999 the
Company charged $751 (1998 and 1997: $Nil) in respect of compensation on
restricted stock awards.
In addition, during the year ended September 30, 1999 pursuant to the
Incentive Plan 1,379 (1998:Nil) Common Shares were awarded to individuals as
of the fifth anniversary date of their hire. At the time of the award the
market value of the shares is recorded as a compensation expense. During the
year ended September 30, 1999 the Company booked a compensation expense of $28
(1998 and 1997: $Nil) on these share awards to employees
(c) Employee stock purchase plan
Pursuant to the Employee Stock Purchase Plan (the "Plan"), during the year
ended September 30, 1999 the Company issued 19,459 (1998: 12,687) Common
Shares. Under the Plan, the Company is authorized to sell up to 150,000 Common
Shares at a discount equivalent to 15% of the market price, to employees of
the Company, related companies, directors of the Company and other persons
providing services to those companies. The maximum investment by an employee
under the payroll deduction component of the Plan is $50 per calendar year. In
addition, certain employees are eligible to use up to 100% of their annual
bonus to purchase Common Shares under the Plan. The Company has recorded the
shares issued under the Plan at fair value. No compensation cost has been
recorded on those shares issued to employees of CNA (Bermuda) Services Limited
("CNA Bermuda") as the cost was reimbursed pursuant to the service agreement
with CNA Bermuda. Compensation cost of $59 (1998: $5; 1997: $Nil) has been
recorded on those shares issued to employees and directors of the Company.
11. Minority interest
At October 1, 1998, the Minority interest of $105,569 represented the
founding shareholders ownership of 4,472,646 outstanding Exchangeable Non-
Voting Shares in LaSalle Re Limited. During the year ended September 30, 1999,
the number of Exchangeable Non-Voting Shares increased due to the exercise of
shareholder stock options and the issuance of further Exchangeable Non-Voting
Shares. These transactions had the effect of increasing the minority interest
percentage in LaSalle Re from 22.8% to 23.3%. At September 30, 1999 there were
4,725,546 outstanding Exchangeable Non-Voting Shares in LaSalle Re Limited,
which represented the minority interest of $93,055.
12. Related party transactions
In addition to the reinsurance arrangement (note 4), CatEPut transaction
(note 8) and share purchase options (note 9), LaSalle Re has entered into the
following transactions and agreements with companies related to the Founding
Shareholders.
10K-50
<PAGE>
LASALLE RE HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(a) Premiums written
During the year ended September 30, 1999, LaSalle Re assumed premiums
written of approximately $8,369 (1998: $16,917; 1997: $21,408) from a ceding
company related to a shareholder of LaSalle Re. In addition, LaSalle Re
assumed premiums totaling $25,266 (1998: $27,190; 1997: $28,450) through
brokers related to a shareholder of LaSalle Re. Brokerage fees incurred in
respect of this business were approximately $2,526 (1998: $2,719; 1997:
$2,845). Reinsurance balances receivable at the balance sheet date include
$(72) (1998: $8,729; 1997: $13,481) due (to) from such related parties.
(b) Premiums ceded
During the year ended September 30, 1999 LaSalle Re ceded premiums of
$8,091 (1998: $0; 1997: $0) to a founding shareholder pursuant to a quota
share contract. The Company recorded $647 (1998: $0; 1997: $0) of override
commission with respect to this contract. Outstanding losses recoverable at
the balance sheet date were $4,100 (1998: $0; 1997: $0). Reinsurance balances
payable at the balance sheet date were $5,314 (1998: $0; 1997: $0).
(c) Underwriting services
LaSalle Re was party to an underwriting services agreement with CNA Bermuda
during the period from the incorporation of LaSalle Re until September 30,
1998 at which date the agreement was terminated. Under this agreement, LaSalle
Re granted CNA Bermuda the authority to provide underwriting services and to
underwrite all classes of insurance and reinsurance as agents for LaSalle Re.
LaSalle Re agreed to pay fees, during this period, to CNA Bermuda as follows:
Prior to October 1, 1998 but on or after January 1, 1996:
(i) 1.5% of the gross written and collected premium per fiscal year;
and
(ii) An underwriting profit commission equal to 4.0% of the aggregate
net underwriting profits of LaSalle Re, where certain conditions are met.
Following the termination of the agreement, all personnel assigned to the
Company by CNA Bermuda became employees of the Company and all underwriting
functions performed by CNA Bermuda are now performed in-house.
On October 1, 1998, LaSalle Re entered into an underwriting support
services agreement with CNA Re Services Company ("CNA Services"). Under this
Agreement, CNA Services provides certain underwriting support functions to
LaSalle Re but no longer underwrites insurance or reinsurance as agents for
LaSalle Re. With effect from October 1, 1998 LaSalle Re has agreed to pay fees
to CNA Services as follows:
(i) An annual retainer of $333; and
(ii) An underwriting profit commission equal to 1.67% of the
aggregate net underwriting profits of LaSalle Re, where certain conditions
are met.
The agreement provides for additional fees to be payable if services
provided exceed the retainer. Fees in excess of the retainer are calculated at
daily or hourly rates to be agreed between the parties.
Fees incurred with respect to the agreements with CNA Bermuda and CNA
Services for the year ended September 30, 1999, were $1,461 (1998: $3,594;
1997: $6,587). At September 30, 1999, $2,693 (1998: $3,658) was payable in
respect of these fees.
10K-51
<PAGE>
LASALLE RE HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(d) Administrative services
LaSalle Re was party to an agreement with Aon Risk Consultants (Bermuda)
Ltd. ("ARC Bermuda") during the period from the incorporation of LaSalle Re
until September 30, 1997 at which date the agreement was terminated. Under
this agreement, ARC Bermuda performed certain actuarial and administrative
services on behalf of the Company. The management fees payable to ARC Bermuda
were as follows:
Calendar Year
1996$7,000
1997 $3,300 and an underwriting profit commission equal to 2.75% of the
aggregate net underwriting profit of LaSalle Re, where certain
conditions were met.
The Company incurred $44 and $6,212 for administrative services for the
year ended September 30, 1998 and 1997 respectively.
(e) Investment management services
LaSalle Re is party to an agreement with Aon Advisors (UK) Limited ("Aon
UK") to provide investment management services. Fees are based on a flat fee
structure. Prior to July 1997, fees were based on the average daily balance of
the investment portfolio of the preceding quarter. The average daily balance
was split into various bands, with fees calculated by applying a sliding scale
of basis points to each band.
The Company has incurred $801 (1998: $850; 1997: $1,057) for services
provided for the year ended September 30, 1999, of which $195 (1998: $215) was
payable at September 30, 1999.
(f) Claims handling services
LaSalle Re was party to an agreement with Integrated Runoff Insurance
Services Corporation ("IRISC") whereby IRISC performed certain claims handling
services for LaSalle Re. The contract expired December 31, 1996. The Company
incurred $16 for services provided for the year ended September 30, 1997.
(g) Reinsurance services
Effective January 1, 1997, LaSalle Re was party to a fronting agreement
with Hedge Financial Products, an affiliate of CNA. CNA reinsured LaSalle Re
100% for the business fronted. For the year ended September 30, 1998 LaSalle
Re received an administration fee of $63 (1997: $250) for the services
provided. The agreement was not renewed on January 1, 1998.
10K-52
<PAGE>
LASALLE RE HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
13. Geographic Information
The following table sets forth the Company's gross premiums written and the
percentage thereof allocated to the zone of exposure for the years ended
September 30, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
-------------- -------------- ---------------
Premiums Premiums Premiums
Written % Written % Written %
-------- ----- -------- ----- -------- -----
<S> <C> <C> <C> <C> <C> <C>
United States.................... 60,074 53.0% 64,352 48.0% $ 75,338 44.9%
Europe (excluding the U.K.)...... 9,555 8.4% 14,477 10.7% 18,553 11.1%
United Kingdom................... 9,772 8.6% 11,726 8.7% 15,165 9.1%
Japan............................ 2,926 2.6% 3,166 2.4% 6,949 4.2%
Australasia...................... 4,457 4.0% 3,263 2.5% 6,472 3.8%
Worldwide........................ 14,068 12.4% 21,784 16.2% 20,872 12.5%
Worldwide (excluding U.S.)....... 5,399 4.8% 7,499 5.6% 12,579 7.5%
Other............................ 7,041 6.2% 7,935 5.9% 11,628 6.9%
-------- ----- -------- ----- -------- -----
113,292 100% 134,202 100% 167,556 100%
===== ===== =====
Lloyd's.......................... 22,389 21,039 14,125
Fronted premiums, reinstatements,
adjustment premiums and no claim
bonuses......................... 3,329 75 (10,295)
-------- -------- --------
$139,010 $155,316 $171,386
======== ======== ========
</TABLE>
10K-53
<PAGE>
LASALLE RE HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
14. Segmental Reporting
The Company has two reportable segments: reinsurance operations and Lloyds.
The reinsurance segment provides reinsurance for property catastrophe and for
other lines of business which have similar characteristics, namely high
severity and low frequency. The Lloyd's segment is written through LaSalle Re
Corporate Capital Ltd., which provides capital support to selected Lloyd's
syndicates. The lines of business written by the selected syndicates include
direct and facultative property insurance, marine insurance and reinsurance,
professional indemnity, directors and officers insurance and bankers blanket
bond business. Data for the three years ended September 30, 1999, 1998 and
1997 was as follows:
<TABLE>
<CAPTION>
Reinsurance Lloyd's Total
----------- ------- --------
<S> <C> <C> <C>
1999
Gross premiums written........................... $116,621 $22,389 $139,010
Total revenues................................... 147,804 13,273 161,077
Loss before minority interest.................... (2,090) (3,589) (5,679)
Assets........................................... 677,573 58,534 736,107
Losses & loss expense ratio...................... 105.5% 86.4% 103.6%
Expense ratio.................................... 24.1% 48.5% 26.5%
-------- ------- --------
Combined ratio................................... 129.6% 134.9% 130.1%
-------- ------- --------
1998
Gross premiums written........................... $134,276 $21,039 $155,316
Total revenues................................... 185,026 9,520 194,546
Income before minority interest.................. 64,757 475 65,232
Assets........................................... 720,624 36,666 757,290
Losses & loss expense ratio...................... 62.3% 54.4% 61.8%
Expense ratio.................................... 19.0% 43.8% 20.4%
-------- ------- --------
Combined ratio................................... 81.3% 98.2% 82.2%
-------- ------- --------
1997
Gross premiums written........................... $157,261 $14,125 $171,386
Total revenues................................... 195,066 2,719 197,785
Income (loss) before minority interest........... 121,683 (215) 121,468
Assets........................................... 669,004 17,084 686,088
Losses & loss expense ratio...................... 18.3% 62.1% 19.0%
Expense ratio.................................... 23.2% 44.7% 23.6%
-------- ------- --------
Combined ratio................................... 41.5% 106.8% 42.6%
-------- ------- --------
</TABLE>
15. Commitments and contingencies
(a) Leasing commitments
The Company has rented space for its principal executive offices under
lease agreements, which expire in 2001. Total rental expense for the year
ended September 30, 1999 was approximately $328 (1998: $269; 1997: $Nil).
Future minimum rental payments under the leases are expected to be as follows:
<TABLE>
<S> <C>
Year ending September 30, 2000...... $299
Year ending September 30, 2001...... 105
----
Total minimum future rentals........ $404
====
</TABLE>
10K-54
<PAGE>
LASALLE RE HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(b) Financial instruments with off-balance sheet risk
LaSalle Re has entered into a swap agreement to provide cash flow to a
counterparty in the event of defined earthquake activity in Japan. Receipts to
LaSalle Re which are accounted for as investment income are based on the
notional amount of the swap. As at September 30, 1999, the Company had
recorded $114 (1998: $58) of investment income. The contract exposes LaSalle
Re to a maximum cash outflow of the same notional amount should the defined
seismic event occur. The Company is also exposed to credit loss in the event
of nonperformance by the counterparty to the remittance of interest payments
as required by the swap. The Company does not anticipate nonperformance by the
counterparty. At September 30, 1999, the total notional principal amount of
the swap was $3,000 (1998: $3,000) which is supported by a letter of credit.
The Company's functional currency is the U.S. dollar, however, as the
Company operates internationally, it has exposure to changes in foreign
currency exchange rates. These exposures include net cash inflows on non-U.S.
dollar denominated insurance premiums.
To manage the Company's exposure to these risks, the Company may enter into
foreign exchange contracts in the major currencies to which the Company is
exposed. These contracts generally involve the exchange of one currency for
another at some future date. The Company had a notional principal amount
outstanding of approximately $5,518 as at September 30, 1998 (fair value $Nil)
in a contract to sell foreign currencies. No such contracts were outstanding
in 1999 or 1997.
The Company may also enter into foreign exchange contracts to manage the
exposures relating to known reinsurance losses denominated in foreign
currencies. As at September 30, 1999 the Company had no outstanding foreign
exchange contracts.
(c) Concentration of credit risk
The Company has investment guidelines which restrict investments in
securities below an "AA" grade rating to 20% of the total portfolio and only
10% of the total portfolio including managed cash and cash equivalents, can be
invested in "BBB" grade rating. The Company is allowed to invest up to $10,000
in risk based investments and these bonds may carry a rating below "BBB". In
addition, the guidelines restrict investments in a single issuer to no greater
than 5% of the market value of the portfolio (except for U.S. and U.K.
Government issues) and, with respect to country of issue, to no greater than
25% of the market value of the portfolio, except for U.S. and supernational
borrowers.
A broker, who is unrelated to the Company, arranged more than 20% of the
Company's premiums written for the year ended September 30, 1999 (1998: more
than 17%; 1997: 15%). A broker, who is related to the Company, arranged 18% of
the Company's premiums written for the year ended September 30, 1999 (1998:
17%; 1997: 16%). Approximately 16% (1998: 14%; 1997: 8%) of the Company's
gross premiums written are derived from its participation as a corporate
member of Lloyd's.
16. Credit facility
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.
10K-55
<PAGE>
LASALLE RE HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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. As of September 30, 1999, there were no borrowings
under the credit facility and the Company was in compliance with all covenants
under the facility.
17. Statutory data
The Company's ability to pay dividends is subject to certain regulatory
restrictions on the payment of dividends by LaSalle Re. Under the Act, LaSalle
Re is required to prepare statutory financial statements and to file in
Bermuda a statutory financial return together with the statutory financial
statements. LaSalle Re is required to maintain certain measures of solvency
and liquidity.
The statutory capital and surplus of LaSalle Re at September 30, 1999 was
approximately $446,909 (1998: $506,000) and the minimum required statutory
capital and surplus required by its license as a Class 4 insurer was $100,000
(1998: $100,000).
The declaration of dividends from retained earnings and distributions from
additional paid in capital is limited to the extent that the above
requirements are met (as well as following certain procedures required under
Bermuda law). At September 30, 1999, there were no restrictions on the
distribution of retained earnings.
18. Taxation
Under current Bermuda law, the Company is not required to pay taxes in
Bermuda on either income or capital gains. The Company has received an
undertaking from the Minister of Finance in Bermuda that will exempt the
Company, subject to the terms expressed in the said undertaking, from taxation
until the year 2016 in the event of any such taxes being imposed.
Other than with respect to its Lloyd's business, the Company does not
consider itself to be engaged in a trade or business in the United States and
accordingly does not expect to be subject to United States income taxes.
LaSalle Re Corporate Capital Ltd. is a corporate member of Lloyd's. Pursuant
to a Closing Agreement between Lloyd's and the IRS, LaSalle Re Corporate
Capital Ltd. will be treated as engaged in business in the U.S. and is subject
to U.S. corporate income tax on its net income from U.S. sources. The Company
believes that currently there is no income tax liability.
LaSalle Re Corporate Capital Ltd. is also subject to U.K. corporation tax,
with the assessment made at the end of thirty six months. Deferred tax assets
and liabilities resulting from the Company's support of syndicates through
LaSalle Re Corporate Capital are currently estimated to be insignificant, but
are subject to change as the results of the syndicates are uncertain.
10K-56
<PAGE>
LASALLE RE HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Concluded)
19. Unaudited quarterly financial data
Year ended September 30, 1999
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- -------- ------- -------
<S> <C> <C> <C> <C>
Net premiums earned...................... $35,130 $ 38,055 $32,068 $21,362
Net investment income and realized gains
(losses)................................ 10,146 8,222 8,691 7,403
Losses and loss expenses incurred (net of
recoveries)............................. 30,586 50,204 24,789 25,568
Net income (loss) (before minority
interest)............................... 6,859 (13,727) 5,458 (4,269)
Earnings (loss) per common share--
assuming dilution....................... $ 0.25 $ (0.76) $ 0.19 $ (0.29)
</TABLE>
Year ended September 30, 1998
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net premiums earned........................ $37,919 $41,906 $42,053 $32,742
Net investment income and realized gains
(losses).................................. 8,856 10,196 9,247 11,564
Losses and loss expenses incurred (net of
recoveries)............................... 8,698 19,938 23,607 43,296
Net income (loss) (before minority
interest)................................. 29,679 22,023 18,173 (4,643)
Earnings (loss) per common share--assuming
dilution................................... $ 1.34 $ 0.97 $ 0.78 $ (0.33)
</TABLE>
10K-57
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Effective October 25, 1999, the Company's previous independent auditors,
KPMG, tendered their resignation citing a potential independence issue that
could have arisen in connection with the upcoming audit of the Company's
September 30, 1999 financial statements.
The audit reports of KPMG on the financial statements of the Company for
the past two years contain no adverse opinion or disclaimer of opinion and
were not qualified or modified as to uncertainty, audit scope or accounting
principles.
During the Company's two most recent fiscal years and the interim period to
date, there have been no disagreements between KPMG and the Company with
respect to any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure. None of the reportable
events described in Item 304(a)(1)(v) of Regulation S-K occurred with respect
to the Company within the two most recent fiscal years and through the interim
period.
On October 28, 1999, the Company announced that it had engaged Deloitte &
Touche as its independent auditors, effective October 25, 1999. The engagement
of Deloitte & Touche was recommended by the Company's audit committee,
authorized by its board of directors, and will be presented for shareholder
approval at the Company's next annual general meeting of shareholders.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
For information regarding the Company's executive officers, see "Executive
Officers of the Company" in Part I. The other information required by this
Item 10 is incorporated by reference to the information contained under the
captions "Election of Directors--Nominees for Election," "--Directors Whose
Terms of Office Will Continue After This Meeting" and "Section 16(a)
Beneficial Ownership Reporting Compliance" in the 2000 Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information required for this item is incorporated by reference to the
information contained under the caption "Management" and "Election of
Directors--Director Compensation" in the 2000 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required for this item is incorporated by reference to the
information contained under the caption "Beneficial Ownership of Common
Shares" in the 2000 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required for this item is incorporated by reference to the
information contained under the caption "Election of Directors--Certain
Transactions" in the 2000 Proxy Statement.
10K-58
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
The following documents are filed as a part of this report:
(a) Financial Statements and Schedules:
1. Financial Statements
See Index to Financial Statements on page 10K-32 of this report,
which is incorporated herein by reference.
2. Financial Statement Schedules:
Schedules have been omitted since the required information is
presented elsewhere in this report or is not applicable.
3. Exhibits
See Index to Exhibits on pages 10K-62 to 10K-66 of this report,
which is incorporated herein by reference.
(b) Reports on Form 8-K:
The following report on Form 8-K was filed during the quarter ended
September 30, 1999:
Item ReportedDate of Report
Changes in Registrant's Certifying AccountantOctober 25, 1999
(c) Exhibits:
The Exhibits required by Item 601 of Regulation S-K are listed in the Index
to Exhibits on pages 10K-62 to 10K-66 of this report, which is incorporated
herein by reference. These Exhibits have been omitted from the copies of this
Form 10-K that are being distributed to shareholders. The Company will furnish
a copy of any Exhibit to any shareholder upon written request and upon payment
of a fee to cover the Company's reasonable expenses in furnishing such
Exhibit. Such requests may be made to: Investor Relations Department, LaSalle
Re Holdings Limited, Continental Building, 25 Church Street, Hamilton HM 12,
Bermuda.
10K-59
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized, in
Bermuda, on the 15th day of December, 1999.
LaSalle Re Holdings Limited
/s/ Guy D. Hengesbaugh
By __________________________________
Name: Guy D. Hengesbaugh
Title: President and Chief
Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Guy D.
Hengesbaugh, Clare E. Moran and Michael A. Conway, or any of them, as such
person's true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, to sign any and all amendments to this
report, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission.
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed by the following persons on behalf of the
Registrant and in the capacities indicated and on the 15th day of December,
1999.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ Victor H. Blake Chairman and Director
___________________________________________
Victor H. Blake
/s/ Guy D. Hengesbaugh President and Chief Executive Officer
___________________________________________ (Principal executive officer)
Guy D. Hengesbaugh
/s/ Clare E. Moran Senior Vice President, Treasurer and
___________________________________________ Interim Chief Financial Officer
Clare E. Moran (Principal financial and accounting
officer)
/s/ William J. Adamson, Jr. Director
___________________________________________
William J. Adamson, Jr.
/s/ Michael A. Conway Director
___________________________________________
Michael A. Conway
/s/ Robert V. Deutsch Director
___________________________________________
Robert V. Deutsch
/s/ Clement S. Dwyer, Jr. Director
___________________________________________
Clement S. Dwyer, Jr.
</TABLE>
10K-60
<PAGE>
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ Donald P. Koziol, Jr. Director
___________________________________________
Donald P. Koziol, Jr.
/s/ Lester Pollack Director
___________________________________________
Lester Pollack
/s/ Peter J. Rackley Director
___________________________________________
Peter J. Rackley
/s/ Paul J. Zepf Director
___________________________________________
Paul J. Zepf
</TABLE>
10K-61
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description Method of Filing
------- ----------- ----------------
<C> <S> <C>
3.1 Memorandum of Association Incorporated by reference to Exhibit 3.1
to Registration Statement on Form S-1
(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)
10.1 Excess Ownership Incorporated by reference to Exhibit
Agreement dated November 10.3 to Form 10-Q for the quarterly
27, 1995 among the period ended December 31, 1995 (File
Company, LaSalle Re and No. 0-27216)
the Founding Shareholders
10.2 Amended and Restated Incorporated by reference to Exhibit
Shareholders Agreement 10.1 to Form 10-Q for the quarterly
dated November 27, 1995 period ended December 31, 1995 (File
among the Company, No. 0-27216)
LaSalle Re and the
Founding Shareholders
10.3 Amended and Restated Incorporated by reference to Exhibit
Option Agreement Dated 10.2 to Form 10-Q for the quarterly
November 27, 1995 among period ended December 31, 1995 (File
the Company, LaSalle Re No. 0-27216)
and certain of the
Founding Shareholders
10.4 Conversion Agreement Incorporated by reference to Exhibit
dated November 27, 1995 10.4 to Form 10-Q for the quarterly
among the Company, period ended December 31, 1995 (File No.
LaSalle Re and holders of 0-27216)
Exchangeable Non-Voting
Shares
10.5 Underwriting Support Incorporated by reference to Exhibit
Services Agreement Dated 10.7 to Form 10-K for the fiscal year
October 1, 1998 among ended September 30, 1998 (File
LaSalle Re, CRSC and CNA No. 1-12823)
Bermuda
10.6 Amended and Restated Incorporated by reference to Exhibit
Investment Management 10.8 to Registration Statement on Form
Agreement dated September S-1 (No. 333-14861)
21, 1995 among the
Company, LaSalle Re and
Aon Advisors
10.7 Second Amended and Filed with this document
Restated Employment
Agreement dated as of
July 1, 1999 between
Victor H. Blake and
LaSalle Re
10.8 Employment Agreement Incorporated by reference to Exhibit
dated October 1, 1998 10.12 to Form 10-K for the fiscal year
between Guy D. ended September 30, 1998 (File
Hengesbaugh and LaSalle No. 1-12823)
Re
10.9 Employment Agreement Incorporated by reference to Exhibit
dated October 1, 1998 10.13 to Form 10-K for the fiscal year
between Andrew Cook and ended September 30, 1998 (File
LaSalle Re No. 1-12823)
10.10 Employment Agreement Filed with this document
dated March 1, 1999
between Robert P.
Cuthbert and LaSalle Re
10.11 Separation Agreement Filed with this document
dated May 1, 1999 between
Robert P. Cuthbert and
LaSalle Re
10.12 Employment Agreement Filed with this document
dated October 1, 1998
between Mark C. Stockton
and LaSalle Re
</TABLE>
10K-62
<PAGE>
<TABLE>
<C> <S> <C>
10.13 LaSalle Re Holdings Incorporated by reference to Exhibit
Limited 1996 Long-Term 10.13 to Registration Statement on Form
Incentive Plan S-1 (No. 333-14861)
10.14 First Amendment to Incorporated by reference to Exhibit 4.4
LaSalle Re Holdings to Registration Statement on Form S-8
Limited 1996 Long-Term (No. 333-38653)
Incentive Plan, dated
September 25, 1997
10.15 Second Amendment to Incorporated by reference to Exhibit
LaSalle Re Holdings 10.16 to Form 10-K for the fiscal year
Limited 1996 Long-Term ended September 30, 1998 (File
Incentive Plan, dated No. 1-12823)
September 25, 1998
10.16 LaSalle Re Holdings Incorporated by reference to Exhibit
Limited Employee Stock 10.14 to Registration Statement on Form
Purchase Plan S-1 (No. 333-14861)
10.17 First Amendment to Incorporated by reference to Exhibit 4.4
LaSalle Re Holdings to Registration Statement on Form S-8
Limited Employee Stock (No. 333-38655)
Purchase Plan, dated
September 25, 1997
10.18 Second Amendment to Incorporated by reference to Exhibit
LaSalle Re Holdings 10.19 to Form 10-K for the fiscal year
Limited Employee Stock ended September 30, 1998 (File No. 1-
Purchase Plan, dated 12823)
September 25, 1998
10.19 Third Amendment to Incorporated by reference to Exhibit
LaSalle Re Holdings 10.4 to Form 10-Q for the quarterly
Limited Employee Stock period ended March 31, 1999 (File
Purchase Plan, dated No. 1-12823)
February 26, 1999
10.20 Credit Agreement dated as Incorporated by reference to Exhibit
of December 1, 1995 among 10.9 to Form 10-Q for the quarterly
the Company, several period ended December 31, 1995 (File
banks and Chemical Bank, No. 0-27216)
as administrative agent
10.21 First Amendment, dated Incorporated by reference to Exhibit
September 25, 1996, among 10.12 to Registration Statement on Form
the Company, several S-1 (No. 333-14861)
banks and Chase Manhattan
Bank as administrative
agent, to Credit
Agreement dated as of
December 1, 1995 among
the Company, several
banks and Chemical Bank,
as administrative agent
10.22 Second Amendment, dated Incorporated by reference to Exhibit
March 13, 1997, 10.30 to
among the Company, Form 10-K for the fiscal year ended
several banks and Chase September 30, 1997 (File No. 1-12823)
Manhattan Bank as
administrative agent, to
Credit Agreement dated as
of December 1,
1995 among the Company,
several banks and
Chemical Bank, as
administrative agent
10.23 Third Amendment, dated Incorporated by reference to Exhibit
March 16, 1998, among the 10.1 to Form 10-Q for the quarterly
Company, several banks period ended March 31, 1998 (File
and Chase Manhattan Bank No. 1-12823)
as administrative agent,
to Credit Agreement dated
as of December 1, 1995
among the Company,
several banks and
Chemical Bank, as
administrative agent
10.24 Waiver dated as of April Incorporated by reference to Exhibit
1, 1999, among the 10.1 to Form 10-Q for the quarterly
Company, several banks period ended March 31, 1999 (File
and Chase Manhattan Bank No. 1-12823)
as administrative agent,
to Credit Agreement dated
as of December 1, 1995
among the Company,
several banks and
Chemical Bank, as
administrative agent.
</TABLE>
10K-63
<PAGE>
<TABLE>
<C> <S> <C>
10.25 Catastrophe Equity Incorporated by reference to Exhibit
Securities Issuance Option 10.31 to Form 10-K for the fiscal year
Agreement, dated as of ended September 30, 1997 (File No.
July 1, 1997 between the 1-12823)
Company on the one hand
and European Reinsurance
Company of Zurich, Allianz
Aktiengesellschaft,
Continental Casualty
Company and CIC-Hilldale,
Inc. on the other hand
10.26 Quota Share Arrangement, Incorporated by reference to Exhibit
dated as of April 1, 1999, 10.2 to Form 10-Q for the quarterly
between LaSalle Re and period ended March 31, 1999 (File
Continental Casualty No. 1-12823)
Company
10.27 Quota Share Treaty between Incorporated by reference to Exhibit
CNA International 10.17 to Registration Statement on Form
Reinsurance Company S-1 (No. 333-14861)
Limited and LaSalle Re in
respect of 1994
underwriting year of
account (London office)
10.28 Quota Share Treaty between Incorporated by reference to Exhibit
CNA International 10.18 to Registration Statement on Form
Reinsurance Company S-1 (No. 333-14861)
Limited and LaSalle Re in
respect of 1995
underwriting year of
account (London office)
10.29 Quota Share Treaty between Incorporated by reference to Exhibit
CNA International 10.19 to Registration Statement on Form
Reinsurance Company S-1 (No. 333-14861)
Limited and LaSalle Re in
respect of 1996
underwriting year of
account (London office)
10.30 Quota Share Treaty between Incorporated by reference to Exhibit
CNA International 10.27 to Form 10-K for the fiscal year
Reinsurance Company ended September 30, 1997 (File
Limited and LaSalle Re in No. 1-12823)
respect of 1997
underwriting year of
account (London office)
10.31 Quota Share Treaty between Incorporated by reference to Exhibit
CNA International 10.27 to Form 10-K for the fiscal year
Reinsurance Company ended September 30, 1998 (File
Limited and LaSalle Re in No. 1-12823)
respect of 1998
underwriting year of
account (London office)
10.32 Quota Share Treaty between Filed with this document
CNA International
Reinsurance Company
Limited and LaSalle Re in
respect of 1999
underwriting year of
account (London office)
10.33 Quota Share Treaty between Incorporated by reference to Exhibit
CNA International 10.20 to Registration Statement on Form
Reinsurance Company S-1 (No. 333-14861)
Limited and LaSalle Re in
respect of 1994
underwriting year of
account (Amsterdam office)
10.34 Quota Share Treaty between Incorporated by reference to Exhibit
CNA International 10.21 to Registration Statement on Form
Reinsurance Company S-1 (No. 333-14861)
Limited and LaSalle Re in
respect of 1995
underwriting year of
account (Amsterdam office)
10.35 Quota Share Treaty between Incorporated by reference to Exhibit
CNA International 10.22 to Registration Statement on Form
Reinsurance Company S-1 (No. 333-14861)
Limited and LaSalle Re in
respect of 1996
underwriting year of
account (Amsterdam office)
</TABLE>
10K-64
<PAGE>
<TABLE>
<C> <S> <C>
10.36 Quota Share Treaty between Incorporated by reference to Exhibit
CNA International 10.28 to Form 10-K for the fiscal year
Reinsurance Company ended September 30, 1997 (File
Limited and LaSalle Re in No. 1-12823)
respect of 1997
underwriting year of
account (Amsterdam office)
10.37 Quota Share Treaty between Incorporated by reference to Exhibit
CNA International 10.28 to Form 10-K for the fiscal year
Reinsurance Company ended September 30, 1998 (File No. 1-
Limited and LaSalle Re in 12823)
respect of 1998
underwriting year of
account (Amsterdam office)
10.38 Quota Share Treaty between Filed with this document
CNA International
Reinsurance Company
Limited and LaSalle Re in
respect of 1999
underwriting year of
account (Amsterdam office)
10.39 LMX Quota Share Incorporated by reference to Exhibit
Retrocessional Agreement 10.23 to Registration Statement on Form
between Continental S-1 (No. 333-14861)
Casualty Company and
LaSalle Re for the 1995
underwriting year of
Account
10.40 LMX Quota Share Incorporated by reference to Exhibit
Retrocessional Agreement 10.24 to Registration Statement on Form
between Continental S-1 (No. 333-14861)
Casualty Company and
LaSalle Re for the 1996
underwriting year of
Account
10.41 LMX Quota Share Incorporated by reference to Exhibit
Retrocessional Agreement 10.29 to Form 10-K for the fiscal year
between Continental ended September 30, 1997 (File
Casualty Company and No. 1-12823)
LaSalle Re for the 1997
underwriting year of
Account
10.42 LMX Quota Share Incorporated by reference to Exhibit
Retrocessional Agreement 10.38 to Form 10-K for the fiscal year
between Continental ended September 30, 1998 (File
Casualty Company and No. 1-12823)
LaSalle Re for the 1998
underwriting year of
Account
10.43 LMX Quota Share Filed with this document
Retrocessional Agreement
between Continental
Casualty Company and
LaSalle Re for the 1999
underwriting year of
Account
12.1 Statement re computation Filed with this document
of ratio of earnings to
combined fixed charges and
preferred share dividends
13.1 Portions of the Annual Filed with this document
Report to Shareholders for
the fiscal year ended
September 30, 1999
16.1 Letter re change in Incorporated by reference to Exhibit 16
certifying accountant to Form 8-K filed on October 28, 1999
(File No. 1-12823)
21.1 Subsidiaries of the Incorporated by reference to Exhibit
Registrant 21.1 to Registration Statement on Form
S-1 (No. 333-14861)
23.1 Consent of KPMG Filed with this document
23.2 Consent of Deloitte & Filed with this document
Touche
24.1 Power of Attorney Included on signature page
27.1 Financial Data Schedule Filed with this document
</TABLE>
10K-65
<PAGE>
EXHIBIT 10.7
SECOND AMENDED AND RESTATED EMPLOYMENT AGREEMENT
------------------------------------------------
THIS AGREEMENT, made and entered into as of July 1, 1999 (the "Restatement
Date") further amends and restates the amended and restated employment agreement
entered into as of October 1, 1995, as subsequently amended, which amended and
restated employment agreement amended and restated the agreement entered into as
of April 1, 1994 (the "Effective Date"), by and between Victor H. Blake (the
"Executive") and LaSalle Re Limited (the "Company");
WITNESSETH THAT:
---------------
WHEREAS, the parties desire to enter into this Agreement pertaining to the
continued employment of the Executive by the Company;
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth below, it is hereby covenanted and agreed by the Executive and the Company
as follows:
1. Performance of Services. The Executive's employment with the Company
shall be subject to the following:
(a) Subject to the provisions of this Agreement, the Company hereby agrees to
employ the Executive as Chairman and Internal Consultant of the Company and
of LaSalle Re Holdings Limited (the "Holding Company") during the Agreement
Term (as defined below), and the Executive hereby agrees to remain in the
employ of the Company during the Agreement Term.
(b) During the Agreement Term, while the Executive is employed by the Company,
the Executive shall devote his time, energies and talents to performing his
duties under this Agreement.
(c) The Executive agrees that he shall perform his duties faithfully and
efficiently subject to the directions of the Board. The Executive's duties
may include providing services for both the Company, the Holding Company
and the Subsidiaries (as defined below), as determined by the Board.;
provided, that the Executive shall not, without his consent, be assigned
tasks that would be inconsistent with his position at the Company. The
Executive will have such authority and power as are inherent to the
undertakings applicable to his positions and necessary to carry out his
responsibilities and the duties required of him hereunder.
(d) While the Executive is employed by the Company, he shall be subject to the
duties that generally apply to the Company's directors, officers, and
employees (including, without limitation, the duty of loyalty to the
Company).
<PAGE>
(e) The Executive shall represent the Company in all places where it does
business, but shall have no authority to act for the Company outside
Bermuda, to make decisions on behalf of the Company outside Bermuda, or to
bind the Company with respect to actions outside Bermuda.
(f) Notwithstanding the foregoing provisions of this paragraph 1, during the
Agreement Term, the Executive may devote reasonable time to activities
other than those required under this Agreement, including chairmanship or
membership of the London Underwriting Centre Board, membership of
International Underwriters Association, memberships of the boards of
directors of or consultancies with CNA and its affiliates, acting as a
managing director of CNA Underwriting Agencies Limited, the supervision of
his personal investments, and activities involving professional,
charitable, educational, religious and similar types of organizations,
speaking engagements, membership of the boards of directors of or
consultancies with other organizations, and similar type of activities, to
the extent that such other activities do not inhibit or prohibit the
performance of the Executive's duties under this Agreement, or conflict in
any material way with the business transacted by the Company or any
Subsidiary; provided, however, that except as otherwise expressly provided
in this Agreement, the Executive shall not serve on the board of any entity
engaged in the business of transacting reinsurance, or hold any position
with any entity engaged in the transaction of such business, without the
consent of the Board.
(g) Subject to the provisions of this Agreement, the Executive shall not be
required to perform services under this Agreement during any period that he
is Disabled. The Executive shall be considered "Disabled" during any
period in which he has a physical or mental disability which renders him
incapable, after reasonable accommodation, of performing his duties under
this Agreement. In the event of a dispute as to whether the Executive is
Disabled, the Company may refer the same to a licensed practicing physician
of the Company's choice, and the Executive agrees to submit to such tests
and examinations as such physician shall deem appropriate.
(h) the "Agreement Term" shall be the period beginning on the Effective Date
and ending on September 30, 2003.
(i) For purposes of this Agreement, the term "Subsidiary" shall mean any
company (regardless of whether incorporated) during any period in which 50%
or more of the total combined voting power of all classes of stock (or
other ownership interest) entitled to vote is owned, directly or
indirectly, by the Company.
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2. Compensation. Subject to the provisions of this Agreement, during the
Agreement Term, while he is employed by the Company, the Company shall
compensate the Executive for the Executive's services as follows:
(a) Salary. The Executive shall receive an annual base salary of $575,000,
payable in substantially equal monthly or more frequent installments,
during the period beginning on the Restatement Date and ending on October
31, 2000. During the period beginning on November 1, 2000 and ending
September 30, 2003, the Executive shall receive an annual base salary of
$300,000, payable in substantially equal monthly or more frequent
installments. Amounts payable under this paragraph 2(a) shall be referred
to in this Agreement as "Salary."
(b) Bonus. The Executive shall be entitled to receive bonuses from the Company
in accordance with the provisions of Exhibit A, which is attached to and
forms a part of this Agreement.
(c) Stock Appreciation Rights. The Executive shall continue to be entitled to
receive a stock appreciation rights award from the Company under an
agreement that is substantially in the form of the Stock Appreciation
Rights Agreement set forth in Exhibit B, which is attached to and forms a
part of this Agreement. All other stock options and stock awards
previously granted to Executive continue to be subject to the terms of the
separate agreements governing such awards, the terms of which are
unaffected by the terms of this Agreement.
(d) Pension. Other than $30,286 payable to the Executive on March 31, 2000 if
the Executive's Date of Termination has not occurred on or prior to such
date, the Executive will accrue no additional retirement benefits under any
retirement scheme or arrangement sponsored by or contributed to by the
Company.
(e) Life Assurance and Other Benefits. During that part of the Agreement Term
ending on September 30, 2000, the Executive will be provided with life
assurance benefits providing a death benefit of (i) $2,000,000.00. The
Executive will be provided with medical benefits, workers compensation
benefits, and long term disability benefits by the Company. The Executive
will also be provided with other benefits to the same extent as other
senior executives of the Company.
(f) Automobile. During that part of the Agreement Term ending on September 30,
2000, the Company will provide the Executive with use of an automobile in
Bermuda. The Company will assume responsibility for the cost of insurance,
maintenance and similar items. The Executive's personal use of the
automobile will be permitted at no additional
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cost to the Executive, and the Executive will be provided with a gross-up
for any income taxes incurred by the Executive in connection with his
personal use of the automobile.
(g) Club. During that part of the Agreement Term ending on September 30, 2000,
the Company will reimburse the Executive for periodic dues in one country
club and one business club in Bermuda. If any initiation fees previously
paid on behalf of the Executive are returned to the Executive upon
termination of his membership or any other reason, such fees shall be
repaid to the Company to the extent such return is attributable to amounts
paid by the Company.
(h) Housing. It is understood and agreed by the parties that with respect to
the condominium previously purchased by the Executive (the "Condominium")
for which the Company previously arranged a loan to the Executive for the
amount of the Condominium purchase price ($695,000), which loan is
reflected by the terms of a loan agreement (the "Loan Agreement"):
(i) Subject to the provisions of paragraph (v), sale of the Condominium
shall be required within a reasonable time following the
Executive's Date of Termination (as defined in this Agreement).
Payment of the principal amount under the Loan Agreement shall be
due at the time the Condominium is sold or otherwise transferred by
the Executive.
(ii) Subject to the provisions of paragraph (v), the Company shall
reimburse the Executive for any interest payments made by Executive
under the Loan Agreement.
(iii) The Company (not the Executive) shall be responsible for any losses
incurred on the sale of the Condominium, and shall be entitled to
any gain on the sale, if such sale occurs under paragraph (i).
(iv) The Company shall reimburse the Executive for any tax liability
incurred by him or his estate in any jurisdiction as a result of
the sale of the Condominium, if such sale occurs under paragraph
(i).
(v) The Executive, by irrevocable written election filed with the
Company not later than the 45th day after the Date of Termination,
may elect to retain the Condominium. As a result of such election,
the Executive shall be entitled to permanently retain title to the
Condominium, and no sale of the Condominium shall be required under
paragraph (i), subject to the following:
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(A) Subject to paragraph (B), the Executive shall remain liable
for repayment of the full amount of principal under the Loan
Agreement, which repayment shall be fully due on the 50th day after
the Date of Termination.
(B) If, as of the Date of Termination, the fair market value of
the Condominium has increased over the purchase price, the
Executive shall also be required pay the amount of the increase to
the Company. If the fair market value of the Condominium has
decreased to below the purchase price, the amount due from the
Executive shall be reduced by the amount of the decrease, which
reduction shall be deemed to occur as of the date of repayment.
(C) The adjustment made in accordance with paragraph (B) shall be
in lieu of the adjustment required under paragraph (iii).
(D) The fair market value of the Condominium shall be determined
by an appraiser selected by the Company and reasonably acceptable
to the Executive. The Executive shall be entitled to review the
completed appraisal prior to being required to make the election to
retain the Condominium as described in the first sentence of this
paragraph (v).
(vi) The Executive and the Company agree that they shall cooperate with
each other, and shall execute such other documents, to the extent
reasonable or appropriate to carry out this paragraph 2(h).
(vii) Effective on or about December 1, 1999, following shipment by the
Company at the Company's expense of the Executive's personal
affects and belongings to the United Kingdom, and through the
remainder of the Agreement Term, the Executive shall make the
Condominium fully available to the Company's designee for such use
as a full-time residence by such designee.
(viii) After the date the Executive makes the Condominium available for
use by the Company's designee in accordance with paragraph (vii),
above, and prior to the date that either the Condominium is sold in
accordance with paragraph (i) or that the Executive elects to
retain the Condominium in accordance with paragraph (v), the
Company shall reimburse Executive for any costs or liabilities
relating to the Condominium.
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(i) Holiday/vacation. During that part of the Agreement Term ending on
September 30, 2000, the Executive shall be subject to the holiday and
vacation policy that applies to other senior executives of the Company.
(j) Financial planning. During that part of the Agreement Term ending on
September 30, 2000, the Executive will be provided with financial and tax
planning advice at the Company's expense.
(k) Expenses. The Company will reimburse the Executive for travel,
entertainment, and other expenses incurred on a basis appropriate to an
individual holding the position of chairman of a company of the status of
the Company, provided that such expenses are incurred in furtherance of the
Executive's duties for the Company, and subject to such policies and
procedures in effect from time to time for the Company's senior executives.
To the extent provided in this Agreement, the Executive will also be
reimbursed for other expenses (e.g., travel by spouse) even though such
reimbursement may not be covered pursuant to the Company's generally
applicable reimbursement policy.
(l) Indemnification. The Company shall maintain directors and officers
liability insurance in commercially reasonable amounts (as reasonably
determined by the Board), and the Executive shall be covered under such
insurance to the same extent as other senior management employees of the
Company. The Executive shall be eligible for indemnification by the
Company under the Company bye-laws as currently in effect. The Company
agrees that it shall not take any action that would impair the Executive's
rights to indemnification under the Company bye-laws, as currently in
effect.
(m) Dollar Amounts. As used in this Agreement, "dollars" or numbers preceded
by the symbol "$" shall mean amounts in United States Dollars.
3. Termination. The Executive's employment during the Agreement Term may
be terminated by the Company or the Executive without any breach of this
Agreement only under the circumstances described in paragraphs 3(a) through
3(f):
(a) Death. The Executive's employment will terminate upon his death.
(b) Permanently Disabled. The Company may terminate the Executive's employment
if he is Permanently Disabled. "Permanently Disabled" means that the
Executive is eligible for benefits under the Company's long-term disability
plan.
(c) Cause. The Company may terminate the Executive's employment at any time
for Cause. "Cause" shall mean:
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(i) the wilful and continued failure by the Executive to substantially
perform his duties with the Company (other than any such failure
resulting from the Executive's being Disabled), within a reasonable
period of time after a written demand for substantial performance
is delivered to the Executive by the Board, which demand
specifically identifies the manner in which the Board believes that
the Executive has not substantially performed his duties;
(ii) the wilful engaging by the Executive in conduct which is
demonstrably and materially injurious to the Company, monetarily or
otherwise; or
(iii) the engaging by the Executive in egregious misconduct involving
serious moral turpitude to the extent that, in the reasonable
judgment of the Company's Board, the Executive's credibility and
reputation no longer conform to the standard of the Company's
executives.
For purposes of this Agreement, no act, or failure to act, on the
Executive's part shall be deemed "wilful" unless done, or omitted to be
done, by the Executive not in good faith and without reasonable belief that
the Executive's action or omission was in the best interest of the Company.
(d) Constructive Discharge. If the Executive (i) provides written notice to
the Company of the occurrence of a material breach of this Agreement by the
Company, which specifically identifies the manner in which the Executive
believes that the breach has occurred; (ii) the Company fails to correct
such breach within a reasonable time after such notice; and (iii) the
Executive resigns within the 60-day period following the occurrence of such
breach, then the Executive shall be considered to have been constructively
discharged.
(e) Resignation by Executive. The Executive may resign for any reason by
giving the Company 180 days prior written notice, except the Executive will
be treated as having resigned under this paragraph 3(e) only if he has not
been constructively discharged under paragraph 3(d).
(f) Termination by Company. The Company may terminate the Executive's
employment at any time for any reason by giving the Executive prior written
notice, except the Executive's employment will not be treated as having
been terminated under this paragraph 3(f) if the termination is for reasons
of being Permanently Disabled or for Cause.
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(g) Date of Termination. "Date of Termination" means the last day the
Executive is employed by the Company, provided that the Executive's
employment is terminated in accordance with the foregoing provisions of
this paragraph 3.
4. Rights Upon Termination. This paragraph 4 describes the payments and
benefits to be provided to the Executive after his Date of Termination:
(a) Payment of Previously Earned Amounts. The Executive shall receive payment
of accrued but unpaid Salary, vacation pay, and a pro rata portion of his
bonus (if any) for the period ending with the Date of Termination.
(b) No Severance Payments. If the Executive's Date of Termination occurs
because of his termination for Cause (paragraph 3(c)) or his resignation
(paragraph 3(e)), then, except as otherwise expressly provided in this
Agreement, no payments shall be due to the Executive under this Agreement
for periods after the Date of Termination.
(c) Salary Continuation. If the Executive's Date of Termination occurs during
the Agreement Term because of his death (described in paragraph 3(a)), his
Permanent Disability (described in paragraph 3(b)), or his constructive
discharge (described in paragraph 3(d)), or because of discharge by the
Company for reasons other than Cause (described in paragraph 3(f)), then
the Executive (or his beneficiary, if applicable, in accordance with
paragraph 4(f)) shall continue to receive Salary payments (at the rate in
effect on the Date of Termination) in monthly or more frequent instalments
through the earliest of: (i) the last day of the Agreement Term or (ii) the
date, if any, of the breach by the Executive of the non-competition
requirements of paragraph 8, the confidentiality requirements of paragraph
9 or the non-disparagement requirements of paragraph 10.
(d) Other Programs. No benefits shall be payable to the Executive under any
other severance pay arrangement or similar arrangement maintained by the
Company or any Subsidiary. Except as otherwise expressly provided in this
Agreement, no other payments or benefits shall be due to the Executive
following the Date of Termination (except as otherwise specifically
provided under the terms of an employee benefit plan or arrangement).
(e) Accelerate Payment. At the discretion of the Board, with the consent of
the Executive, the present value of any amount payable to or on behalf of
the Executive (or his beneficiary) in accordance with this paragraph 4 may
be paid to or on behalf of the Executive in a lump sum. The interest rate
used in determining the present value shall be the interest rate on one-
year United States Treasury Bills at the auction of such instruments
nearest in time to the date of the Executive's Date of Termination.
Notwithstanding the foregoing, if any amount is payable to the beneficiary
of the Executive because the Executive's Date of Termination has occurred
as a result of the
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Executive's death, and at the discretion of the Board, such amount is to be
paid as a lump sum, then the full amount payable on behalf of the Executive
shall be paid to such beneficiary, unreduced to reflect the present value
of the amount payable on behalf of the Executive.
(f) Payment to Beneficiary. Any amounts payable to the Executive in accordance
with this paragraph 4 that are not paid at the time of the Participant's
death shall be paid at the time and in the form determined in accordance
with the provisions of this Agreement, to the beneficiary designated by the
Executive in writing filed with the Company in such form and at such time
as the Board shall require. If the Executive failed to designate a
beneficiary, or if the designated beneficiary of the deceased Executive
dies before the Executive or before complete payment of the amounts payable
under this Agreement, the Board shall direct that amounts to be paid under
this Agreement be paid to the legal representative or representatives of
the estate of the last to die of the Executive and his beneficiary.
5. Duties on Termination. Subject to the provisions of this Agreement,
during the period beginning on the date of delivery of a notice of termination,
and ending on the Date of Termination, the Executive shall continue to perform
his duties as set forth in this Agreement, and shall also perform such services
for the Company as are necessary and appropriate for a smooth transition to the
Executive's successor, if any. Notwithstanding the foregoing provisions of this
paragraph 5, the Company may suspend the Executive from performing his duties
under this Agreement following the delivery of a notice of termination providing
for the Executive's resignation, or delivery by the Company of a notice of
termination providing for the Executive's termination of employment for any
reason; provided, however, that during the period of suspension (which shall end
on the Date of Termination), the Executive shall continue to be treated as
employed by the Company for other purposes, and his rights to compensation or
benefits shall not be reduced by reason of the suspension.
6. Change in Control. Upon a Change in Control, the Executive shall be
treated for purposes of this Agreement as having had his employment terminated
by the Company in accordance with paragraph 3(f), and the date of such Change in
Control shall be the Executive's Date of Termination; provided, however, that in
lieu of being paid salary continuation payments in accordance with paragraph
4(c) with respect to all amounts of Salary payable to the Executive, any Salary
attributable to the period ending October 31, 2000 which has not yet been paid
to the Executive shall be paid to the Executive in a lump sum, unreduced to
reflect the present value of such amount, and the Salary otherwise payable to
the Executive which is attributable to the period after October 31, 2000 shall
be paid as salary continuation payments in accordance with paragraph 4(c);
provided further, however, that the Executive may elect to receive the present
value of those Salary amounts attributable to the period after October 31, 2000
in a lump sum. The interest rate used in determining the present value shall be
the interest rate on one-year
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United States Treasury Bills at the auction of such instruments nearest in time
to the date of the Executive's Date of Termination
(a) Change in Control. For purposes of this paragraph 6, "Change in
Control" means a change in the beneficial ownership of the voting
stock of the Holding Company or a change in the composition of the
Board of the Holding Company which occurs as follows:
(i) Any "person" (as such term is used in Section 13(d) and
14(d)(2) of the Securities Exchange Act of 1934) is or becomes
a beneficial owner, directly or indirectly, of stock of the
Holding Company representing 50 percent or more of the total
voting power of the Holding Company's then outstanding stock;
or
(ii) Individuals who were the nominees of the Board of Directors of
the Holding Company for election as directors of the Holding
Company immediately prior to a meeting of the shareholders of
the Holding Company involving a contest for the election of
directors shall not constitute a majority of the Board
following the election.
7. Mitigation and Set-Off. The Executive shall not be required to
mitigate the amount of any payment provided for in this Agreement by seeking
other employment or otherwise. The Company shall not be entitled to set off
against the amounts payable to the Executive under this Agreement any amounts
owed to the Company by the Executive, any amounts earned by the Executive in
other employment after termination of his employment with the Company, or any
amounts which might have been earned by the Executive in other employment had he
sought such other employment.
8. Non-competition. While the Executive is employed by the Company, and
during the Non-Competition Period (as defined below), the Executive agrees that
he will not directly or indirectly:
(a) provide Goods or perform Services (both as defined below) for the benefit
of any Client (as defined below) except with respect to Goods provided or
Services performed for the benefit of the Company or any Subsidiary, and
except for Goods provided and Services otherwise performed at the written
direction or with the written consent of the Board;
(b) solicit, attempt to solicit, or endeavor to procure engagement, for himself
or for any business (other than the Company and the Subsidiaries and, to
the extent expressly
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permitted or directed by the Board in writing, any other business), the
opportunity to provide Goods or perform Services for any Client; or
(c) divert or attempt to divert any business from the Company or any
Subsidiary.
For purposes of this paragraph 8:
(i) "Goods" shall mean goods of the type provided in the ordinary
course of business by the Company or any of the Subsidiaries during
the period in which the Executive is employed by the Company.
(ii) "Services" shall mean services of the type provided in the ordinary
course of business by the Company or any of the Subsidiaries during
the period in which the Executive is employed by the Company.
(iii) "Client" shall mean any person to whom the Company or any
Subsidiary has provided Goods or Services; provided, however, that
for periods after the Executive's Date of Termination, the term
"Client" shall be limited to those persons, (regardless of where
located, and including, without limitation, businesses) to whom the
Company or any Subsidiary has provided Goods or Services in the
twelve-month period prior to the Date of Termination, and any
person to whom (during the six-month period prior to the Date of
Termination) the Company or any Subsidiary has devoted material
efforts to obtaining as a purchaser of its Goods or Services.
(iv) "Non-Competition Period" shall be determined as follows:
(A) If the Executive's Date of Termination occurs under
circumstances other than those described in paragraph 3(d)
(relating to constructive discharge) or paragraph 3(f)
(relating to certain terminations by the Company), the Non-
Competition Period shall be the period beginning on the Date
of Termination, and ending on the twenty-four-month
anniversary of the Date of Termination.
(B) If the Executive's Date of Termination occurs under
circumstances described in paragraph 3(d) (relating to
constructive discharge) or paragraph 3(f) (relating to certain
terminations by the Company), the Non-Competition Period shall
be the period beginning on the Date of Termination, and ending
on the earlier to occur of the last day of the Agreement Term
or the twenty-four-month anniversary of the Date of
Termination. However, under this paragraph (B), the Company,
in its
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discretion, by notice provided to the Executive not later than
15 days after the Date of Termination, may extend the Non-
Competition Period beyond the end of the Agreement Term, to a
date specified in such notice (but not later than the twenty-
four-month anniversary of the Date of Termination), but only
if the Company agrees to provide the Salary Continuation
Payments during such Non-Competition Period.
Nothing in this paragraph 8, paragraph 9 or paragraph 10 shall be construed as
limiting the Executive's duty of loyalty to the Company while he is employed by
the Company or any other duty he may otherwise have to the Company while he is
employed by the Company.
9. Confidential Information. Except as may be required by the lawful
order of a court or agency of competent jurisdiction, or except to the extent
that the Executive has express authorization from the Company, the Executive
agrees to keep secret and confidential indefinitely all non-public information
(including, without limitation, information regarding litigation and pending
litigation) concerning the Company and the Subsidiaries which was acquired by or
disclosed to the Executive during the course of his employment with the Company,
or during the course of his consultation with the Company following his
termination of employment (regardless of whether consultation is pursuant to
paragraph 11), and not to disclose the same, either directly or indirectly, to
any other person, firm, or business entity, or to use it in any way. To the
extent that the Executive obtains information on behalf of the Company or any of
the Subsidiaries that may be subject to attorney-client privilege as to the
Company's attorneys, the Executive shall take reasonable steps to maintain the
confidentiality of such information and to preserve such privilege. Nothing in
the foregoing provisions of this paragraph 9 shall be construed so as to prevent
the Executive from using, in connection with his employment for himself or an
employer other than the Company or any of the Subsidiaries, knowledge which was
acquired by him during the course of his employment with the Company and the
Subsidiaries, and which is generally known to persons of his experience in other
companies in the same industry.
10. Non-Disparagement. The Executive agrees that, while he is employed by
the Company, and after his Date of Termination, he shall not make any false,
defamatory or disparaging statements about the Company, the Subsidiaries, or the
officers or directors of the Company or the Subsidiaries that are reasonably
likely to cause material damage to the Company, the Subsidiaries or the officers
or directors of the Company or the Subsidiaries. While the Executive is
employed by the Company, and after his Date of Termination, the Company agrees,
on behalf of itself and the Subsidiaries, that neither the officers nor the
directors of the Company or the Subsidiaries shall make any false, defamatory or
disparaging statements about the Executive that are reasonably likely to cause
material damage to Executive.
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11. Defense of Claims. The Executive agrees that, for the period
beginning on the Effective Date, and continuing for a reasonable period after
the Executive's termination of employment with the Company, the Executive will
cooperate with the Company in defense of any claims that may be made against the
Company, and will cooperate with the Company in the prosecution of any claims
that may be made by the Company, to the extent that such claims may relate to
services performed by the Executive for the Company. The Executive agrees to
promptly inform the Company if he becomes aware of any lawsuits involving such
claims that may be filed against the Company. The Company agrees to reimburse
the Executive for all of the Executive's reasonable out-of-pocket expenses
associated with such cooperation, including travel expenses. For periods after
the Executive's employment with the Company terminates, the Company agrees to
provide reasonable compensation to the Executive for such cooperation.
12. Remedies. The Executive acknowledges that the Company would be
irreparably injured by a violation of paragraph 8, paragraph 9, or paragraph 10,
and he agrees that the Company, in addition to any other remedies available to
it for such breach or threatened breach, shall be entitled to a preliminary
injunction, temporary restraining order, or other equivalent relief, restraining
the Executive from any actual or threatened breach of either paragraph 8,
paragraph 9 or paragraph 10. The Company acknowledges that the Executive would
be irreparably injured by a violation of paragraph 10, and the Company agrees
that the Executive, in addition to any other remedies available to him for such
breach or threatened breach, shall be entitled to a preliminary injunction,
temporary restraining order, or other equivalent relief, restraining the Company
from any actual or threatened breach of paragraph 10. If a bond is required to
be posted in order for the Company or the Executive to secure an injunction or
other equitable remedy, the parties agree that said bond need not be more than a
nominal sum.
13. Nonalienation. The interests of the Executive under this Agreement
are not subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance, attachment, or garnishment by creditors of the
Executive or the Executive's beneficiary.
14. Amendment. This Agreement may be amended or canceled only by mutual
agreement of the parties in writing without the consent of any other person. So
long as the Executive lives, no person, other than the parties hereto, shall
have any rights under or interest in this Agreement or the subject matter
hereof.
15. Applicable Law. The provisions of this Agreement shall be construed
in accordance with the laws of Bermuda, without regard to the conflict of law
provisions of any jurisdiction. All disputes shall be arbitrated or litigated
(whichever is applicable) in Bermuda.
16. Severability. The invalidity or unenforceability of any provision of
this Agreement will not affect the validity or enforceability of any other
provision of this Agreement, and this
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Agreement will be construed as if such invalid or unenforceable provision were
omitted (but only to the extent that such provision cannot be appropriately
reformed or modified).
17. Waiver of Breach. No waiver by any party hereto of a breach of any
provision of this Agreement by any other party, or of compliance with any
condition or provision of this Agreement to be performed by such other party,
will operate or be construed as a waiver of any subsequent breach by such other
party or any similar or dissimilar provisions and conditions at the same or any
prior or subsequent time. The failure of any party hereto to take any action by
reason of such breach will not deprive such party of the right to take action at
any time while such breach continues.
18. Successors. This Agreement shall be binding upon, and inure to the
benefit of, the Company and its successors and assigns and upon any person
acquiring, whether by merger, consolidation, purchase of assets or otherwise,
all or substantially all of the Company's assets and business.
19. Notices. Notices and all other communications provided for in this
Agreement shall be in writing and shall be delivered personally or sent by
registered or certified mail, return receipt requested, postage prepaid, or sent
by facsimile or prepaid overnight courier to the parties at the addresses set
forth below (or such other addresses as shall be specified by the parties by
like notice). Such notices, demands, claims and other communications shall be
deemed given:
(a) in the case of delivery by overnight service with guaranteed next day
delivery, the next day or the day designated for delivery;
(b) in the case of certified, registered or similar mail delivery, five days
after deposit in the local mail; or
(c) in the case of facsimile, the date upon which the transmitting party
received confirmation of receipt by facsimile, telephone or otherwise;
provided, however, that in no event shall any such communications be deemed to
be given later than the date they are actually received. Communications that
are to be delivered by the mail or by overnight service are to be delivered to
the addresses set forth below:
to the Company:
LaSalle Re Limited
P.O. Box HM 1502
Hamilton HMFX - Bermuda
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or to the Executive:
Victor H. Blake
802 St. James Court
Flatts Village
Hamilton Parish FL04
Bermuda
with copy to:
Victor H. Blake
Knights Mead
Broad Highway
Cobham, Surrey KT11 2RR
England
All notices to the Company shall be directed to the attention of the chief
financial officer of the Company, with a copy to the Secretary of the Company.
Each party, by written notice furnished to the other party, may modify the
applicable delivery address, except that notice of change of address shall be
effective only upon receipt.
21. Arbitration of All Disputes. In the event of any dispute, controversy
or claim arising out of or in relation to this Agreement, or the breach,
termination or invalidity thereof, the parties hereto agree to proceed to
arbitration. The number of arbitrators shall be three (3), to be appointed in
the absence of the parties agreement by the Appointment Committee of the
Chartered Institute of Arbitrators Bermuda Branch. The procedure to be followed
shall be that as laid down in the Arbitration Act of 1986. The place of
arbitration shall be Bermuda and the language of the arbitration shall be
English. The decision and award of the arbitral tribunal is final and binding
on the parties. For the avoidance of doubt, the parties agree that judgment may
be entered and any award made by the Tribunal in any Federal Court in the United
States (or any other jurisdiction where a party to this agreement is located).
22. Survival of Agreement. Except as otherwise expressly provided in this
Agreement, the rights and obligations of the parties to this Agreement shall
survive the termination of the Executive's employment with the Company.
23. Entire Agreement. Except as otherwise noted herein, this Agreement,
including any Exhibit(s) attached hereto, constitutes the entire agreement
between the parties concerning the subject matter hereof and supersedes all
prior and contemporaneous agreements, if any, between the parties relating to
the subject matter hereof. The enforceability of this Agreement shall not
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cease or otherwise be adversely affected by the termination of the Executive's
employment with the Company.
24. Acknowledgment by Executive. The Executive represents to the Company
that he is knowledgeable and sophisticated as to business matters, including the
subject matter of this Agreement, that he has read this Agreement and that he
understands its terms. The Executive acknowledges that, prior to assenting to
the terms of this Agreement, he has been given a reasonable time to review it,
to consult with counsel of his choice, and to negotiate at arm's-length with the
Company as to the contents. The Executive and the Company agree that the
language used in this Agreement is the language chosen by the parties to express
their mutual intent, and that no rule of strict construction is to be applied
against any party hereto.
IN WITNESS THEREOF, the Executive has hereunto set his hand, and the
Company has caused these presents to be executed in its name and on its behalf,
and its corporate seal to be hereunto affixed, all as of the day and year first
above written.
/s/ Victor H. Blake
---------------------------------------
Victor H. Blake
LASALLE RE LIMITED
By /s/ Clement S. Dwyer, Jr.
------------------------------------
Chairman, Compensation Committee
ATTEST:
16
<PAGE>
EXHIBIT A
---------
BONUS COMPUTATION
-----------------
A-1. Purpose. This Exhibit A is attached to and forms a part of the
employment agreement (the "Agreement") between Victor H. Blake (the "Executive")
and LaSalle Re Holdings Limited (the "Company"). The purpose of this Exhibit A
is to set forth the terms of the bonus program described in paragraph 2(b) of
the Agreement.
A-2. Guidelines. The bonus shall be determined in accordance with the
following guidelines:
. A discretionary bonus may be awarded annually in the discretion of the
Board of the Company, after considering the recommendation of the
Compensation Committee of the Board.
. A non-discretionary bonus shall be earned and paid annually based upon the
Company's Return on Equity (defined below) achieved for each fiscal year of
the Company while the Executive is employed by the Company; provided
however, that no bonus shall be payable for fiscal years ending after
September 30, 1999.
. The non-discretionary annual bonus calculation will be based on the
Company's Return on Equity earned each year. If the Company's Return on
Equity for any year exceeds 10%, the bonus will be paid according to the
following formula:
. For each 1% improvement in Return on Equity above 10%, an amount
equal to 10.0 % of The Executive's Salary will be paid.
. For each 1% improvement in Return on Equity above 22.5%, an amount
equal to 15.0 % of The Executive's Salary will be paid.
. For Return on Equity results between whole percentages (but above
10%), the percentage of Salary awarded will be increased by
interpolation.
. The " Return on Equity" for any fiscal year shall be equal to the
net income of the Company for the fiscal year, divided by
shareholders' equity at the beginning of the period (as determined
on the basis of U.S. generally accepted accounting principles). For
purposes of this calculation any
17
<PAGE>
unrealized appreciation or depreciation of the Company's
investments shall be disregarded (both as to the numerator and the
denominator). In addition, payments made to CNA Financial
Corporation or its affiliates under the Underwriting Support
Services Agreement will not reduce net income in determining the
Return on Equity.
18
<PAGE>
EXHIBIT B
---------
STOCK APPRECIATION RIGHTS
-------------------------
B-1. Purpose. This Exhibit B is attached to and forms a part of the
employment agreement (the "Agreement") between Victor H. Blake (the "Executive")
and LaSalle Re Holdings Limited (the "Company"). The purpose of this Exhibit B
is to set forth the terms of the stock appreciation rights award described in
paragraph 2(c) of the Agreement.
B-2. Agreement. The Executive shall be entitled to receive a stock
appreciation rights award from the Company under an agreement that is
substantially in the form of the Stock Appreciation Rights Agreement set forth
below.
19
<PAGE>
STOCK APPRECIATION RIGHTS AGREEMENT
This AGREEMENT made as of this 1st day of April, 1994 (this "Agreement") is
among LaSalle Re Limited, a company incorporated and organized under the laws of
Bermuda (the "Company"), and Victor H. Blake (the "Executive").
W I T N E S E T H:
-----------------
WHEREAS, pursuant to the Employment Agreement dated April 1, 1994 between
the Company and the Executive, the Company wishes to grant stock appreciation
rights ("SARs") to the Executive upon the terms and conditions set forth herein.
NOW, THEREFORE, the Executive and the Company agree as follows:
1. Definitions. As used in this Agreement, the following terms shall
have the meanings set forth below:
(A) "Affiliate" shall mean, with respect to any specified Person, a Person
that directly or indirectly controls, is controlled by or is under common
control with such Person.
(B) "Base Value" shall mean U.S. $100, except as may be adjusted pursuant
to Section 5.
(C) "Common Shares" shall mean the common shares of the Company, par value
U.S. $1.00 per share.
(D) "Extraordinary Transaction" shall mean each of the following
transactions:
(i) any amalgamation of the Company with any Person if the Company shall
not be the continuing or surviving corporation of such amalgamation
excluding an amalgamation in which the Holders of the outstanding Shares
immediately before the amalgamation own more than 50% of the outstanding
shares and voting power of the surviving corporation in substantially the
same proportions;
(ii) any amalgamation of the Company with any Person if the Company shall
be the continuing or surviving corporation but, in connection with such
amalgamation, the Shares shall be changed into or exchanged for shares or
other securities of any other Person or cash or any other property
excluding an amalgamation in which the holders of the outstanding Shares
immediately before the amalgamation own more than 50% of the
<PAGE>
outstanding shares and voting power of the surviving corporation in
substantially the same proportions;
(iii) any transfer by the Company of all or substantially all of its
properties or assets to any other Person;
(iv) any transaction whereby any Person other than Combined Insurance
Company of America, Virginia Surety Company, Inc. Union Fidelity Life
Insurance Company, Aon Risk Consultants (Bermuda) Ltd., Continental
Casualty Company, CNA Services (Bermuda) Ltd., Corporate Partners L.P.,
Corporate Offshore Partners L.P., State Board Administration of Florida,
Blackstone LR Capital Partners II L.P., Blackstone Offshore Partners L.P.,
Blackstone Family Investment Partnership (Cayman) L.P., Apollo LS Holdings
LDC, FIMA Finance Management Inc., SDI Inc., Thomas H. Lee Equity Partners,
L.P., THL-CCI Investors Limited Partnership, Strome Offshore Limited,
Strome Partners L.P., Perry Partners L.P., Perry Partners International
Inc. or Engineers Joint Pension Fund becomes the Owner (as defined below)
of at least 50% of the aggregate number of Shares issued and outstanding on
the date of such transaction on a Fully Diluted Basis. For the purpose of
this Section 1(C)(iv), "Owner" shall mean any Person that individually or
with or through any of its Affiliates beneficially owns Shares, directly or
indirectly; or has the right to acquire Shares (whether such right is
exercisable immediately or only after the passage of time); or has the
right to vote Common Shares except if this Person's right to vote Common
Shares arises solely from a revocable proxy; or has any agreement,
arrangement or understanding for the purpose of acquiring, holding, voting
(except voting pursuant to a revocable proxy) or disposing of Shares with
any other Person that beneficially owns, or whose Affiliates beneficially
own, directly or indirectly, Shares;
provided, however, that no transaction shall be considered an Extraordinary
Transaction if it is intended by the Board of Directors to create a holding
company in connection with an initial public offering.
(E) "Fair Market Value" of Special Non-Voting Shares, for the purpose of
any computation of SAR Value on a specified date, shall be the value determined
for such a date in good faith by the Board of Directors of the Company, but
shall be based on the market price of the Special Non-Voting Shares or Common
Shares if they are publicly traded. The determination of the Fair Market Value
of such Special Non-Voting Shares made by the Board of Directors shall be final.
The calculation of the Fair Market Value of the Special Non-Voting Shares made
by the Board of Directors shall not include any discount relating to the absence
of a public trading market for, or any transfer restrictions on, the Special
Non-Voting Shares.
(F) "Fully Diluted Basis" shall mean as of any date the aggregate number
of Shares that would be issued and outstanding on such date assuming that all
options, including the Options, warrants and other rights to purchase Shares and
all securities convertible into or exchangeable
2
<PAGE>
for Shares issued and outstanding on such date of exercise shall have been
exercised, converted or exchanged, as the case may be, on such date.
(G) "Holding Company" shall have the meaning given such term in Section
5(C) hereof.
(H) "Members" shall have the meaning given such term in the Bye-laws.
(I) "Options" shall mean the Options to purchase Special Non-Voting Shares
granted to the Optionholders pursuant to the Option Agreement between the
Company and the Optionholders dated November 22, 1993.
(J) "Person" shall mean an individual, trust, estate, partnership,
association, company or corporation.
(K) "SAR Value" shall mean, subject to adjustments in Section 5, as of any
date an amount equal to (i) the Fair Market Value of a Special Non-Voting Share
as of that date minus (ii) the Base Value.
(L) "Shareholders Agreement" shall mean the Shareholders Agreement dated as
of November 22, 1993 among the Company and the Persons named therein, as
amended, supplemented, restated or otherwise modified from time to time.
(M) "Shares" shall mean any share in the share capital of the Company.
(N) "Subsidiary" of a Person shall mean (i) a corporation in which more
than 50% of the issued and outstanding shares in the share capital entitled to
vote for the election of directors is at the time owned, directly or indirectly,
by such Person, or (ii) a partnership or other entity in which more than 50% of
the voting power is at the time held, directly or indirectly, by such Person.
(O) "Target Rate of Return" shall be considered to have been met, with
respect to any date, if the Company's financial performance from November 22,
1993 through the date for which the calculation is being made, based on book
value per share on that date (as determined on the basis of U.S. generally
accepted accounting principles) plus all dividends paid since November 22, 1993,
when compared to the initial amount invested, reflects a cumulative internal
rate of return equal to or in excess of the internal rate of return set forth in
the table under Section 2(B). For purposes of this calculation all per share
amounts will be adjusted to reflect any stock splits, stock dividends or similar
reclassifications. If the Company adopts a holding company structure the
Company and the holding company shall be considered on a consolidated basis for
purposes of determining whether the Target Rate of Return has been met.
2. Terms of the SARs.
3
<PAGE>
(A) In consideration of the entering into of the Employment Agreement and
for other value received, receipt of which is hereby acknowledged, the Company,
subject to the terms and conditions of this Agreement, hereby grants to the
Executive 56,812 SARs.
(B) Subject to Section 2(F), the Executive may exercise that percentage of
Executive's SARs indicated in the table below, in whole or in part, from time to
time during the period commencing on the day following the last day of the
first, if any, of fiscal years 1996 through 1999 in which as of the last day of
such fiscal year the Target Rate of Return indicated on the table below has been
met and ending at March 30, 2004 or, if earlier, two years after the Executive's
termination of employment (the "SAR Period"); however, once a given percentage
of SARs shall become exercisable by reason of the achievement of a particular
rate of return, a subsequent reduction in cumulative rate of return for a period
ending on December 31 of a later year will not serve to reduce the percentage of
SARs that are exercisable. Upon the expiration of the SAR Period, the Executive
shall cease to have any rights in respect of his SARs, except that the SARs will
be exercisable after the termination of the Executive's employment to the extent
that they are exercisable immediately prior to the date of termination. To the
extent that the right to exercise the SARs is not earned by reason of
termination of employment, the right to exercise shall be forfeited regardless
of the reason for the termination.
<TABLE>
<CAPTION>
====================================================================================================
SARs SARs SARs
If the Earned Earned Earned
Internal Rate After After After
of Return is: 12/31/96 12/31/97 12/31/98
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than 18% 0% 0% 0%
- ----------------------------------------------------------------------------------------------------
Greater than 18% and 20% 27% 33%
less than 25%
- ----------------------------------------------------------------------------------------------------
Greater than 25% and 40% 53% 57%
less than 27%
- ----------------------------------------------------------------------------------------------------
Greater than 27% 60% 80% 100%
====================================================================================================
</TABLE>
(C) If the Target Rate of Return has not been met as of the last day of
fiscal year 1999 or as of the last day of at least one of the previous three
fiscal years, the Executive shall cease to have any rights under this Agreement.
(D) The Executive shall not, solely by virtue of this Agreement, be
entitled to any rights of a Member of the Company either at law or in equity.
(E) At its option, the Executive may return to the Company for cancellation
all or a portion of its SARs.
4
<PAGE>
(F) Notwithstanding the provisions of Section 2(B), in the event of any
Extraordinary Transaction and provided that on the date of such Extraordinary
Transaction the Target Rate of Return has been met, the Executive shall have the
right to exercise its SARs, in whole or in part, at any time and from time to
time during the period commencing concurrently with and subject to the closing
of such Extraordinary Transaction and ending on November 22, 2003 (also the "SAR
Period"). At any time during the SAR Period and on or after the date of the
Extraordinary Transaction, if the Executive exercises its SARs, the Executive
shall be entitled to receive the kind and amount of shares, other securities,
cash or other property that the Executive would have owned or have been entitled
to receive after the occurrence of such Extraordinary Transaction had the
Executive owned an amount of Special Non-Voting Shares equal to his number of
SARs prior to such Extraordinary Transaction, including the exercise by the
Executive of any rights of election provided to holders of Special Non-Voting
Shares as to the kind or amount of shares, securities, cash or other property
receivable in connection with such Extraordinary Transaction, as the case may
be.
(G) Any determination by the Board of Directors, acting in good faith, as
to whether the Target Rate of Return has been met shall be final. Following any
such determination that the Target Rate of Return has been met, the Company
shall provide prompt written notice to the Executive of the commencement of the
SAR Period.
3. Notices of Extraordinary Transactions and Exercise Notice.
The Company shall provide the Executive with written notice of the
occurrence of an Extraordinary Transaction no later than five (5) business days
after such Extraordinary Transaction has occurred or, in the event of an
Extraordinary Transaction described in Section 1(D)(iv), not later than five (5)
business days after the Company first becomes aware of such Extraordinary
Transaction.
4. Payment on Exercise of SAR.
(A) In order to exercise any of the SARs, the Executive shall provide
written notice (the "Exercise Notice") to the Company specifying the number of
SARs being exercised and the date that the SARs will be exercised (the "Exercise
Date").
(B) Upon receipt of the Exercise Notice by the Company, for each SAR
exercised by the Executive, subject to Section 4(C) the Executive shall be
entitled to a cash payment equal to the SAR Value as of the Exercise Date,
without regard to changes in the Fair Market Value of a share of the Company
occurring after the Exercise Date. The cash amount payable with respect to the
exercise of a SAR under this Section 4 shall be made, without interest, as soon
as practicable after the later of the date the SAR is exercised or the date on
which the SAR Value has been determined. The Company shall take all reasonable
steps to pay amounts due with respect to the exercise of a SAR not later than 10
days after the Exercise Date; provided, however, that when funds are not legally
available to pay amounts due under this
5
<PAGE>
Section 4 (or if the amount of the cash payment would not have been legally
available to be paid as a dividend), the Executive shall be entitled to payment
only as described in Section 4(C).
(C) Notwithstanding the foregoing, upon the exercise of any or all SARs,
instead of making a cash payment equal to the SAR Value the Company in its sole
discretion may elect to:
(i) issue to the Executive a number of Special Non-Voting Shares
equal to the aggregate SAR Value divided by the Fair Market Value
of a Special Non-Voting Share or
(ii) require payment by the Executive of the Base Value for each
SAR exercised and issue to the Executive a number of Special Non-
Voting Shares equal to the number of SARs exercised.
5. Adjustment of the Number of SARs and of the SAR Value.
(A) In the event that the Company shall at any time after the date hereof
(i) declare or pay a dividend in Shares or make any other distribution in Shares
such that the number of Shares issued and outstanding is increased, (ii)
subdivide or split its issued and outstanding Shares, such that the number of
Shares issued and outstanding is increased, (iii) combine its issued and
outstanding Shares into a smaller number of Shares, (whether by reverse share
split or otherwise) or (iv) issue any Shares in a reclassification of the Shares
(including any such reclassification in connection with a merger, consolidation
or amalgamation in which the Company is the surviving corporation), the number
of SARs shall be proportionately adjusted on a pro rata basis so that the ratio
of aggregate number of outstanding SARs to outstanding Shares shall not change.
Adjustments made pursuant to this Section 5(A) shall become effective
immediately after the effective date of such event retroactive to the record
date, if any, for such event.
(B) In the event that the Company shall issue rights, options, warrants or
convertible securities to all holders of its issued and outstanding Shares,
entitling them to subscribe for or purchase or convert such convertible
securities into Shares at a price per Share that is lower on the record date
mentioned below than the then Fair Market Value of the Special Non-Voting
Shares, the number of SARs owned by the Executive shall be adjusted by
multiplying his number of SARs by a fraction, (i) of which the numerator shall
be the sum of (A) the number of Shares issued and outstanding on the record date
for determining Members entitled to receive such rights, options, warrants or
convertible securities plus (B) the number of additional Shares offered for
subscription or purchase or upon conversion, and (ii) of which the denominator
shall be the sum of (A) the number of Shares issued and outstanding on the
record date for determining Members entitled to receive such rights, options,
warrants or convertible securities plus (B) the number of shares that the
aggregate offering price of the total number of Shares so offered would purchase
at the Fair Market Value per Share at such record date. Such adjustment shall be
made whenever such rights, options, warrants or convertible securities are
6
<PAGE>
issued, and shall become effective immediately after the record date for the
determination of Members entitled to receive such rights, options, warrants or
convertible securities.
(C) In the event that the Company shall form or cause to be formed a
holding company or a parent company for the Company (a "Holding Company") and
all or substantially all of the shares in the share capital of the Holding
Company shall be distributed to all holders of Shares in exchange for their
Shares or otherwise, the SAR Value shall be equal to (i) the Fair Market Value
of the number of shares in the share capital of the Holding Company that a
holder of a Special Non-Voting Share was entitled to receive after such
distribution minus (ii) the Base Value.
(D) Whenever the number of SARs is adjusted as provided in this Section 5,
the Base Value shall be adjusted by multiplying the Base Value immediately prior
to such adjustment by a fraction, (i) of which the numerator shall be the number
of SARs outstanding prior to such adjustment and (ii) of which the denominator
shall be the number of SARs outstanding immediately thereafter.
(E) Except in the case of a distribution to the holders of Shares payable
(i) in Shares, in accordance with Section 5(A) hereof, (ii) in shares of the
share capital of a Holding Company pursuant to Section 5(C) or (iii) in
dividends declared by the Board to be "regular dividends" and which are paid in
cash in an amount per share which, when added to the value of all cash dividends
previously paid within the same fiscal year, does not exceed 5% of the average
book value per share for the prior four quarters (as determined on the basis of
U.S. generally accepted accounting principles), the Base Value of each
outstanding SAR shall be reduced by the per share amount of all dividends or
distributions paid or declared by the Company prior to the exercise of the SARs;
provided, however, that in no event shall the Base Value be reduced below the
par value of the Common Shares.
(F) No adjustment in the number of SARs need be made under Section 5(B) if
------------
the Company issues or distributes, pursuant to this Agreement, to the Executive
the shares, rights, options, warrants, securities or assets that the Executive
would have been entitled to receive had the Executive owned Special Non-Voting
Shares in an amount equal to its number of SARs prior to the event or the record
date with respect thereto. No adjustment need be made for a change in the par
value of any of the Shares.
(G) For the purpose of this Section 5 and the definition of SAR Value in
Section 1(J), the term "Shares" shall mean (i) the Shares at the date of this
Agreement or (ii) any other class of shares in the share capital of the Company
resulting from successive changes or reclassification of such shares consisting
solely of changes in par value.
(H) In the case of Section 5(B) hereof, upon the expiration of any rights,
options, warrants or convertible securities or if any rights, options, warrants
or convertible securities shall not have been exercised or converted, the number
of SARs held by the Executive shall, upon such expiration, be readjusted and
shall thereafter be such as they would have been had they
7
<PAGE>
been originally adjusted (or had the original adjustment not been required, as
the case may be) as if (A) the only Shares so issued were the Shares, if any,
actually issued or sold upon the exercise of such rights, options or warrants or
the conversion of such convertible securities and (B) such Shares, if any, were
issued or sold for the consideration actually received by the Company upon such
exercise or conversion plus the aggregate consideration, if any, actually
received by the Company for the issuance, sale or grant of all such rights,
options, warrants or convertible securities whether or not exercised;
provided, further, that no such readjustment shall have the effect of decreasing
the number of SARs held by the Executive by an amount in excess of the amount of
the adjustment initially made in respect to the issuance, sale or grant or such
rights, options, warrants or convertible securities.
(I) In the case of Section 5(B) hereof, on any change in the number of
Shares deliverable upon exercise of any such rights, options, warrants or
convertible securities, other than a change resulting from the antidilution
provisions hereof, the number of SARs held by the Executive shall forthwith be
readjusted to such number as would have been obtained had the adjustment made
upon the issuance of such rights, options, warrants or convertible securities
not converted prior to such change (or rights, options, warrants or convertible
securities related to such securities not converted prior to such change) been
made upon the basis of such change.
6. No Fractional Shares
In the event that the Company decides to pay the SAR Value as provided in
Section 4(C), the Company shall not be required to issue a fractional Share. If
any fractional interest in a Share would be deliverable upon the exercise of any
of the SARs, in whole or in part, but for the provisions of this Section, the
Company, in lieu of delivering any such fractional Share therefor, shall pay a
cash adjustment therefor in an amount equal to the book value per Share at the
end of the most recent fiscal quarter multiplied by the fraction of the Share
that would otherwise have been issued hereunder.
7. Issuance of Certificates
In the event that the Company decides to pay the SAR Value as provided in
Section 4(C), the issuance of certificates upon the exercise of the SARs, in
whole or in part, shall be without additional charge to the Executive. The
Company shall pay and indemnify the Executive from and against any issuance,
stamp, documentary or other similar taxes (other than transfer taxes) or charges
imposed by any governmental body, agency or official by reason of the exercise
of the SARs, in whole or in part, or the resulting issuance of Special Non-
Voting Shares.
Each certificate representing the Special Non-Voting Shares so issued shall
(unless its transfer is not restricted under the Bye-laws of the Company), be
stamped or otherwise imprinted with a legend in substantially the form set forth
in the Shareholders Agreement.
8. Issuance of Certificates
8
<PAGE>
In the event that the Company decides to issue Special Non-Voting Shares
upon the exercise of any SAR as provided in Section 4(C), such Special Non-
Voting Shares shall be subject, among others, to the provisions of Bye-law 50
(repurchase of Shares by Company or its Assignee(s)).
9. Restriction on Transfer of the SARs and Certain Special Non-Voting
Shares.
(A) In the event that the Company decides to issue Special Non-Voting
Shares upon the exercise of any SAR as provided in Section 4(C), such Special
Non-Voting Shares shall be subject, among others, to the provisions relating to
restrictions on stock ownership set forth in the Bye-laws and in the
Shareholders Agreement. The Executive agrees to execute the Shareholders
Agreement in such event.
(B) The transfer, in whole or in part, of the Special Non-Voting Shares
issued upon the exercise of any SAR shall be subject to the terms and conditions
applicable to any transfer of Shares provided by the Bye-laws (as amended), the
Shareholders Agreement (as amended) and this Agreement.
10. Governing Law.
This Agreement shall be governed by and construed in accordance with the
laws of Bermuda, without regard to principles regarding conflicts of laws.
11. Notices.
All notices, requests, demands and other communications hereunder shall be
in writing and shall be deemed, unless otherwise specified herein, to have been
duly given if given in person or otherwise communicated or sent by mail, courier
service, cable, telex, telecopier, facsimile or other mode of representing words
in a legible and non-transitory form if to the Executive at: 802 St. James
Court, Flatts Village, Hamilton Parish FLO4, Bermuda and if to the Company at
P.O. Box HM 1502, Hamilton HM CX, Bermuda, Attention: Secretary, or such other
address as the Company may have furnished to the Members and Executive in
writing; provided, however, that if such notice is sent by next-day courier it
shall be deemed to have been given the day following sending and, if by
registered mail, five days following the sending.
12. Severability.
Any provision of this Agreement that is prohibited, unenforceable or not
authorized in any jurisdiction shall, as to such jurisdiction, be ineffective to
the extent of such prohibition, unenforceability or lack of authorization
without invalidating the remaining provisions hereof or affecting the validity,
unenforceability or legality of such provision in any other jurisdiction.
13. Binding Effect; Benefit.
9
<PAGE>
This Agreement shall inure to the benefit of and be binding upon the
parties hereto, and their respective successors, legal representatives and
permitted assigns. Nothing in this Agreement, expressed or implied, is intended
to confer on any Person other than the parties hereto, and their respective
successors, legal representatives and permitted assigns, any rights, remedies,
obligations or liabilities under or by reason of this Agreement.
14. Headings.
The headings contained in this Agreement are for convenience only and shall
not affect the meaning or interpretation of this Agreement.
* * * * *
IN WITNESS WHEREOF, the parties hereto have executed this Agreement under
seal as of the date first above written.
LASALLE RE LIMITED
By:
-------------------------------------------
Name:
Title:
- ----------------------------------------------
Victor H. Blake
10
<PAGE>
EXHIBIT 10.10
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT, made and entered into as of March 1, 1999 (the "Effective
Date"), by and between Robert P. Cuthbert (the "Executive") and LaSalle Re
Limited (the "Company");
WITNESSETH THAT:
---------------
WHEREAS, the parties desire to enter into this Agreement pertaining to the
employment of the Executive by the Company;
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth below, it is hereby covenanted and agreed by the Executive and the Company
as follows:
1. Performance of Services. The Executive's employment with the Company
shall be subject to the following:
(a) Subject to the provisions of this Agreement, the Company hereby agrees to
employ the Executive as the Senior Vice President, Chief Financial Officer
and Treasurer of the Company and LaSalle Re Holdings Limited (the "Holding
Company") during the Agreement Term (as defined below), and the Executive
hereby agrees to remain in the employ of the Company during the Agreement
Term.
(b) During the Agreement Term, while the Executive is employed by the Company,
the Executive shall devote, subject to paragraph 1(f), his full time,
energies and talents to performing his duties under this Agreement.
(c) The Executive agrees that he shall perform his duties faithfully and
efficiently subject to the directions of the Board of Directors (the
"Board") and the Chief Executive Officer (the "CEO") of the Company. The
Executive's duties may include providing services for the Company, the
Holding Company, and the Subsidiaries (as defined below), as determined by
the CEO; provided that the Executive shall not, without his consent, be
assigned tasks that would be inconsistent with his position at the Company.
The Executive will have such authority and power as are inherent to the
undertakings applicable to his position and necessary to carry out his
responsibilities and the duties required of him hereunder.
(d) While the Executive is employed by the Company, he shall be subject to the
duties that reasonably apply to the Company's officers and employees
(including, without limitation, the duty of loyalty to the Company).
(e) The Company may change the Executive's title and duties in the event of
reorganization, restructuring, or similar circumstances, except that the
Executive shall have a senior executive position at all times during the
Agreement Term while he is employed by the Company.
<PAGE>
(f) Notwithstanding the foregoing provisions of this paragraph 1, during the
Agreement Term, the Executive may devote reasonable time to activities
other than those required under this Agreement, including the supervision
of his personal investments, and activities involving professional,
charitable, educational, religious and similar types of organizations,
speaking engagements, membership of the boards of directors of other
organizations, and similar type of activities, to the extent that such
other activities do not inhibit or prohibit the performance of the
Executive's duties under this Agreement, or conflict in any material way
with the business of the Company, the Holding Company, or any Subsidiary;
provided, however, that except as otherwise expressly provided in this
Agreement, the Executive shall not serve on the board of any business, or
hold any position with any business without the consent of the Board and
the CEO of the Company.
(g) The Executive will be required to maintain a residence in Bermuda while
employed by the Company.
(h) The Company will use its reasonable best efforts to maintain a Bermuda work
permit for the Executive. The Executive shall cooperate with the Company
and the appropriate authorities in maintaining such permit. The Executive's
employment by the Company is conditioned upon the Company's ability to keep
current all required work permits, and except as otherwise provided in this
paragraph 1(h), the Company shall have no further obligation to the
Executive if, after employing its reasonable best efforts, it is unable to
maintain such permits. If despite the Company's best efforts to maintain
the Bermuda work permit, the work permit is terminated or revoked by the
Government of Bermuda through no fault of the Executive, then the Executive
shall be deemed to have received written notice from the Company that his
Date of Termination is the date on which the termination or revocation of
his or her work permit is effective, and the Executive shall be entitled to
the benefits provided for Termination by the Company under Section 3(g). In
addition, the Company shall reimburse the Executive for reasonable costs
actually incurred by the Executive and the members of his or her immediate
family to relocate to the nation in which the Executive maintains
citizenship; provided, however, that such reimbursement shall be made only
if such relocation occurs within a reasonable time following such Date of
Termination. The reasonableness of the cost and time of relocation shall be
determined by the Board.
(i) Subject to the provisions of this Agreement, the Executive shall not be
required to perform services under this Agreement during any period that he
is Disabled. The Executive shall be considered "Disabled" during any
period in which he has a physical or mental disability which renders him
incapable, after reasonable accommodation, of performing his duties under
this Agreement. In the event of a dispute as to whether the Executive is
Disabled, the Company may refer the same to a licensed practicing physician
of the Company's choice, and the Executive agrees to submit to such tests
and examination as such physician shall deem appropriate.
(j) The "Agreement Term" shall be the period beginning on the Effective Date
and ending on the third anniversary of the Effective Date; provided,
however, that beginning on the
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second anniversary of the Effective Date, such Agreement Term shall
automatically be renewed daily, such that at any time on or after the
second anniversary of the Effective Date, the remaining term shall equal
one year. However, such additional day-to-day renewals may be terminated by
either party be delivering written notice of such termination to the other
party, in accordance with the requirements of paragraph 18. The cessation
of the automatic renewals shall be effective on the date such written
notice is deemed to be given to the other party in accordance with
paragraph 18, such that the Agreement Term shall end on the one-year
anniversary of the date such written notice is deemed given to the other
party. For purposes of this Agreement, a Notice of Termination, as
described in paragraph 3(i), shall be deemed to be a notice to terminate
day-to-day renewals.
(k) For purposes of this Agreement, the term "Subsidiary" shall mean any
company (regardless of whether incorporated) during any period in which 50%
or more of the total combined voting power of all classes of stock (or
other ownership interest) entitled to vote is owned, directly or
indirectly, by the Company.
2. Compensation. Subject to the provisions of this Agreement, during the
Agreement Term, while he is employed by the Company, the Company shall
compensate the Executive for the Executive's services as follows:
(a) Salary. The Executive shall receive, for each 12-consecutive month period
beginning on the Effective Date and each anniversary thereof, in
substantially equal monthly or more frequent installments, an annual base
salary of $300,000 (the "Salary"). In no event shall the Salary of the
Executive be reduced to an amount that is less than the amount specified in
this paragraph (a), except to the extent that reductions of the same
percentage are being made at the same time to the salaries of all other
Company officers in the corporate office at or above the vice-president
level, and such Salary shall be restored to its prior level when, and to
the same extent, as the restoration that applies to the other officers.
(b) Bonus. The Executive shall be entitled to receive bonuses from the Company
in accordance with the provisions of Exhibit A, which is attached to and
forms a part of this Agreement. Notwithstanding the foregoing, but subject
to this paragraph 2(b), for the fiscal year ended September 30, 1999, the
Executive shall be entitled to a minimum bonus of $100,000, of which
$50,000 shall be payable on the Effective Date or as soon as practicable
thereafter, and the remaining $50,000 shall be payable on September 30,
1999 or as soon as practicable thereafter. The bonus, if any, otherwise
payable in accordance with the provisions of Exhibit A which is
attributable to the fiscal year ended September 30, 1999, will be reduced,
but not below $0, to reflect the $100,000 payable in accordance with the
immediately foregoing sentence.
(c) Stock Options. On the later of the Effective Date or the date such award
is approved by the Board of Directors of the Holding Company, the Executive
shall receive an option to purchase 50,000 common shares of the Holding
Company. The terms and conditions for such option shall be governed by the
LaSalle Re Holdings Limited 1996 Long-Term Incentive Plan (the "LTIP"),
including, as permitted by the LTIP, by such additional
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terms imposed by the Committee under the LTIP, which terms shall be
reflected in an option agreement between the Holding Company and the
Executive.
(d) Restricted Stock. On the later of the Effective Date or the date such
award is approved by the Board of Directors of the Holding Company, the
Executive shall receive 12,500 shares of restricted stock of the Holding
Company. The terms and conditions for such restricted stock shall be
governed by the LTIP, including, as permitted by the LTIP, by such
additional terms imposed by the Committee under the LTIP, which terms shall
be reflected in an restricted stock agreement between the Holding Company
and the Executive.
(e) Disability. The Executive shall receive from the Company disability income
replacement coverage which will provide for replacement of income at a
commercially reasonable rate during any period in which the Executive is
Disabled if the disability arose during the Agreement Term and prior to the
Executive's Date of Termination. During any period while the Executive is
Disabled, and is otherwise entitled to receive Salary under this Agreement,
any Salary payments to the Executive shall be reduced by the amount of any
benefits paid for the same period of time under the Company's disability
income replacement coverage.
(f) Pension. The Company will provide the Executive with a defined
contribution savings plan, into which the Company will make a contribution
for each fiscal year equal to 10% of the Salary paid to the Executive for
such fiscal year. The plan will also provide that the Executive may make
annual contributions equal to or less than the Company's contribution.
(g) Automobile. The Company will provide the Executive with an allowance
toward the cost of an automobile in Bermuda, the amount of which will be
approved by the CEO. The Company will assume responsibility for the cost
of insurance, maintenance and similar items. The Executive's personal use
of the automobile will be permitted. This perquisite shall be governed by
the rules and limitations set down from time to time by the Company.
(h) Club. The Company will reimburse the Executive for periodic dues for his
membership in clubs located in Bermuda in an amount not to exceed $3,000
per fiscal year. The Company will provide a one-time reimbursement to the
Executive for initiation fees for club membership in an amount not to
exceed $10,000; provided, however, that if any such initiation fees are
returned to the Executive upon termination of membership or for any other
reason, such fees shall be paid to the Company to the extent such return is
attributable to amounts paid by the Company.
(i) Housing/Living Allowance. The Company shall provide the Executive with a
housing and living expense allowance at the annual rate of $120,000, with
such allowance to be payable to the Executive in monthly instalments.
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(j) Professional Dues. The Company will reimburse the Executive for reasonable
professional dues to maintain his professional standing as a Chartered
Accountant.
(k) Tax, Accounting and Financial Planning; Legal Counsel. The Company will
reimburse the Executive for reasonable expenses, not to exceed $5,000 per
fiscal year, for tax, accounting, and financial planning services. The
Company will reimburse the Executive for reasonable expenses, not to exceed
$5,000, for review of this Agreement by the Executive's legal counsel;
provided, however, that such review must occur within a reasonable time of
the Effective Date, as determined by the CEO.
(l) Relocation. The Company will reimburse the Executive for the expenses he
incurs in connection with his relocation to Bermuda, including travel
expenses for the Executive, his wife, and his immediate family, provided
that such reimbursement shall be subject to such policies and procedures as
may be in effect from time to time for the Company's senior executives.
(m) Other Benefits. Except as otherwise specifically provided to the contrary
in this Agreement, the Executive shall be provided with the welfare
benefits and other fringe benefits to the same extent and on the same terms
as those benefits are provided by the Company from time to time to the
Company's other senior management employees. However, the Company shall
not be required to provide a benefit or perquisite under this paragraph
2(m) if such benefit or perquisite would duplicate (or otherwise be the
same type as) a benefit or perquisite specifically required to be provided
under another provision of this Agreement.
(n) Expenses. Upon approval by the CEO, the Company will reimburse the
Executive for reasonable expenses for entertainment, traveling, meals,
lodging and similar items in promoting the Company's business which the
Executive documents on a form used by the Company to report business
expenses.
(o) Indemnification. The Company shall maintain officers liability insurance
in commercially reasonable amounts (as reasonably determined by the Board),
and the Executive shall be covered under such insurance to the same extent
as other senior management employees of the Company. The Executive shall
be eligible for indemnification by the Company under the Company's bye-laws
as currently in effect. The Company agrees that it shall not take any
action that would impair the Executive's rights to indemnification under
the Company's bye-laws, as currently in effect.
(p) Holiday/Vacation. The Executive shall be subject to the holiday and
vacation policy that applies to other senior executives of the Company.
(q) Dollar Amounts. As used in this Agreement, "dollars" or numbers preceded
by the symbol "$" shall mean amounts in United States Dollars.
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3. Termination. The Executive's employment during the Agreement Term may
be terminated by the Company or the Executive without any breach of this
Agreement only under the circumstances described in paragraphs 3(a) through
3(h):
(a) Death. The Executive's employment will terminate upon his death.
(b) Permanently Disabled. The Company may terminate the Executive's employment
if he is Permanently Disabled. "Permanently Disabled" means that the
Executive is eligible for benefits under the Company's long-term disability
plan.
(c) Cause. The Company may terminate the Executive's employment at any time
for Cause. "Cause" shall mean:
(i) the wilful and continued failure by the Executive to
substantially perform his duties with the Company (other than any
such failure resulting from the Executive's being Disabled),
within a reasonable period of time after a written demand for
substantial performance is delivered to the Executive by the CEO,
which demand specifically identifies the manner in which the CEO
believes that the Executive has not substantially performed his
duties;
(ii) the wilful engaging by the Executive in conduct which is
demonstrably and materially injurious to the Company or the
Holding Company, monetarily or otherwise; or
(iii) the engaging by the Executive in egregious misconduct involving
serious moral turpitude to the extent that, in the reasonable
judgment of the CEO, the Executive's credibility and reputation
no longer conform to the standard of the Company's executives.
For purposes of this Agreement, no act, or failure to act, on the
Executive's part shall be deemed "wilful" unless done, or omitted to be
done, by the Executive not in good faith and without reasonable belief that
the Executive's action or omission was in the best interest of the Company
or the Holding Company.
(d) Constructive Discharge. If the Executive (i) provides written notice to
the Company of the occurrence of a material breach of this Agreement by the
Company, which specifically identifies the manner in which the Executive
believes that the breach has occurred; (ii) the Company fails to correct
such breach within a reasonable time after such notice; and (iii) the
Executive resigns within the 60-day period following the occurrence of such
breach, then the Executive shall be considered to have been constructively
discharged.
(e) Resignation by Executive. The Executive may resign for any reason by
giving the Company ninety (90) days prior written notice, except the
Executive will be treated as having resigned under this paragraph 3(e) only
if he has not been constructively discharged under paragraph 3(d) and he
has not terminated employment for those
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specified reasons occurring within one year following a Change in Control
under paragraph 3(h).
(f) Mutual Agreement. This Agreement may be terminated at any time by the
mutual agreement of the parties. Any termination of the Executive's
employment by mutual agreement of the parties will be memorialized by an
agreement which is reduced in writing and signed by the Executive and the
CEO or other duly appointed officer of the Company.
(g) Termination by Company. The Company may terminate the Executive's
employment at any time for any reason by giving the Executive prior written
notice, except the Executive's employment will not be treated as having
been terminated under this paragraph 3(g) if the termination is for reasons
of being Permanently Disabled or for Cause or if the termination is for
those specified reasons occurring within one year following a Change in
Control under paragraph 3(h).
(h) Change in Control. Within one year of a Change in Control, either the
Company may terminate the Executive for any reason by giving the Executive
prior written notice (except the Executive's employment will not be treated
as having been terminated under this paragraph 3(h) if the termination is
for reasons of being Permanently Disabled or for Cause); or the Executive
may resign with Good Reason by giving prior written notice to the Company,
and such termination for either reason shall be considered a termination by
reason of Change in Control.
For purposes of this paragraph (h):
(i) "Change in Control" means a change in the beneficial ownership of the
Holding Company's voting stock or a change in the composition of the
Board of the Holding Company which occurs as follows:
(a) Any "person" (as such term is used in Section 13(d) and 14(d)(2)
of the Securities Exchange Act of 1934) is or becomes a
beneficial owner, directly or indirectly, of stock of the Holding
Company representing 30 percent or more of the total voting power
of the Holding Company's then outstanding stock.
(b) A tender offer (for which a filing has been made with the SEC
which purports to comply with the requirements of Section 14(d)
of the Securities Exchange Act of 1934 and the corresponding SEC
rules) is made for the stock of the Holding Company, which has
not been negotiated and approved by the Board of the Holding
Company. In case of a tender offer described in this paragraph
(b), the Change in Control will be deemed to have occurred upon
the first to occur of (i) any time during the offer when the
person (using the definition in (a) above) making the offer owns
or has accepted for payment stock of the Holding Company with 25
percent or more of the total voting power of the Holding
Company's stock or (ii) three business days
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before the offer is to terminate unless the offer is withdrawn
first, if the person making the offer could own, by the terms of
the offer plus any shares owned by this person, stock with 50
percent or more of the total voting power of the Holding
Company's stock when the offer terminates.
(c) Individuals who were the nominees of the Board of Directors of
the Holding Company for election as directors of the Holding
Company immediately prior to a meeting of the shareholders of the
Holding Company involving a contest for the election of directors
shall not constitute a majority of the Board following the
election.
(ii) "Good Reason" shall mean:
(a) without the express written consent of the Executive, (i) the
assignment to the Executive of any duties inconsistent in any
substantial respect with the Executive's position, authority
or responsibilities as held, exercised and assigned during the
ninety (90) day period immediately preceding the Change in
Control, or (ii) any other substantial adverse change in such
position (including titles), authority or responsibilities; or
(b) the Company's requiring the Executive to be based or to
perform services at any office or location other than that at
which the Executive is based immediately prior to the Change
in Control, except for travel reasonably required in the
performance of the Executive's responsibilities.
(i) Date of Termination. "Date of Termination" means the last day the
Executive is employed by the Company, provided that the Executive's
employment is terminated in accordance with the foregoing provisions of
this paragraph 3.
(k) Notice of Termination. Any termination of the Executive's employment by
the Company or the Executive (other than a termination pursuant to
paragraph 3(a) or paragraph 3(f)) must be communicated by a written Notice
of Termination to the other party hereto. For purposes of this Agreement,
a "Notice of Termination" means a dated notice which indicates the specific
termination provision in this Agreement relied on and which sets forth in
reasonable detail the facts and circumstances, if any, claimed to provide a
basis for termination of the Executive's employment under the provision so
indicated.
4. Rights Upon Termination. This paragraph 4 describes the payments and
benefits to be provided to the Executive after his Date of Termination:
(a) Payment of Previously Earned Amounts. The Executive shall receive payment
of accrued but unpaid Salary, vacation pay and, if expressly provided for
in paragraph 4(d) or paragraph 4(f), a pro rata portion of his bonus (if
any), in each case for the period ending with the Executive's Date of
Termination; provided, however, that regardless of
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when the Executive's Date of Termination occurs, the Executive shall
receive the $100,000 bonus described in paragraph 2(b) for the fiscal year
ending September 30, 1999.
(b) No Severance Payments. If the Executive's Date of Termination occurs
during or after the end of the Agreement Term because of (i) the
Executive's death, (ii) his being Permanently Disabled (described in
paragraph 3(b)), (iii) his termination for Cause (described in paragraph
3(c)), or (iv) his resignation (described in paragraph 3(e)), then, except
as otherwise expressly provided for in this Agreement, no payments shall be
due to the Executive under this Agreement for periods after the Date of
Termination.
(c) Salary Continuation. If the Executive's Date of Termination occurs during
the Agreement Term because of (i) his discharge by the Company for reasons
other than Cause (described in paragraph 3(c)) or because of (ii) his
constructive discharge (described in paragraph 3(d)), the Executive shall
continue to receive Salary payments (at the rate in effect on the Date of
Termination) in monthly or more frequent instalments through the earliest
of: (i) the last day of the Agreement Term; (ii) the date that is the
twelve (12) month anniversary of the Executive's Date of Termination; (iii)
the date of the Executive's death, or (iv) the date, if any, of the breach
by the Executive of the non-competition requirements of paragraph 7, the
confidentiality requirements of paragraph 8 or the non-disparagement
requirements of paragraph 9.
(d) Pro rata Bonus. Except as otherwise provided in this paragraph 4(d) or in
paragraph 4(f), the Executive shall not receive a bonus for the fiscal year
in which the Executive's Date of Termination occurs. If the Executive's
Date of Termination occurs during the Agreement Term as a result of (i) the
Executive's death, (ii) his being Permanently Disabled (described in
paragraph 3(b)), (iii) his discharge by the Company for reasons other than
Cause (described in paragraph 3(c)), or (iv) his constructive discharge
(described in paragraph 3(d)), the Executive shall receive a pro rata
portion of the bonus which would have been paid pursuant to Exhibit A for
the fiscal year in which the Executive's Date of Termination occurs. Such
portion, if any, shall be calculated for the period ending on the Date of
Termination and shall be paid to the Executive (or his estate) within a
reasonable period of time after the Company calculates the bonus amount, if
any, for all employees for the fiscal year. As provided in paragraph 4(a)
above, the $100,000 bonus payable for the fiscal year ending September 30,
1999 shall be paid to the Executive, and shall not be pro rated,
regardless of when the Executive's Date of Termination occurs.
(e) Housing/Living Expenses, Medical Benefits. If the Executive is entitled to
Salary Continuation payments pursuant to paragraph 4(c), the Executive
shall receive a housing and living expense allowance (described in
paragraph 2(i)) and may continue to participate in the medical and dental
plans in which he participated on the day before his Date of Termination
through the earlier of: (i) the last day for which the Executive receives
Salary Continuation payments pursuant to paragraph 4(c); or (ii) three (3)
months after the Executive's Date of Termination. Participation in the
medical and dental plans is subject to the Executive's payment of the
applicable employee portion of the
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monthly premium cost, if any. If the Company ceases offering the medical
and dental plans in which the Executive participated on the day before his
Date of Termination to Company employees during this time, the Executive
may elect to participate in any other medical or dental plan offered by the
Company to its employees, provided however, that the Executive shall be
responsible for paying the applicable employee portion of the monthly
premium cost.
(f) Payments following Change in Control. If the Executive's Date of
Termination occurs during the Agreement Term because of his involuntary
termination or voluntary termination for Good Reason within one year after
a Change in Control (described in paragraph 3(h)), the Company shall pay to
the Executive the amounts described below. Amounts payable to the
Executive under this paragraph 4(f) shall not be subject to the set-off
described in paragraph 6.
(i) Lump Sum Payment of Salary. The Executive shall receive a lump sum
payment as soon as practicable following his Date of Termination
equal to the Salary (at the rate in effect at the Date of
Termination) that would have been payable to the Executive had his
Salary continued to be paid through the period beginning on his Date
of Termination and ending on the date that is the twenty-four (24)
month anniversary of the Executive's Date of Termination.
(ii) Pro rata Bonus. The Executive shall receive a pro rata portion of
the bonus which would have been paid pursuant to Exhibit A for the
fiscal year in which the Executive's Date of Termination occurs.
Such portion, if any, shall be calculated for the period ending on
the Date of Termination and shall be paid to the Executive (or his
estate) within a reasonable period of time after the Company
calculates the bonus amount, if any, for all employees for the
fiscal year. As provided in paragraph 4(a) above, the $100,000 bonus
payable for the fiscal year ending September 30, 1999 shall be paid
to the Executive, and shall not be pro rated, regardless of when the
Executive's Date of Termination occurs.
(iii) Relocation Expenses. The Executive shall be reimbursed for
reasonable costs actually incurred by the Executive and the members
of his or her immediate family to relocate to the United States;
provided, however, that such reimbursement shall be made only if
such relocation occurs within a reasonable time following the
Executive's Date of Termination. The reasonableness of the cost and
time of relocation shall be determined by the Board.
(iv) Tax Gross-Up for Certain Taxable Income. The Executive shall receive
the following amounts: (x) the amount, if any, which is equal to the
amount of taxes imposed by the tax laws of the United States on
taxable income attributable to payment of relocation expenses to the
Ex ecutive under subparagraph 4(f)(iii), on taxable income, if any,
attributable to the accelerated vesting of options and restricted
stock as a result of the Executive's termination of employment for
reasons described in paragraph 3(h), and on taxable income, if any,
attributable to payments to the Executive from any nonqualified
retirement or deferred
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compensation plan maintained by the Company payable to the Executive
as a result of his termination of employment for reasons described
in paragraph 3(h), and (y) such additional amount, if any, which is
equal to the amount of taxes imposed by the tax laws of the United
States on the amount, if any, payable to the Executive under clause
(x) of this subparagraph 4(f)(iv).
(v) Reimbursement for Excise Tax. With respect to any payment made to
the Executive under this Agreement as a result of termination within
one year after a Change in Control (described in paragraph 3(h))
(and with respect to any other payment made to the Executive upon a
Change in Control, including without limitation, the vesting of an
option or other cash or non-cash benefit or property, whether
pursuant to the terms of this Agreement or any other plan,
arrangement, or agreement with the Company) (the "Total Payments"),
if such Total Payments are or become subject to the tax imposed by
Section 4999 of the United States Internal Revenue Code of 1986, as
amended (the "Code") (or any similar tax that may hereafter be
imposed) (the "Excise Tax"), the Company shall pay to Executive an
additional amount equal to the amount of such Excise Tax.
(g) Other Programs. No benefits shall be payable to the Executive under any
other severance pay arrangement or similar arrangement maintained by the
Company or any Subsidiary. Except as otherwise expressly provided in this
Agreement, no other payments or benefits shall be due to the Executive
following the Date of Termination (except as otherwise specifically
provided under the terms of an employee benefit plan or arrangement).
5. Duties on Termination. Subject to the provisions of this Agreement,
during the period beginning on the date of delivery of a Notice of Termination,
and ending on the Date of Termination, the Executive shall continue to perform
his duties as set forth in this Agreement, and shall also perform such services
for the Company and the Holding Company as are necessary and appropriate for a
smooth transition to the Executive's successor, if any. Notwithstanding the
foregoing provisions of this paragraph 5, the Company may suspend the Executive
from performing his duties under this Agreement following the delivery of a
Notice of Termination providing for the Executive's resignation, or delivery by
the Company of a Notice of Termination providing for the Executive's termination
of employment for any reason; provided, however, that during the period of
suspension (which shall end on the Date of Termination), the Executive shall
continue to be treated as employed by the Company for other purposes, and his
rights to compensation or benefits shall not be reduced by reason of the
suspension.
6. Set-Off. Except as otherwise provided in paragraph 4(f), if the
Executive's employment with the Company is terminated for any reason and, under
the terms of this Agreement, the Executive is otherwise entitled to receive
Salary and bonus payments, such payments will be reduced by the amount of any
salary and bonus payments the Executive receives in connection with other
employment.
7. Non-competition. While the Executive is employed by the Company, and
during the Non-Competition Period (as defined below), the Executive agrees that
he will not directly or
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indirectly perform services in a financial-related position in Bermuda for a
direct competitor of the Company. A financial-related position shall include,
but is not limited to, a financial officer or comptroller.
For purposes of this paragraph 7:
"Non-Competition Period" shall be determined as follows:
(1) If the Executive's Date of Termination occurs under circumstances
other than those described in paragraph 3(d) (relating to constructive
discharge) or paragraph 3(g) (relating to certain terminations by the
Company), the Non-Competition Period shall be the period beginning on
the Date of Termination, and ending on the twenty-four-month (24)
anniversary of the Date of Termination.
(2) If the Executive's Date of Termination occurs under circumstances
described in paragraph 3(d) (relating to constructive discharge) or
paragraph 3(g) (relating to certain terminations by the Company), the
Non-Competition Period shall be the period beginning on the Date of
Termination, and ending on the earlier to occur of the last day of the
Agreement Term or the twelve (12) month anniversary of the Date of
Termination. However, under this paragraph (2), the Company, in its
discretion, by notice provided to the Executive not later than fifteen
(15) days after the Date of Termination, may extend the Non-
Competition Period beyond the end of the Agreement Term, to a date
specified in such notice (but not later than the twelve-month
anniversary of the Date of Termination), but only if the Company
agrees to provide the salary continuation payments described in
paragraph 4(c) during such Non-Competition Period.
Nothing in this paragraph 7, paragraph 8 or paragraph 9 shall be construed
as limiting the Executive's duty of loyalty to the Company while he is employed
by the Company or any other duty he may otherwise have to the Company while he
is employed by the Company.
8. Confidential Information. Except as may be required by the lawful
order of a court or agency of competent jurisdiction, or except to the extent
that the Executive has express authorization from the Company, the Executive
agrees to keep secret and confidential indefinitely all non-public information
(including, without limitation, information regarding litigation and pending
litigation) concerning the Company, the Holding Company, and the Subsidiaries
which was acquired by or disclosed to the Executive during the course of his
employment with the Company, or during the course of his consultation with the
Company following his termination of employment (regardless of whether
consultation is pursuant to paragraph 10), and not to disclose the same, either
directly or indirectly, to any other person, firm, or business entity, or to use
it in any way. To the extent that the Executive obtains information on behalf
of the Company, the Holding Company, or any of the Subsidiaries that may be
subject to attorney-client privilege as to the Company's attorneys, the
Executive shall take reasonable steps to maintain the confidentiality of such
information and to preserve such privilege. Nothing in the foregoing provisions
of this paragraph 8 shall be construed so as to prevent the Executive from
using, in connection with his employment for himself or an employer
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other than the Company, the Holding Company, or any of the Subsidiaries,
knowledge which was acquired by him during the course of his employment with the
Company, the Holding Company, and the Subsidiaries, and which is generally known
to persons of his experience in other companies in the same industry.
9. Non-Disparagement. The Executive agrees that, while he is employed by
the Company, and after his Date of Termination, he shall not make any false,
defamatory or disparaging statements about the Company, the Holding Company, the
Subsidiaries, or the officers or directors of the Company, the Holding Company,
or the Subsidiaries that are reasonably likely to cause material damage to the
Company, the Holding Company, the Subsidiaries, or their officers or directors.
While the Executive is employed by the Company, and after his Date of
Termination, the Company agrees, on behalf of itself, the Holding Company, and
the Subsidiaries, that neither the officers nor the directors of the Company,
the Holding Company, or the Subsidiaries shall make any false, defamatory or
disparaging statements about the Executive that are reasonably likely to cause
material damage to Executive.
10. Defense of Claims. The Executive agrees that, for the period
beginning the Effective Date, and continuing for a reasonable period after the
Executive's termination of employment with the Company, the Executive will
cooperate with the Company, the Holding Company and the Subsidiaries in defense
of any claims that may be made against the Company, the Holding Company and the
Subsidiaries, and will cooperate with the Company, the Holding Company or the
Subsidiaries in the prosecution of any claims that may be made by the Company,
the Holding Company or the Subsidiaries, to the extent that such claims may
relate to services performed by the Executive for the Company. The Executive
agrees to promptly inform the Company if he becomes aware of any lawsuits
involving such claims that may be filed against the Company, the Holding Company
or the Subsidiaries. The Company agrees to reimburse the Executive for all of
the Executive's reasonable out-of-pocket expenses associated with such
cooperation, including travel expenses. For periods after the Executive's
employment with the Company terminates, the Company agrees to provide reasonable
compensation to the Executive for such cooperation. The determination of the
reasonableness of such compensation shall take into account information provided
to the Company by the Executive or otherwise known to the Company, which may
include, without limitation, (a) the Executive's rate of compensation at the
time he ceased employment with the Company, and whether he is then receiving
other compensation payments from the Company; (b) the Executive's rate of
compensation at the time of such cooperation; (c) the amount of time required of
the Executive for such cooperation; (d) difficulty of the issues as to which the
cooperation is required; (e) the amount of inconvenience to the Executive
resulting from such cooperation (including consideration of factors such as the
amount of travel required of the Executive, the effect on other commitments of
the Executive, and the amount of advance notice provided to the Executive); and
(f) whether such cooperation would be legally required in the absence of the
requirements of this paragraph 10. The Executive also agrees to promptly inform
the Company if he is asked to assist in any investigation of the Company, the
Holding Company or the Subsidiaries (or their actions) that may relate to
services performed by the Executive for the Company, regardless of whether a
lawsuit has then been filed against the Company, the Holding Company or the
Subsidiaries with respect to such investigation.
13
<PAGE>
11. Remedies. The Executive acknowledges that the Company or the Holding
Company would be irreparably injured by a violation of paragraph 7, paragraph 8,
or paragraph 9, and he agrees that the Company, in addition to any other
remedies available to it for such breach or threatened breach, shall be entitled
to a preliminary injunction, temporary restraining order, or other equivalent
relief, restraining the Executive from any actual or threatened breach of either
paragraph 7, paragraph 8 or paragraph 9. The Company acknowledges that the
Executive would be irreparably injured by a violation of paragraph 9, and the
Company agrees that the Executive, in addition to any other remedies available
to him for such breach or threatened breach, shall be entitled to a preliminary
injunction, temporary restraining order, or other equivalent relief, restraining
the Company from any actual or threatened breach of paragraph 9. If a bond is
required to be posted in order for the Company or the Executive to secure an
injunction or other equitable remedy, the parties agree that said bond need not
be more than a nominal sum.
12. Nonalienation. The interests of the Executive under this Agreement
are not subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance, attachment, or garnishment by creditors of the
Executive or the Executive's beneficiary.
13. Amendment. This Agreement may be amended or canceled only by mutual
agreement of the parties in writing without the consent of any other person. So
long as the Executive lives, no person, other than the parties hereto, shall
have any rights under or interest in this Agreement or the subject matter
hereof.
14. Applicable Law. The provisions of this Agreement shall be construed
in accordance with the laws of Bermuda, without regard to the conflict of law
provisions of any jurisdiction. All disputes shall be arbitrated or litigated
(whichever is applicable) in Bermuda.
15. Severability. The invalidity or unenforceability of any provision of
this Agreement will not affect the validity or enforceability of any other
provision of this Agreement, and this Agreement will be construed as if such
invalid or unenforceable provision were omitted (but only to the extent that
such provision cannot be appropriately reformed or modified).
16. Waiver of Breach. No waiver by any party hereto of a breach of any
provision of this Agreement by any other party, or of compliance with any
condition or provision of this Agreement to be performed by such other party,
will operate or be construed as a waiver of any subsequent breach by such other
party or any similar or dissimilar provisions and conditions at the same or any
prior or subsequent time. The failure of any party hereto to take any action by
reason of such breach will not deprive such party of the right to take action at
any time while such breach continues.
17. Successors. This Agreement shall be binding upon, and inure to the
benefit of, the Company and its successors and assigns and upon any person
acquiring, whether by merger, consolidation, purchase of assets or otherwise,
all or substantially all of the Company's assets and business.
14
<PAGE>
18. Notices. Notices and all other communications provided for in this
Agreement shall be in writing and shall be delivered personally or sent by
registered or certified mail, return receipt requested, postage prepaid, or sent
by facsimile or prepaid overnight courier to the parties at the addresses set
forth below (or such other addresses as shall be specified by the parties by
like notice). Such notices, demands, claims and other communications shall be
deemed given:
(a) in the case of delivery by overnight service with guaranteed next day
delivery, the next day or the day designated for delivery;
(b) in the case of certified, registered or similar mail delivery, five days
after deposit in the local mail; or
(c) in the case of facsimile, the date upon which the transmitting party
received confirmation of receipt by facsimile, telephone or otherwise;
provided, however, that in no event shall any such communications be deemed to
be given later than the date they are actually received. Communications that
are to be delivered by the mail or by overnight service are to be delivered to
the addresses set forth below:
to the Company:
LaSalle Re Limited
25 Church Street
Hamilton HMFX, Bermuda
or to the Executive:
Robert P. Cuthbert
25 Church Street
Hamilton HMFX, Bermuda
All notices to the Company shall be directed to the attention of the chief
executive officer of the Company, with a copy to the Secretary of the Company.
Each party, by written notice furnished to the other party, may modify the
applicable delivery address, except that notice of change of address shall be
effective only upon receipt.
19. Arbitration of All Disputes. Any controversy or claim arising out of
or relating to this Agreement (or the breach thereof) shall be settled by final,
binding and non-appealable arbitration in Bermuda by three arbitrators. Except
as otherwise expressly provided in this paragraph 19, the arbitration shall be
conducted in accordance with the Arbitration Act 1986 as then in effect. One of
the arbitrators shall be appointed by the Company, one shall be appointed by the
Executive, and the third shall be appointed by the first two arbitrators. If
the first two arbitrators cannot agree on the third arbitrator within 30 days of
the appointment of the second arbitrator, then the third arbitrator shall be
appointed by the President of the Bermuda Bar Council.
15
<PAGE>
20. Survival of Agreement. Except as otherwise expressly provided in this
Agreement, the rights and obligations of the parties to this Agreement shall
survive the termination of the Executive's employment with the Company.
21. Entire Agreement. Except as otherwise noted herein, this Agreement,
including any Exhibit(s) attached hereto, constitutes the entire agreement
between the parties concerning the subject matter hereof and supersedes all
prior and contemporaneous agreements, if any, between the parties relating to
the subject matter hereof. The enforceability of this Agreement shall not cease
or otherwise be adversely affected by the termination of the Executive's
employment with the Company.
22. Acknowledgment by Executive. The Executive represents to the Company
that he is knowledgeable and sophisticated as to business matters, including the
subject matter of this Agreement, that he has read this Agreement and that he
understands its terms. The Executive acknowledges that, prior to assenting to
the terms of this Agreement, he has been given a reasonable time to review it,
to consult with counsel of his choice, and to negotiate at arm's-length with the
Company as to the contents. The Executive and the Company agree that the
language used in this Agreement is the language chosen by the parties to express
their mutual intent, and that no rule of strict construction is to be applied
against any party hereto. The Executive represents and warrants that he is not,
and will not become a party to any agreement, contract, arrangement or
understanding, whether of employment or otherwise, that would in any way
restrict or prohibit him from undertaking or performing his duties in accordance
with this Agreement.
23. Titles and Headings. Titles and headings in this Agreement are for
ease of reference and convenience only, and shall not be construed to affect the
meaning of any provision of this Agreement.
IN WITNESS THEREOF, the Executive has hereunto set his hand, and the
Company has caused these presents to be executed in its name and on its behalf,
and its corporate seal to be hereunto affixed, all as of the day and year first
above written.
/s/ Robert P. Cuthbert
--------------------------
Robert P. Cuthbert
LASALLE RE LIMITED
By: /s/ Victor H. Blake
----------------------
Victor H. Blake
16
<PAGE>
EXHIBIT A
---------
BONUS COMPUTATION
-----------------
A-1. Purpose. This Exhibit A is attached to and forms a part of the
employment agreement (the "Agreement") between Robert P. Cuthbert (the
"Executive") and LaSalle Re Limited (the "Company"). The purpose of this
Exhibit A is to set forth the terms of the bonus program described in paragraph
2(b) of the Agreement.
A-2. Guidelines. The bonus shall be determined in accordance with the
following guidelines:
. A discretionary bonus may be awarded annually by the Board of the Company
after considering the recommendation of the CEO of the Company.
. A non-discretionary bonus shall be earned and paid annually based upon the
Company's Return on Equity (defined below) achieved for each fiscal year of
the Company, while the Executive is employed by the Company.
. The non-discretionary annual bonus calculation will be based on the
Company's Return on Equity earned each year. If the Company's Return on
Equity for any year exceeds 15%, the bonus will be paid according to the
following formula:
. For each 1% improvement in Return on Equity above 10%, an amount equal
to 10.0 % of The Executive's Salary will be paid.
. For each 1% improvement in Return on Equity above 22.5%, an amount equal
to 15.0 % of The Executive's Salary will be paid.
. For Return on Equity results between whole percentages (but above 10%),
the percentage of Salary awarded will be increased by interpolation.
. The "Return on Equity" for any fiscal year shall be equal to the net
income of the Company for the fiscal year, divided by shareholders'
equity at the beginning of the period (as determined on the basis of
U.S. generally accepted accounting principles). For purposes of this
calculation any unrealized appreciation or depreciation of the Company's
investments shall be disregarded (both as to the numerator and the
denominator). Payments made to CNA Financial Corporation or its
affiliates under the Underwriting Support Services Agreement will not
reduce net income in determining Return on Equity.
<PAGE>
EXHIBIT 10.11
[LETTER HEAD OF LASALLE RE LIMITED]
April 27, 1999
Robert P. Cuthbert
126 Lloyd Road
Montclair, New Jersey 07042
Dear Bob:
This letter agreement (the "Agreement") will confirm our understanding
regarding your cessation of employment from LaSalle Re Limited (the "Company")
by mutual agreement, as described in paragraph 3(f) of the Employment Contract,
as defined in paragraph 17 of this Agreement, between you and the Company.
1. Termination Date. Except as otherwise provided in paragraph 4, the
effective date of your cessation of employment with the Company and
separation from all positions with the Company and its Affiliates (as
defined in paragraph 12) is May 1, 1999, the "Termination Date" for
purposes of this Agreement.
2. Payments and Benefits. You shall be entitled to compensation and other
payments and benefits in accordance with Exhibit 1, which is attached to,
and forms a part of this Agreement.
3. No Mitigation or Offset. Except as otherwise provided in this Agreement,
you have no obligation to seek or accept employment (or otherwise seek or
accept offers to provide your services to any person or entity), and any
compensation earned by or provided to you from any person or entity other
than the Company for the performance of such employment or other services
(regardless of whether such compensation is provided to you in cash or in
any other form) shall not reduce or otherwise affect the amount due to you
from the Company in accordance with this Agreement.
4. Assistance with Claims. You agree that, for the period beginning on your
Termination Date, and continuing for a reasonable time thereafter (but for
a period of not less than 24 months after your Termination Date), you will
assist the Company and its Affiliates in the defense of any claims that may
be made against the Company and its Affiliates, and will assist the Company
and its Affiliates in the prosecution of any claims that may be made by the
Company or any Affiliate, to the extent that such claims may relate to
services performed by you for the Company or its Affiliates. The Company
will consult
<PAGE>
Robert P. Cuthbert
April 27, 1999
Page 2
with you, and make reasonable efforts to schedule such assistance so as not
to materially disrupt your business and personal affairs. You agree, unless
precluded by law, to promptly inform the Company if you are asked to
participate (or otherwise become involved) in any lawsuits involving such
claims that may be filed against the Company or any Affiliate. You also
agree, unless precluded by law, to promptly inform the Company if you are
asked to assist in any investigation (whether governmental or private) of
the Company or any Affiliate (or their actions) that may relate to services
performed by you for the Company or any Affiliate, regardless of whether a
lawsuit has then been filed against the Company or any Affiliate with
respect to such investigation. The Company agrees to reimburse you for all
of your reasonable out-of-pocket expenses associated with such assistance,
including travel expenses. The determination of the reasonableness of such
compensation shall take into account information provided to the Company by
you or otherwise known to the Company, which may include, without
limitation, (a) your rate of compensation at the time you ceased employment
with the Company, and whether your are then receiving other compensation
payments from the Company; (b) your rate of compensation at the time of
such cooperation; (c) the amount of time required of you for such
cooperation; (d) difficulty of the issues as to which the cooperation is
required; (e) the amount of inconvenience to you resulting from such
cooperation (including consideration of factors such as the amount of
travel required of you, the effect on your other commitments, and the
amount of advance notice provided to you); and (f) whether such cooperation
would be legally required in the absence of the requirements of this
paragraph 4.
5. Confidential Information. Except as may be required by the lawful order of
a court or agency of competent jurisdiction, or except to the extent that
you have express authorization from the Company, you agree to keep secret
and confidential indefinitely all non-public information (including,
without limitation, information regarding litigation and pending
litigation) concerning the Company or any of its Affiliates which was
acquired by or disclosed to you (a) during your negotiations regarding
employment or during the course of your consultation with the Company or
any Affiliate prior to your employment with the Company, (b) during the
course of your employment with the Company or your holding a position as an
officer of any Affiliate, or (c) during the course of your consultation
with the Company or any Affiliate following your termination of employment
(regardless of whether consultation is pursuant to paragraph 4), and not to
disclose the same, either directly or indirectly, to any other person,
firm, or business entity, or to use it in any way. To the extent that you
obtain information on behalf of the Company or any of the Affiliates that
may be subject to attorney-client privilege as to the Company's or any
Affiliate's attorneys, you shall take reasonable steps to maintain the
confidentiality of such information and to preserve such privilege.
<PAGE>
Robert P. Cuthbert
April 27, 1999
Page 3
Nothing in the foregoing provisions of this paragraph 5 shall be construed
so as to prevent you from using, in connection with your employment for
yourself, whether or not in partnership with others, or for an employer
other than the Company or any of the Affiliates, knowledge which was
acquired by you during the course of your employment with the Company or
your being an officer of any Affiliate, and which is generally known to
persons of your experience in other companies in the same industry.
6. Non-Disclosure.
a. You acknowledge that the benefits provided by the Company under
this Agreement are not generally available to other employees of
the Company, and you agree that, except as may be required by the
lawful order of a court or agency of competent jurisdiction, you
will keep the terms of this Agreement secret and confidential
indefinitely. Notwithstanding the foregoing provisions of this
paragraph 6, you may disclose the contents of this Agreement to
your attorneys, accountants and financial advisors, your
immediate family, any prospective employer in connection with its
decision to hire you, and any prospective lender in connection
with its decision to make a loan to you, provided that you take
steps that are reasonably calculated to assure that such persons
do not further disclose the terms of this Agreement. Nothing in
this Agreement shall preclude you from fully discussing with any
prospective employer, in connection with its decision to hire
you, the conditions and reasons surrounding your separation from
the Company. The provisions of this paragraph (a) shall be waived
if the Company publicly discloses the contents of this Agreement
in accordance with paragraph (b) next below.
b. The Company agrees that it will keep the terms of this Agreement
secret and confidential indefinitely, except to the extent that
the Company determines that disclosure is required by reason of
applicable securities laws or other legal requirements, and
except as otherwise provided in this Agreement.
c. You agree that, prior to the commencement of any new employment
in the insurance industry, you will furnish the prospective new
employer with a copy of the provisions of this Agreement relating
to competition, confidentiality, and solicitation. You also agree
that the Company may advise any new employer or prospective new
employer of the provisions of this Agreement relating to
competition, confidentiality, and solicitation
<PAGE>
Robert P. Cuthbert
April 27, 1999
Page 4
and furnish the new employer or prospective new employer with a
copy of such provisions.
7. Disparagement.
a. You agree that for the period beginning on your Termination Date
and ending on the twelve-month anniversary of your Termination
Date, you will not make any statement or disclosure that
disparages the Company or its Affiliates and is intended or
reasonably likely to result in material harm to the Company or
its Affiliates; provided that the provisions of this paragraph
(a): (i) shall not apply to testimony as a witness, compliance
with other legal obligations, your assertion of or defense
against any claim of breach of this Agreement (including the
Exhibits thereto and the referenced plans and arrangements), or
your statements or disclosures to officers or directors of the
Company or its Affiliates, and (ii) shall not require you to make
false statements or disclosures.
b. The Company agrees that for the period beginning on your
Termination Date and ending on the twelve-month anniversary of
your Termination Date, neither the Company nor any Affiliate will
make any statement or disclosure that disparages you and is
intended or reasonably likely to result in material harm to you;
provided that the provisions of this paragraph (b): (i) shall not
apply to testimony as a witness, compliance with other legal
obligations, assertion of or defense against any claim of breach
of this Agreement (including the Exhibits thereto and the
referenced plans and arrangements), or statements or disclosures
to you, and (ii) shall not require false statements or
disclosures to be made.
8. Transition.
a. Your cessation of employment from the Company and your cessation
as an officer of LaSalle Re Holdings Limited shall be announced
by a statement substantially in the form of Exhibit 2 of this
Agreement. You and the Company will cooperate with each other in
any statements about your cessation of employment with the
Company and about your cessation as an officer of LaSalle Re
Holdings Limited so as not to depart materially from the
statement described in this paragraph (a); provided, however,
that in addition to the information in the statement, both you
and the Company
<PAGE>
Robert P. Cuthbert
April 27, 1999
Page 5
or any Affiliate may refer generally to differences between you
and the Company in management style and approach to business
operations.
b. You are required to execute the resignation letters set forth in
Exhibits 3A and 3B of this Agreement.
c. As soon as practicable after this Agreement has been fully
executed, you agree to remove your personal effects from your
office at the Company (or the Company will remove such personal
effects and ship them to you in accordance with paragraph 1-4 of
Exhibit 1 of this Agreement), to vacate such office, to return to
the Company any keys, credit cards, passes, confidential
documents or material, or other property belonging to the Company
or any of the Affiliates, and to return all writings, files,
records, correspondence, notebooks, notes and other documents and
things (including any copies thereof) containing any trade
secrets relating to the Company or any of the Affiliates.
9. Indemnification.
a. If you incur liability by reason of actions taken by you on
behalf of the Company while you were employed by the Company, or
by reason of actions taken by you as required under paragraph 4
of this Agreement, you shall be eligible for indemnification from
the Company to the same extent as other current or former
directors or officers of the Company.
b. You shall be entitled to coverage under the directors and
officers liability insurance coverage maintained by the Company
or its Affiliates (as in effect from time to time) to the same
extent as other current or former officers and directors of the
Company; provided, however, that nothing in this paragraph 9
shall be construed to require the Company or any Affiliate to
continue to maintain any such directors and officers liability
insurance coverage.
c. To the extent that expenses (including attorneys' fees) incurred
by you in defending any civil, criminal, administrative or
investigative action, suit or proceeding may be subject to
indemnification by the Company and such expenses are not paid
currently by insurance, the Company shall pay all such expenses
(including attorneys' fees) in advance of the final disposition
of such action, suit or proceeding upon receipt of an
<PAGE>
Robert P. Cuthbert
April 27, 1999
Page 6
undertaking by you to repay such amount if it shall ultimately be
determined that you are not entitled to be indemnified by the
Company and not entitled to insurance coverage for such expenses.
10. Non-Alienation. Your interests under this Agreement are not subject
to the claims of your creditors, and may not otherwise be voluntarily
or involuntarily assigned, alienated or encumbered. Your obligations
under this Agreement may not be assigned.
11. Amendment. This Agreement may be amended or canceled only by mutual
agreement of the parties in writing without the consent of any other
person. So long as you live, no person, other than the parties hereto,
shall have any rights under or interest in this Agreement or the subject
matter hereof.
12. Successors and Affiliates. This Agreement shall be binding on, and inure
to the benefit of, the Company and its successors and assigns and any
person acquiring, whether by merger, consolidation, purchase of assets or
otherwise, all or substantially all of the Company's assets and business.
For purposes of this Agreement, the term "Affiliate" means (a) any
corporation, partnership, joint venture or other entity which, as of your
Termination Date, owns, directly or indirectly, at least fifty percent of
the voting power of all classes of stock of the Company (or any successor
to the Company) entitled to vote; and (b) any corporation, partnership,
joint venture or other entity in which, as of your Termination Date, at
least a fifty percent voting or profits interest is owned, directly or
indirectly, by the Company, by any entity that is a successor to the
Company, or by any entity that is an Affiliate by reason of clause (a) next
above. For purposes of paragraph 4 (relating to assistance with claims),
paragraph 5 (relating to confidential information), paragraph 6 (relating
to protective covenants), paragraph 7 (relating to disparagement), the
Employee Release, and the Company Release, the term "Affiliate" shall also
include any entity that would have been an "Affiliate" by reason of the
preceding sentence (including any successor to the assets or business of
any such Affiliate) at any time during the period of the your employment by
the Company (and shall include any predecessor to any entity described in
clause (a) or (b)).
13. Effect of Breach. You acknowledge that the Company would be irreparably
injured by your violation of paragraph 5, 6, or 7, and you agree that the
Company and its Affiliates, in addition to any other remedies available to
it for such breach or threatened breach, shall be entitled to a preliminary
injunction, temporary restraining order, or other equivalent relief, as may
be permitted or applicable in the given circumstances, restraining you from
any actual or threatened breach of paragraph 5, 6, or 7. The Company
acknowledges that you would be irreparably injured by its violation of
<PAGE>
Robert P. Cuthbert
April 27, 1999
Page 7
paragraph 6 or 7, and the Company agrees that you, in addition to any other
remedies available to you for such breach or threatened breach, shall be
entitled to a preliminary injunction, temporary restraining order, or other
equivalent relief, as may be permitted or applicable in the given
circumstances, restraining the Company and its Affiliates from any actual
or threatened breach of paragraph 6 or 7.
14. Waiver of Breach. The waiver by either you or the Company (or the
Affiliates) of a breach of any provision of this Agreement shall not
operate as or be deemed a waiver of any subsequent breach by either you or
the Company. Continuation of benefits hereunder by the Company following a
breach by you of any provision of this Agreement shall not preclude the
Company from thereafter exercising any right that it may otherwise
independently have to terminate said benefits based upon the same
violation.
15. Severability. The invalidity or unenforceability of any provision of this
Agreement will not affect the validity or enforceability of any other
provision of this Agreement, and this Agreement will be construed as if
such invalid or unenforceable provision were omitted (but only to the
extent that such provision cannot be appropriately reformed or modified).
16. General Release and Waiver. As part of this Agreement, and in consideration
of the release provided to the Company as set forth in Exhibit 5 of this
Agreement, the Company shall enter into the General Release and Waiver as
set forth in Exhibit 4 of this Agreement, which is attached to and forms
part of this Agreement (the "Company Release"). As part of this Agreement,
and in consideration of the payments provided to you in accordance with
this Agreement, and in consideration of the release provided to you as set
forth in Exhibit 4 of this Agreement, you are required to execute the
General Release and Waiver, in the form set forth as Exhibit 5 of this
Agreement, which is attached to and forms a part of this Agreement (the
"Employee Release").
17. Other Agreements. Except as otherwise specifically provided in this
Agreement, this instrument constitutes the entire agreement between you and
the Company and supersedes all prior agreements and understandings, written
or oral, including, without limitation, the employment contract between you
and the Company which was effective April 1, 1999 (referred to in this
Agreement as the "Employment Contract") and any other employment agreements
that may have been made by and between you and the Company or its
predecessors or Affiliates. As of your Termination Date, all rights, duties
and obligations of both you and the Company pursuant to the Employment
Contract shall terminate.
<PAGE>
Robert P. Cuthbert
April 27, 1999
Page 8
18. Notices. Notices and all other communications provided for in this
Agreement shall be in writing and shall be delivered personally or sent by
registered or certified mail, return receipt requested, postage prepaid, or
sent by facsimile or prepaid overnight courier to the parties at the
addresses set forth below (or such other addresses as shall be specified by
the parties by like notice). Such notices, demands, claims and other
communications shall be deemed given:
(a) in the case of delivery by overnight service with guaranteed next day
delivery, the next day or the day designated for delivery;
(b) in the case of certified, registered or similar mail delivery, five
days after deposit in the local mail; or
(c) in the case of facsimile, the date upon which the transmitting party
received confirmation of receipt by facsimile, telephone or otherwise;
provided, however, that in no event shall any such communications be deemed
to be given later than the date they are actually received. Communications
that are to be delivered by the mail or by overnight service are to be
delivered to the addresses set forth below:
to the Company:
LaSalle Re Limited
25 Church Street
Hamilton HMFX, Bermuda
or to you:
Robert P. Cuthbert
126 Lloyd Road
Montclair, New Jersey 07042
All notices to the Company shall be directed to the attention of the chief
executive officer of the Company, with a copy to the Secretary of the
Company. Each party, by written notice furnished to the other party, may
modify the applicable delivery address, except that notice of change of
address shall be effective only upon receipt.
<PAGE>
Robert P. Cuthbert
April 27, 1999
Page 9
19. Governing Law. The provisions of this Agreement shall be construed in
accordance with the laws of Bermuda, without regard to the conflict of law
provisions of any jurisdiction.
20. Arbitration of All Disputes. In the event of any dispute, controversy or
claim arising out of or in relation to this Agreement, or the breach,
termination or invalidity thereof, the parties hereto agree to proceed to
arbitration. The number of arbitrators shall be three (3), to be appointed
in the absence of the parties agreement by the Appointment Committee of the
Chartered Institute of Arbitrators Bermuda Branch. The procedure to be
followed shall be that as laid down in the Arbitration Act of 1986. The
place of arbitration shall be Bermuda and the language of the arbitration
shall be English. The decision and award of the arbitral tribunal is final
and binding on the parties. For the avoidance of doubt, the parties agree
that judgment may be entered and any award made by the Tribunal in any
Federal Court in the United States (or any other jurisdiction where a party
to this agreement is located). In accordance with section 13 of the
Employment Contract, as defined in section 17 of this Agreement, the
Employment Contract is hereby amended by mutual agreement of the parties,
by deleting the language in section 19 of the Employment Contract and
replacing it, effective as of the original effective date of the Employment
Contract, with terms identical to the immediately foregoing provisions of
this section 20 of this Agreement.
21. Exhibits, Other Documents. Except as otherwise expressly provided in this
Agreement, or except where the context clearly requires otherwise, all
references in this Agreement to "the Agreement" or "this Agreement" shall
be deemed to include references to each of the Exhibits to this Agreement.
To the extent that the terms of this Agreement (including the Exhibits to
this Agreement) provide that your rights or obligations set forth in this
Agreement (including the Exhibits to this Agreement) are to be determined
under, or are to be subject to, the terms of any other plan or other
document, this Agreement (including the Exhibits to this Agreement) shall
be deemed to incorporate by reference such plan or other document.
22. Counterparts. This Agreement may be executed in more than one counterpart,
but all of which together will constitute one and the same agreement.
<PAGE>
Robert P. Cuthbert
April 27, 1999
Page 10
If you agree to the terms of this Agreement, please indicate your agreement
by signing and returning a copy of this letter to the undersigned, along with a
signed copies of Exhibits 3A and 3B (Letters of Resignation), and a signed and
notarized copy of Exhibit 5 (Employee Release).
Very truly yours,
LASALLE RE LIMITED
By: /s/ Victor H. Blake
-------------------------------
Its: Chairman, President and CEO
-------------------------------
Accepted and agreed to this
28th day of April, 1999.
/s/ Robert P. Cuthbert
- --------------------------------
Robert P. Cuthbert
<PAGE>
Exhibit 1
---------
COMPENSATION AND BENEFITS
-------------------------
This Exhibit 1 describes your right to compensation, benefits and other
payments and distributions from the Company under the Agreement.
1-1. Prior Amounts. The Company shall pay you the amount of all earned
and previously unpaid salary for the period ending on your Termination Date.
1-2. Bonus Payment. You shall be entitled to receive $100,000,
representing payment of the bonus described in and otherwise payable under
paragraph 2(b) of your Employment Contract, of which $50,000 shall be paid as
soon as practicable following the date of execution of this Agreement; and of
which the remaining $50,000 shall be paid on September 30, 1999, or as soon as
practicable thereafter; provided, however, that payment of such remaining
$50,000 shall be made only if you have complied with all terms of this
Agreement, as determined by the Company.
1-3. Salary Continuation. Subject to the provisions of this Agreement,
for the period beginning on your Termination Date, you shall be entitled to
"Salary Continuation Payments" in accordance with the following:
(a) Subject to paragraph 1-3(b), for each calendar month (A) beginning with
the month of May, 1999, and (B) ending with the earlier of the month of
April, 2000 or the calendar month in which the Payment Termination Date
(as defined in paragraph 1-10) occurs, you will receive a Salary
Continuation Payment of $ 25,000.
(b) You will not receive a Salary Continuation Payment for any period after
the occurrence of a Payment Termination Date. The loss of your right to
payments under this paragraph 1-3 shall be in addition to, and not in lieu
of, any other remedies to which the Company may be entitled by reason of a
breach of this Agreement.
(c) Salary Continuation Payment due under this paragraph 1-3 for any month
will be paid to you in arrears, provided that no Salary Continuation
Payment shall be due under this paragraph 1-3 prior to the Initial Payment
Date.
1-4. Expense Reimbursement. Upon written approval by the Chief Executive
Officer of the Company, for the period beginning on January 25, 1999 and ending
April 15, 1999, the Company will reimburse you for reasonable expenses in the
amount of $7,406.95, and for additional reasonable expenses, if any, for
shipping your personal effects from Bermuda to your home in New Jersey in the
United States, which expenses you have documented or which you will document in
such form as required by the Company to report business expenses.
<PAGE>
1-5. Leasing Expense Payment. You will provide timely notice to the
lessor of the house you leased in Bermuda of your intent to terminate the lease
effective May 1, 1999, and the Company will cooperate with you in enabling you
to provide the notice to the lessor in accordance with the terms of such lease.
To the extent continued rental payment is required by the terms of the lease for
the period following May 1, 1999, the Company shall pay the monthly rent of
$14,000 for the months of May, June and July, 1999; but in no event shall the
Company be obligated to pay more than $42,000 for such continued payment of
rent.
1-6. Car Payment Reimbursement. Upon your transfer to the Company's
designee of the title to the automobile that you have purchased in Bermuda, the
Company will reimburse you for the $4,950.00 which you paid out of your own
funds for such automobile.
1-7. Other Benefits. For the period beginning on your Termination Date,
and ending on the earlier of the three-month anniversary of your Termination
Date or the Payment Termination Date, you and your eligible dependents may
continue to participate in the Company's medical and dental plans in which you
participated on the date before your Termination Date; provided, however, that
participation in the medical and dental plans is subject to your payment of the
applicable employee portion of the monthly premium cost, if any.
1-8. Withholding. All amounts otherwise payable under the Agreement
shall be subject to customary withholding and other employment taxes, if any, if
required under United States tax law.
1-9. Initial Payment Date. For purposes of this Agreement, the "Initial
Payment Date" shall be the first business day following the date of execution of
this Agreement, including your execution of Exhibit 3A and Exhibit 3B (Letters
of Resignation) and Exhibit 5 (Employee Release) of this Agreement. All
payments to be made by the Company to the Employee shall be made by wire
transfer to the account designated by the Employee, unless the Employee provided
written direction to the Company to make payment directly to the Employee.
1-10. Payment Termination Date. The Payment Termination Date shall be
the earliest to occur of: (a) the twelve-month anniversary of your Termination
Date or (b) the date, if any, of any breach by you of the provisions of
paragraph 5, 6, or 7.
1-11. Other Payments. Except as specified in this Exhibit 1, or otherwise
expressly provided in or pursuant to the Agreement, you shall be entitled to no
compensation, benefits or other payments or distributions, and references in the
Employee Release to the release of claims against the Company shall be deemed to
also include reference to the release of claims against all compensation and
benefit plans and arrangements established or maintained by the Company and its
Affiliates.
1-12. Dollar Amounts. As used in this Agreement, "dollars" or numbers
preceded by the symbol "$" shall mean amounts in United States Dollars.
<PAGE>
Exhibit 2
---------
PRESS RELEASE
-------------
LaSalle Re Holdings Limited announced today that it has reopened its search for
a Chief Financial Officer. Robert P. Cuthbert will leave to pursue other
interests, effective May 1, 1999.
A committee of the Company's Board of Directors will serve as a search committee
to identify a successor.
LaSalle Re Holdings Limited, through its operating company LaSalle Re Limited,
writes specialist classes of reinsurance on a worldwide basis, including
property catastrophe reinsurance.
<PAGE>
Exhibit 3A
----------
LETTER OF RESIGNATION
---------------------
Board of Directors
LaSalle Re Limited
Dear Sirs:
Effective May 1, 1999, I hereby resign from employment with LaSalle Re
Limited.
Very truly yours,
/s/ Robert P. Cuthbert
Robert P. Cuthbert
<PAGE>
Exhibit 3B
----------
LETTER OF RESIGNATION
---------------------
Board of Directors
LaSalle Re Holdings Limited
Dear Sirs:
Effective May 1, 1999, I hereby resign from all positions held with
LaSalle Re Holdings Limited.
Very truly yours,
/s/ Robert P. Cuthbert
Robert P. Cuthbert
<PAGE>
Exhibit 4
---------
COMPANY RELEASE
---------------
GENERAL RELEASE AND WAIVER
--------------------------
1. This document is attached to, is incorporated into, and forms a part
of, an agreement (the "Agreement") by and between LaSalle Re Limited (the
"Company") and Robert P. Cuthbert (the "Employee").
2. Except for a claim based upon a breach of the Agreement, the Company,
for and on behalf of itself and the other Company Releasors, releases and
forever discharges to the fullest extent permitted under applicable law, and in
particular to that extent permitted by Section 98 of the Companies Act of 1981,
the Employee and the other Employee Releasees from any and all Claims, which the
Company may now have or claim, or might hereafter have or claim, against the
Employee (or against the other Employee Releasees, to the extent that it is
derived from a Claim against the Employee) based upon or arising out of any
matter or thing whatsoever, occurring or arising on or before the date of this
General Release and Waiver, to the extent that the Claim arises out of or
relates to the Employee's employment by the Company and its Affiliates, the
Employee's position as an officer of the Company or any of its Affiliates,
and/or the Employee's termination or resignation therefrom, and shall include,
without limitation, Claims arising out of or related to the Employment Contract.
For purposes of this General Release and Waiver, the terms set forth below
shall have the following meanings:
(a) The term "Agreement" shall include the Agreement and the Exhibits
thereto, and including the plans and arrangements under which the
Employee is entitled to benefits in accordance with the Agreement
and the Exhibits.
(b) The term "Claims" shall include any and all rights, claims,
demands, debts, dues, sums of money, accounts, attorneys' fees,
complaints, judgments, executions, actions and causes of action of
any nature whatsoever, cognizable at law or equity.
(c) The term "Company Releasors" shall include the Company and its
Affiliates (as defined in the Agreement), and their officers,
directors, trustees, members, representatives, agents, employees,
shareholders, partners, attorneys, and insurers, and their
predecessors and successors.
(d) The term "Employee Releasees" shall include the Employee and his
heirs, representatives, agents, and insurers.
<PAGE>
In witness whereof LaSalle Re Limited has executed this deed on the 30 April
1999
The Common Seal of )
LaSalle Re Limited ) [Common Seal affixed here]
was hereunto affixed in the )
presence of: )
/s/ Victor H. Blake
- ---------------------------------
Director
/s/ Lisa J. Marshall
- ---------------------------------
Secretary
<PAGE>
Exhibit 5
---------
EMPLOYEE RELEASE
----------------
GENERAL RELEASE AND WAIVER
--------------------------
1. This document is attached to, is incorporated into, and forms a part
of, an agreement (the "Agreement") by and between LaSalle Re Limited (the
"Company") and Robert P. Cuthbert (the "Employee"). Except for a claim based
upon a breach of the Agreement, the Employee, on behalf of himself and the other
Employee Releasors, releases and forever waives and discharges the Company and
the other Company Releasees from any and all Claims which the Employee (or the
other Employee Releasors may have, to the extent that it is derived from a Claim
which the Employee may have) now has or claims, or might hereafter have or
claim, against the Company Releasees based upon or arising out of any matter or
thing whatsoever, occurring or arising on or before the date of this General
Release and Waiver, to the extent that the Claim arises out of or relates to the
Employee's employment by the Company and its Affiliates, the Employee's position
as an officer of the Company or any of its Affiliates, and/or the Employee's
termination or resignation therefrom, and shall include, without limitation,
Claims arising out of or related to the Employment Contract, and Claims arising
under any law dealing with employment discrimination.
For purposes of this General Release and Waiver, the terms set forth below
shall have the following meanings:
(a) The term "Agreement" shall include the Agreement and the Exhibits thereto,
and including the plans and arrangements under which the Employee is
entitled to benefits in accordance with the Agreement and the Exhibits.
(b) The term "Claims" shall include any and all rights, claims, demands,
debts, dues, sums of money, accounts, attorneys' fees, complaints,
judgments, executions, actions and causes of action of any nature
whatsoever, cognizable at law or equity of any applicable jurisdictions.
(c) The term "Company Releasees" shall include the Company and its Affiliates
(as defined in the Agreement), and their officers, directors, trustees,
members, representatives, agents, employees, shareholders, partners,
attorneys, and insurers, and their predecessors and successors.
(d) The term "Employee Releasors" shall include the Employee, and his heirs,
representatives, agents, and insurers.
2. The following provisions are applicable to and made a part of the
Agreement and this General Release and Waiver:
<PAGE>
(a) In exchange for this General Release and Waiver, the Employee hereby
acknowledges that he has received separate consideration beyond that to
which he is otherwise entitled under the Company's policy or applicable
law.
(b) The Company hereby expressly advises the Employee to consult with an
attorney of his choosing prior to executing the Agreement or this General
Release and Waiver. The Employee acknowledges that, prior to executing
this Agreement and this General Release and Waiver, he has been given a
reasonable time to review it, to consult with counsel of his choice, and
to negotiate at arm's-length with the Company as to the contents.
(c) The Employee hereby acknowledges that he has carefully read and
understands the terms of the Agreement and this General Release and Waiver
and each of his rights as set forth therein.
Signed, sealed and delivered by Robert P. Cuthbert this 28th day of April,
1999.
/s/ Robert P. Cuthbert
-------------------------------
Robert P. Cuthbert
State of New Jersey
-------------------
County of Essex
-----------------
Subscribed Before Me This
28th Day of April, 1999.
/s/ Phillis Roberson
---------------------------
Notary Public
<PAGE>
Exhibit 10.12
-------------
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT, made and entered into as of October 1, 1998 (the "Effective
Date"), by and between Mark Stockton (the "Executive") and LaSalle Re Limited
(the "Company");
WITNESSETH THAT:
---------------
WHEREAS, the parties desire to enter into this Agreement pertaining to the
employment of the Executive by the Company;
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth below, it is hereby covenanted and agreed by the Executive and the Company
as follows:
1. Performance of Services. The Executive's employment with the Company
shall be subject to the following:
(a) Subject to the provisions of this Agreement, the Company hereby agrees to
employ the Executive as a Senior Vice President of the Company during the
Agreement Term (as defined below), and the Executive hereby agrees to
remain in the employ of the Company during the Agreement Term.
(b) During the Agreement Term, while the Executive is employed by the Company,
the Executive shall devote, subject to paragraph 1(f), his full time,
energies and talents to performing his duties under this Agreement.
(c) The Executive agrees that he shall perform his duties faithfully and
efficiently subject to the directions of the Board of Directors (the
"Board") and the Chief Executive Officer (the "CEO") of the Company. The
Executive's duties may include providing services for the Company, LaSalle
Re Holdings Limited (the "Holding Company"), and the Subsidiaries (as
defined below), as determined by the CEO; provided that the Executive shall
not, without his consent, be assigned tasks that would be inconsistent with
his position at the Company. The Executive will have such authority and
power as are inherent to the undertakings applicable to his position and
necessary to carry out his responsibilities and the duties required of him
hereunder.
(d) While the Executive is employed by the Company, he shall be subject to the
duties that reasonably apply to the Company's officers and employees
(including, without limitation, the duty of loyalty to the Company).
(e) The Company may change the Executive's title and duties in the event of
reorganization, restructuring, or similar circumstances, except that the
Executive shall have a senior executive position at all times during the
Agreement Term while he is employed by the Company.
(f) Notwithstanding the foregoing provisions of this paragraph 1, during the
Agreement Term, the Executive may devote reasonable time to activities
other than those required
1
<PAGE>
under this Agreement, including the supervision of his personal
investments, and activities involving professional, charitable,
educational, religious and similar types of organizations, speaking
engagements, membership of the boards of directors of other organizations,
and similar type of activities, to the extent that such other activities do
not inhibit or prohibit the performance of the Executive's duties under
this Agreement, or conflict in any material way with the business of the
Company, the Holding Company, or any Subsidiary; provided, however, that
except as otherwise expressly provided in this Agreement, the Executive
shall not serve on the board of any business, or hold any position with any
business without the consent of the Board and the CEO of the Company.
(g) The Executive will be required to maintain a residence in Bermuda while
employed by the Company.
(h) The Company will use its reasonable best efforts to maintain a Bermuda work
permit for the Executive. The Executive shall cooperate with the Company
and the appropriate authorities in maintaining such permit. The
Executive's employment by the Company is conditioned upon the Company's
ability to keep current all required work permits, and except as otherwise
provided in this paragraph 1(h), the Company shall have no further
obligation to the Executive if, after employing its reasonable best
efforts, it is unable to maintain such permits. If despite the Company's
best efforts to maintain the Bermuda work permit, the work permit is
terminated or revoked by the Government of Bermuda through no fault of the
Executive, then the Executive shall be deemed to have received written
notice from the Company that his Date of Termination is the date on which
the termination or revocation of his or her work permit is effective, and
the Executive shall be entitled to the benefits provided for Termination by
the Company under Section 3(g). In addition, the Company shall reimburse
the Executive for reasonable costs actually incurred by the Executive and
the members of his or her immediate family to relocate to the nation in
which the Executive maintains citizenship; provided, however, that such
reimbursement shall be made only if such relocation occurs within a
reasonable time following such Date of Termination. The reasonableness of
the cost and time of relocation shall be determined by the Board of
Directors of the Company.
(i) Subject to the provisions of this Agreement, the Executive shall not be
required to perform services under this Agreement during any period that he
is Disabled. The Executive shall be considered "Disabled" during any
period in which he has a physical or mental disability which renders him
incapable, after reasonable accommodation, of performing his duties under
this Agreement. In the event of a dispute as to whether the Executive is
Disabled, the Company may refer the same to a licensed practicing physician
of the Company's choice, and the Executive agrees to submit to such tests
and examination as such physician shall deem appropriate.
(j) The "Agreement Term" shall be the period beginning on the Effective Date
and ending on the first anniversary of the Effective Date; provided,
however, that such Agreement Term shall automatically be renewed daily,
such that at any time on or after the Effective Date, the remaining term
shall equal one year. However, such additional day-to-day
2
<PAGE>
renewals may be terminated by either party be delivering written notice of
such termination to the other party, in accordance with the requirements of
paragraph 18. The cessation of the automatic renewals shall be effective on
the date such written notice is deemed to be given to the other party in
accordance with paragraph 18, such that the Agreement term shall end on the
one-year anniversary of the date such written notice is deemed given to the
other party. For purposes of this Agreement, a Notice of Termination, as
described in paragraph 3(i), shall be deemed to be a notice to terminate
day-to-day renewals.
(k) For purposes of this Agreement, the term "Subsidiary" shall mean any
company (regardless of whether incorporated) during any period in which 50%
or more of the total combined voting power of all classes of stock (or
other ownership interest) entitled to vote is owned, directly or
indirectly, by the Company.
2. Compensation. Subject to the provisions of this Agreement, during the
Agreement Term, while he is employed by the Company, the Company shall
compensate the Executive for the Executive's services as follows:
(a) Salary. The Executive shall receive, for each 12-consecutive month period
beginning on the Effective Date and each anniversary thereof, in
substantially equal monthly or more frequent installments, an annual base
salary of $230,000 (the "Salary"). In no event shall the Salary of the
Executive be reduced to an amount that is less than the amount specified in
this paragraph (a), or to an amount that is less than the amount that he
was previously receiving, except to the extent that reductions of the same
percentage are being made at the same time to the salaries of all other
Company officers in the corporate office at or above the vice-president
level, and such Salary shall be restored to its prior level when, and to
the same extent, as the restoration that applies to the other officers.
(b) Bonus. The Executive shall be entitled to receive bonuses from the Company
in accordance with the provisions of Exhibit A, which is attached to and
forms a part of this Agreement.
(c) Disability. The Executive shall receive from the Company disability income
replacement coverage which will provide for replacement of income at a
commercially reasonable rate during any period in which the Executive is
Disabled if the disability arose during the Agreement Term and prior to the
Executive's Date of Termination. During any period while the Executive is
Disabled, and is otherwise entitled to receive Salary under this Agreement,
any Salary payments to the Executive shall be reduced by the amount of any
benefits paid for the same period of time under the Company's disability
income replacement coverage.
(d) Pension. The Company will provide the Executive with a defined
contribution savings plan, into which the Company will make a contribution
for each fiscal year equal to 10% of the Salary paid to the Executive for
such fiscal year. The plan will also provide that the Executive may make
annual contributions equal to or less than the Company's contribution.
3
<PAGE>
(e) Automobile. The Company will provide the Executive with an allowance
toward the cost of an automobile in Bermuda, the amount of which will be
approved by the CEO. The Company will assume responsibility for the amount
of insurance, maintenance and similar items. The Executive's personal use
of the automobile will be permitted. The perquisite shall be governed by
the rules and limitations set down from time to time by the Company.
(f) Housing/Living Allowance. The Company shall provide the Executive with a
housing and living expense allowance at the annual rate of $72,000 for the
Agreement Term, with such allowance to be payable to the Executive in
monthly instalments.
(g) Club. The Company will reimburse the Executive for periodic dues for his
membership in clubs located in Bermuda in an amount not to exceed $2,200
per fiscal year. The Company will not reimburse initiation fees for club
membership under this Agreement, in light of reimbursements made by the
Company to the Executive's prior employer with respect to initiation fees
for club membership for the period during which the Executive performed
services for the Company but was employed by the prior employer.
(h) Other Benefits. Except as otherwise specifically provided to the contrary
in this Agreement, the Executive shall be provided with the welfare
benefits and other fringe benefits to the same extent and on the same terms
as those benefits are provided by the Company from time to time to the
Company's other senior management employees. However, the Company shall
not be required to provide a benefit or perquisite under this paragraph
2(h) if such benefit or perquisite would duplicate (or otherwise be the
same type as) a benefit or perquisite specifically required to be provided
under another provision of this Agreement.
(i) Expenses. Upon approval by the CEO, the Company will reimburse the
Executive for reasonable expenses for entertainment, traveling, meals,
lodging and similar items in promoting the Company's business which the
Executive documents on a form used by the Company to report business
expenses.
(j) Indemnification. The Company shall maintain officers liability insurance
in commercially reasonable amounts (as reasonably determined by the Board),
and the Executive shall be covered under such insurance to the same extent
as other senior management employees of the Company. The Executive shall
be eligible for indemnification by the Company under the Company's bye-laws
as currently in effect. The Company agrees that it shall not take any
action that would impair the Executive's rights to indemnification under
the Company's bye-laws, as currently in effect.
(k) Holiday/Vacation. The Executive shall be subject to the holiday and
vacation policy that applies to other senior executives of the Company.
(l) Dollar Amounts. As used in this Agreement, "dollars" or numbers preceded
by the symbol "$" shall mean amounts in United States Dollars.
4
<PAGE>
3. Termination. The Executive's employment during the Agreement Term may
be terminated by the Company or the Executive without any breach of this
Agreement only under the circumstances described in paragraphs 3(a) through
3(g):
(a) Death. The Executive's employment will terminate upon his death.
(b) Permanently Disabled. The Company may terminate the Executive's employment
if he is Permanently Disabled. "Permanently Disabled" means that the
Executive is eligible for benefits under the Company's long-term disability
plan.
(c) Cause. The Company may terminate the Executive's employment at any time
for Cause. "Cause" shall mean:
(i) the wilful and continued failure by the Executive to substantially
perform his duties with the Company (other than any such failure
resulting from the Executive's being Disabled), within a reasonable
period of time after a written demand for substantial performance
is delivered to the Executive by the CEO, which demand specifically
identifies the manner in which the CEO believes that the Executive
has not substantially performed his duties;
(ii) the wilful engaging by the Executive in conduct which is
demonstrably and materially injurious to the Company or the Holding
Company, monetarily or otherwise; or
(iii) the engaging by the Executive in egregious misconduct involving
serious moral turpitude to the extent that, in the reasonable
judgment of the CEO, the Executive's credibility and reputation no
longer conform to the standard of the Company's executives.
For purposes of this Agreement, no act, or failure to act, on the
Executive's part shall be deemed "wilful" unless done, or omitted to be
done, by the Executive not in good faith and without reasonable belief that
the Executive's action or omission was in the best interest of the Company
or the Holding Company.
(d) Constructive Discharge. If the Executive (i) provides written notice to
the Company of the occurrence of a material breach of this Agreement by the
Company, which specifically identifies the manner in which the Executive
believes that the breach has occurred; (ii) the Company fails to correct
such breach within a reasonable time after such notice; and (iii) the
Executive resigns within the 60-day period following the occurrence of such
breach, then the Executive shall be considered to have been constructively
discharged.
(e) Resignation by Executive. The Executive may resign for any reason by
giving the Company ninety (90) days prior written notice, except the
Executive will be treated as having resigned under this paragraph 3(e) only
if he has not been constructively discharged under paragraph 3(d).
5
<PAGE>
(f) Mutual Agreement. This Agreement may be terminated at any time by the
mutual agreement of the parties. Any termination of the Executive's
employment by mutual agreement of the parties will be memorialized by an
agreement which is reduced in writing and signed by the Executive and the
CEO or other duly appointed officer of the Company.
(g) Termination by Company. The Company may terminate the Executive's
employment at any time for any reason by giving the Executive prior written
notice, except the Executive's employment will not be treated as having
been terminated under this paragraph 3(g) if the termination is for reasons
of being Permanently Disabled or for Cause.
(h) Date of Termination. "Date of Termination" means the last day the
Executive is employed by the Company, provided that the Executive's
employment is terminated in accordance with the foregoing provisions of
this paragraph 3.
(i) Notice of Termination. Any termination of the Executive's employment by
the Company or the Executive (other than a termination pursuant to
paragraph 3(a) or paragraph 3(f)) must be communicated by a written Notice
of Termination to the other party hereto. For purposes of this Agreement,
a "Notice of Termination" means a dated notice which indicates the specific
termination provision in this Agreement relied on and which sets forth in
reasonable detail the facts and circumstances, if any, claimed to provide a
basis for termination of the Executive's employment under the provision so
indicated.
4. Rights Upon Termination. This paragraph 4 describes the payments and
benefits to be provided to the Executive after his Date of Termination:
(a) Payment of Previously Earned Amounts. The Executive shall receive payment
of accrued but unpaid Salary, vacation pay and, if expressly provided for
in paragraph 4(d), a pro rata portion of his bonus (if any), in each case
for the period ending with the Executive's Date of Termination.
(b) No Severance Payments. If the Executive's Date of Termination occurs
during or after the end of the Agreement Term, or because of (i) the
Executive's death, (ii) his being Permanently Disabled (paragraph 3(b)),
(iii) his termination for Cause (paragraph 3(c)), or (iv) his resignation
(paragraph 3(e)), then, except as otherwise expressly provided for in this
Agreement, no payments shall be due to the Executive under this Agreement
for periods after the Date of Termination.
(c) Salary Continuation. If the Executive's Date of Termination occurs during
the Agreement Term because of (i) his discharge by the Company for reasons
other than Cause (described in paragraph 3(c)), or (ii) his constructive
discharge (described in paragraph 3(d)), the Executive shall continue to
receive Salary payments (at the rate in effect on the Date of Termination)
in monthly or more frequent instalments through the earliest of: (i) the
last day of the Agreement Term; (ii) the date of the Executive's death,
6
<PAGE>
or (iii) the date, if any, of the breach by the Executive of the non-
competition requirements of paragraph 7, the confidentiality requirements
of paragraph 8 or the non-disparagement requirements of paragraph 9.
(d) Pro rata Bonus. Except as otherwise provided in this paragraph 4(d), the
Executive shall not receive a bonus for the fiscal year in which the
Executive's Date of Termination occurs. If the Executive's Date of
Termination occurs during the Agreement Term as a result of (i) the
Executive's death (ii) his being Permanently Disabled (paragraph 3(b)),
(iii) his discharge by the Company for reasons other than Cause (described
in paragraph 3(c)), or (iv) his constructive discharge (described in
paragraph 3(d)), the Executive shall receive a pro rata portion of the
bonus, if any, which would have been paid pursuant to paragraph 2(b) for
the fiscal year in which the Executive's Date of Termination occurs. Such
portion, if any, shall be calculated for the period ending on the Date of
Termination and shall be paid to the Executive (or his estate) within a
reasonable period of time after the Company calculates the bonus amount, if
any, for all employees for the fiscal year.
(e) Housing/Living Expenses, Medical Benefits. If the Executive is entitled to
Salary Continuation payments pursuant to paragraph 4(c), the Executive
shall receive a housing and living expense allowance (described in
paragraph 2(g)) and may continue to participate in the medical and dental
plans in which he participated on the day before his Date of Termination
through the earlier of: (i) the last day for which the Executive receives
Salary Continuation payments pursuant to paragraph 4(c); or (ii) three (3)
months after the Executive's Date of Termination. Participation in the
medical and dental plans is subject to the Executive's payment of the
applicable employee portion of the monthly premium cost, if any. If the
Company ceases offering the medical and dental plans in which the Executive
participated on the day before his Date of Termination to Company employees
during this time, the Executive may elect to participate in any other
medical or dental plan offered by the Company to its employees, provided
however, that the Executive shall be responsible for paying the applicable
employee portion of the monthly premium cost.
(f) Other Programs. No benefits shall be payable to the Executive under any
other severance pay arrangement or similar arrangement maintained by the
Company or any Subsidiary. Except as otherwise expressly provided in this
Agreement, no other payments or benefits shall be due to the Executive
following the Date of Termination (except as otherwise specifically
provided under the terms of an employee benefit plan or arrangement).
5. Duties on Termination. Subject to the provisions of this Agreement,
during the period beginning on the date of delivery of a Notice of Termination,
and ending on the Date of Termination, the Executive shall continue to perform
his duties as set forth in this Agreement, and shall also perform such services
for the Company and the Holding Company as are necessary and appropriate for a
smooth transition to the Executive's successor, if any. Notwithstanding the
foregoing provisions of this paragraph 5, the Company may suspend the Executive
from performing his duties under this Agreement following the delivery of a
Notice of Termination providing for the Executive's resignation, or delivery by
the Company of a Notice of Termination providing for the Executive's termination
of employment for any reason;
7
<PAGE>
provided, however, that during the period of suspension (which shall end on the
Date of Termination), the Executive shall continue to be treated as employed by
the Company for other purposes, and his rights to compensation or benefits shall
not be reduced by reason of the suspension.
6. Set-Off. If the Executive's employment with the Company is terminated
for any reason and, under the terms of this Agreement, the Executive is
otherwise entitled to receive Salary and bonus payments, such payments will be
reduced by the amount of any salary and bonus payments the Executive receives in
connection with other employment.
7. Non-competition. While the Executive is employed by the Company, and
during the Non-Competition Period (as defined below), the Executive agrees that
he will not directly or indirectly perform services in an underwriting-related
position in Bermuda for a direct competitor of the Company. A related position
shall include, but is not limited to, a senior vice president of underwriting.
For purposes of this paragraph 7:
"Non-Competition Period" shall be determined as follows:
(A) If the Executive's Date of Termination occurs under circumstances
other than those described in paragraph 3(d) (relating to
constructive discharge) or paragraph 3(g) (relating to certain
terminations by the Company), the Non-Competition Period shall be
the period beginning on the Date of Termination, and ending on the
twenty-four-month (24) anniversary of the Date of Termination.
(B) If the Executive's Date of Termination occurs under circumstances
described in paragraph 3(d) (relating to constructive discharge) or
paragraph 3(g) (relating to certain terminations by the Company),
the Non-Competition Period shall be the period beginning on the
Date of Termination, and ending on the earlier to occur of the last
day of the Agreement Term or the twenty-four-month (24) anniversary
of the Date of Termination. However, under this paragraph (B), the
Company, in its discretion, by notice provided to the Executive not
later than fifteen (15) days after the Date of Termination, may
extend the Non-Competition Period beyond the end of the Agreement
Term, to a date specified in such notice (but not later than the
twenty-four-month anniversary of the Date of Termination), but only
if the Company agrees to provide the salary continuation payments
described in paragraph 4(c) during such Non-Competition Period.
Nothing in this paragraph 7, paragraph 8 or paragraph 9 shall be construed as
limiting the Executive's duty of loyalty to the Company while he is employed by
the Company or any other duty he may otherwise have to the Company while he is
employed by the Company.
8
<PAGE>
8. Confidential Information. Except as may be required by the lawful
order of a court or agency of competent jurisdiction, or except to the extent
that the Executive has express authorization from the Company, the Executive
agrees to keep secret and confidential indefinitely all non-public information
(including, without limitation, information regarding litigation and pending
litigation) concerning the Company, the Holding Company, and the Subsidiaries
which was acquired by or disclosed to the Executive during the course of his
employment with the Company, or during the course of his consultation with the
Company following his termination of employment (regardless of whether
consultation is pursuant to paragraph 10), and not to disclose the same, either
directly or indirectly, to any other person, firm, or business entity, or to use
it in any way. To the extent that the Executive obtains information on behalf
of the Company, the Holding Company, or any of the Subsidiaries that may be
subject to attorney-client privilege as to the Company's attorneys, the
Executive shall take reasonable steps to maintain the confidentiality of such
information and to preserve such privilege. Nothing in the foregoing provisions
of this paragraph 8 shall be construed so as to prevent the Executive from
using, in connection with his employment for himself or an employer other than
the Company, the Holding Company, or any of the Subsidiaries, knowledge which
was acquired by him during the course of his employment with the Company, the
Holding Company, and the Subsidiaries, and which is generally known to persons
of his experience in other companies in the same industry.
9. Non-Disparagement. The Executive agrees that, while he is employed by
the Company, and after his Date of Termination, he shall not make any false,
defamatory or disparaging statements about the Company, the Holding Company, the
Subsidiaries, or the officers or directors of the Company, the Holding Company,
or the Subsidiaries that are reasonably likely to cause material damage to the
Company, the Holding Company, the Subsidiaries, or their officers or directors.
While the Executive is employed by the Company, and after his Date of
Termination, the Company agrees, on behalf of itself, the Holding Company, and
the Subsidiaries, that neither the officers nor the directors of the Company,
the Holding Company, or the Subsidiaries shall make any false, defamatory or
disparaging statements about the Executive that are reasonably likely to cause
material damage to Executive.
10. Defense of Claims. The Executive agrees that, for the period
beginning the Effective Date, and continuing for a reasonable period after the
Executive's termination of employment with the Company, the Executive will
cooperate with the Company, the Holding Company and the Subsidiaries in defense
of any claims that may be made against the Company, the Holding Company and the
Subsidiaries, and will cooperate with the Company, the Holding Company or the
Subsidiaries in the prosecution of any claims that may be made by the Company,
the Holding Company or the Subsidiaries, to the extent that such claims may
relate to services performed by the Executive for the Company. The Executive
agrees to promptly inform the Company if he becomes aware of any lawsuits
involving such claims that may be filed against the Company, the Holding Company
or the Subsidiaries. The Company agrees to reimburse the Executive for all of
the Executive's reasonable out-of-pocket expenses associated with such
cooperation, including travel expenses. For periods after the Executive's
employment with the Company terminates, the Company agrees to provide reasonable
compensation to the Executive for such cooperation. The determination of the
reasonableness of such compensation shall take into account information provided
to the Company by the Executive or otherwise known to the Company, which may
9
<PAGE>
include, without limitation, (a) the Executive's rate of compensation at the
time he ceased employment with the Company, and whether he is then receiving
other compensation payments from the Company; (b) the Executive's rate of
compensation at the time of such cooperation; (c) the amount of time required of
the Executive for such cooperation; (d) difficulty of the issues as to which the
cooperation is required; (e) the amount of inconvenience to the Executive
resulting from such cooperation (including consideration of factors such as the
amount of travel required of the Executive, the effect on other commitments of
the Executive, and the amount of advance notice provided to the Executive); and
(f) whether such cooperation would be legally required in the absence of the
requirements of this paragraph 10. The Executive also agrees to promptly inform
the Company if he is asked to assist in any investigation of the Company, the
Holding Company or the Subsidiaries (or their actions) that may relate to
services performed by the Executive for the Company, regardless of whether a
lawsuit has then been filed against the Company, the Holding Company or the
Subsidiaries with respect to such investigation.
11. Remedies. The Executive acknowledges that the Company or the Holding
Company would be irreparably injured by a violation of paragraph 7, paragraph 8,
or paragraph 9, and he agrees that the Company, in addition to any other
remedies available to it for such breach or threatened breach, shall be entitled
to a preliminary injunction, temporary restraining order, or other equivalent
relief, restraining the Executive from any actual or threatened breach of either
paragraph 7, paragraph 8 or paragraph 9. The Company acknowledges that the
Executive would be irreparably injured by a violation of paragraph 9, and the
Company agrees that the Executive, in addition to any other remedies available
to him for such breach or threatened breach, shall be entitled to a preliminary
injunction, temporary restraining order, or other equivalent relief, restraining
the Company from any actual or threatened breach of paragraph 9. If a bond is
required to be posted in order for the Company or the Executive to secure an
injunction or other equitable remedy, the parties agree that said bond need not
be more than a nominal sum.
12. Nonalienation. The interests of the Executive under this Agreement
are not subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance, attachment, or garnishment by creditors of the
Executive or the Executive's beneficiary.
13. Amendment. This Agreement may be amended or canceled only by mutual
agreement of the parties in writing without the consent of any other person. So
long as the Executive lives, no person, other than the parties hereto, shall
have any rights under or interest in this Agreement or the subject matter
hereof.
14. Applicable Law. The provisions of this Agreement shall be construed
in accordance with the laws of Bermuda, without regard to the conflict of law
provisions of any jurisdiction. All disputes shall be arbitrated or litigated
(whichever is applicable) in Bermuda.
15. Severability. The invalidity or unenforceability of any provision of
this Agreement will not affect the validity or enforceability of any other
provision of this Agreement, and this Agreement will be construed as if such
invalid or unenforceable provision were omitted (but only to the extent that
such provision cannot be appropriately reformed or modified).
10
<PAGE>
16. Waiver of Breach. No waiver by any party hereto of a breach of any
provision of this Agreement by any other party, or of compliance with any
condition or provision of this Agreement to be performed by such other party,
will operate or be construed as a waiver of any subsequent breach by such other
party or any similar or dissimilar provisions and conditions at the same or any
prior or subsequent time. The failure of any party hereto to take any action by
reason of such breach will not deprive such party of the right to take action at
any time while such breach continues.
17. Successors. This Agreement shall be binding upon, and inure to the
benefit of, the Company and its successors and assigns and upon any person
acquiring, whether by merger, consolidation, purchase of assets or otherwise,
all or substantially all of the Company's assets and business.
18. Notices. Notices and all other communications provided for in this
Agreement shall be in writing and shall be delivered personally or sent by
registered or certified mail, return receipt requested, postage prepaid, or sent
by facsimile or prepaid overnight courier to the parties at the addresses set
forth below (or such other addresses as shall be specified by the parties by
like notice). Such notices, demands, claims and other communications shall be
deemed given:
(a) in the case of delivery by overnight service with guaranteed next day
delivery, the next day or the day designated for delivery;
(b) in the case of certified, registered or similar mail delivery, five days
after deposit in the local mail; or
(c) in the case of facsimile, the date upon which the transmitting party
received confirmation of receipt by facsimile, telephone or otherwise;
provided, however, that in no event shall any such communications be deemed to
be given later than the date they are actually received. Communications that
are to be delivered by the mail or by overnight service are to be delivered to
the addresses set forth below:
to the Company:
LaSalle Re Limited
25 Church Street
Hamilton HMFX - Bermuda
or to the Executive:
Mark Stockton
25 Church Street
Hamilton, HMFX, Bermuda
All notices to the Company shall be directed to the attention of the chief
executive officer of the Company, with a copy to the Secretary of the Company.
Each party, by written notice furnished
11
<PAGE>
to the other party, may modify the applicable delivery address, except that
notice of change of address shall be effective only upon receipt.
19. Arbitration of All Disputes. Any controversy or claim arising out of
or relating to this Agreement (or the breach thereof) shall be settled by final,
binding and non-appealable arbitration in Bermuda by three arbitrators. Except
as otherwise expressly provided in this paragraph 19, the arbitration shall be
conducted in accordance with the Arbitration Act 1986 as then in effect. One of
the arbitrators shall be appointed by the Company, one shall be appointed by the
Executive, and the third shall be appointed by the first two arbitrators. If
the first two arbitrators cannot agree on the third arbitrator within 30 days of
the appointment of the second arbitrator, then the third arbitrator shall be
appointed by the President of the Bermuda Bar Council.
20. Survival of Agreement. Except as otherwise expressly provided in this
Agreement, the rights and obligations of the parties to this Agreement shall
survive the termination of the Executive's employment with the Company.
21. Entire Agreement. Except as otherwise noted herein, this Agreement,
including any Exhibit(s) attached hereto, constitutes the entire agreement
between the parties concerning the subject matter hereof and supersedes all
prior and contemporaneous agreements, if any, between the parties relating to
the subject matter hereof. The enforceability of this Agreement shall not cease
or otherwise be adversely affected by the termination of the Executive's
employment with the Company.
22. Acknowledgment by Executive. The Executive represents to the Company
that he is knowledgeable and sophisticated as to business matters, including the
subject matter of this Agreement, that he has read this Agreement and that he
understands its terms. The Executive acknowledges that, prior to assenting to
the terms of this Agreement, he has been given a reasonable time to review it,
to consult with counsel of his choice, and to negotiate at arm's-length with the
Company as to the contents. The Executive and the Company agree that the
language used in this Agreement is the language chosen by the parties to express
their mutual intent, and that no rule of strict construction is to be applied
against any party hereto. The Executive represents and warrants that he is not,
and will not become a party to any agreement, contract, arrangement or
understanding, whether of employment or otherwise, that would in any way
restrict or prohibit him from undertaking or performing his duties in accordance
with this Agreement.
23. Titles and Headings. Titles and headings in this Agreement are for
ease of reference and convenience only, and shall not be construed to affect the
meaning of any provision of this Agreement.
IN WITNESS THEREOF, the Executive has hereunto set his hand, and the
Company has caused these presents to be executed in its name and on its behalf,
and its corporate seal to be hereunto affixed, all as of the day and year first
above written.
12
<PAGE>
___________________________
Mark Stockton
LASALLE RE LIMITED
By:________________________
Victor H. Blake
EXHIBIT A
---------
BONUS COMPUTATION
-----------------
A-1. Purpose. This Exhibit A is attached to and forms a part of the
employment agreement (the "Agreement") between Mark Stockton (the "Executive")
and LaSalle Re Limited (the "Company"). The purpose of this Exhibit A is to set
forth the terms of the bonus program described in paragraph 2(b) of the
Agreement.
A-2. Guidelines. The bonus shall be determined in accordance with the
following guidelines:
. A discretionary bonus may be awarded annually by the Board of the Company
after considering the recommendation of the CEO of the Company.
. A non-discretionary bonus shall be earned and paid annually based upon the
Company's Return on Equity (defined below) achieved for each fiscal year of
the Company, while the Executive is employed by the Company.
. The non-discretionary annual bonus calculation will be based on the
Company's Return on Equity earned each year. If the Company's Return on
Equity for any year exceeds 15%, the bonus will be paid according to the
following formula:
. For each 1% improvement in Return on Equity above 15%, an amount equal
to 10.0 % of The Executive's Salary will be paid.
. For each 1% improvement in Return on Equity above 22.5%, an amount
equal to 15.0 % of The Executive's Salary will be paid.
. For Return on Equity results between whole percentages (but above
15%), the percentage of Salary awarded will be increased by
interpolation.
. The "Return on Equity" for any fiscal year shall be equal to the net
income of the Company for the fiscal year, divided by shareholders'
equity at the beginning of the period (as determined on the basis
of U.S. generally
<PAGE>
accepted accounting principles). For purposes of this calculation any
unrealized appreciation or depreciation of the Company's
investments shall be disregarded (both as to the numerator and the
denominator). Payments made to CNA Financial Corporation or its
affiliates under the Underwriting Support Services Agreement will
not reduce net income in determining Return on Equity.
2
<PAGE>
Exhibit 10.32
CNA Reference: 44 FIR 1999
--------------------------
Reassured:- CNA Reinsurance Company Limited.
International Treaty Department, London, England.
Period:- Continuous contract in respect of all business written
by the Reassured and signed into their 1994 and
subsequent Underwriting Years of Account.
Subject to three months prior notice of cancellation
to expire at 31st December any year.
HEREON: SIGNING FOR 1999 UNDERWRITING YEAR OF ACCOUNT.
Type:- 40% Quota Share Treaty
Class:- The Reassured's Account of PROPERTY CATASTROPHE
EXCESS OF LOSS TREATIES
Excluding the Reinsured's interest whether direct or
by way of reinsurance in loss arising from claim or
claims against an Insured by another party or parties.
Notwithstanding the foregoing this reinsurance shall
not exclude:
a) Workers' Compensation and/or Employers' Liability
losses arising from the following perils:-
Fire, Lightning, Explosion, Structural Collapse,
Windstorm, Hail, Flood, Seismic Activity, Volcanic
Eruption, Collision, Riots, Strikes, Civil Commotion,
Malicious Damage.
b) Any Physical Damage and/or Consequential loss coverage
contingent thereon effected by an Insured on behalf of
another party.
Territorial Scope:- Worldwide excluding USA & Canada, other than
incidental.
Treaty Detail:- To take 40% Quota Share of the Reassureds
participation subject to a maximum cession hereon of
GBP 1,600,000 ($2,400,000) any one programme. Cessions
in currencies other than sterling at rates of exchange
as used in the books of the Reassured.
Rate:- Original Net Premium as Original.
Administrative
Processing Fee:- 7.00% on Original Net Rate.
<PAGE>
CNA Reference: 44 FIR 1999
--------------------------
Profit Commission:- 20% on an Underwriting Year Basis. Losses carried
forward to extinction. To be calculated 12 months
after the close of the Underwriting Year and annually
thereafter subject to a Reinsurer expense allowance
of 25%.
Taxes:- As may be applicable on the original business.
Premium Reserve:- Not applicable.
Loss Reserve:- As may be applicable on the original business.
Portfolio:- Agreed, if and when requested by the Reassured, to
close each Underwriting Year of Account at any time
after the end of the third year at an amount
sufficient to cover all outstanding losses as may be
mutually agreed.
Cash Loss:- At Reassured's discretion, Minimum GBP 2,666,666
($4,000,000).
Accounts:- Quarterly Accounts in GBP and US$ separately on each
year of account. Presentation within 45 days of end of
quarter with settlement due within 30 days thereafter.
General Conditions:- Monthly bordereaux of risks ceded
Full Reinsurance Clause
War Exclusion G51
Nuclear Energy Risks Exclusion Clause
(Reinsurance) 1984, NMA 1975 (Japanese Amendment)
Nuclear Incident Exclusion Clauses - Physical
Damage Reinsurance - USA & Canada
Excluding Financial Guarantee and Insolvency
Maximum Net Premium ceded hereon GBP 14,600,000
Normal maximum aggregate cession per country or
territorial zone hereon GBP 24,000,000 with exception
of the United Kingdom where the maximum aggregate
to be ceded is GBP 40,000,000
Special cessions to be agreed by Reinsurers prior to
binding.
Multi-year policies accepted by annual re-signing.
Wording:- As before as far as applicable, any amendments to be
agreed.
Information:- 1999 E.N.P.I. GBP 5,000,000 for 40% Hereon.
(Net of original brokerage)
HEREON: 100% LaSalle Re Limited
Signed /s/ M. C. Stockton Dated 28/1/1999
------------------ ---------
<PAGE>
ATTACHING TO AND FORMING PART OF
QUOTA SHARE AGREEMENT MADE BETWEEN
Reassured:- CNA Reinsurance Company Limited -
International Treaty Department, London, England.
(Hereinafter called the "Reinsured")
and
Reinsurers:- LaSalle Re Limited
(Hereinafter called the "Reinsurers")
Period:- Continuous contract in respect of all business
written by the Reassured and signed into their
1994 and subsequent Underwriting Years of Account
Subject to three months prior notice of
cancellation to expire at 31st December any year.
HEREON: SIGNING FOR 1999 UNDERWRITING YEAR OF
ACCOUNT.
Type:- 40% Quota Share Treaty
________________________________________________________________________________
It is noted and agreed with effect 1st January, 1999 the following changes:-
Administrative
Processing Fee:- 7.00% on Original Net Rate
Profit Commission:- The Reinsurers shall pay the Reinsured a Profit Commission
of 20.00% calculated on the net profit, if any, under this
Agreement in any one Underwriting Year of Account. Such
profit commission being calculated as below and payable
for each Underwriting Year of Account separately after the
close of such Underwriting Year of Account.
The first calculation of profit commission for each
Underwriting Year of Account shall be made 24 months after
the inception of such Underwriting Year of Account and
annually thereafter.
For the purposes of calculating the profit commission the
profit will be deemed to be the difference between Income
and Outgo as calculated below.
INCOME
Original Net Premiums, as defined in PREMIUM, for the
current Underwriting Year of Account.
<PAGE>
OUTGO
a) Losses paid in respect of the Underwriting Year of
Account under consideration.
b) Commission as defined in the treaty wording.
c) 100% of the estimated liability for losses outstanding
in respect of the Underwriting Year of Account under
consideration.
d) Reinsurers' expenses calculated at 20.00% of INCOME.
e) Deficit, if any, from the profit commission statement
for the previous Underwriting Years of Account.
In the event of any premiums or salvages being received, or
claims or returns being payable subsequent to the calculation
of profit commission, then such profit commission shall be
adjusted as if such additional items had been included in the
original calculation and the Reassured credited or debited as
the case may be, in the next profit commission calculation.
In the event of a profit commission statement showing a
deficit for any one Underwriting Year of Account, the total
amount of such deficit shall be debited to the profit
commission calculation for the ensuing Underwriting Year or
Years of Account.
All other terms and conditions remain unaltered.
On behalf of CNA Reinsurance Company Limited, London, England.
Signed /s/ Tim I. Madden Dated 22 June 1999
----------------- ------------
On behalf of LaSalle Re Limited, [LOGO]
Hamilton, Bermuda,
Signed /s/ M. C. Stockton Dated 7th July, 1999.
------------------ --------------
<PAGE>
ADDENDUM ATTACHING TO AND FORMING PART OF
QUOTA SHARE AGREEMENT MADE BETWEEN
Reassured:- CNA Reinsurance Company Limited -
International Treaty Department, London, England.
(Hereinafter called the "Reassured")
and
Reinsurers:- LaSalle Re Limited
(Hereinafter called the "Reinsurers")
Period:- Continuous contract in respect of all business written by
the Reassured and signed into their 1994 and subsequent
Underwriting Years of Account
Subject to three months prior notice of cancellation to
expire at 31st December any year.
HEREON: SIGNING FOR 1999 UNDERWRITING YEAR OF ACCOUNT.
Type:- 40% Quota Share Treaty
________________________________________________________________________________
It is noted and agreed with effect from 12.01 am 1st April, 1999 the percentage
of the Quota Share is reduced to 15.00%.
As a consequence of this change the following should be noted:-
Loss Portfolio:- The Reinsurer shall be debited with a portfolio of loss
withdrawal calculated at 25% of the Reassured's estimate of
losses outstanding at the 1st April, 1999 and thereafter
shall be free of further liability in respect of the
percentage share reduction. The Reinsurer shall continue to
be liable for all incurred losses for their 15.00% share at
the date of commencement of this Agreement.
Profit Commission:- The Reinsurers shall pay the Reassured a provisional Profit
Commission of 20.00% calculated on the net profit expected,
under this Agreement in respect of the reduction of 25.00%
in the 1999 Underwriting Year of Account. Such profit
commission being calculated in accordance with the formula
previously agreed.
Any further adjustment to the calculation of the provisional
profit commission statement will be made 24 months after the
inception of the 1999 Underwriting Year of Account and
annually thereafter.
<PAGE>
All other terms and conditions remain unaltered.
On behalf of CNA Reinsurance Company Limited, London, England.
Signed /s/ Tim I. Madden Dated 22 June 1999
--------------------- ----------------
On behalf of LaSalle Re Limited, Hamilton, Bermuda. [LOGO]
Signed /s/ M. C. Stockton Dated 7th July, 1999.
--------------------- ----------------
<PAGE>
Exhibit 10.38
CNA Ref: 45 FIR 1999
--------------------
Reassured:- CNA Reinsurance Company Limited, London-
i.r.o. its Amsterdam, Zurich and Milan Branches
Period:- Continuous contract in respect of all business
written by the Reassured and signed into their 1994
and subsequent Underwriting Years of Account
Subject to three months prior notice of cancellation
to expire at 31st December any year.
HEREON: SIGNING 1999 UNDERWRITING YEAR OF ACCOUNT.
Type:- 50% Quota Share Treaty
Class:- The Reassured's Account of PROPERTY CATASTROPHE
EXCESS OF LOSS TREATIES
Excluding the Reinsured's interest whether direct or
by way of reinsurance in loss arising from claim or
claims against an Insured by another party or
parties.
Notwithstanding the foregoing this reinsurance shall
not exclude:
a) Workers' Compensation and/or Employers' Liability
losses arising from the following perils:-
Fire, Lightning, Explosion, Structural Collapse,
Windstorm, Hail, Flood, Seismic Activity, Volcanic
Eruption, Collision, Riots, Strikes, Civil
Commotion, Malicious Damage.
b) Any Physical Damage and/or Consequential loss
coverage contingent thereon effected by an Insured on
behalf of another party.
Territorial Scope:- Worldwide excluding USA & Canada, other than
incidental.
Treaty Detail:- To take 50% Quota Share of the Reassured's
participation subject to a maximum cession hereon of
GBP 2,000,000 ($3,000,000) any one programme.
Cessions in currencies other than sterling at rates
of exchange as used in the books of the Reassured.
Rate:- Original Net Premium as Original.
Administrative
Processing Fee:- 7.00% on Original Net Rate.
<PAGE>
CNA Ref: 45 FIR 1999
--------------------
Profit Commission:- 20% on an Underwriting Year Basis. Losses carried
forward to extinction. To be calculated 12 months
after the close of the Underwriting Year and annually
thereafter subject to a Reinsurer expense allowance
of 25%
Taxes:- As may be applicable on the original business.
Premium Reserve:- Not applicable.
Loss Reserve:- As may be applicable on the original business.
Portfolio:- Agreed, if and when requested by the Reassured, to
close each Underwriting Year of Account at any time
after the end of the third year at an amount
sufficient to cover all outstanding losses as may be
mutually agreed.
Cash Loss:- At Reassured's discretion, Minimum GBP 888,888
($1,333,333).
Accounts:- Quarterly Accounts in GBP and US$ separately on each
year of account. Presentation within 45 days of end
of quarter with settlement due within 30 days
thereafter.
General Conditions:- Monthly bordereaux of risks ceded January, February
and March, quarterly thereafter.
Full Reinsurance Clause
War Exclusion G51
Nuclear Energy Risks Exclusion Clause
(Reinsurance) 1984, NMA 1975 (Japanese Amendment)
Nuclear Incident Exclusion Clauses - Physical
Damage Reinsurance - USA & Canada
Excluding Financial Guarantee and Insolvency
Maximum Net Premium ceded hereon US$ 10m
Maximum aggregate cession per country or territorial
zone hereon GBP 20,000,000
Insolvency Clause G86.
Special cessions to be agreed by Reinsurers prior to
binding.
Multi year policies accepted by annual re-signing.
Wording:- As before as far as applicable, any amendments to be
agreed.
Information:- 1999 E.N.P.I. GBP 2,000,000 for 50% Hereon.
(Net of Original Brokerage)
HEREON: 100% LaSalle Re Limited.
Signed /s/ M. C. Stockton Dated 28/1/1999
-------------------------------- ---------------------------
<PAGE>
ADDENDUM ATTACHING TO AND FORMING PART OF
QUOTA SHARE AGREEMENT MADE BETWEEN
Reassured:- CNA Reinsurance Company Limited, London, - On behalf of
its Amsterdam, Zurich and Milan Branches. (Hereinafter
called the "Reassured")
and
Reinsurers:- LaSalle Re Limited
(Hereinafter called the "Reinsurers")
Period:- Continuous contract in respect of all business written
by the Reassured and signed into their 1994 and
subsequent Underwriting Years of Account.
Subject to three months prior notice of cancellation to
expire at 31st December any year.
HEREON: SIGNING FOR 1999 UNDERWRITING YEAR OF ACCOUNT.
Type:- 50% Quota Share Treaty
_______________________________________________________________________________
It is noted and agreed with effect 1st January, 1999 the following changes:-
Administrative
Processing Fee:- 7.00% on Original Net Rate
Profit Commission:- The Reinsurers shall pay the Reinsured a Profit
Commission of 20.00% calculated on the net profit, if
any, under this Agreement in any one Underwriting Year of
Account. Such profit commission being calculated as below
and payable for each Underwriting Year of Account
separately after the close of such Underwriting Year of
Account.
The first calculation of profit commission for each
Underwriting Year of Account shall be made 24 months
after the inception of such Underwriting Year of Account
and annually thereafter.
For the purposes of calculating the profit commission the
profit will be deemed to be the difference between Income
and Outgo as calculated below.
INCOME
Original Net Premiums, as defined in PREMIUM, for the
current Underwriting Year of Account.
<PAGE>
OUTGO
a) Losses paid in respect of the Underwriting Year of Account under
consideration.
b) Commission as defined in the treaty wording.
c) 100% of the estimated liability for losses outstanding in respect
of the Underwriting Year of Account under consideration.
d) Reinsurers' expenses calculated at 20.00% of INCOME.
e) Deficit, if any, from the profit commission statement for the
previous Underwriting Years of Account.
In the event of any premiums or salvages being received, or claims or
returns being payable subsequent to the calculation of profit
commission, then such profit commission shall be adjusted as if such
additional items had been included in the original calculation and the
Reassured credited or debited as the case may be, in the next profit
commission calculation.
In the event of a profit commission statement showing a deficit for
any one Underwriting Year of Account, the total amount of such deficit
shall be debited to the profit commission calculation for the ensuing
Underwriting Year or Years of Account.
All other terms and conditions remain unaltered.
On behalf of CNA Reinsurance Company Limited, London, England.
Signed /s/ Tim I. Madden Dated 22 June 1999
--------------------------- -----------------------
On behalf of LaSalle Re Limited, Hamilton, Bermuda. [LOGO]
Signed /s/ M. C. Stockton Dated 7th July, 1999.
--------------------------- ----------------------
<PAGE>
ADDENDUM ATTACHING TO AND FORMING PART OF
QUOTA SHARE AGREEMENT MADE BETWEEN
Reassured:- CNA Reinsurance Company Limited, London,
On behalf of its Amsterdam, Zurich and Milan Branches.
(Hereinafter called the "Reassured")
and
Reinsurers:- LaSalle Re Limited
(Hereinafter called the "Reinsurers")
Period:- Continuous contract in respect of all business written
by the Reassured and signed into their 1994 and
subsequent Underwriting Years of Account.
Subject to three months prior notice of cancellation to
expire at 31st December any year.
HEREON SIGNING FOR 1999 UNDERWRITING YEAR OF ACCOUNT.
Type:- 50% Quota Share Treaty
________________________________________________________________________________
It is noted and agreed with effect from 12.01 am 1st April, 1999 this
Agreement is cancelled
As a consequence of this change the following should be noted:-
Loss Portfolio:- The Reinsurer shall be debited with a portfolio of loss
withdrawal calculated at 50% of the Reassured's
estimate of losses outstanding at the 1st April, 1999
and thereafter shall be free of further liability
Profit Commission:- The Reinsurers shall pay the Reassured a provisional
Profit Commission of 20.00% calculated on the net
profit expected under this Agreement in respect of the
reduction of 50% in the 1999 Underwriting Year of
Account. Such profit commission being calculated in
accordance with the formula previously agreed.
Any further adjustment to the calculation of the
provisional profit commission statement will be made 24
months after the inception of the 1999 Underwriting
Year of Account and annually thereafter.
<PAGE>
All other terms and conditions remain unaltered
On behalf of CNA Reinsurance Company Limited, London, England.
Signed /s/ Tim I. Madden Dated 22 June 1999
----------------- ----------------
On behalf of LaSalle Re Limited, Hamilton, Bermuda. [LOGO]
Signed /s/ M. C. Stockton Dated 7th July, 1999.
------------------ ----------------
<PAGE>
Exhibit 10.43
LMX CATASTROPHE QUOTA SHARE RETROCESSIONAL
RENEWAL PLACEMENT SLIP
----------------------
COMPANY: Continental Casualty Company
Illinois
EFFECTIVE: Losses occurring on original contracts written or renewed with
effective dates during the 12 month term beginning January 1,
1999
Cessions in force to run off until natural expiry, plus an
additional 12 month period should an original contract be renewed
at original reinsured's option. In addition, Retrocessionaires
will remain liable as respects run-off obligations under each
original cession in force at the time of expiration.
In the event a Retrocessionaire opts not to continue its
participation on the agreement replacing this Agreement, it will
remit to the Retrocedent 90% of the Retrocessionaire's share of
the positive balance of premium received, less losses paid, and
less ceding commission and other commissions paid within 30 days
after Agreement expiration. This provision will not apply in the
event that this Agreement is not renewed.
BUSINESS
COVERED: London Market Catastrophe Excess of Loss business, where 100% of
the layer is written by the Retrocedent and coded Product Type
6308.
EXCLUSIONS: As per original contracts.
TERRITORY: Losses wheresoever arising
LIMIT: Layer A
-------
33.33% Quota Share of $20,000,000 (or $6,666,000) of aggregate
cover any one occurrence. Subject to a maximum of up to 33.33% of
$5,000,000 (or $1,666,500) any one occurrence, any one original
reinsured. Minimum net retention of 66.67% of $5,000,000 (or
$3,333,500) of all cessions to Agreement.
Layer B
-------
33.33% Quota Share of $17,500,000 (or $5,832,750) of aggregate
cover any one occurrence. Subject to a maximum of up to 33.33% of
$5,000,000 (or $1,666,500) any one occurrence, any one original
reinsured. Minimum net retention of 66.67% of $5,000,000 (or
$3,333,500) of all cessions to Agreement.
Page 1 of 6
<PAGE>
CONTINENTAL CASUALTY COMPANY LMX QUOTA SHARE RETRO
RATE: Original Gross Reinsurance Premium less any commissions paid
under reinsured original contracts and ceding commission.
CEDING
COMMISSION: 3.0% (FLAT)
WARRANTY: The Retrocedent and Retrocessionaires hereunder will retain
all business subject to this Agreement net and unreinsured
in any way, subject to limits in Limit Section.
FUNDING OF
RESERVES: Letters of Credit (Citibank Scheme) as required by
Retrocedent, in respect of unearned premium and known
outstanding losses reported to Retrocessionaires, excluding
losses incurred but not reported to Retrocessionaires, in
compliance with statutory/regulatory requirements from non-
admitted Retrocessionaires only.
CASH
LOSSES: $250,000 (on a 100% basis).
REPORTS &
REMITTANCES: As attached.
CURRENCY: All transactions hereunder to be in U.S. Dollars. Losses in
other currencies to be converted to U.S. Dollars at the same
rates of exchange used by the Retrocedent in its own books.
WORDING: As expiring.
GENERAL
CONDITIONS: Retrocessionaires will be subject to the same terms, rates,
and conditions as original and will follow original
settlements made by the Retrocedent.
Arbitration Clause
Definition of Retrocedent Clause
Confidentiality Clause (per attached)
Salvage and Subrogation Clause
Settlements Clause (per attached)
Offset Clause (this Agreement only, except that in the event
of insolvency, offset will be allowed per applicable
regulation)
ECO Clause
Page 2 of 6
<PAGE>
CONTINENTAL CASUALTY COMPANY LMX QUOTA SHARE RETRO
GENERAL
CONDITIONS:
(cont'd) Delays, Errors, or Omissions Clause
Amendments Clause
Access to Records Clause (per attached)
Interest Penalty Clause (per attached)
Insolvency Clause
Arbitration Clause
Taxes Clause
Federal Excise Tax Clause
Service of Suit Clause
Aon Re Inc. Intermediary Clause
You have already provided written authorization based on the terms set forth
hereon. Please formalize your acceptance and approval by signing and returning
one copy of this Final Placement Slip to Aon Re Inc.
REINSURER: LaSalle Re Limited [LOGO APPEARS HERE]
---------------------------------------------------------------------
THRU:
--------------------------------------------------------------------------
SIGNED REFERENCE
LINE: 47.5% NUMBER: 1739/99
-------------------------------------- -------------------------
(Layer A)
SIGNED REFERENCE
LINE: 31.43% NUMBER: 2790/99
-------------------------------------- -------------------------
(Layer B)
ACCEPTED &
APPROVAL BY: /s/ Luke Roden DATE: 20th October, 1998
------------------------------ --------------------------
Luke Roden - Assistant Underwriter
Page 3 of 6
<PAGE>
CONTINENTAL CASUALTY COMPANY LMX QUOTA SHARE RETRO
REPORTS AND REMITTANCES
-----------------------
Within 30 days after the close of each quarter, the Retrocedent shall furnish
the Retrocessionaires with a report summarizing the gross premium, commission
allowed on the gross premium, premium ceded less return premium and commission,
losses paid, loss expenses paid, salvage recovered, and net balance due either
party. The quarterly report also shall contain a statement showing the total
reserves for outstanding losses including loss expenses and a list of all
catastrophic code numbers assigned by the Property Claims Services division of
the American Insurance Services Group, Inc. for paid and outstanding catastrophe
losses and expenses incurred during the quarter. All amendments or adjustments,
including reinstatement premium, shall be accounted for on a year-of-account
basis. Amounts due the Retrocessionaires shall be remitted with said report.
Amounts due the Retrocedent shall be remitted within 30 days following receipt
of report.
Within 60 days following the expiration of the Agreement, the Retrocedent shall
furnish the Retrocessionaires with a report detailing the unearned premium,
calculated on a monthly pro rata basis, as well as the December 31st state of
losses. The Retrocedent shall also furnish the Retrocessionaires with any
additional information they may require to prepare their financial statements.
Should payment due from the Retrocessionaires exceed their share of $250,000,
the Retrocedent may give the Retrocessionaires notice of payment made or its
intention to make payment on a certain date. If the Retrocedent has paid the
loss, payment shall be made by the Retrocessionaires immediately. If the
Retrocedent intends to pay the loss by a certain date and has submitted a proof
of loss or similar document, payment shall by due from the Retrocessionaires 24
hours prior to that date, provided the Retrocessionaires have a period of five
working days after receipt of said notice to dispatch the payment. Cash loss
amounts specifically remitted by the Retrocessionaires as set forth herein
shall be credited to their next quarterly account.
CONFIDENTIALITY
---------------
It is a condition precedent to any indemnification under this Agreement that the
Retrocedent shall not disclose any details of this Agreement at any time to any
third party without the approval of the Retrocessionaires. Notwithstanding the
foregoing, the Retrocedent may disclose details of this Agreement to Names and
their agents, auditors, accountants, and other third parties as may be required
in order to comply with law or with the bylaws of Lloyd's, provided that they
themselves respect the confidentiality of this undertaking.
Page 4 of 6
<PAGE>
CONTINENTAL CASUALTY COMPANY LMX QUOTA SHARE RETRO
SETTLEMENTS
-----------
The Retrocedent shall have the right to settle all claims under its original
contracts. All settlements, provided they are within the terms of this
Agreement, shall be unconditionally binding on the Retrocessionaires in
proportion to their participation in the Agreement, upon provision by
the Retrocedent of the following: identification of loss including date and
documented settlement/loss amounts and expenses received by the Retrocedent
subject to this Agreement.
Inadvertent omission in dispatching the aforementioned documentation will in no
way affect the obligation of the Retrocessionaires under Retrocedent informs the
Retrocessionaires of such omission promptly upon discovery.
ACCESS TO RECORDS
-----------------
The Retrocessionaires, or their duly accredited representatives, shall have
access to the books and records of the Retrocedent on matters reasonably
relating to this reinsurance at all reasonable times for the purpose of
obtaining information concerning this Agreement or the subject matter hereof.
Except as provided in the following sentence, access to premium records is
restricted to within four years of the expiration of this Agreement. A
Retrocessionaire shall be permitted access to premium records subsequent to the
aforementioned period only on the condition that either a) there are no balances
payable hereunder by the Retrocessionaire which are overdue as provided in the
Interest Penalty Article of this Agreement, or b) the Retrocessionaire has
funded all balances due hereunder in an interest-bearing trust fund or with a
Letter of Credit as hereinafter provided.
Should the Retrocessionaire choose option b) of the foregoing paragraph, the
Retrocessionaire agrees to provide the Retrocedent a Trust Agreement established
at Morgan Guaranty Trust Company of New York, New York, or at a mutually agreed
successor Trustee, or a clean, irrevocable, and evergreen Letter of Credit,
issued by Morgan Guaranty Trust Company of New York, New York, or by a mutually
agreed bank, of which the Retrocedent shall be the beneficiary, which shall
secure in full all balances due from the Retrocessionaire to the Retrocedent
with respect to this Agreement. Such Trust Agreement and/or Letter of Credit
shall be established under the laws of the state of New York and shall meet all
requirements of the state regulatory authorities applicable to the Retrocedent.
The Retrocessionaire is responsible for all costs associated with providing such
Trust Agreement and/or Letters of Credit as required under this Article.
Page 5 of 6
<PAGE>
CONTINENTAL CASUALTY COMPANY LMX QUOTA SHARE RETRO
INTEREST PENALTY
----------------
The interest amounts provided for in this Article will apply to the
Retrocessionaires or to the Retrocedent in the following circumstances:
A. Loss payment owed by the Retrocessionaires to the Retrocedent shall
have a due date to the Retrocedent of 90 calendar days following the
date of the billing/proof of loss.
B. Payment of any premium shall be due to the Retrocessionaires within 90
calendar days of the date specified in this Agreement. Any premium
adjustments shall be due by the debtor party within 150 calendar days
of the expiry of this Agreement.
C. Payment on return of premiums, commissions, profit sharing, or any
amounts not provided in paragraphs A. or B. above, shall have the due
date as specified in this Agreement. If no due date is specified, the
due date shall be 90 days following the date of billing.
D. Failure by the Retrocessionaire or the Retrocedent to comply with
their respective payment obligations within the time periods as
herein provided will result in a compound interest penalty payable at
a rate equal to the 90-day Treasury Bill rate as published in the
Money Rate Section or any successor section of The Wall Street Journal
-----------------------
on the first business day following the date a remittance becomes due,
plus 1% per annum, to be compounded and adjusted quarterly. Any
interest which occurs pursuant to this Article shall be calculated by
the party to which it is owed. The accumulation of the number of days
that any payment is past due will stop on the date that the
Intermediary, where applicable, receives payment.
E. The validity of any claim or payment may be contested under the
provisions of this Agreement. If the debtor party prevails in an
arbitration or any other proceeding, there shall be no interest
penalty due. Otherwise, any interest will be calculated and due as
outlined above.
F. If a Retrocessionaire advances payment of any claim it is contesting,
and prevails in the contest, the Retrocedent shall return such payment
plus pay interest on same, calculated as per the provisions of this
Article.
G. Any interest that occurs pursuant to this Article may be waived by the
party to which it is owed. Further, any interest which is calculated
pursuant to this Article that is $100 or less shall be waived.
Waiver of such interest, however, shall not affect the waiving party's
rights to similar interest for any other failure by the other party to
make payment when due under this Article.
H. Nothing in this Article shall diminish any legal remedies that either
party may have against the other.
Page 6 of 6
<PAGE>
Exhibit 12.1
LaSalle Re Holdings Limited
STATEMENT RE COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND
PREFERRED SHARE DIVIDENDS
(Expressed in thousands of United States Dollars except for number of shares
and earnings per share)
<TABLE>
<CAPTION>
Year ended Year ended Year ended
September 30, 1999 September 30, 1998 September 30, 1997
------------------ ------------------ ------------------
<S> <C> <C> <C>
Earnings available for fixed charges
and preferred share dividends
Net (loss) income before minority
interest (5,679) 6,859 65,232
Interest expense 1,714 465 1,881
Preferred share dividends (1) 0 0 0
---------- ---------- ----------
Total earnings available for fixed
charges and preferred dividends (7,392) 7,324 67,113
========== ========== ==========
Fixed charges and preferred share
dividends
Interest expense 1,714 465 1,881
---------- ---------- ----------
Total fixed charges 1,714 465 1,881
---------- ---------- ----------
Preferred share dividends 6,563 1,641 6,563
---------- ---------- ----------
Combined fixed charges and
preferred dividends 8,277 2,106 8,444
========== ========== ==========
Ratio of earnings to combined fixed
charges and preferred share dividends (0.89) 3.5 7.9
========== ========== ==========
Deficiency (15,669)
==========
</TABLE>
(1) Not deducted from net income before minority interest.
<PAGE>
EXHIBIT 13.1
- --------------------------------------------------------------------------------
LASALLE RE HOLDINGS LIMITED
- --------------------------------------------------------------------------------
SELECTED FINANCIAL DATA
- --------------------------------------------------------------------------------
Expressed in thousands of United States Dollars,
except per share and operational data.
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended Year Ended Year Ended
September 30 September 30 September 30 September 30 September 30
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA
Gross Premiums written $ 139,010 $ 155,316 $ 171,386 $ 190,151 $ 201,916
Net premiums earned 126,615 154,620 163,933 195,141 170,370
Net investment income (including
realized gains and losses) 34,462 39,863 33,664 26,428 25,066
Loss and loss expenses incurred 131,147 95,539 31,199 51,477 60,397
Underwriting expenses 22,219 22,661 26,018 27,268 22,988
Operational expenses 11,358 8,932 12,656 11,114 6,218
Income before minority interest (5,679) 65,232 121,468 129,451 104,448
Minority interest/(1)/
(1999:23%, 1998: 23%, 1997: 21%,
all other periods: 37%) (2,845) 13,426 24,391 47,966 38,774
Net income (2,834) 51,806 97,077 81,485 65,674
Earnings per Common Share - assuming dilution/(2)/ $ (0.61) $ 2.80 $ 5.14 $ 5.40 $ 4.51
Adjusted weighted average number of Common
Shares outstanding/(3)/ 20,213,155 20,919,405 22,998,936 23,967,870 23,170,680
Dividends declared per Common Share $ 1.125 $ 3.00 $ 2.84 $ 0.75 $ 5.72
OTHER DATA
Loss ratio 103.6% 61.8% 19.0% 26.4% 35.5%
Expense ratio 26.5% 20.4% 23.6% 19.6% 17.1%
Combined ratio 130.1% 82.2% 42.6% 46.0% 52.6%
Return on average equity/(4)/ -2.84% 13.0% 25.4% 29.2% 26.6%
BALANCE SHEET DATA (AT END OF PERIOD)
Total investments and cash $ 556,976 $ 606,757 $ 553,043 $ 537,504 $ 522,425
Total assets 736,107 757,290 686,088 634,374 636,547
Reserve for losses and loss expenses 146,552 97,942 45,491 49,875 66,654
Minority interest 93,055 105,569 93,355 179,470 147,389
Total shareholders' equity 382,197 430,053 425,226 307,448 253,422
Book value per share/(5)/ $ 19.69 $ 23.39 $ 23.23 $ 21.42 $ 17.64
</TABLE>
/(1)/ Minority interest represents those shares in LaSalle Re Limited that are
held as Exchangeable Non-Voting Shares. These shares are exchangeable, at
the option of the holder, for Common Shares of the Company on a one-for-
one basis.
/(2)/ Earnings per Common Share equals income before minority interest and after
preferred dividends declared and in arrears divided by the adjusted
weighted average number of Common Shares outstanding.
/(3)/ The adjusted weighted average number of Common Shares outstanding include
Common Shares and the Exchangeable Non-Voting Shares and the dilutive
effect of stock options and stock appreciation rights using the treasury
stock method.
/(4)/ Return on average equity is calculated by dividing net income before
minority interest and after preferred dividends declared and in arrears by
the average of the opening and closing sum of common shareholders' equity
and minority interest. The adjustment in respect of minority interest
reflects the exchangeable nature of the Exchangeable Non-Voting Shares.
/(5)/ Book value per share is based on the sum of closing common shareholders'
equity and minority interest divided by Common Shares and Exchangeable
Non-Voting Shares.
Page 9
<PAGE>
Exhibit 23.1
[Letterhead of KPMG]
The Board of Directors
LaSalle Re Holdings Limited
We consent to incorporation by reference in the registration statement
(No. 333-64543) on Form S-3 and registration statements (No. 333-38653) and
(No. 333-38655) on Forms S-8 of LaSalle Re Holdings Limited of our report dated
October 26, 1998, relating to the consolidated balance sheet of LaSalle Re
Holdings Limited and subsidiaries as of September 30, 1998, and the related
consolidated statements of operations and comprehensive income, changes in
shareholders' equity and cash flows for each of the years in the two-year period
ended September 30, 1998, and all related schedules, which report appears in the
September 30, 1999, annual report on Form 10-K of LaSalle Re Holdings Limited,
and to the reference to our firm under the heading "Experts".
/s/ KPMG
Hamilton, Bermuda Chartered Accountants
December 22, 1999
<PAGE>
Exhibit 23.2
[Letterhead of Deloitte & Touche]
To The Board of Directors
LaSalle Re Holdings Limited
We consent to incorporation by reference in the registration statement (No.
333-64543) on Form S-3 and registration statements (No. 333-38653) and (No.
333-38655) on Form S-8 of LaSalle Re Holdings Limited of our report dated
November 5, 1999, relating to the consolidated balance sheet of LaSalle Re
Holdings Limited and subsidiaries as of September 30, 1999, and the related
consolidated statements of operations and comprehensive income, changes in
shareholders' equity and cash flows for the year ended September 30, 1999, and
all related schedules, which report appears in the September 30, 1999, annual
report on Form 10-K of LaSalle Re Holdings Limited, and to the reference to our
firm under the heading "Experts".
/s/ DELOITTE & TOUCHE
Chartered Accountants
Hamilton, Bermuda
December 22, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 12-MOS
<FISCAL-YEAR-END> SEP-30-1999 SEP-30-1999
<PERIOD-START> JUL-01-1999 OCT-01-1998
<PERIOD-END> SEP-30-1999 SEP-30-1999
<DEBT-HELD-FOR-SALE> 363,825 363,825
<DEBT-CARRYING-VALUE> 0 0
<DEBT-MARKET-VALUE> 0 0
<EQUITIES> 0 0
<MORTGAGE> 0 0
<REAL-ESTATE> 0 0
<TOTAL-INVEST> 363,825 363,825
<CASH> 193,151 193,151
<RECOVER-REINSURE> 9,100 9,100
<DEFERRED-ACQUISITION> 11,911 11,911
<TOTAL-ASSETS> 736,107 736,107
<POLICY-LOSSES> 146,552 146,552
<UNEARNED-PREMIUMS> 77,049 77,049
<POLICY-OTHER> 0 0
<POLICY-HOLDER-FUNDS> 0 0
<NOTES-PAYABLE> 0 0
0 0
3,000<F3> 3,000<F3>
<COMMON> 15,600 15,600
<OTHER-SE> 363,597 363,597
<TOTAL-LIABILITY-AND-EQUITY> 736,107<F1> 736,107<F1>
21,362 126,615
<INVESTMENT-INCOME> 8,530 33,847
<INVESTMENT-GAINS> (1,127) 615
<OTHER-INCOME> 0 0
<BENEFITS> 25,568 131,147
<UNDERWRITING-AMORTIZATION> 4,101 22,219
<UNDERWRITING-OTHER> 3,365 13,390
<INCOME-PRETAX> (4,269) (5,679)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (4,269) (5,679)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (4,269) (5,679)
<EPS-BASIC> (0.29) (0.61)
<EPS-DILUTED> (0.29) (0.61)
<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>
<F3>Represents 3,000,000 Series A preferred shares par value $1 liquidation
preference $25 per share.
<F1>Includes minority interest.
<F2>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>
