SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
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(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT of 1934 for the quarterly period ended March 31, 1997 or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 for the transition
period from to .
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For the Quarter Ended March 31, 1997 Commission file number 0-28188
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Chartwell Re Holdings Corporation
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(Exact name of registrant as specified in its charter)
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Delaware 06-1438493
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Four Stamford Plaza,
P. O. Box 120043
Stamford, Connecticut 06912-0043
(Address of principal executive offices) (zip code)
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Registrant's telephone number, including area code (203) 705-2500
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 the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
Common Stock - $1.00 par value 100
- ----------------------------- -----------------
Description of Class Shares Outstanding
as of May 15, 1997
(All shares are privately held
and there is no public market for
the Company's common shares)
<PAGE>
Chartwell Re Holdings Corporation
Index To Form 10-Q
PART I FINANCIAL INFORMATION
Item 1 - Page
----
Condensed Consolidated Balance Sheets at March 31, 1997
and December 31, 1996............................... 1
Condensed Consolidated Statements of Operations for the three
month periods ended March 31, 1997 and 1996........ 2
Condensed Consolidated Statements of Cash Flows for the
three month periods ended March 31, 1997 and 1996... 3
Notes to Condensed Consolidated Financial Statements....... 4
Item 2 -
Management's Discussion and Analysis of Financial Condition
and Results of Operations.......................... 5
PART II OTHER INFORMATION
Item 6 -
Exhibits and Reports on Form 8-K ........................... 10
Signatures ................................................. 11
i
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CHARTWELL RE HOLDINGS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except share amounts)
March 31, December 31,
ASSETS: 1997 1996
---------- ------------
Investments: (Unaudited)
Fixed maturities:
Held to maturity (market value 1997,
$38,261; 1996, $36,620).......................... $ 38,622 $ 36,043
Available for sale(amortized cost 1997,$604,564;
1996, $609,368)................................. 590,861 606,621
Other investments.................................. 31,239 30,896
Cash and cash equivalents............................ 44,329 50,343
---------- ----------
Total investments and cash................. 705,051 723,903
Accrued investment income............................ 8,676 10,529
Premiums in process of collection.................... 103,482 86,351
Reinsurance recoverable: on paid losses.............. 28,277 29,767
on unpaid losses............ 184,778 172,377
Prepaid reinsurance.................................. 29,287 21,733
Goodwill............................................. 49,881 52,609
Deferred policy acquisition costs.................... 20,365 17,903
Deferred income taxes................................ 46,217 42,160
Deposits............................................. 18,300 18,135
Other assets......................................... 66,659 69,757
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$ 1,260,973 $1,245,224
=========== ===========
LIABILITIES:
Loss and loss adjustment expenses.................... $ 758,203 $ 747,858
Unearned premiums.................................... 96,496 81,599
Other reinsurance balances........................... 23,622 15,085
Accrued expenses and other liabilities............... 36,375 51,763
Long term debt....................................... 107,730 107,297
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Total liabilities......................... 1,022,426 1,003,602
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COMMMITMENTS AND CONTINGENCIES
MINORITY INTEREST 9,173 9,469
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COMMON STOCKHOLDER'S EQUITY
Common stock, par value $1.00 per share; authorized
1,000 shares; shares issued and outstanding 100..
Additional paid-in capital......................... 217,866 217,866
Net unrealized depreciation of investments......... (10,032) (1,379)
Foreign currency translation adjustment............ 564 1,291
Retained earnings.................................. 20,976 14,375
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Total common stockholder's equity.......... 229,374 232,153
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$1,260,973 $1,245,224
========== ===========
See notes to condensed consolidated financial statements.
1
<PAGE>
CHARTWELL RE HOLDINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands)
(Unaudited)
Three Month Periods
Ended March 31,
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1997 1996
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UNDERWRITING OPERATIONS:
Premiums earned....................................... $61,785 $56,243
Net investment income................................. 9,831 10,393
Net realized capital gains (losses)................... (20) 832
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Total revenues.................................... 71,596 67,468
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Loss and loss adjustment expenses..................... 42,035 40,942
Policy acquisition costs.............................. 17,120 14,176
Other expenses........................................ 3,694 4,056
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Total expenses................................... 62,849 59,174
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Income before taxes and minority interest -
underwriting operations............................ 8,747 8,294
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SERVICE OPERATIONS:
Service and other revenue............................. 7,534 586
Equity in net earnings of investees................... 1,146 886
Net investment income................................. 248 2
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Total revenues................................... 8,928 1,474
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Amortization of goodwill.............................. 517 -
Other expenses........................................ 4,878 313
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Total expenses................................... 5,395 313
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Income before taxes and minority interest -
service operations................................. 3,533 1,161
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CORPORATE:
Net investment income................................. 94 240
Net realized capital gains............................ - 89
General and administrative expenses................... 390
Interest expense...................................... 2,154 2,270
Amortization expense.................................. 164 77
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Loss before taxes and minority interest - corporate... (2,614) (2,018)
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Consolidated income before taxes and minority interest. 9,666 7,437
Income tax expense.................................... 2,799 2,144
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Net income before minority interest................... 6,867 5,293
Minority interest..................................... 189 -
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Net Income............................................ $ 6,678 $ 5,293
======== ========
See notes to condensed consolidated financial statements.
2
<PAGE>
CHARTWELL RE HOLDINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(Unaudited)
Three Month Periods
Ended March 31,
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1997 1996
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net premiums collected...................... $ 41,854 $ 39,083
Net losses & loss adjustment expenses....... (44,091) (42,995)
Overhead expenses........................... (13,386) (4,301)
Service and other revenue................... 6,060 1,472
Net income taxes paid....................... (612) (86)
Interest received on investments............ 11,654 9,342
Interest paid............................... (3,336) (3,844)
Other, net.................................. (4,694) 1,273
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Net cash used in operating activities. (6,551) (56)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Cost of investments acquired................. (263,060) (242,840)
Proceeds from investment matured or repaid... 7,876 7,163
Proceeds from investments sold............... 257,300 118,256
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Net cash provided by (used in)
investing activities................... 2,116 (117,421)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contribution from Parent.............. - 20,000
Issuance of long-term debt..................... 1,486 -
Repayment of intercompany loan................. (2,498) -
Other, net..................................... - (250)
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Net cash provided by (used in) financing
activities............................. (1,012) 19,750
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Effect of exchange rate on cash.... (567) 30
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Net decrease in cash and cash equivalents........... (6,014) (97,697)
Cash and cash equivalents at beginning of year...... 50,343 152,507
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Cash and cash equivalents at end of year............ $ 44,329 $ 54,810
========= ==========
RECONCILIATION OF NET INCOME TO NET CASH
USED IN OPERATING ACTIVITIES:
Net income...................................... $ 6,678 $ 5,293
Adjustments to reconcile net income to net cash
used in operating activities:
Net realized capital (gains) losses....... 20 (921)
Minority interest......................... 189 -
Deferred policy acquisition costs......... (2,462) 863
Unpaid loss and loss adjustment expenses.. 10,345 (1,378)
Unearned premiums......................... 14,897 (5,108)
Other reinsurance balances................ 981 275
Reinsurance recoverable................... (10,911) (657)
Net change in receivables and payables.... (26,253) 3,951
Other, net................................ (35) (2,374)
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Net cash used in operating
activities...................... $ (6,551) $ (56)
=========== ==========
See notes to condensed consolidated financial statements.
3
<PAGE>
CHARTWELL RE HOLDINGS CORPORATION
Notes to Condensed Consolidated Financial Statements
March 31, 1997
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited interim Condensed Consolidated Financial
Statements of Chartwell Re Holdings Corporation ("Chartwell" or the "Company")
have been prepared in accordance with generally accepted accounting principles
for interim financial information, the instructions to Form 10-Q and Article 10
of Regulation S-X. Accordingly, they do not include all of the information and
notes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for fair presentation have
been included. Operating results for any interim period are not necessarily
indicative of results that may be expected for the full year. These interim
statements should be read in conjunction with the 1996 consolidated financial
statements and notes thereto included in the Company's Annual Report on Form
10-K as filed with the Securities and Exchange Commission.
NOTE 2- PRO FORMA DATA
On November 19, 1996, the Company's parent, Chartwell Re Corporation
("Chartwell Re"), acquired (the "Acquisition")100% of the outstanding stock of
Archer Group Holdings plc ("Archer Holdings") through its newly formed
subsidiary, Chartwell Holdings Limited. The Acquisition has been accounted for
under the purchase method of accounting.
The following pro forma consolidated income statement information for
the Company for the three months ended March 31, 1996 is presented as though the
Acquisition and the redemption of 35% of the Company's outstanding 10.25% Senior
Notes (the "Senior Notes") due 2004 had occurred on January 1, 1996.
Three Months Ended Three Months Ended
March 31, 1997 March 31, 1996
Actual Pro forma
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(Dollars in thousands)
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Total revenues $80,618 $76,309
Net income $ 6,678 $ 6,094
4
<PAGE>
ITEM 2 - Management's Discussion and Analysis
CHARTWELL RE HOLDINGS CORPORATION
Management's Discussion and Analysis
of Financial Condition and Results of Operations
March 31, 1997
(Unaudited)
Overview
Chartwell Re Holdings Corporation ("Chartwell" or the "Company") is a
holding company which conducts business through its four principal operating
subsidiaries, Chartwell Reinsurance Company ("Chartwell Reinsurance"), The
Insurance Corporation of New York ("INSCORP"), Chartwell Advisers Limited
("Chartwell Advisers") and its recently acquired Lloyd's managing agency, Archer
Managing Agents Limited ("Archer"). Chartwell Reinsurance was founded in 1979 as
a wholly-owned subsidiary of Northwestern National Life Insurance Company
("NWNL"). Chartwell was formed in 1995 to act as an intermediate level holding
company for its parent, Chartwell Re Corporation ("Chartwell Re"), a company
whose common stock is traded on the New York Stock Exchange.
Chartwell Reinsurance underwrites treaty reinsurance through
reinsurance brokers for casualty and, to a lesser extent, property risks as well
as for marine and aviation risks. INSCORP writes property and casualty insurance
for specialty program administrators. Archer is one of the largest managing
agencies in the Lloyd's marketplace with approximately 380 million pounds
sterling of underwriting capacity for the 1997 Year of Account. Chartwell
Advisers acts as the exclusive advisor for syndicate selection to New London
Capital plc, a non-affiliated publicly traded company formed to underwrite at
Lloyd's.
Chartwell's other subsidiaries include Dakota Specialty Insurance
Company ("Dakota Specialty") and Drayton Company Limited. Dakota Specialty is a
newly formed subsidiary of Chartwell whose objective is to generate a book of
surplus lines insurance. Drayton Company Limited is not currently writing new
business, and Chartwell is managing the resolution of Drayton's remaining claims
and assets in a controlled winding-up.
As of March 31, 1997, Chartwell had total assets of almost $1.3 billion
and stockholders' equity of $229.4 million. Chartwell Reinsurance is rated "A"
(Excellent) by A.M. Best Company, Inc., an independent rating entity serving the
insurance industry, and both INSCORP and Dakota Specialty are rated "A-"
(Excellent) by A.M. Best. In addition, Chartwell Reinsurance and INSCORP have
each been assigned an A- claims paying ability rating by Standard and Poor's,
and the Company's 10 1/4% Senior Notes (the "Senior Notes") are rated BBB- by
Standard & Poor's and Ba1 by Moody's, respectively.
Results of Operations - Three Months Ended March 31, 1997 Compared With Three
Months Ended March 31, 1996:
Revenues: Total revenues for the three months ended March 31, 1997
increased 16% to $80.6 million, compared to $69.3 million for the comparable
period in 1996. The accompanying table summarizes gross and net premiums written
and total revenues for the periods indicated:
Three months ended March 31
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1997 1996
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(in thousands)
Gross premiums written $96,676 $68,564
======= =======
Net premiums written $69,912 $49,718
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Premiums earned $61,785 $56,243
Net investment income 10,173 10,635
Net realized capital gains (losses) (20) 921
Service and other revenue 7,534 586
Equity in net earnings of investees 1,146 886
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Total Revenue $80,618 $69,271
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5
<PAGE>
Underwriting Operations
Gross Premiums Written; Net Premiums Written; Net Premiums Earned.
Gross premiums written for the first quarter 1997 were $96.7 million, an
increase of 41% compared to the same period in 1996. These increases reflect the
addition of a number of new programs in the Specialty Accounts client segment,
principally in the workers compensation line of business, as well as the
continued growth of the Controlled Source Insurance Accounts segment. Controlled
Source Insurance Accounts grew as a result of the expansion of current programs
in response to market opportunities. The distribution of the Company's gross
premiums written among its underwriting client segments was as follows:
Three Months Ended
----------------------
March 31,
1997 1996
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(in thousands)
Reinsurance:
Specialty $47,302 $17,085
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Global
Domestic 4,201 5,038
International 6,950 3,473
11,151 8,511
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Regional 4,593 7,162
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Marine & Aviation 10,988 11,164
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Total Reinsurance 74,034 43,922
Controlled Source Insurance 22,642 17,177
Run-Off (1) - 7,465
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TOTAL $96,676 $68,564
======= =======
(1) The run-off is reinsurance business previously written by The
Reinsurance Corporation of New York and not renewed into Chartwell Reinsurance
Company.
Specialty Accounts gross premiums written for the first three months of
1997 increased 177% over the prior year primarily due to a number of new workers
compensation programs. Global Accounts continues to focus on the international
marketplace and in particular on U. K. business. Gross premiums written in the
Regional Accounts client segment decreased 36% for the first three months of
1997 as compared with the same period last year primarily due to the non-renewal
of a specific reinsurance contract because the ceding company retained the
business after obtaining additional surplus. Marine and Aviation gross premiums
written were essentially flat for the three months ended March 31, 1997 as
compared with 1996 reflecting the increasing competitive market pressures in the
marine market in particular. Gross premiums through March 31, 1997 in the
Controlled Source Insurance Accounts client segment increased 32% reflecting the
continued growth of existing programs as well as the premiums from a new program
added at the end of 1996.
Net premiums written for the three month period ended March 31, 1997
increased 41% to $69.9 million compared to $49.7 million for the same period in
1996. The increase in net premiums written was principally attributable to the
reasons described above for the increase in gross premiums written. Net premiums
earned for the three month period ended March 31, 1997 were $61.8 million, an
increase of $5.5 million or 9.9% compared to the same period in 1996.
Loss and Loss Adjustment Expenses. The Company's principal expense,
loss and loss adjustment expenses ("LAE") related to the settlement of claims,
was $42.0 million for the three month period ended March 31, 1997, a 2.7%
increase compared to $40.9 million for the comparable period in 1996. The
increase is principally attributable to the increase in earned premiums as noted
above. Net losses and LAE expressed as a percentage of net earned premiums (the
loss and LAE ratio) improved to 68.0% for the three month period ended March 31,
1997 from 72.8% recorded for the same period in 1996. The improvement of 4.8
percentage points in the loss and LAE ratio for the three month period ended
March 31, 1997 was a result of the positive contributions of the new workers
compensation programs as well as the benefits of new reinsurance programs and
the enhancement of existing reinsurance programs at attractive terms.
6
<PAGE>
Policy Acquisition Costs. Policy acquisition costs, consisting
primarily of commissions paid to ceding companies and brokerage fees paid to
intermediaries, less commissions received on business ceded to other reinsurers,
were $17.1 million for the three month period ended March 31, 1997 compared to
$14.2 million for the same period in 1996. Policy acquisition costs expressed as
a percentage of net earned premiums (the acquisition expense ratio) increased to
27.7% from 25.2% in 1996. The increase is due to a modestly higher commission
structure for proportional business in general and the workers compensation
programs in particular.
Other Expenses. Other expenses related to underwriting operations,
which include underwriting and administrative expenses, were $3.7 million for
the three month period ended March 31, 1997 compared to $4.1 million for the
same period in 1996. Other expenses expressed as a percentage of net earned
premiums decreased to 6.0% for the three month period ended March 31, 1997
compared to 7.2% for the same period in 1996.
Net Underwriting Results. The Company incurred an underwriting loss
(net premiums earned minus losses, LAE and underwriting expenses) of $1.1
million for the three month period ended March 31, 1997 as compared to an
underwriting loss of $2.9 million for the same period in 1996. The combined
ratio for the three month period ended March 31, 1997 computed in accordance
with GAAP was 101.7% compared to 105.2% for the same period in 1996. Although
the loss ratio component improved to 68.0% for the three month period ended
March 31, 1997 from 72.8% recorded for the same period in 1996, the expense
ratio increased to 33.7% for the three month period ended March 31, 1997 from
the 32.4% recorded for the same period in 1996, for the reasons noted above.
Service Operations
Revenue from service operations increased to $8.9 million for the three
month period ended March 31, 1997 compared to $1.6 million for the same period
in 1996. The improvement is due principally to the revenues from Archer as well
as increases in advisory fee revenues, equity in the net earnings of investee
companies and development of new fee-based revenue sources during the quarter.
Corporate Operations
Interest and Amortization. Interest and amortization expenses were $2.3
million for the three month periods ended March 31, 1997 and 1996. Interest and
amortization on the Senior Notes was $1.3 million for the three month period
ended March 31, 1997 and $2.0 million for the comparable period in 1996. The
1997 amount was reduced due to the redemption of 35% of the principal amount of
outstanding Senior Notes on April 8, 1996. Interest expense for the three month
period ended March 31, 1997 also included $0.4 million of interest and
amortization expense on a $20.0 million bank facility and $0.6 million of
interest and amortization related to the acquisition of Archer.
Consolidated
Net Investment Income and Net Realized Capital Gains (Losses).
Consolidated after-tax net investment income, exclusive of realized and
unrealized capital gains and losses, for the three month period ended March 31,
1997 was $7.3 million, compared to $7.1 million for the same period in 1996. The
carrying value of the Company's invested assets decreased to $705.1 million at
March 31, 1997 from $723.9 million at December 31, 1996 primarily due to the
decline in market value of fixed income securities. The average annual tax
equivalent yield on invested assets before investment expenses increased to
6.34% for the first three months of 1997 compared to 6.14% for the same period
in 1996.
The Company realized net capital losses of $20,000 for the first three
months of 1997 compared to net capital gains of $0.9 million for the same period
in 1996. The 1996 net capital gains were realized principally to reposition
certain sectors of the portfolio and to modify the portfolio to improve credit
quality without sacrificing yield.
Income Before Income Taxes and Minority Interest. Net income before
income taxes and minority interest increased to $9.7 million for the three month
period ended March 31, 1997 compared to $7.4 million for the same period in
1996. The increase resulted primarily from the increase in earned premiums, the
favorable results in both loss and loss adjustment expense and in other
expenses, and from the increases in service and other revenue.
7
<PAGE>
Income Tax Expense. The provision for Federal income taxes for the
three month period ended March 31, 1997 increased to $2.8 million compared with
$2.1 million for the same period in 1996. The effective tax rate was 29.0% and
28.8% for the three month periods ended March 31, 1997 and 1996, respectively.
The principal factor in the decline below the statutory rate of 35% for both
periods was the benefit of investments in tax-advantaged securities.
Net Income. The Company realized a net profit of $6.7 million for the
three month period ended March 31, 1997 compared with a net profit of $5.3
million for the comparable 1996 period because of the factors discussed above.
Liquidity and Capital Resources
As a holding company, Chartwell's assets consist primarily of the stock
of its direct and indirect subsidiaries, Chartwell Reinsurance, INSCORP, Archer,
and Chartwell Advisers. Chartwell's cash flow, therefore, depends largely on
dividends and other payments from Chartwell Reinsurance. Chartwell Reinsurance's
sources of funds consist primarily of net premiums, reinsurance recoveries,
investment income and proceeds from sales and redemptions of investments. Funds
are applied primarily to payments of claims, operating expenses and income taxes
and to the purchase of investments, largely fixed income securities. Cash and
short-term investments are maintained for the payment of claims and expenses.
Chartwell Reinsurance's ability to pay cash dividends to the Company is
restricted by law or subject to approval of the insurance regulatory authority
of Minnesota, Chartwell Reinsurance's state of domicile. The Minnesota authority
recognizes only statutory accounting practices for the ability of an insurer to
pay dividends to its stockholders.
At March 31, 1997, the carrying value of total investments, including
cash and cash equivalents, decreased by $18.9 million, or 2.6%, to $705.1
million compared to $723.9 million at December 31, 1996. The primary reasons for
the decrease were (i) negative cash flow from operations of $6.6 million, and
(ii) the decline in the market value of the investment portfolio of $13.3
million pre-tax offset by (iii) $1.0 million of miscellaneous sources of cash.
At March 31, 1997, 95.6% of Chartwell's total investments (including
cash and cash equivalents) consisted of fixed income securities, of which 95.2%
were rated "A" or better (or "A-1" for commercial paper) by Moody's. While
uncertainties exist regarding interest rates and inflation, Chartwell attempts
to minimize such risks and exposures by balancing the duration of reinsurance
liabilities with the duration of assets in its investment portfolio. The current
market value of Chartwell's fixed maturity investments is not necessarily
indicative of their future valuation. Chartwell does not have any investments in
real estate or high-yield bonds and does not have any non-income producing fixed
income investments. The Company's fixed income securities portfolio at March 31,
1997 was comprised primarily of U.S. Treasury and government agency, mortgage
pass-through securities, and corporate and municipal bonds.
Statutory policyholders' surplus of Chartwell Reinsurance Company
increased to $240.5 million at March 31, 1997 from $238.3 million at
December 31, 1996.
In connection with the November 1996 acquisition of Archer, the Company
entered into new credit facilities with First Union National Bank, N.A. (the
"First Union Credit Facility"). The new credit facilities provide term loans of
approximately $50 million (a portion of which is denominated in pounds sterling)
and a $25.0 million revolving credit facility (subsequently increased to $35.0
million).
At March 31, 1997, $45.2 million was outstanding under the First Union
Credit Facility. In addition, at March 31, 1997, $9.2 million was used to
guarantee the loan notes and $20.3 million was used to secure letters of credit.
Chartwell is largely dependent upon receipt of dividends and other
statutorily permissible payments from its subsidiaries to meet its obligations,
including the obligation to pay interest and principal on the Senior Notes and
under the new credit facilities. Further, dividend payments by Chartwell
Reinsurance and INSCORP are subject to limits under the laws of the States of
Minnesota and New York, respectively. Under the applicable provisions of the
insurance holding company laws of the State of Minnesota, Chartwell Reinsurance
may, upon five days notice to the Commissioner following the declaration of
dividends to stockholders, and upon at least ten days notice to the Commissioner
prior to dividend payments, pay dividends to the Company without the approval of
the Commissioner, unless such dividends, together with other dividends paid
8
<PAGE>
within the preceding twelve months, exceed the greater of (i) 10% of Chartwell
Reinsurance's policyholders' surplus as of the end of the prior calendar year or
(ii) Chartwell Reinsurance's statutory net income, excluding realized capital
gains, for the prior calendar year. Any dividend in excess of the amount
determined pursuant to the foregoing formula would be characterized as an
"extraordinary dividend" requiring the prior approval of the Commissioner. In
any case, the maximum amount of dividends Chartwell Reinsurance may pay is
limited to its earned surplus, also known as unassigned funds. As of December
31, 1996, Chartwell Reinsurance reported unassigned funds in the amount of $54.5
million. Up to $23.8 million is available under the foregoing formula for the
payment of dividends by Chartwell Reinsurance without regulatory approval in
1997. Chartwell Reinsurance paid Chartwell no dividends in the first quarter of
1997. Under New York law, which is applicable to INSCORP, the maximum ordinary
dividend payable in any twelve month period without the approval of the
Superintendent may not exceed the lesser of (a) 10% of policyholders surplus as
shown on the company's last annual statement or any more recent quarterly
statement or (b) the company's adjusted net investment income. Adjusted net
investment income is defined as net investment income for the twelve months
preceding the declaration of the dividend plus the excess, if any, of net
investment income over dividends declared or distributed during the period
commencing thirty-six months prior to the declaration or distribution of the
current dividend and ending twelve months prior thereto. In any case, New York
law permits the payment of an ordinary dividend by an insurer or reinsurer only
out of earned surplus. Moreover, notwithstanding the receipt of any dividend
from INSCORP, Chartwell Reinsurance may make dividend payments to the Company
only to the extent permitted under the Minnesota provisions described above.
In addition to the foregoing limitation, the New York Insurance
Department, as is its practice in any change of control situation, has required
Chartwell to commit to preclude the acquired New York domiciled insurer,
INSCORP, from paying any dividends for two years after the change of control
without prior regulatory approval. This two year period ends in December 1997.
The maximum dividend permitted by law is not indicative of an insurer's
actual ability to pay dividends, which may be constrained by business and
regulatory considerations, such as the impact of dividends on surplus, which
could affect an insurer's ratings or competitive position, the amount of
premiums that can be written and the ability to pay future dividends.
Furthermore, beyond the limits described in the preceding paragraph, the
Commissioner and Superintendent have discretion to limit the payment of
dividends by insurance companies domiciled in Minnesota and New York,
respectively.
9
<PAGE>
CHARTWELL RE HOLDINGS CORPORATION
PART II OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
27 - Financial Data Schedule
(b) Reports on Form 8-K
None.
(c) Signatures
10
<PAGE>
CHARTWELL RE HOLDINGS CORPORATION
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CHARTWELL RE HOLDINGS CORPORATION
(Registrant)
/S/ Charles E. Meyers
------------------------------------------
Charles E. Meyers
Duly Authorized Officer and Senior Vice
President and Chief Financial Officer
Dated: May 15, 1997
11
<TABLE> <S> <C>
<ARTICLE> 7
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-START> Jan-1-1997
<PERIOD-END> Mar-31-1997
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0
0
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61,785
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</TABLE>