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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
For the Fiscal Year Ended December 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ____________to_____________
Commission File Number 333-34829
DELPHI INTERNATIONAL LTD.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
BERMUDA (441) 295-3688 98-0206924
- ---------------------------- ----------------------- ----------------
(State or other jurisdiction (Registrant's telephone (I.R.S. Employer
of incorporation number including Identification
or organization) area code) Number)
</TABLE>
<TABLE>
<S> <C>
CHEVRON HOUSE, 11 CHURCH STREET, HAMILTON, BERMUDA HM11
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(Address of principal executive offices) (Zip Code)
</TABLE>
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Shares $.01 par value
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 filing requirements
for the past 90 days.
Yes X No
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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 the 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 voting stock held by non-affiliates of the
Registrant, based upon the closing price for the Registrant's Common Shares on
March 20, 2000 was $8,818,808. For purposes of this computation, shares held
directly or indirectly by directors and officers of the Registrant have been
excluded; however, such exclusion does not constitute an admission that such
persons are affiliates of the Registrant.
As of March 20, 2000, the Registrant had 4,079,014 Common Shares outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the Registrant's 2000 Annual General Meeting
of Shareholders are incorporated by reference into Part III of this Form 10-K.
<PAGE> 2
This document contains certain forward-looking statements as defined in the
Securities Exchange Act of 1934, some of which may be identified by the use of
such terms as "expects", "believes", "anticipates", "intends", "judgment" and
other similar expressions. These statements are subject to certain uncertainties
and contingencies, which could cause actual results to differ materially from
those expressed in such statements. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Cautionary Note Regarding
Forward-Looking Statements".
PART I
ITEM 1. BUSINESS
Delphi International Ltd. (the "Company", which term includes the Company and
its consolidated subsidiaries unless the context indicates otherwise), is an
insurance holding company engaged through its subsidiary in reinsuring group
employee benefit products including group long-term disability and excess
workers' compensation insurance, as well as selected liability risks, and
providing alternative risk market products. The Company is not authorized to,
and does not, conduct its business in the United States.
OPERATING STRATEGY
The Company was organized as a Bermuda corporation in 1997 for the purpose of
providing reinsurance and alternative risk market products and services through
its wholly-owned subsidiary, Oracle Reinsurance Company Ltd. ("Oracle Re"). The
Company's operating strategy is to focus primarily on reinsurance for group
employee benefit insurance products, including group long-term disability and
excess workers' compensation insurance, as well as selected liability risks, and
to provide rent-a-captive programs to fund captive clients' risks. As a Bermuda
registered long-term insurer, Oracle Re may also reinsure life insurance and
annuity business. While Oracle Re's primary focus has been on group employee
benefit products and services, the Company intends that over time a more
complete line of general insurance products and services will be made available.
The Company focuses on a long-term investment horizon and seeks above average
returns through reinvestment of funds held for reserves. The Company's
investment strategy is to focus on the management of its asset and liability
durations with the objective of maximizing returns, while concentrating on the
preservation of capital, diversification of risk and liquidity of investments.
The Company's assets have been primarily allocated to a number of investment
managers that utilize different investment strategies and to a special purpose
limited liability company, the assets of which are similarly allocated. See
"Investments".
REINSURANCE BUSINESS
In 1998, the Company entered into loss portfolio reinsurance agreements with
Safety National Casualty Corporation ("Safety National") and Reliance Standard
Life Insurance Company ("RSL"), both subsidiaries of Delphi Financial Group,
Inc. ("DFG"), an aggregate excess reinsurance agreement with a U.S. domiciled
professional liability insurer, and a rent-a-captive transaction.
The excess workers' compensation insurance products of Safety National, which
the Company reinsures, provide coverage to employers and groups who self-insure
their workers' compensation risks. The coverage applies to losses in excess of
the applicable self-insured retentions of employers and groups whose workers'
compensation claims are generally handled by third-party administrators. It
takes an average of 15 years from the date the claim is incurred to the
commencement of claim payments, as payments do not begin until after such
self-insured retentions are met. At that point, the payments are primarily for
wage replacement, similar to the benefit provided under disability coverage, and
medical payments, if any, tend to be stable and predictable. Under the Company's
excess workers' compensation reinsurance agreement, the Company provides
reinsurance coverage in an aggregate maximum amount of $185.1 million with
respect to losses in excess of $590.9 million in the aggregate with respect to
claims which had been incurred by Safety National prior to a specified date.
The group long-term disability insurance products of RSL which the Company
reinsures provide a specified level of benefits to persons who, because of
sickness or injury, are unable to work for a specified period of time. Such
benefits generally are paid monthly and typically are limited for any one
employee to two-thirds of the employee's earned income up to a specified limit.
The Company's group long-term disability reinsurance agreement is a quota share
agreement under which the Company reinsures a portion of the ceding company's
liabilities for specified disability claims which were outstanding as of the
date of the agreement. In 1999, Oracle Re and RSL effected the partial
termination of the reinsurance coverage ("recapture") with respect to
approximately 35% of the liabilities ceded under this agreement. In this
connection, $10.0 million in cash was transferred to RSL, representing the
amount of the GAAP reserves recaptured, as of the effective date of the
recapture, with respect to the liabilities as to which Oracle Re's reinsurance
coverage was terminated. No gain or loss was recognized with regard to the
recapture.
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The professional liability business reinsured by the Company, which consists of
certain lawyers' and accountants' liability coverages, provides coverage to the
ceding company for aggregate net losses in excess of $8.5 million on the
business reinsured with respect to claims made during specified prior periods.
The Company's liability for losses pursuant to such coverage is limited to $16.5
million in the aggregate.
Oracle Re's rent-a-captive programs allow clients to participate in a
significant portion of their own loss exposure without the administrative costs
and capital commitment necessary to establish and operate their own captive
insurance company. A portion of the underwriting profit and investment income
produced by the client's rent-a-captive business is returned to the client,
creating a direct incentive for the client to engage in loss prevention and loss
control and to reduce the overall cost of financing its loss exposures. Oracle
Re typically will receive investment, management or other fees for its captive
insurance products and services but may also retain a degree of underwriting
risk. Oracle Re's existing rent-a-captive business is set up in accordance with
its bye-laws and private enabling legislation as a separate and distinct cell
and the results of this rent-a-captive program do not affect the operating
results of the Company. Accordingly, except for fee income derived from the
rent-a-captive business, the Company's financial information does not include
such business, which is disclosed in a separate note to the Consolidated
Financial Statements.
The Company did not earn any premium income from reinsurance contracts during
1999. The following table sets forth the reinsurance premiums for the period
from January 27, 1998 to December 31, 1998:
<TABLE>
<S> <C>
Excess workers' compensation $ 82,086,000
Group long-term disability 39,833,950
Professional liability 13,425,000
------------
$135,344,950
============
</TABLE>
Each of the Company's existing reinsurance agreements involved a one-time
payment of reinsurance premium to the Company at inception and does not provide
for ongoing premium payments. In the case of the excess workers' compensation
reinsurance agreement, the amount paid to the Company was reduced by an advance
underwriting cash flow profit commission in the amount of $16.0 million, which
was retained and is held by Safety National. The profitability of these
reinsurance agreements is affected by, among other things, differences between
actual and projected loss experience on the business reinsured and the Company's
ability to control administration expenses, as well as the claims administration
and reserving practices of the ceding companies. The Company has retained,
rather than retroceding to third party reinsurers, substantially all of the
risks it has assumed through these reinsurance agreements.
The table below sets forth for the period from January 27, 1998 to December 31,
1998 the loss and expense ratios expressed as a percent of premium on the
Company's reinsurance agreements:
<TABLE>
<CAPTION>
Combined
Loss Ratio Expense Ratio Ratio
<S> <C> <C> <C>
Excess workers' compensation 99% -- 99%
Group long-term disability 91% 13% 104%
Professional liability 102% -- 102%
</TABLE>
UNDERWRITING PROCEDURES
The Company's underwriting strategy with respect to reinsuring group employee
benefit and other insurance products is to focus on sound underwriting policies
which require adequate reinsurance premiums for a given exposure believed to be
commensurate with the amount of capital which the Company is placing at risk.
Financial reinsurance will generally be offered with finite limits and the risk
assumed will combine timing and interest rate risk with certain underwriting
risk.
INVESTMENTS
The Company's investment strategy involves focusing on the management of its
asset and liability durations. Since the Company's existing reinsurance
agreements generally involve liabilities with long-term durations, the Company
has been able to invest its assets in long-term duration investments. The
Company's investment objective is to maximize returns while concentrating on the
preservation of capital, diversification of risk and liquidity of investments.
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The Company's assets have been allocated primarily among a number of investment
managers that utilize diverse investment strategies, to a special purpose
limited liability company (the "LLC") and, to a lesser extent, to investments in
fixed maturity securities. The Company's investment of $75.2 million in the LLC
is represented by preferred and common securities. Ninety percent of the
Company's investment in the LLC consists of redeemable preferred securities
carrying a cumulative fixed dividend of 15.5% per annum. The assets of the LLC
are also invested among a number of investment managers. The investment
managers' general strategy categories include, among others, diversified
hedging, hedged equity, common stock/specialized trading, short selling, risk
arbitrage, distressed securities, futures and commodities and foreign securities
investing. The managers primarily invest in a variety of marketable securities
and other liquid assets. The Company and the LLC have invested in the investment
vehicles of the managers, which are generally in the form of a corporation or
other limited liability entity, or through managed accounts in which the manager
invests directly on behalf of the Company or the LLC. These investments can
generally be redeemed on at least an annual basis with many of the managers
providing quarterly or more frequent liquidity. At December 31, 1999, the
investment by the Company in the preferred securities of the LLC has been
included in the carrying value of the Company's fixed maturity securities.
The Company's multi-manager, multi-strategy approach is intended to produce
capital appreciation with reduced volatility. The Company's investment portfolio
benefited in 1999 from the significant recovery in a number of sectors in the
global financial markets. In 1998, the Company's investment portfolio
experienced significant negative volatility, due to extreme and adverse
conditions affecting a number of sectors in the global financial markets.
For information regarding the composition and diversification of the Company's
investment portfolio, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources -
Investments and Market Risk" and Notes A, B, C and F of the Notes to the
Consolidated Financial Statements.
The following table sets forth, for the periods indicated, the Company's
investment results:
<TABLE>
<CAPTION>
Period from
Year ended January 27, 1998 to
December 31, December 31,
1999 1998
---- ----
<S> <C> <C>
Average investments (1) .............. $135,990,542 $121,750,773
Net investment income (loss) (2) ..... 22,286,339 (16,413,875)
Weighted average annual yield (3) .... 16.4% (13.5)%
Net realized investment (losses) gains $ (138,815) $ 310,630
</TABLE>
(1) Average investments are computed by dividing total investments, which
includes investments, cash and cash equivalents, and proceeds receivable
from independent investment managers, at the beginning of the period, or
the initial cost of investments in the case of the period ended December
31, 1998, plus the individual quarter end balances by five and deducting
one-half of investment income.
(2) Consists primarily of interest and dividend income, less investment
expenses and, with respect to independent investment managers accounted for
under the equity method, earnings and unrealized gains and losses.
(3) The weighted average annual yield on the Company's investment portfolio for
each period is computed by dividing net investment income (exclusive of
realized and unrealized gains and losses on fixed maturity securities) by
average investments for the period.
RESERVES FOR LOSSES AND LOSS EXPENSES
The Company carries as liabilities its share of actuarially determined reserves
for estimated losses and loss expenses pursuant to its reinsurance agreements.
Reserves for loss expenses represent the estimated probable costs of
investigating the related claims and, when necessary, defending lawsuits in
connection with those claims. Reserves for losses and loss expenses are
estimated based on individual loss data, historical loss data and industry
averages and indices and include amounts determined on the basis of individual
and actuarially determined estimates of future losses. Therefore, the ultimate
liability could deviate from the amounts currently reflected in the Company's
Consolidated Financial Statements. The Company's Bermuda statutory reserves are
equal to its GAAP reserves.
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The following table provides a reconciliation of beginning and ending gross and
net reserves for losses and loss expenses related to the Company's
property-casualty reinsurance agreements for the periods indicated:
<TABLE>
<CAPTION>
Period From
Year Ended January 27, 1998
December 31, to December 31,
1999 1998
---- ----
<S> <C> <C>
Reserves for losses and loss expenses, beginning of period $95,159,629 $ --
Incurred losses and loss expenses:
Current year ......................................... -- 95,159,629
Prior year (1) ....................................... 4,398,533 --
Paid losses and loss expenses:
Current year ......................................... -- --
Prior years .......................................... (4,024,754) --
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Reserves for losses and loss expenses, end of period ..... $95,533,408 $95,159,629
=========== ===========
</TABLE>
(1) Incurred losses and loss expenses related to prior years primarily
reflects the accretion of the discounted values of reserves.
Reserves for losses and loss expenses relating to retrospectively written
property-casualty reinsurance agreements have been discounted to reflect the
time value of money in accordance with industry practices. The effects of the
discount to reflect the time value of money have been removed from the loss
development table which follows in order to present the gross loss development.
This discount totaled $113.4 million and $107.6 million at December 31, 1998 and
1999, respectively. During 1999, $5.8 million of the discount on reserves was
amortized and no discount was accrued. The loss development table below
illustrates the development of the Company's property-casualty reserves for 1998
and 1999.
<TABLE>
<CAPTION>
December 31,
---------------------------
1998 1999
------------ ------------
<S> <C> <C>
Reserves for losses and loss expenses $208,597,671 $203,173,866
Cumulative amount of liability paid:
One year later .................... 4,024,754
Liability reestimated as of:
One year later .................... 203,173,866
Cumulative redundancy ............... 5,423,805
</TABLE>
The "Reserves for losses and loss expenses" line of the table above shows the
estimated reserve for losses and loss expenses recorded at the end of each of
the periods indicated. These liabilities represent the estimated amount of
losses and expenses for claims that are unpaid at the end of each period. The
"Cumulative amount of liability paid" line of the table represents the
cumulative amounts paid with respect to the liability previously recorded as of
the end of each succeeding period. The "Liability reestimated" line of the table
shows the reestimated amount relating to the previously recorded liability and
is based upon experience as of the end of each succeeding period. This estimate
is either increased or decreased as additional information about the frequency
and severity of claims for each period becomes available and is reviewed. The
Company periodically reviews the estimated reserves for claims and claim
expenses and any changes are reflected currently in earnings for each period.
The Company has not experienced significant adverse deviations from its
assumptions. The "Cumulative redundancy" line of the table represents the
aggregate change in the estimated claim reserve liabilities from the dates
indicated through December 31, 1999.
COMPETITION
The reinsurance industry is highly competitive. Oracle Re competes with other
Bermuda and non-Bermuda based reinsurers, many of which have greater financial,
marketing and management resources and longer operating histories, and it may
compete with new market entrants in the future. Competition in the types of
reinsurance that Oracle Re intends to underwrite is based on many factors. These
include the perceived financial strength of the reinsurer, pricing and other
terms and conditions offered, services provided, ratings assigned by independent
rating organizations, including A.M. Best Company, speed of claims payment and
reputation and experience in the line of reinsurance to be written. Neither
Oracle Re nor the Company is rated by A.M. Best Company or by any other
insurance or credit rating agency and is not expected to receive a rating until
at least five consecutive years of representative operating performance has been
accumulated.
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At the present time, substantial excess capacity exists in the global
reinsurance marketplace, resulting in downward pressure on reinsurance pricing.
The Company has not competed for reinsurance business in instances where it did
not perceive a reasonable prospect of underwriting profit.
REGULATION
BERMUDA
The business of Oracle Re is regulated by the Insurance Act 1978 (as amended by
the Insurance Amendment Act 1995) and related regulations (the "Act"). The Act
imposes on Bermuda insurance companies solvency and liquidity standards and
auditing and reporting requirements and grants the Minister of Finance (the
"Minister") powers to supervise, investigate and intervene in the affairs of
insurance companies. The Act provides for four classes of insurance companies.
Oracle Re has been designated a Class 3 insurer, which is the designation
requiring capital and surplus in excess of $1.0 million, and as a long-term
insurer, which permits the Company to reinsure life insurance and annuity
business. Each registered insurer must appoint an independent auditor to audit
and report on the Statutory Financial Statements and Statutory Financial Return
on an annual basis. The independent auditor must be approved by the Minister.
Each Class 3 insurer must appoint a loss reserve specialist, who must also be
approved by the Minister, to review and report on the loss reserves of the
insurer on an annual basis. Class 3 companies are required to file their
Statutory Financial Return and Statutory Financial Statements with the Registrar
of Companies in Bermuda, who is the chief administrative officer under the Act,
no later than four months from the insurer's fiscal year end. The Statutory
Financial Return includes, among other matters, the report of the approved
independent auditor, the actuarial opinion on loss reserves prepared by the
approved loss reserve specialist, a declaration of statutory ratios and a
solvency certificate. Both the declaration of statutory ratios and the solvency
certificate must be signed by at least two directors of the insurer.
The 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 class of the insurer and the insurer's net premiums
written and loss reserve level. The 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. Oracle Re maintains significant investments in the
investment vehicles of certain investment managers and in the preferred and
common securities of the LLC, the assets of which are invested in similar
vehicles. These investments are not assets regarded automatically as relevant
assets, as defined in the Act. Oracle Re has, however, received approval from
the Minister to treat its investments in these vehicles and in the LLC as
relevant assets on the basis that their underlying financial strength is
sustained by assets that are relevant assets under the Act.
The payment of dividends or other distributions by Oracle Re is limited under
the Act. In accordance therewith, Oracle Re is prohibited from paying dividends
or other distributions unless after such payment the amount by which its general
business assets exceed its general business liabilities is the greatest of the
following amounts: (i) $1.0 million; (ii) an amount equal to 20% of the first
$6.0 million of net written premiums in the subject year plus 15% of all net
written premiums in excess thereof in the subject year; or (iii) an amount equal
to 15% of the reserves for losses and loss adjustment expenses reflected in the
balance sheet at the date of determination.
Oracle Re may declare and pay a dividend or make a distribution out of
contributed surplus or other assets legally available for distribution provided
that after the payment of such dividend or distribution Oracle Re will continue
to meet its minimum solvency margin and minimum liquidity ratio as detailed
above.
Further, in accordance with the Act, before reducing by 15% or more its total
statutory capital as set out in its previous year's financial statements, a
Class 3 insurer must apply to the Minister for his approval and is obliged to
provide such information in connection therewith as the Minister may require.
UNITED STATES AND OTHER
Oracle Re is not admitted to do business in any jurisdiction except Bermuda. The
insurance laws of each state in the United States and of many foreign countries
regulate the sale of insurance within their jurisdictions by alien insurers,
such as Oracle Re, which are not admitted to do business within such
jurisdiction. With some exceptions, such sale of insurance within a jurisdiction
where the insurer is not admitted to do business is prohibited. Oracle Re
conducts its business through its executive offices in Bermuda and does not
maintain an office or solicit, advertise, settle claims or conduct other
insurance activities in the United States or in any jurisdiction other than
Bermuda where the conduct of such activities would require that Oracle Re be so
admitted. United States insurance laws specifying the conditions under which a
U.S. insurer may receive credit on its statutory financial statements for
reinsurance ceded to a non-admitted reinsurer, such as Oracle Re, including
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requirements as to the provision of collateral security by such a reinsurer, may
affect Oracle Re's reinsurance arrangements with U.S. ceding companies.
EMPLOYEES
The Company and its subsidiaries employed one person at December 31, 1999.
OTHER SUBSIDIARIES
The Company conducts certain of its investment management activities through its
wholly-owned subsidiary, O.R. Investments Ltd.
OTHER TRANSACTIONS
PARTICIPATING SHAREHOLDER DIVIDEND
A dividend of $1.0 million on the Company's participating preferred shares,
which were issued by the Company in connection with a rent-a-captive program,
was declared and paid in November 1999 from the surplus available in the
rent-a-captive program.
RIGHTS OFFERING AND OTHER FINANCING
In January 1998, the Company issued to each stockholder of DFG rights to acquire
up to 2,039,507 of the Company's Common Shares at $10.25 per share. These shares
were effectively fully subscribed, with the shares not initially being taken up
by stockholders of DFG having been subscribed for by standby purchasers of the
rights offering. The Company received net proceeds of $20.9 million from the
offering. A two for one stock split was distributed in June 1998, increasing
shares outstanding from 2,039,507 to 4,079,014. In addition to the capital
raised by the rights offering, DFG and certain of its subsidiaries purchased
from the Company during 1998 $40.0 million in aggregate principal amount of 9%
subordinated notes due 2028 (the "Subordinated Notes"). In December 1998, DFG
sold $10.0 million in aggregate principal amount of the Subordinated Notes to an
unrelated third party. Pursuant to the terms of the Subordinated Notes, interest
of $2.8 million due on such notes has been paid in 1999 by the issuance of
additional Subordinated Notes in lieu of cash payments.
In December 1998, in a private placement to an unrelated third party, the
Company issued 100,000 Series A Preferred Shares, $0.01 par value, in exchange
for $10.0 million in aggregate principal amount of the Subordinated Notes. The
Series A Preferred Shares are non-voting and are entitled to receive, when and
as declared by the Board of Directors out of funds legally available therefor, a
cumulative dividend of 9.5% per annum on the shares' issue price, payable in
cash or in additional Series A Preferred Shares or a combination thereof, and
are redeemable at $100 per share. On December 31, 1998, the Company issued 1,000
Participating Preferred Shares, $0.01 par value, for proceeds of $1,000 in
connection with the establishment of a rent-a-captive program.
LETTER OF CREDIT AGREEMENTS
In January 1998, Oracle Re entered into a letter of credit agreement (the "LOC
Agreement") with a group of banks led by the Bank of America National Trust and
Savings Association. The purpose of such agreement is to permit Oracle Re to
obtain letters of credit from time to time for the benefit of U.S. insurers that
cede reinsurance to Oracle Re. Since Oracle Re is not admitted to do business in
the United States, it is necessary that Oracle Re provide collateral security
meeting certain U.S. regulatory requirements in order for a U.S. insurer which
cedes reinsurance to Oracle Re to receive credit on its statutory financial
statements for such reinsurance. A U.S. insurer will typically require that such
collateral security be provided in connection with its cession of reinsurance to
a non-admitted company such as Oracle Re. Oracle Re's existing reinsurance
agreements require that letters of credit be maintained in favor of the
respective ceding companies in order to secure Oracle Re's obligations
thereunder. Under the LOC Agreement, the banks have committed to provide letters
of credit in the aggregate maximum amount of $120.0 million. Presently, letters
of credit totaling $94.2 million are outstanding under such agreement and Oracle
Re has separately obtained an additional letter of credit in an outstanding
amount of $12.5 million as security in connection with existing reinsurance
agreements. The banks' commitments under the LOC Agreement will expire in
January 2002, and there can be no assurance that these commitments will be
renewed on similar terms at such time, or that the banks will increase their
maximum commitment under the LOC Agreement to facilitate the expansion of Oracle
Re's business.
The LOC Agreement contains a number of requirements relating to the provisions
by Oracle Re of collateral security to the banks and covenants relating to
Oracle Re's business and finances. Outstanding letters of credit must be secured
by the pledge of investments by Oracle Re to the banks, with varying levels of
excess collateral required depending on the asset type
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pledged. Where the collateral pledged consists of interests in investment
vehicles of investment managers, the primary type of asset pledged, the value of
such collateral on a mark-to-market basis must generally equal at least 145% of
the outstanding letters of credit. The LOC Agreement also contains, among other
covenants, limitations on the incurrence of liens, indebtedness and contingent
obligations by Oracle Re, statutory surplus maintenance requirements as to
Oracle Re, diversification and liquidity requirements as to Oracle Re's
investment portfolio and restrictions on dividends to the Company by Oracle Re.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources". At December 31, 1999, Oracle Re
was in compliance in all material respects with such requirements and covenants.
INVESTMENT ADVISORY AGREEMENT
The allocation of the Company's assets among various investment strategies and
among particular investment managers within the strategies is performed by Acorn
Advisory Capital L.P. (the "Investment Advisor") pursuant to an investment
advisory agreement (the "Investment Advisory Agreement "). This agreement
provides for the payment to the Investment Advisor of a fee equal to 50 basis
points of assets under management. The Investment Advisor has waived the fee to
date under the Investment Advisory Agreement and may continue to waive future
fees, although there can be no assurance that it will do so. In addition, the
Investment Advisory Agreement allows the Investment Advisor to defer payment of
its fees, although there can be no assurance that it will do so. The agreement
has been renewed through December 31, 2000. Termination is subject to notice
given at least 60 days prior to the end of the then-current term by either the
Company or the Investment Advisor. Mr. Rosenkranz, Chairman of the Board of
Directors of the Company and Oracle Re, may be deemed to be the beneficial owner
of substantially all of the Investment Advisor.
AGREEMENT WITH INTERNATIONAL ADVISORY SERVICES LTD.
The Company has engaged International Advisory Services Ltd. ("IAS") to provide
certain management and administrative services to the Company. These services
include underwriting support and administration, preparation of financial
statements, liaison with auditors, legal advisors and other service providers,
together with such other duties as may be agreed upon. David Ezekiel, Vice
President and a director of the Company and Oracle Re, is the President and
Managing Director of IAS.
ITEM 2. PROPERTIES
The Company's principal executive office is located at Chevron House, 11 Church
Street, Hamilton HM 11, Bermuda. This office space is provided to the Company by
IAS.
ITEM 3. LEGAL PROCEEDINGS
The Company is not currently involved in any litigation or arbitration, although
it may be subject to litigation and arbitration from time to time in the
ordinary course of its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 4A. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The table below sets forth the names, ages and titles of the members of the
Board of Directors and Executive Officers with the Company.
<TABLE>
<CAPTION>
Name Age Position with the Company
- ---- --- -------------------------
<S> <C> <C>
Robert Rosenkranz 57 Chairman of the Board
Colin O'Connor 52 President, Chief Executive Officer and Director
David Ezekiel 51 Vice President and Director
Nicolas G. Trollope 52 Secretary and Director
Edward A. Fox 63 Director
Harold F. Ilg 52 Director
Charles P. O'Brien 63 Director
Lewis S. Ranieri 53 Director
Thomas L. Rhodes 60 Director
Robert M. Smith, Jr. 48 Director
</TABLE>
7
<PAGE> 9
In addition, Bermuda law imposes certain managerial requirements for all
exempted companies. To meet these requirements, the Company and Oracle Re have a
secretary who is ordinarily resident in Bermuda and a resident representative.
In accordance with Bermuda law, the secretary of the Company can not also act as
the resident representative. To satisfy Bermuda law, the Company and Oracle Re
have appointed David Ezekiel and Nicolas G. Trollope as resident representative
and Secretary, respectively.
MR. ROSENKRANZ has served as Chairman of the Board of each of the Company and
Oracle Re since their inception in September 1997. Mr. Rosenkranz has served as
the President and Chief Executive Officer of DFG since May 1987 and has served
as Chairman of the Board of Directors of DFG since April 1989. Mr. Rosenkranz is
also the Chairman of the Board of RSL, First Reliance Standard Life Insurance
Company and Reliance Standard Life Insurance Company of Texas and a director of
Safety National. Mr. Rosenkranz has served as either sole or managing general
partner of Rosenkranz & Company or as beneficial owner of its corporate general
partner since October 1978.
MR. O'CONNOR has served as President, Chief Executive Officer and Director of
each of the Company and Oracle Re since their inception in September 1997. Mr.
O'Connor served as President of Belvedere Insurance Company Ltd for more than
five years. Mr. O'Connor is a director of Lombard Odier International Trust
(Bermuda) Ltd and Midlands Management Corp.
MR. EZEKIEL has served as Vice President and Director of each of the Company and
Oracle Re since their inception in September 1997. Mr. Ezekiel is the President
and Managing Director of IAS, a Bermuda domiciled and licensed insurance
management company. Prior to founding IAS, Mr. Ezekiel was a partner with the
accounting firm of Moore, Stephens & Butterfield, the Bermuda arm of KPMG.
MR. TROLLOPE has served as Secretary and Director of each of the Company and
Oracle Re since their inception in September 1997. Mr. Trollope is a partner
with the law firm of Conyers Dill & Pearman, Hamilton, Bermuda, which he joined
in 1975. Mr. Trollope is a director and officer of numerous Bermuda exempted
companies for which Conyers Dill & Pearman acts as legal counsel and for which
its associated company, Codan Services Ltd, provides corporate administrative
services.
MR. FOX has served as Director of each of the Company and Oracle Re since their
inception in September 1997. Mr. Fox has served as Chairman of the Board of SLM
Holding Corp. since August 1997 and is currently a director of New England Life
Insurance Company and Greenwich Capital Management and is Non-Executive Chairman
of Eldorado Bancshares, Inc. From May 1990 until September 1994, Mr. Fox was the
Dean of the Amos Tuck School of Business Administration at Dartmouth College,
and from April 1973 until May 1990, he was President and Chief Executive Officer
of the Student Loan Marketing Association. In addition, Mr. Fox is a director of
DFG.
MR. ILG has served as a Director of each of the Company and Oracle Re since
their inception in September 1997. Mr. Ilg has served as Chairman of the Board
of Safety National since January 1999 and as President and Chief Executive
Officer of RSL since April 1999. Prior to January 1999, Mr. Ilg served as
Vice-Chairman of the Board of Safety National, where he has been employed in
various capacities since 1978. Mr. Ilg also serves as a director of RSL and as
President, Chief Executive Officer and a director of First Reliance Standard
Life Insurance Company and Reliance Standard Life Insurance Company of Texas.
MR. O'BRIEN has served as a Director of each of the Company and Oracle Re since
their inception in September 1997. Mr. O'Brien has served as Chairman Emeritus
of RSL since April 1999, when he retired from the position of President and
Chief Executive Officer of RSL, in which capacity he had served since August
1976. Mr. O'Brien has been Senior Vice President of Pennsylvania Merchant Group
since November 1999. Mr. O'Brien also serves as a director of DFG, RSL, First
Reliance Standard Life Insurance Company and Reliance Standard Life Insurance
Company of Texas.
MR. RANIERI has served as a Director of the Company since its inception in
September 1997. Mr. Ranieri is currently Chairman and Chief Executive Officer of
Ranieri & Co., Inc. and oversees Hyperion Partners L.P. and Hyperion Partners II
L.P. (collectively, "Hyperion"), funds created to invest in the financial
services, housing and real estate industries. As part of his responsibilities
with Hyperion, Mr. Ranieri serves as Vice-Chairman of Hyperion Capital
Management, Inc., a New York-based money management firm specializing in
mortgage-backed securities, as Chairman, Director and/or Trustee of several
closed-end investment companies advised by Hyperion Capital Management, Inc., as
Chairman and a director of Bank United Corp. and a director of Bank United, a
Houston-based savings and loan institution. Mr. Ranieri also serves on the
compensation committee for both Bank United entities and as a director of DFG.
8
<PAGE> 10
MR. RHODES has served as a Director of each of the Company and Oracle Re since
their inception in September 1997. Mr. Rhodes has been President of National
Review since November 1992, where he has also served as a director since 1988.
From 1987 to November 1992, Mr. Rhodes was a partner of Goldman, Sachs & Co.,
New York, NY. Mr. Rhodes is Chairman and a director of Asset Investors
Corporation and Vice-Chairman and a director of Commercial Assets, Inc. Mr.
Rhodes is a director of Apartment Investment and Management Company, The Lynde
and Harry Bradley Foundation, DFG and RSL.
MR. SMITH has served as a Director of each of the Company and Oracle Re since
their inception in September 1997. Mr. Smith has served as Executive Vice
President of DFG since November 1999 and previously served as Vice President of
DFG since July 1994. Prior to joining DFG, Mr. Smith served as Director,
Investment Banking for Merrill Lynch & Company in New York, NY. Mr. Smith is a
director of DFG, RSL, First Reliance Standard Life Insurance Company, Reliance
Standard Life Insurance Company of Texas and Safety National.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON SHARES AND RELATED SHAREHOLDER MATTERS
The closing price for the Company's Common Shares was $3 13/16 on March 20,
2000. There were approximately 700 holders of record of the Company's Common
Shares as of March 20, 2000.
The following table sets forth the high and low closing prices for the Company's
Common Shares for the periods indicated. The Company's Common Shares are traded
on the NASDAQ National Market System under the symbol DLTDF. Prior to August 13,
1998, the Company's Common Shares were quoted on the National Association of
Securities Dealers, Inc.'s Electronic Bulletin Board under the symbol DPHIF.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
1999: First Quarter $ 8 7/16 $ 5 5/16
Second Quarter 7 4 5/8
Third Quarter 6 7/16 5 5/16
Fourth Quarter 6 7/16 3 17/32
1998: First Quarter 13 7/8 7 1/2
Second Quarter 20 12 1/4
Third Quarter 19 8 1/4
Fourth Quarter 8 15/16 6 1/4
</TABLE>
No cash dividends have been declared or paid on the Common Shares. The Board of
Directors of the Company does not intend to pay cash dividends on the Common
Shares in the foreseeable future but intends to retain any earnings for use in
the operations of the Company's business.
9
<PAGE> 11
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data below should be read in conjunction with
Management's Discussion and Analysis of Financial Condition and Results of
Operations and the Consolidated Financial Statements and related notes.
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED JANUARY 27, 1998
DECEMBER 31, TO DECEMBER 31,
INCOME STATEMENT DATA: 1999 1998
---- ----
<S> <C> <C>
Premiums written:
Excess workers' compensation $ -- $ 82,086,000
Group long-term disability -- 39,833,950
Professional liability -- 13,425,000
------------- -------------
-- 135,344,950
Premiums ceded -- (37,500)
------------- -------------
Premiums earned -- 135,307,450
Underwriting fees 30,089 --
Net investment income (loss) 22,286,339 (16,413,875)
Net realized loss (gain) on investments (138,815) 310,630
------------- -------------
22,177,613 119,204,205
Losses and expenses 16,567,964 142,459,244
------------- -------------
Net income (loss) 5,609,649 (23,255,039)
Provision for dividend on preferred shares (950,000) --
------------- -------------
Net income (loss) attributable to Common Shares $ 4,659,649 $ (23,255,039)
============= =============
Basic and diluted income (loss) per Common Share $ 1.14 $ (5.70)
Weighted average Common Shares outstanding 4,081,530 4,079,014
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
BALANCE SHEET DATA: 1999 1998
---- ----
<S> <C> <C>
Total assets $166,376,967 $169,971,128
Subordinated notes 32,760,750 30,000,000
Shareholders' equity 11,712,579 8,009,694
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The following is an analysis of the results of operations and financial
condition of the Company. This analysis should be read in conjunction with the
Consolidated Financial Statements and related notes.
RESULTS OF OPERATIONS
Year Ended December 31, 1999 Compared to
Period From January 27, 1998 to December 31, 1998
Underwriting Income. The Company did not earn any premium income from
reinsurance contracts during the year ended December 31, 1999. Due to excess
capacity in the global reinsurance markets and the resulting lack of
attractively priced reinsurance programs, the Company did not take on any new
reinsurance business during the year, other than a quota share reinsurance
contract entered into with SNCC in early 1999 which was rescinded in January
2000 and thus is excluded from the Company's financial results. Premiums in the
period ended December 31, 1998 were derived primarily from workers' compensation
aggregate excess of loss reinsurance assumed from Safety National in the amount
of $82.1 million, from the group long-term disability quota share reinsurance
assumed from RSL in the amount of $39.8 million and from professional liability
aggregate excess reinsurance assumed in the amount of $13.4 million.
10
<PAGE> 12
Net Investment Income (Loss). Net investment income for the year ended December
31, 1999 was $22.3 million as compared to a net investment loss of $16.4 million
for the period ended December 31, 1998. Investment results during these periods
are primarily derived from investment vehicles of independent investment
managers, which are accounted for under the equity method, with earnings and
losses included in net investment income, and from preferred dividends from the
LLC, the assets of which are similarly invested with independent investment
managers. The managers' investment gains in 1999 primarily resulted from a
recovery in numerous sectors of the global financial markets, which impacted
positively upon the performance of the investment portfolios. The managers'
investment losses in the 1998 period were primarily the result of extreme and
adverse conditions affecting a number of sectors in the global financial
markets.
Underwriting and Other Expenses. Losses and loss expenses for the year ended
December 31, 1999 were $5.5 million as compared to $131.4 million for the period
ended December 31, 1998. Losses and loss expenses in 1999 primarily reflect the
accretion of the discounted values of existing reserves. Losses and loss
expenses incurred for the period ended December 31, 1998 include the discounted
value of the loss portfolios assumed under the reinsurance agreements with
Safety National and RSL and provisions for loss and loss expenses for the
professional liability aggregate excess reinsurance agreement. Underwriting and
acquisition expenses totaled $6.3 million for the year ended December 31, 1999
as compared to $5.2 million for the period ended December 31, 1998. Underwriting
and acquisition expenses in 1999 include $6.1 million of profit sharing
commissions payable under the Safety National and RSL reinsurance agreements for
the period from inception through December 31, 1999. Underwriting and
acquisition expenses in the period ended December 31, 1998 include ceding
commissions of $4.8 million.
LIQUIDITY AND CAPITAL RESOURCES
The Company's current liquidity needs at the holding company level include
funding operating expenses, the repayment of incorporation expenses paid by DFG
and interest payments on the Subordinated Notes. At the Company's option, the
Company may pay interest on the Subordinated Notes in additional Subordinated
Notes in lieu of cash payments during any five-year period. In 1999, the Company
elected to pay $2.8 million of interest due on the Subordinated Notes by the
issuance of additional Subordinated Notes with an aggregate principal amount of
$2.8 million. As of December 31, 1999, the Company had $14.2 million in
financial assets at the holding company level. The Company's other source of
liquidity at the holding company level consists of dividends from Oracle Re.
Dividend payments by the Company's insurance subsidiary to the Company are
subject to certain Bermuda regulatory restrictions as well as contractual
restrictions. Under the LOC Agreement, dividends by Oracle Re in any fiscal year
may generally not exceed the greater of (a) 50% of Oracle Re's statutory net
income for the preceding fiscal year and (b) the lesser of (i) $3,000,000 and
(ii) Oracle Re's statutory net income for the preceding fiscal year. See
"Business - Regulation - Bermuda."
The principal liquidity requirement of the Company's insurance subsidiary,
Oracle Re, in addition to funding operating expenses, is the fulfillment of the
obligations under its reinsurance agreements. The primary source of funding for
these obligations, in addition to operating earnings, is the net cash flow from
the investments included in Oracle Re's investment portfolio. Each of the
Company's existing reinsurance agreements involved a one-time payment to Oracle
Re at inception and does not provide for ongoing reinsurance premiums. In 1999,
Oracle Re and RSL effected the recapture of approximately 35% of the group long
term disability liabilities ceded to Oracle Re under its quota share reinsurance
agreement with RSL. In connection with such recapture, $10.0 million in cash,
the amount of the reserves recaptured, was transferred to RSL.
In addition to Oracle Re's current liquidity requirements, Oracle Re is required
to provide collateral security with respect to letters of credit outstanding
under the LOC Agreement and otherwise. Under the LOC Agreement, depending on the
type of collateral pledged, the collateral maintenance requirement is equal to
up to 145% of the amount of the outstanding letters of credit. See "Other
Transactions - Letter of Credit Agreement." In the event that sufficient
collateral cannot be maintained relative to these requirements, Oracle Re may be
required to negotiate with its reinsureds to reduce the size of the reinsurance
transactions, thereby decreasing the amounts of letters of credit and related
collateral requirements under the LOC Agreement. Moreover, if Oracle Re were
unable to furnish sufficient collateral or otherwise were to fail to satisfy any
covenant or requirement under the LOC Agreement, it may be required to liquidate
all or a substantial portion of its investment portfolio or otherwise secure its
obligations under its reinsurance agreements, which would likely have a material
adverse effect on the business and operations of the Company.
The Company believes that the sources of funding available at the holding
company and insurance subsidiary levels, respectively, will be adequate to
satisfy on both a short-term and long-term basis the companies' applicable
liquidity requirements.
Investments and Market Risk. At December 31, 1999, the Company has allocated
$102.5 million, or 86.1% of the Company's investment portfolio, among a number
of investment managers that utilize diverse investment strategies and to
investments in the LLC, the assets of which are invested among similar
investment managers. Ninety percent of the Company's investment in the LLC
consists of redeemable preferred securities carrying a cumulative fixed dividend
of 15.5%. The ability of the LLC
11
<PAGE> 13
to meet its dividend payment requirements depends on the performance of the
investment vehicles of the independent investment manager with which it invests
its assets and the frequency with which the LLC can withdraw its investments in
such vehicles. The investment managers' general strategy categories include,
among others, diversified hedging, hedged equity, common stock/specialized
trading, short selling, risk arbitrage, distressed securities, futures and
commodities and foreign securities investing. The managers primarily invest in a
variety of marketable securities and other liquid assets. The Company has
invested, and the LLC also invests, in the investment vehicles of the managers,
which are generally in the form of a corporation or other limited liability
entity, or through managed accounts in which the manager invests directly on
behalf of the Company or the LLC, as applicable. The investments in
substantially all of these investment vehicles can be redeemed on at least an
annual basis with many of the managers providing quarterly or more frequent
liquidity.
Aside from the Company's investment in preferred securities of the LLC, 13.9% of
the Company's investment portfolio at December 31, 1999 was invested in fixed
maturity securities, which had a weighted average credit rating of "AAA" as
rated by Standard & Poor's Corporation. At December 31, 1999, 93% of the
Company's fixed maturity securities portfolio other than such preferred
securities consisted of mortgage-backed securities. Mortgage-backed securities
subject the Company to a degree of interest rate risk, including prepayment and
extension risk, which is generally a function of the sensitivity of each
security's underlying collateral to prepayments under varying interest rate
environments and the repayment priority of the securities in the particular
securitization structure. The Company seeks to limit the extent of this risk by
emphasizing the more predictable payment classes and securities with stable
collateral.
The Company's fixed maturity investments subject it to risks resulting from
changes in interest rates. If interest rates were to increase by 10% from their
December 31, 1999 levels, the fair value of the Company's fixed maturity
investments, other than the preferred securities of the LLC, would decline by
approximately $1.0 million as compared to a decline of approximately $0.6
million at December 31, 1998. This analysis incorporates numerous assumptions
and estimates and assumes no changes in the Company's investment portfolio in
reaction to such interest rate changes. Consequently, the results of this
analysis will likely be different from the actual changes experienced under
given interest rate scenarios and those differences may be material.
The Company's Subordinated Notes were issued at a fixed interest rate. A
hypothetical 10% decrease in market interest rates would cause a corresponding
$2.1 million increase in the fair value of the Company's fixed rate corporate
debt as compared to an increase of $1.9 million at December 31, 1998.
IMPACT OF YEAR 2000
The Year 2000 issue relates to whether computer systems will properly recognize
date-sensitive information in years subsequent to 1999. All of the Company's
computer related systems are furnished by its third party administrative
services provider, a substantial and reputable firm which provides similar
services to other Bermuda based insurance companies. Computer systems of third
parties may also have a significant impact on the Company's operations, such as
those of investment managers and ceding insurers. The Company has not
experienced any significant disruptions of business operations related to the
Year 2000 issue to date and believes that the risk of any such disruption in the
future is low, although no assurance can be given in this regard. It is
possible, however, that Year 2000 problems that are not currently apparent may
arise in the future. No material costs relating to the Year 2000 issue were
incurred by the Company.
CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS
In connection with and because it desires to take advantage of the "safe harbor"
provisions of the Private Securities Litigation Reform Act of 1995, the Company
cautions its readers regarding certain forward-looking statements in the
foregoing discussions and elsewhere in this Form 10-K and in any other statement
made by, or on behalf of, the Company, whether or not in future filings with the
Securities and Exchange Commission. Forward-looking statements are statements
not based on historical information and which relate to future operations,
strategies, financial results or other developments. Some forward-looking
statements may be identified by the use of terms such as "expects," "believes,"
"anticipates," "intends," or "judgment." Forward-looking statements are
necessarily based upon estimates and assumptions that are inherently subject to
significant business, economic and competitive uncertainties and contingencies,
many of which are beyond the Company's control and many of which, with respect
to future business decisions, are subject to change. Examples of such
uncertainties and contingencies include changes in global economic and financial
conditions and markets, the Company's investment strategy and implementation
thereof, the performance of the Company's investment portfolio, competitive
conditions in the global reinsurance markets, the ability of the Company to
generate new business opportunities and submissions and changes in insurance or
other laws and regulations or governmental interpretations thereof. These
uncertainties can affect actual results and could cause actual results to differ
materially from those expressed in any forward-looking statements made by, or on
behalf of, the Company. The Company disclaims any obligation to update
forward-looking information.
12
<PAGE> 14
ITEM 7A. MARKET RISK DISCLOSURE
The information required by Item 7A is included in this Form 10-K under the
heading "Investments and Market Risk" beginning on page 11 of this Form 10-K.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by Item 8 is included in this Form 10-K beginning on
page 16 of this Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by Item 10 is included in the Company's definitive
Proxy Statement, to be filed pursuant to Regulation 14A of the Securities
Exchange Act of 1934 in connection with the Company's 2000 Annual Meeting of
Shareholders, under the captions "Election of Directors" and "Section 16(a)
Beneficial Ownership Reporting Compliance" and is incorporated herein by
reference, and in Item 4A in Part I of this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is included in the Company's definitive
Proxy Statement, to be filed pursuant to Regulation 14A of the Securities
Exchange Act of 1934 in connection with the Company's 2000 Annual Meeting of
Shareholders, under the caption "Executive Compensation" and is incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN OWNERS AND MANAGEMENT
The information required by Item 12 is included in the Company's definitive
Proxy Statement to be filed pursuant to Regulation 14A of the Securities
Exchange Act of 1934 in connection with the Company's 2000 Annual Meeting of
Shareholders, under the caption "Voting Securities and Principal Holders
Thereof" and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 is included in the Company's definitive
Proxy Statement to be filed pursuant to Regulation 14A of the Securities
Exchange Act of 1934 in connection with the Company's 2000 Annual Meeting of
Shareholders, under the caption "Certain Relationships and Related Transactions"
and is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The response to this portion of Item 14 is submitted as a separate
section of this report (see page 17 of this Form 10-K).
(b) No reports on Form 8-K were filed during the fourth quarter of 1999. A
Form 8-K restating the Company's Consolidated Statements of Income for
each of the first three quarters of 1999 was filed in January 2000.
(c) The following Exhibits are numbered in accordance with the Exhibit
Table of Item 601 of Regulation S-K:
<TABLE>
<S> <C>
3.1 Memorandum of Association (1)
3.2 Amended and Restated Bye-Laws (1)
10.1 Form of Note Agreement between Delphi International Ltd. and
Delphi Financial Group, Inc., Reliance Standard Life Insurance
Company and Safety National Casualty Corporation (1)
10.2 Form of Reinsurance Agreement between Oracle Reinsurance
Company Ltd. and Reliance Standard Life Insurance Company (1)
</TABLE>
13
<PAGE> 15
<TABLE>
<S> <C>
10.3 Form of Reinsurance Agreement between Oracle Reinsurance
Company Ltd. and Safety National Casualty Corporation (1)
10.4 Form of Investment Advisory Agreement between Oracle
Reinsurance Company Ltd. and Acorn Advisory Capital L.P. (1)
10.5 Description of Oral Employment Agreement with Colin O'Connor
(Exhibit 10.7) (1)
10.6 Letter of Credit Agreement, dated as of January 27, 1998,
among Oracle Reinsurance Company Ltd., Bank Of America
National Trust and Savings Association, as Agent and L/C
Administrator, The Bank of New York, as co-agent, Deutsche
Bank AG, as co-agent, Dresdner Bank AG, New York branch, as
co-agent and Fleet National Bank, as co-agent, and the other
financial institutions party thereto (1)
10.6(a) First Amendment to Letter of Credit Agreement, dated as of
July 1, 1999, among Oracle Reinsurance Company Ltd., Bank of
America National Trust and Savings Association, as Agent and
L/C Administrator, The Bank of New York, as co-agent, Deutsche
Bank AG, as co-agent, Dresdner Bank AG, New York branch, as
co-agent and Fleet National Bank, as co-agent, and the other
financial institutions party thereto (2)
11.1 Computation of Results per Common Share (3)
21.1 Subsidiaries of the Registrant (4)
24.1 Powers of Attorney (4)
27 Financial Data Schedule (4)
</TABLE>
- ----------
(1) Incorporated herein by reference to the designated exhibit to
the Company's Form S-1 dated December 30, 1997.
(2) Incorporated herein by reference to the designated exhibit
attached to the Company's Form 10-Q filed November 12, 1999.
(3) Incorporated herein by reference to Note J to the Consolidated
Financial Statements included elsewhere herein.
(4) Filed herewith.
(d) The following consolidated financial statement schedules of Delphi
International Ltd. and subsidiaries are included under Item 8 and are
presented beginning on page 31 of this Form 10-K.
Schedule I - Summary of Investments Other Than Investments in Related
Parties
Schedule II - Condensed Financial Information of Registrant
Schedule VI - Supplemental Information Concerning Property - Casualty
Operations
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and therefore have been omitted.
14
<PAGE> 16
DELPHI INTERNATIONAL LTD. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Delphi International Ltd.
By: /S/ COLIN O'CONNOR
------------------
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Capacity Date
- ---- -------- ----
<S> <C> <C>
/S/ COLIN O'CONNOR President and Chief Executive Officer
- ----------------------------------------- (Principal Executive Officer) March 28, 2000
(Colin O'Connor)
* Director March 28, 2000
- -----------------------------------------
(Edward A. Fox)
* Director March 28, 2000
- -----------------------------------------
(Harold F. Ilg)
* Director March 28, 2000
- -----------------------------------------
(Charles P. O'Brien)
* Director March 28, 2000
- -----------------------------------------
(Lewis S. Ranieri)
* Director March 28, 2000
- -----------------------------------------
(Thomas L. Rhodes)
* Chairman of the Board March 28, 2000
- ----------------------------------------- Director
(Robert Rosenkranz)
* Director March 28, 2000
- -----------------------------------------
(Robert M. Smith, Jr.)
* Director March 28, 2000
- -----------------------------------------
(Nicolas G. Trollope)
/S/ DAVID EZEKIEL Vice President and Director March 28, 2000
- ----------------------------------------- (Principal Accounting and
(David Ezekiel) Financial Officer)
* BY Colin O'Connor
- -----------------------------------------
Attorney-in-Fact
</TABLE>
15
<PAGE> 17
DELPHI INTERNATIONAL LTD. AND SUBSIDIARIES
SELECTED QUARTERLY FINANCIAL RESULTS (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Net Income
Per
Common
Revenues Net Income Share
-------- ---------- -----
<S> <C> <C> <C>
1999: First Quarter $3,335 $ 836 $0.15
Second Quarter 9,391 1,982 0.43
Third Quarter 3,933 773 0.13
Fourth Quarter 5,519 2,019 0.44
</TABLE>
<TABLE>
<CAPTION>
Net Income
(Loss) Per
Net Income Common
Revenues (Loss) Share
-------- ------ -----
<S> <C> <C> <C>
1998: First Quarter $128,415 $ 2,824 $ 0.69
Second Quarter (1,390) 783 0.19
Third Quarter (4,059) (18,756) (4.60)
Fourth Quarter (3,762) (8,106) (1.99)
</TABLE>
Computations of earnings or loss per share for each quarter are made
independently of earnings or loss per share for the year. Due to the
transactions affecting the weighted average number of shares outstanding in each
quarter and due to the uneven distribution of earnings and losses during the
year, the sum of quarterly earnings or loss per share does not necessarily equal
the earnings or loss per share for the year.
Reporting the results of operations on a quarterly basis requires the use of
numerous estimates throughout the year, primarily in the computation of
insurance reserves and investment fair values. It is the Company's practice to
review estimates at the end of each quarter and, if necessary, make appropriate
adjustments, with the effect of these adjustments being reported in current
operations. Only at year-end is the Company able to assess the accuracy of its
previous quarterly estimates. The Company's fourth quarter results include the
effect of the difference between previous estimates and actual year-end results.
Therefore, the results of an interim period may not be indicative of the results
of the entire year.
16
<PAGE> 18
DELPHI INTERNATIONAL LTD. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
Page
----
<S> <C>
Audited Consolidated Financial Statements of Delphi
International Ltd. and Subsidiaries
Report of Independent Auditors ........................................ 18
Consolidated Statements of Income (Loss) and Comprehensive Income
(Loss) - Year ended December 31, 1999 and the Period from January 27,
1998 to December 31, 1998 ............................................. 19
Consolidated Balance Sheets - December 31, 1999 and 1998 .............. 20
Statement of Changes in Shareholders' Equity -
Year ended December 31, 1999 and the Period from January 27, 1998
to December 31, 1998 .................................................. 21
Consolidated Statements of Cash Flows -
Year ended December 31, 1999 and the Period from January 27, 1998
to December 31, 1998 .................................................. 22
Notes to Consolidated Financial Statements ............................ 23
The following Consolidated Financial Statement Schedules of Delphi
International Ltd. and Subsidiaries are included under Item 14(d):
Schedule I, Summary of Investments Other Than Investments in
Related Parties ..................................................... 31
Schedule II, Condensed Financial Information of Registrant ............ 32
Schedule VI, Supplemental Information Concerning Property-Casualty
Insurance Operations ................................................ 36
</TABLE>
17
<PAGE> 19
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of
Delphi International Ltd.
We have audited the accompanying consolidated balance sheets of Delphi
International Ltd. and subsidiaries as of December 31, 1999 and 1998 and the
related consolidated statements of income (loss) and comprehensive income
(loss), changes in shareholders' equity and cash flows for the year ended
December 31, 1999 and for the period from January 27, 1998 to December 31, 1998.
Our audits also included the financial statement schedules listed in the Index
at Item 14(d). These financial statements and schedules are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements and schedules based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the
audits 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 consolidated financial position of Delphi
International Ltd. and subsidiaries at December 31, 1999 and 1998 and the
consolidated results of their operations and their cash flows for the year ended
December 31, 1999 and the period from January 27, 1998 to December 31, 1998, in
conformity with accounting principles generally accepted in the United States.
Also, in our opinion, the related financial statement schedules, when considered
in relation to the basic financial statements taken as a whole, present fairly,
in all material respects, the information set forth therein.
Hamilton, Bermuda /S/ ERNST & YOUNG
February 28, 2000
18
<PAGE> 20
DELPHI INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS)
(EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
Period From
Year Ended January 27, 1998 to
December 31, 1999 December 31, 1998
----------------- -------------------
<S> <C> <C>
Revenue:
Premiums written $ -- $ 135,344,950
Premiums ceded -- (37,500)
------------ -------------
Premiums earned -- 135,307,450
Underwriting fees 30,089 --
Net investment income (loss) 22,286,339 (16,413,875)
Net realized (losses) gains on fixed maturity securities (138,815) 310,630
------------ -------------
Total revenues 22,177,613 119,204,205
------------ -------------
Losses and expenses:
Losses and loss expenses incurred 5,508,396 131,437,059
Underwriting and acquisition expenses 6,323,394 5,192,047
Interest expense 2,814,510 2,848,881
General and administrative expenses 1,921,664 1,643,222
Incorporation costs -- 1,338,035
------------ -------------
Total losses and expenses 16,567,964 142,459,244
------------ -------------
Net income (loss) 5,609,649 (23,255,039)
Dividends on Preferred Shares (950,000) --
------------ -------------
Net income (loss) attributable to Common Shares $ 4,659,649 $ (23,255,039)
============ =============
Comprehensive income (loss):
Net income (loss) $ 5,609,649 $ (23,255,039)
Other comprehensive (loss) income:
Change in unrealized (losses) gains on fixed
maturity securities, net of reclassification
adjustments of $(138,815) in 1999 (1,906,764) 359,786
------------ -------------
Comprehensive income (loss) $ 3,702,885 $ (22,895,253)
============ =============
Basic and diluted income (loss) per Common Share $ 1.14 $ (5.70)
</TABLE>
See notes to consolidated financial statements
19
<PAGE> 21
DELPHI INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
----------------- -----------------
<S> <C> <C>
Assets:
Investments:
Fixed maturity securities, available for sale $ 84,226,329 $ 18,306,720
Balances with independent investment managers 27,389,096 77,197,580
Equity securities 7,515,900 --
------------- -------------
119,131,325 95,504,300
Cash and cash equivalents 22,514,299 26,152,550
Funds withheld by ceding reinsurer 13,735,735 16,000,000
Receivable from independent investment managers 2,536,997 28,106,350
Deferred acquisition costs 1,087,506 1,147,923
Accrued income 5,599,079 137,040
Other assets 85,307 47,965
Assets held for participating shareholder:
Cash and cash equivalents 125,306 2,875,000
Fixed maturity securities 1,509,842 --
Other assets 51,571 --
------------- -------------
Total assets $ 166,376,967 $ 169,971,128
============= =============
Liabilities:
Reserves for losses and loss expenses $ 112,528,589 $ 125,191,823
Subordinated notes 32,760,750 30,000,000
Other liabilities 7,687,330 3,893,611
Liabilities relating to participating shareholder:
Reserves for losses and loss expenses 1,618,509 2,875,000
Other liabilities 30,089 --
------------- -------------
Total liabilities 154,625,267 161,960,434
------------- -------------
Participating Preferred Shareholder's equity:
Participating Preferred Shares, $0.01 par value;
1,000 shares authorized, issued and outstanding 10 10
Additional paid-in capital 990 990
Retained earnings 38,121 --
------------- -------------
39,121 1,000
------------- -------------
Shareholders' equity:
Preferred Shares, $0.01 par value; 5,000,000 shares authorized,
100,000 shares issued and outstanding 1,000 1,000
Common Shares, $0.01 par value; 10,000,000 shares
authorized, 4,079,014 shares issued and outstanding 40,790 40,790
Additional paid-in capital 30,863,157 30,863,157
Appropriation for dividend on Preferred Shares 950,000 --
Accumulated other comprehensive (loss) income (1,546,978) 359,786
Retained deficit (18,595,390) (23,255,039)
------------- -------------
Total shareholders' equity 11,712,579 8,009,694
------------- -------------
Total liabilities and shareholders' equity $ 166,376,967 $ 169,971,128
============= =============
</TABLE>
See notes to consolidated financial statements
20
<PAGE> 22
DELPHI INTERNATIONAL LTD. AND SUBSIDIARIES
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
Appropriation Accumulated
Additional for Dividend Other
Preferred Common Paid-in on Preferred Comprehensive Retained
Shares Shares Capital Shares Income (Loss) Deficit Total
------ ------ ------- ------ ------------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
January 27, 1998 to December 31,
1998:
Issuance of Share Capital:
Preferred Shares $1,000 $ -- $ 9,999,000 $ -- $ -- $ -- $ 10,000,000
Common Shares 40,790 20,864,157 20,904,947
Net Loss (23,255,039) (23,255,039)
Other Comprehensive Income:
Unrealized gains on fixed
maturity securities 359,786 359,786
------ ------- ----------- -------- ----------- ------------ -----------
Balance at December 31, 1998 1,000 40,790 30,863,157 -- 359,786 (23,255,039) 8,009,694
Year ended December 31, 1999:
Net Income 5,609,649 5,609,649
Appropriation for dividend on
Preferred Shares 950,000 (950,000) --
Other Comprehensive Loss:
Change in unrealized gains
(losses) on fixed maturity
securities net of
reclassification adjustments (1,906,764) (1,906,764)
------ ------- ----------- -------- ----------- ------------ -----------
Balance at December 31, 1999 $1,000 $40,790 $30,863,157 $950,000 $(1,546,978) $(18,595,390) $ 11,712,579
====== ======= =========== ======== =========== ============ -===========
</TABLE>
See notes to consolidated financial statements
21
<PAGE> 23
DELPHI INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
Period From
January 27, 1998
Year Ended to
December 31, December 31,
1999 1998
<S> <C> <C>
Net cash flows from operating activities:
Net income (loss) $ 5,609,649 $ (23,255,039)
Adjustment to reconcile net income (loss) to net cash
provided by operating activities:
Investment (income) loss related to balances with
independent investment managers (14,379,709) 17,856,585
Interest on subordinated notes 2,760,750 --
Realized loss (gain) on sales of fixed maturity securities 138,815 (310,630)
Amortization of fixed maturity securities (89,669) (36,870)
Changes in assets and liabilities:
Funds withheld by ceding reinsurer 2,264,264 (16,000,000)
Deferred acquisition costs 60,417 (1,147,923)
Incorporation costs -- 1,338,035
Accrued income (5,462,039) (137,040)
Other assets (37,342) (47,965)
Reserves for losses and loss expenses (12,663,234) 125,191,823
Receivable from independent investment managers 25,569,353 (28,106,350)
Other liabilities 3,793,719 3,893,611
------------ -------------
Net cash provided by operating activities 7,564,974 79,238,237
------------ -------------
Cash flows from investing activities:
Proceeds from sales of fixed maturity securities 2,270,486 8,849,381
Withdrawals from balances with independent investment managers 85,270,695 48,404,465
Purchase of investments with independent investment managers (21,082,500) (143,458,630)
Purchase of fixed maturity securities (70,146,006) (26,448,815)
Purchase of equity securities (7,515,900) --
Incorporation costs -- (1,338,035)
------------ -------------
Net cash used by investing activities (11,203,225) (113,991,634)
------------ -------------
Cash flows from financing activities:
Proceeds from issuance of Subordinated Notes -- 40,000,000
Extinguishment of Subordinated Notes -- (10,000,000)
Proceeds from issuance of Preferred Shares -- 10,001,000
Proceeds from issuance of Common Shares -- 20,904,947
------------ -------------
Net cash provided by financing activities -- 60,905,947
------------ -------------
(Decrease) increase in cash and cash equivalents (3,638,251) 26,152,250
Cash and cash equivalents at beginning of period 26,152,550 --
------------ -------------
Cash and cash equivalents at end of period $ 22,514,299 $ 26,152,550
============ =============
</TABLE>
See notes to consolidated financial statements
22
<PAGE> 24
DELPHI INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation. The consolidated financial statements include the
accounts of Delphi International Ltd. ("DIL") and its wholly owned subsidiaries
Oracle Reinsurance Company Ltd. ("Oracle Re") and O.R. Investments Ltd. ("ORI").
Except where the context indicates otherwise, DIL and its subsidiaries are
herein collectively referred to as the "Company". All significant inter-company
accounts and transactions have been eliminated. As of December 31, 1999, Mr.
Robert Rosenkranz, Chairman of the Board of DIL, by means of direct and indirect
ownership of Common Shares, had the power to vote 1,095,004 Common Shares, which
represents 26.8% of the total outstanding Common Shares. However, under the
Company's bye-laws, the voting rights attributable to these Common Shares are
limited to a voting power of 9.5%. The consolidated financial statements have
been prepared in accordance with accounting principles generally accepted in the
United States and are presented in U.S. Dollars. Certain reclassifications have
been made in the 1998 financial statements to conform to the 1999 presentation.
Use of Estimates. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported 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
reporting period. Actual results could differ from these estimates.
Nature of Operations. The Company commenced operations in January 1998 through
Oracle Re, a Class 3 and long-term registered insurance company under the
Bermuda Insurance Act, 1978. The Company did not earn any premium income from
reinsurance contracts during the year ended December 31, 1999. In the period
from January 27, 1998 to December 31, 1998, Oracle Re entered into loss
portfolio reinsurance agreements with subsidiaries of Delphi Financial Group,
Inc. ("DFG"), an aggregate excess reinsurance agreement with a U.S. professional
liability insurer and a rent-a-captive transaction.
Premiums, Losses and Underwriting and Acquisition Expenses. Premiums written,
losses and loss expenses and underwriting and acquisition expenses relating to
the reinsurance of existing liabilities (retrospective reinsurance agreements)
that meet the conditions for reinsurance accounting are recognized as earned
premiums, incurred losses and loss expenses, and underwriting and acquisition
expenses, respectively, at the inception of the related contract.
Investments. The Company's assets have been allocated primarily among a number
of independent investment managers that utilize diverse investment strategies,
to a special purpose limited liability company (the "LLC") and to investments in
fixed maturity securities.
The investment vehicles of independent investment managers are generally in the
form of a corporation or other limited liability entity, or are managed accounts
in which the manager invests directly on behalf of the client. The investment
managers' general strategy categories include, among others, diversified
hedging, hedged equity, common stock/specialized trading, short selling, risk
arbitrage, distressed securities, futures and commodities and foreign securities
investing. The managers primarily invest in a variety of marketable securities
and other liquid assets, and, as such, the assets held by these managers are
marked-to-market. The balances with independent investment managers are
accounted for under the equity method, with earnings and losses included in net
investment income.
During the third quarter of 1999, the Company liquidated a substantial
proportion of its investments in vehicles of independent investment managers and
reinvested $75.2 million of the proceeds in preferred and common securities of
the LLC, the assets of which are invested in similar vehicles. Ninety percent of
the Company's investment in the LLC consists of redeemable preferred securities
carrying a cumulative fixed dividend of 15.5% per annum. The investment in the
preferred securities has been included in the carrying value of fixed maturity
securities. The balance of the Company's investment in the LLC is represented by
common securities which are shown as equity securities at cost.
The Company and the LLC can redeem substantially all of their respective
investments in the investment vehicles of the independent investment managers,
subject to giving applicable notice of redemption, on at least an annual basis
with the managers providing quarterly or more frequent liquidity in most cases.
The values of the investments may change during the required notice periods.
23
<PAGE> 25
DELPHI INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
DECEMBER 31, 1999
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
At December 31, 1999 and 1998, approximately 39% and 90%, respectively, of the
Company's cash and cash equivalents were held by one Bermuda financial
institution and approximately 19% and 91%, respectively, of the Company's fixed
maturity securities portfolio consists of mortgage backed securities. The
Company does not believe there are any significant risks associated with these
concentrations.
Fixed maturity securities available for sale are carried at fair value with
changes in unrealized appreciation and depreciation charged directly to
accumulated other comprehensive income in shareholders' equity. Amortization of
the premium or discount on fixed maturity securities is included in net
investment income. Net realized gains and losses on the sale of fixed maturity
securities are determined under the specific identification method. Declines in
fair value of investments that are considered to be other than temporary are
reported as realized losses.
Cash and Cash Equivalents. The Company considers all deposits and investments
with a maturity of three months or less at purchase as equivalent to cash.
Deferred Acquisition Costs. Deferred acquisition costs consist of taxes incurred
at the inception of certain reinsurance agreements which are amortized over the
expected duration of the related reinsured losses.
Reserves for Losses and Loss Expenses. Reserves for losses and loss expenses
represent the Company's share, under its reinsurance contracts, of the liability
for unpaid losses and loss expenses which includes amounts determined by the
ceding reinsurers on an individual basis for reported losses and estimates of
incurred but not reported losses developed on the basis of past experience. The
reserves, which have been discounted at rates ranging from 4.6% to 6.3%, are
continually reviewed and updated and any resulting adjustments are reflected in
current earnings.
Assets held for and liabilities relating to participating shareholder. Assets
held for and liabilities relating to participating shareholder relate to the
establishment in 1998 of a rent-a-captive program for the participating
shareholder.
NOTE B - INVESTMENTS
The amortized cost and fair value of investments in fixed maturity securities
available for sale is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-----------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
Mortgage-backed securities $16,523,623 $ -- $(1,123,945) $15,399,678
U.S. Government guaranteed securities 1,606,584 -- (423,033) 1,183,551
Corporate securities 67,643,100 -- -- 67,643,100
----------- ------- ----------- -----------
$85,773,307 $ -- $(1,546,978) $84,226,329
=========== ======= =========== ===========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
---------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
Mortgage-backed securities $16,420,271 $ 306,425 $(29,808) $16,696,888
U.S. Government guaranteed securities 1,526,663 83,169 -- 1,609,832
----------- --------- -------- -----------
$17,946,934 $ 389,594 $(29,808) $18,306,720
=========== ========= ======== ===========
</TABLE>
24
<PAGE> 26
DELPHI INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
DECEMBER 31, 1999
NOTE B - INVESTMENTS - (CONTINUED)
The amortized cost and fair value of fixed maturity securities available for
sale at December 31, 1999 by contractual maturity are shown below. Expected
maturities will differ from contractual maturities because issuers may have the
right to call or prepay obligations with or without prepayment penalties.
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
<S> <C> <C>
Mortgage-backed securities $16,523,623 $15,399,678
Corporate securities 67,643,100 67,643,100
Other securities greater than 10 years 1,606,584 1,183,551
----------- -----------
$85,773,307 $84,226,329
=========== ===========
</TABLE>
Net investment income (loss) was attributable to the following:
<TABLE>
<CAPTION>
PERIOD FROM
YEAR JANUARY 27, 1998
ENDED TO
DECEMBER 31, DECEMBER 31,
Gross investment income (loss): 1999 1998
---- ----
<S> <C> <C>
Fixed maturity securities (includes amortization) $ 6,577,167 $ 639,170
Balances with independent investment managers 14,379,709 (17,856,585)
Other investment income 1,329,463 803,540
----------- ------------
22,286,339 (16,413,875)
Less: investment expenses -- --
----------- ------------
$22,286,339 $(16,413,875)
=========== ============
</TABLE>
Proceeds from sales of fixed maturity securities during 1999 and the period from
January 27, 1998 to December 31, 1998 were $2.3 million and $8.8 million,
respectively. Gross losses of $0.1 million in 1999 and gross gains of $0.3
million in the 1998 period were realized on those sales. Proceeds from the
liquidation of balances with independent investment managers during 1999 and the
period from January 27, 1998 to December 31, 1998 were $85.3 million and $48.4
million, respectively.
Summarized aggregate unaudited financial information for the entities in which
the Company's balances with independent investment managers have been invested
is shown below (dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1999 1998
---- ----
<S> <C> <C>
Assets $14,431,210 $49,114,662
=========== ===========
Liabilities $ 6,991,210 $30,231,211
Partners' capital 7,440,000 18,883,451
----------- -----------
Total liabilities and partners' capital $14,431,210 $49,114,662
=========== ===========
</TABLE>
25
<PAGE> 27
DELPHI INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
DECEMBER 31, 1999
NOTE C - RESTRICTED ASSETS
At December 31, 1999 and 1998, the Company had outstanding letters of credit
totaling $106.6 million and $122.9 million, respectively, from a maximum
available facility of $136.5 million, in favor of ceding reinsurers. Cash and
cash equivalents, investments and receivable from independent investment
managers with a carrying value of $141.4 million and $150.0 million at December
31, 1999 and 1998, respectively, and a $6.0 million surety bond provided by a
third party have been pledged as security for these letters of credit.
NOTE D - RESERVES FOR LOSSES AND LOSS EXPENSES
The following table provides a reconciliation of beginning and ending reserves
for losses and loss expenses.
<TABLE>
<CAPTION>
PERIOD FROM
YEAR JANUARY 27, 1998
ENDED TO
DECEMBER 31, DECEMBER 31,
1999 1998
---- ----
<S> <C> <C>
Gross and net reserves for losses and loss
expenses, beginning of period $125,191,823 $ --
Add incurred losses and loss expenses:
Prior period 5,508,396 --
Current period -- 131,437,059
------------ ------------
5,508,396 131,437,059
------------ ------------
Deduct paid losses and loss expenses:
Prior period 8,171,630 6,245,236
Prior period-reserves recaptured by
ceding company 10,000,000 --
Current period -- --
------------ ------------
18,171,630 6,245,236
------------ ------------
Gross and net reserves for losses and loss
expenses, end of period $112,528,589 $125,191,823
============ ============
</TABLE>
NOTE E - RIGHTS OFFERING AND OTHER FINANCING
In January 1998, the Company issued to each stockholder of DFG rights to acquire
up to 2,039,507 Common Shares of the Company at $10.25 per share. These shares
were effectively fully subscribed with the shares not initially taken up by
shareholders of DFG being subscribed for by certain standby purchasers of the
rights offering. The Company received a net amount of $20.9 million from the
offering. A two for one stock split was distributed in June 1998, increasing
shares outstanding from 2,039,507 to 4,079,014. In addition to the capital
raised by the rights offering, DFG and certain of its subsidiaries purchased
from the Company during 1998 $40.0 million in aggregate principal amount of 9%
subordinated notes due 2028 (the "Subordinated Notes"). At the Company's option,
the Company may pay interest as additional Subordinated Notes in lieu of cash
payments during any five-year period. Pursuant to the terms of the Subordinated
Notes, the Company elected to pay interest of $2.8 million due on such notes by
the issuance of additional Subordinated Notes in lieu of cash payments. In
December 1998, DFG sold $10.0 million in aggregate principal amount of the
Subordinated Notes to an unrelated third party.
In December 1998, in a private placement to an unrelated third party, the
Company issued 100,000 Series A Preferred Shares, $0.01 par value, in exchange
for $10.0 million in aggregate principal amount of the Subordinated Notes. The
Series A Preferred Shares are non-voting and are entitled to receive, when and
as declared by the Board of Directors out of funds legally available therefor, a
cumulative dividend of 9.5% per annum on the shares' issue price, payable in
cash or in additional Series A Preferred Shares or a combination thereof, and
are redeemable at $100 per share. On December 31, 1998, the Company issued 1,000
Participating Preferred Shares, $0.01 par value, for proceeds of $1,000 in
connection with the establishment of a rent-a-captive program.
26
<PAGE> 28
DELPHI INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
DECEMBER 31, 1999
NOTE F - FAIR VALUES OF FINANCIAL INSTRUMENTS
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-------------------------
Carrying Fair
Value Value
<S> <C> <C>
Assets:
Fixed maturity securities, available for sale $84,226,329 $84,226,329
Balances with independent investment managers 27,389,096 27,389,096
Equity securities 7,515,900 7,515,900
Cash and cash equivalents 22,514,299 22,514,299
Liabilities:
Subordinated notes 32,760,750 30,917,211
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-------------------------
Carrying Fair
Value Value
<S> <C> <C>
Assets:
Balances with independent investment managers $77,197,580 $77,197,580
Fixed maturity securities, available for sale 18,306,720 18,306,720
Cash and cash equivalents 26,152,550 26,152,550
Liabilities:
Subordinated notes 30,000,000 32,676,151
</TABLE>
The carrying value for balances with independent investment managers
approximates fair value as the underlying assets held by such managers consist
of marketable securities and other liquid assets that have been
marked-to-market. The fair values for fixed maturity securities, with the
exception of the preferred securities of the LLC, have been obtained from
broker-dealers and from nationally recognized statistical organizations. The
fair value of the preferred securities of the LLC approximates the cost of the
securities and is supported by the underlying net assets of the LLC. The fair
value of the Subordinated Notes is based on the expected cash flows discounted
to net present value.
NOTE G - SHAREHOLDERS' EQUITY AND RESTRICTIONS
The Company's Board of Directors declared a two for one stock split on May 27,
1998 which was distributed to shareholders on June 11, 1998, thereby increasing
issued and outstanding Common Shares from 2,039,507 to 4,079,014.
The holders of the Company's Common Shares are entitled to one vote per share on
all matters submitted to a vote of the Company's shareholders, subject to a 9.5%
voting limitation, whereby should the 'controlled shares' of any person
constitute 9.5% or more of the issued and outstanding Common Shares, the voting
rights with respect to such 'controlled shares' shall be limited, in the
aggregate, to voting power of 9.5% pursuant to a formula specified in the
Bye-Laws.
The holders of the Company's Series A Preferred Shares are not entitled to vote
on any matter submitted to the shareholders of the Company. The Series A
Preferred Shares are entitled to receive, when and as declared by the Board of
Directors out of funds legally available therefor, a cumulative dividend of 9.5%
per annum on the shares' issue price, payable in cash or in additional Series A
Preferred Shares or a combination thereof and are redeemable at $100 per share.
Oracle Re is required, by its license as a Class 3 Insurer under the Bermuda
Insurance Act 1978 and Related Regulations, to maintain capital and surplus
greater than a minimum statutory amount determined as the greater of a
percentage of outstanding losses, net of any reinsurance recoverable, or a given
fraction of net written premiums. Statutory capital and surplus at December 31,
1999 and 1998 was $36.8 million and $29.6 million, respectively, and the amount
required to be maintained by the Company was $14.8 million and $15.3 million,
respectively. As a result, actual statutory capital and
27
<PAGE> 29
DELPHI INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
DECEMBER 31, 1999
NOTE G - SHAREHOLDERS' EQUITY AND RESTRICTIONS - (CONTINUED)
surplus was in excess of the required minimum. In addition, Oracle Re is limited
as to the amount of dividends it may distribute based on, among other things,
the level of its statutory capital and surplus. At December 31, 1999 and 1998,
contributed surplus and unrealized gains on investments amounting to $18.0
million and $25.9 million, respectively, were not available for distribution.
Oracle Re is also required to maintain a minimum liquidity ratio whereby the
value of its relevant assets is not less than 75% of its relevant liabilities.
At December 31, 1999 and 1998, Oracle Re was required to maintain relevant
assets of $90.1 million and $73.7 million, respectively. At those dates,
relevant assets were in excess of the amount required and the minimum liquidity
ratio was therefore met. Oracle Re may declare and pay a dividend or make a
distribution out of contributed surplus or other assets legally available for
distribution provided that after the payment of such dividend or distribution
Oracle Re will continue to meet its minimum solvency margin and minimum
liquidity ratio as detailed above. Further, in accordance with the Act, before
reducing by 15% or more its total statutory capital as set out in its previous
year's financial statements, a Class 3 insurer must apply to the Minister for
his approval and is obliged to provide such information in connection therewith
as the Minister may require.
Under Oracle Re's letter of credit agreement, dividends by Oracle Re in any
fiscal year may generally not exceed the greater of (a) 50% of Oracle Re's
statutory net income for the preceding fiscal year and (b) the lesser of (i)
$3,000,000 and (ii) Oracle Re's statutory net income for the preceding fiscal
year.
NOTE H - SHAREHOLDERS' EQUITY AND RESTRICTIONS - PARTICIPATING PREFERRED SHARES
The Company's Participating Preferred Shares have no voting, conversion,
preemptive or sinking fund rights but are entitled to dividends if, as and when
declared by the Company and are redeemable at $1 per share.
NOTE I - STOCK OPTIONS
Under the terms of the Company's Director and Employee Stock Option Plan (the
"Option Plan"), a total of 300,000 Common Shares have been reserved for
issuance. The exercise price for options granted under the Option Plan is the
fair market value of the underlying stock as of the date of the grant and the
maximum term of an option is ten years.
Activity with respect to the Option Plan was as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------
1999 1998
-------------------- --------------------
Number Average Number Average
of Exercise of Exercise
Options Price Options Price
------- ----- ------- -----
<S> <C> <C> <C> <C>
Options outstanding, beginning of year 14,796 $18.25 -- $ --
Options granted 52,686 5.13 14,796 18.25
------ ------
Options outstanding, end of year 67,482 8.01 14,796 18.25
====== ======
Exercisable options, end of year 41,139 9.85 7,398 18.25
</TABLE>
The options granted in 1998 and 1999 become exercisable in four equal 90-day
installments.
28
<PAGE> 30
DELPHI INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
DECEMBER 31, 1999
NOTE I - STOCK OPTIONS - (CONTINUED)
Information about options outstanding at December 31, 1999 was as follows:
<TABLE>
<CAPTION>
Outstanding Exercisable
----------------------------------- ---------------------
Number Average Average Number Average
of Remaining Exercise of Exercise
Exercise Prices Options Life Price Options Price
- --------------- ------- ---- ------ ------- -----
<S> <C> <C> <C> <C> <C>
$ 5.13 ........ 52,686 9.4 $ 5.13 26,343 $ 5.13
18.25 ........ 14,796 8.4 18.25 14,796 18.25
------ --- ------ ------ ------
67,482 9.2 $ 8.01 41,139 $ 9.85
====== === ====== ====== ======
</TABLE>
The Company accounts for stock options in accordance with Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations. Accordingly, no compensation expense has been recognized in the
accompanying financial statements for the Option Plan, because the exercise
price of the options granted equaled the market price of the underlying stock on
the date of grant. If compensation expense for options granted had been
recognized based on the provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation," the Company's net income (loss) would have been $4.4 million and
$(23.4) million and results per share would have been $1.09 and $(5.74) ($1.08
and $(5.74), assuming dilution) in 1999 and 1998, respectively. The weighted
average per share fair value used to calculate pro forma compensation expense
for 1999 and 1998 was $4.21 and $15.01, respectively. These fair values were
estimated at the grant date using the Black-Scholes option pricing model with
the following assumptions: risk-free interest rates ranging from 5.5% to 5.7%, a
volatility factor of the expected market price of the Company's common stock of
75%, an expected life of the options of ten years and a dividend yield of 0%.
NOTE J - COMPUTATION OF NET INCOME (LOSS) PER COMMON SHARE
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED JANUARY 27, 1998 TO
DECEMBER 31, 1999 DECEMBER 31, 1998
<S> <C> <C>
Numerator:
Net income (loss) attributable to Common Shares $4,659,649 $(23,255,039)
========== ============
Denominator:
Weighted average common shares outstanding 4,079,014 4,079,014
Effect of dilutive securities 2,516 --
---------- ------------
Weighted average common shares outstanding, assuming dilution 4,081,530 4,079,014
========== ============
Basic income (loss) per Common Share $ 1.14 $ (5.70)
Diluted income (loss) per Common Share 1.14 (5.70)
</TABLE>
NOTE K - TAXATION
Under current Bermuda law, the Company and its subsidiaries are not required to
pay any taxes in Bermuda on either income or capital gains. The Company and its
subsidiaries have each received undertakings from the Minister of Finance in
Bermuda that, in the event of any such taxes being imposed, the Company will be
exempted from taxation until the year 2016.
NOTE L - INVESTMENT ADVISORY AGREEMENT
The allocation of the Company's assets among various investment strategies and
within particular investment managers within the strategies is performed by
Acorn Advisory Capital L.P. (the "Investment Advisor") pursuant to an investment
advisory agreement (the "Investment Advisory Agreement"). This agreement
provides for the payment to the Investment Advisor of a fee equal to 50 basis
points of assets under management. The Investment Advisor has to date waived the
fee under the Investment Advisory Agreement and may continue to waive future
fees, although there can be no assurance that it will do so.
29
<PAGE> 31
DELPHI INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
DECEMBER 31, 1999
NOTE L - INVESTMENT ADVISORY AGREEMENT - (CONTINUED)
In addition, the Investment Advisory Agreement allows the Investment Advisor to
defer payment of its fees, although there can be no assurance that it will do
so. Mr. Rosenkranz, Chairman of the Board of Directors of the Company and Oracle
Re, may be deemed to be the beneficial owner of substantially all of the
Investment Advisor.
The Investment Advisory Agreement has been renewed through December 31, 2000.
Termination is subject to notice given at least 60 days prior to the end of the
then-current term by either the Company or the Investment Advisor.
NOTE M - RENT-A-CAPTIVE PROGRAM
The following statements of income summarize the results of the Company's
rent-a-captive program, maintained as a separate account in the balance sheet in
accordance with the bye-laws of Oracle Re and the private enabling legislation
and, therefore, not included in the Company's consolidated statements of income
(loss) and comprehensive income (loss).
<TABLE>
<CAPTION>
Period From
Year Ended January 27, 1998 to
December 31, 1999 December 31, 1998
----------------- -------------------
<S> <C> <C>
Revenues:
Premiums written $ -- $2,875,000
Net investment loss (188,281) --
----------- ----------
Total revenues (188,281) 2,875,000
----------- ----------
Losses and expenses:
Losses and loss expenses incurred (1,256,491) 2,875,000
Underwriting fee 30,089 --
----------- ----------
Total losses and expenses (1,226,402) 2,875,000
----------- ----------
Net income 1,038,121 --
Dividend on participating preferred shares (1,000,000) --
----------- ----------
Net retained earnings $ 38,121 $ --
=========== ==========
</TABLE>
30
<PAGE> 32
SCHEDULE I
DELPHI INTERNATIONAL LTD. AND SUBSIDIARIES
SUMMARY OF INVESTMENTS
OTHER THAN INVESTMENTS IN RELATED PARTIES
DECEMBER 31, 1999
(EXPRESSED IN US DOLLARS)
<TABLE>
<CAPTION>
AMOUNT
IN BALANCE
TYPE OF INVESTMENT AMORTIZED COST FAIR VALUE SHEET
- ------------------ -------------- ---------- -----
<S> <C> <C> <C>
Fixed maturity securities, available for sale:
Mortgage backed securities $ 16,523,623 $ 15,399,678 $ 15,399,678
U.S. Government guaranteed securities 1,606,584 1,183,551 1,183,551
Corporate securities 67,643,100 67,643,100 67,643,100
------------ ------------ ------------
85,773,307 84,226,329 84,226,329
Balances with independent investment managers 27,389,096 27,389,096 27,389,096
Equity securities 7,515,900 7,515,900 7,515,900
------------ ------------ ------------
Total invested assets $120,678,303 $119,131,325 $119,131,325
============ ============ ============
</TABLE>
31
<PAGE> 33
SCHEDULE II
DELPHI INTERNATIONAL LTD. AND SUBSIDIARIES
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
DELPHI INTERNATIONAL LTD. (PARENT COMPANY)
BALANCE SHEETS
(EXPRESSED IN US DOLLARS)
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
------------ ------------
<S> <C> <C>
Assets:
Cash and cash equivalents $ 10,084,617 $ 6,357,346
Fixed maturity securities, available for sale 4,151,047 4,529,511
Balances with independent investment managers -- 4,429,798
Investment in subsidiaries 37,917,470 30,797,212
Other assets 252,199 106,287
------------ ------------
Total assets $ 52,405,333 $ 46,220,154
============ ============
Liabilities:
Subordinated notes $ 32,760,750 $ 30,000,000
Other liabilities 1,931,004 2,209,460
------------ ------------
Total Liabilities 34,691,754 32,209,460
------------ ------------
Participating Preferred Shareholder's Equity:
Preferred shares 10 10
Additional paid-in capital 990 990
------------ ------------
1,000 1,000
------------ ------------
Shareholders' Equity:
Preferred Shares 1,600 1,600
Common Shares 40,790 40,790
Additional paid-in capital 36,862,557 36,862,557
Appropriation for dividend on Preferred Shares 950,000 --
Accumulated other comprehensive (loss) income (1,546,978) 359,786
Retained deficit (18,595,390) (23,255,039)
------------ ------------
Total shareholders' equity 17,712,579 14,009,694
------------ ------------
Total liabilities and shareholders' equity $ 52,405,333 $ 46,220,154
============ ============
</TABLE>
See notes to financial statements
32
<PAGE> 34
SCHEDULE II (CONTINUED)
DELPHI INTERNATIONAL LTD. AND SUBSIDIARIES
CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)
DELPHI INTERNATIONAL LTD. (PARENT COMPANY)
STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS)
(EXPRESSED IN US DOLLARS)
<TABLE>
<CAPTION>
Period From
Year Ended January 27, 1998 to
December 31, 1999 December 31, 1998
----------------- -------------------
<S> <C> <C>
Revenues:
Equity in undistributed income (loss) of subsidiaries $ 8,644,307 $(19,407,501)
Other net investment income 165,145 46,087
----------- ------------
Total revenues 8,809,452 (19,361,414)
----------- ------------
Expenses:
Operating expenses 385,293 1,044,744
Interest expense 2,814,510 2,848,881
----------- ------------
Total expenses 3,199,803 3,893,625
----------- ------------
Net income (loss) 5,609,649 (23,255,039)
Other comprehensive (loss) income:
Net unrealized (losses) gains on fixed maturity securities (1,906,764) 359,786
----------- ------------
Comprehensive income (loss) $ 3,702,885 $(22,895,253)
=========== ============
</TABLE>
See notes to financial statements
33
<PAGE> 35
SCHEDULE II (CONTINUED)
DELPHI INTERNATIONAL LTD. AND SUBSIDIARIES
CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)
DELPHI INTERNATIONAL LTD. (PARENT COMPANY)
STATEMENTS OF CASH FLOWS
(EXPRESSED IN US DOLLARS)
<TABLE>
<CAPTION>
Period From
January 27, 1998
to
Year Ended December 31,
December 31, 1999 1998
----------------- ----------------
<S> <C> <C>
Net cash flows from operating activities:
Net income (loss) $ 5,609,649 $(23,255,039)
Adjustments to reconcile net income (loss) to net cash used
by operating activities:
Equity in undistributed (income) loss of subsidiaries (8,644,307) 19,407,501
Change in accrued investment income (19,823) (27,601)
Interest on subordinated notes 2,760,750 --
Change in other assets and other liabilities 191,183 2,198,994
Amortization of fixed maturity securities (4,252) (2,961)
Net unrealized (gains) losses on balance with
independent investment managers -- 570,202
Incorporation costs -- 806,236
------------ ------------
Net cash used by operating activities (106,800) (302,668)
------------ ------------
Cash flows from investing activities:
Purchase of fixed maturity securities -- (4,371,477)
Purchase of investments with independent investment managers -- (5,000,000)
Purchase of investments in subsidiaries -- (44,000,000)
Withdrawals from balances with independent investment managers 3,939,671 --
Incorporation costs -- (806,236)
------------ ------------
Net cash provided (used) by investing activities 3,939,671 (54,177,713)
------------ ------------
Cash flows from financing activities:
Proceeds from issuance of Subordinated Notes 40,000,000
Extinguishment of Subordinated Notes -- (10,000,000)
Proceeds from issuance of Participating Preferred Shares -- 1,000
Proceeds from issuance of Preferred Shares -- 10,000,000
Proceeds from issuance of Common Shares -- 20,904,947
Advances to subsidiaries (105,600) (68,220)
------------ ------------
Net cash (used) provided by financing activities (105,600) 60,837,727
------------ ------------
Increase in cash and cash equivalents 3,727,271 6,357,346
Cash and cash equivalents at beginning of period 6,357,346 --
------------ ------------
Cash and cash equivalents at end of period $ 10,084,617 $ 6,357,346
============ ============
</TABLE>
See notes to financial statements
34
<PAGE> 36
SCHEDULE II (CONTINUED)
DELPHI INTERNATIONAL LTD. AND SUBSIDIARIES
CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)
DELPHI INTERNATIONAL LTD. (PARENT COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
The accompanying condensed financial statements should be read in conjunction
with the consolidated financial statements and related notes of Delphi
International Ltd. and Subsidiaries.
The Company received no cash dividends from subsidiaries for year ended December
31, 1999 or for the period from January 27, 1998 to December 31, 1998.
35
<PAGE> 37
SCHEDULE VI
DELPHI INTERNATIONAL LTD. AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION CONCERNING
PROPERTY-CASUALTY INSURANCE OPERATIONS
(EXPRESSED IN US DOLLARS)
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
----------------- -----------------
<S> <C> <C>
Deferred acquisition costs $ 729,000 $ 769,500
Reserves for losses and loss expenses 95,533,408 95,159,629
Discount deducted from above (1) 107,640,458 113,438,042
</TABLE>
<TABLE>
<CAPTION>
Period From
Year Ended January 27, 1998 to
December 31, 1999 December 31, 1998
----------------- -----------------
<S> <C> <C>
Earned premiums $ -- $ 95,473,500
Net investment income (loss) 18,307,932 (11,993,187)
Losses and loss expenses incurred related to:
Current year -- 95,159,629
Prior years 4,398,533 --
Amortization of policy acquisition costs 40,500 40,500
Paid losses and loss expenses 4,024,754 --
Premiums written -- 95,511,000
</TABLE>
- ----------
(1) Based on interest rates ranging from 4.6% to 6.3%.
36
<PAGE> 1
EXHIBIT 21.1
DELPHI INTERNATIONAL LTD. AND SUBSIDIARIES
LIST OF SUBSIDIARIES OF THE REGISTRANT
Oracle Reinsurance Company Ltd. (Incorporated in Bermuda)
O.R. Investments Ltd. (Incorporated in Bermuda)
<PAGE> 1
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, being a director
of Delphi International Ltd., a Bermuda corporation (the "Company"), hereby
constitutes and appoints Colin O'Connor his true and lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, for him and in his
place and stead in any and all capacities, to execute one or more Annual Reports
for the Company's fiscal year ended December 31, 1999, on Form 10-K pursuant to
the Securities Exchange Act of 1934, as amended, or such other form as such
attorney-in-fact may deem necessary or desirable, any amendments thereto, and
all additional amendments thereto in such form as he may approve, and to file
the same with all exhibits thereto and other documents in connection therewith
with the Securities and Exchange Commission, granting unto said attorney-in-fact
and agent full power and authority to do and perform each and every act and
thing requisite and necessary to be done to the end that such Annual Report or
Annual Reports shall comply with the Securities Exchange Act of 1934, as
amended, and the applicable rules and regulations of the Securities and Exchange
Commission adopted or issued pursuant thereto, as fully and to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorney-in-fact and agent or his substitute or resubstitute, may
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 28th
day of March, 2000.
/s/ ROBERT ROSENKRANZ
---------------------
Robert Rosenkranz
Chairman of the Board
<PAGE> 2
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, being a director
of Delphi International Ltd., a Bermuda corporation (the "Company"), hereby
constitutes and appoints Colin O'Connor his true and lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, for him and in his
place and stead in any and all capacities, to execute one or more Annual Reports
for the Company's fiscal year ended December 31, 1999, on Form 10-K pursuant to
the Securities Exchange Act of 1934, as amended, or such other form as such
attorney-in-fact may deem necessary or desirable, any amendments thereto, and
all additional amendments thereto in such form as he may approve, and to file
the same with all exhibits thereto and other documents in connection therewith
with the Securities and Exchange Commission, granting unto said attorney-in-fact
and agent full power and authority to do and perform each and every act and
thing requisite and necessary to be done to the end that such Annual Report or
Annual Reports shall comply with the Securities Exchange Act of 1934, as
amended, and the applicable rules and regulations of the Securities and Exchange
Commission adopted or issued pursuant thereto, as fully and to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorney-in-fact and agent or his substitute or resubstitute, may
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 28th
day of March, 2000.
/s/ NICOLAS G. TROLLOPE
-----------------------
Nicolas G. Trollope
Secretary and Director
<PAGE> 3
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, being a director
of Delphi International Ltd., a Bermuda corporation (the "Company"), hereby
constitutes and appoints Colin O'Connor his true and lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, for him and in his
place and stead in any and all capacities, to execute one or more Annual Reports
for the Company's fiscal year ended December 31, 1999, on Form 10-K pursuant to
the Securities Exchange Act of 1934, as amended, or such other form as such
attorney-in-fact may deem necessary or desirable, any amendments thereto, and
all additional amendments thereto in such form as he may approve, and to file
the same with all exhibits thereto and other documents in connection therewith
with the Securities and Exchange Commission, granting unto said attorney-in-fact
and agent full power and authority to do and perform each and every act and
thing requisite and necessary to be done to the end that such Annual Report or
Annual Reports shall comply with the Securities Exchange Act of 1934, as
amended, and the applicable rules and regulations of the Securities and Exchange
Commission adopted or issued pursuant thereto, as fully and to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorney-in-fact and agent or his substitute or resubstitute, may
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 28th
day of March, 2000.
/s/ EDWARD A. FOX
-----------------
Edward A. Fox
Director
<PAGE> 4
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, being a director
of Delphi International Ltd., a Bermuda corporation (the "Company"), hereby
constitutes and appoints Colin O'Connor his true and lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, for him and in his
place and stead in any and all capacities, to execute one or more Annual Reports
for the Company's fiscal year ended December 31, 1999, on Form 10-K pursuant to
the Securities Exchange Act of 1934, as amended, or such other form as such
attorney-in-fact may deem necessary or desirable, any amendments thereto, and
all additional amendments thereto in such form as he may approve, and to file
the same with all exhibits thereto and other documents in connection therewith
with the Securities and Exchange Commission, granting unto said attorney-in-fact
and agent full power and authority to do and perform each and every act and
thing requisite and necessary to be done to the end that such Annual Report or
Annual Reports shall comply with the Securities Exchange Act of 1934, as
amended, and the applicable rules and regulations of the Securities and Exchange
Commission adopted or issued pursuant thereto, as fully and to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorney-in-fact and agent or his substitute or resubstitute, may
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 28th
day of March, 2000.
/s/ HAROLD F. ILG
-----------------
Harold F. Ilg
Director
<PAGE> 5
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, being a director
of Delphi International Ltd., a Bermuda corporation (the "Company"), hereby
constitutes and appoints Colin O'Connor his true and lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, for him and in his
place and stead in any and all capacities, to execute one or more Annual Reports
for the Company's fiscal year ended December 31, 1999, on Form 10-K pursuant to
the Securities Exchange Act of 1934, as amended, or such other form as such
attorney-in-fact may deem necessary or desirable, any amendments thereto, and
all additional amendments thereto in such form as he may approve, and to file
the same with all exhibits thereto and other documents in connection therewith
with the Securities and Exchange Commission, granting unto said attorney-in-fact
and agent full power and authority to do and perform each and every act and
thing requisite and necessary to be done to the end that such Annual Report or
Annual Reports shall comply with the Securities Exchange Act of 1934, as
amended, and the applicable rules and regulations of the Securities and Exchange
Commission adopted or issued pursuant thereto, as fully and to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorney-in-fact and agent or his substitute or resubstitute, may
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 28th
day of March, 2000.
/s/ CHARLES P. O'BRIEN
----------------------
Charles P. O'Brien
Director
<PAGE> 6
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, being a director
of Delphi International Ltd., a Bermuda corporation (the "Company"), hereby
constitutes and appoints Colin O'Connor his true and lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, for him and in his
place and stead in any and all capacities, to execute one or more Annual Reports
for the Company's fiscal year ended December 31, 1999, on Form 10-K pursuant to
the Securities Exchange Act of 1934, as amended, or such other form as such
attorney-in-fact may deem necessary or desirable, any amendments thereto, and
all additional amendments thereto in such form as he may approve, and to file
the same with all exhibits thereto and other documents in connection therewith
with the Securities and Exchange Commission, granting unto said attorney-in-fact
and agent full power and authority to do and perform each and every act and
thing requisite and necessary to be done to the end that such Annual Report or
Annual Reports shall comply with the Securities Exchange Act of 1934, as
amended, and the applicable rules and regulations of the Securities and Exchange
Commission adopted or issued pursuant thereto, as fully and to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorney-in-fact and agent or his substitute or resubstitute, may
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 28th
day of March, 2000.
/s/ LEWIS S. RANIERI
--------------------
Lewis S. Ranieri
Director
<PAGE> 7
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, being a director
of Delphi International Ltd., a Bermuda corporation (the "Company"), hereby
constitutes and appoints Colin O'Connor his true and lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, for him and in his
place and stead in any and all capacities, to execute one or more Annual Reports
for the Company's fiscal year ended December 31, 1999, on Form 10-K pursuant to
the Securities Exchange Act of 1934, as amended, or such other form as such
attorney-in-fact may deem necessary or desirable, any amendments thereto, and
all additional amendments thereto in such form as he may approve, and to file
the same with all exhibits thereto and other documents in connection therewith
with the Securities and Exchange Commission, granting unto said attorney-in-fact
and agent full power and authority to do and perform each and every act and
thing requisite and necessary to be done to the end that such Annual Report or
Annual Reports shall comply with the Securities Exchange Act of 1934, as
amended, and the applicable rules and regulations of the Securities and Exchange
Commission adopted or issued pursuant thereto, as fully and to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorney-in-fact and agent or his substitute or resubstitute, may
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 28th
day of March, 2000.
/s/ THOMAS L. RHODES
--------------------
Thomas L. Rhodes
Director
<PAGE> 8
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, being a director
of Delphi International Ltd., a Bermuda corporation (the "Company"), hereby
constitutes and appoints Colin O'Connor his true and lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, for him and in his
place and stead in any and all capacities, to execute one or more Annual Reports
for the Company's fiscal year ended December 31, 1999, on Form 10-K pursuant to
the Securities Exchange Act of 1934, as amended, or such other form as such
attorney-in-fact may deem necessary or desirable, any amendments thereto, and
all additional amendments thereto in such form as he may approve, and to file
the same with all exhibits thereto and other documents in connection therewith
with the Securities and Exchange Commission, granting unto said attorney-in-fact
and agent full power and authority to do and perform each and every act and
thing requisite and necessary to be done to the end that such Annual Report or
Annual Reports shall comply with the Securities Exchange Act of 1934, as
amended, and the applicable rules and regulations of the Securities and Exchange
Commission adopted or issued pursuant thereto, as fully and to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorney-in-fact and agent or his substitute or resubstitute, may
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 28th
day of March, 2000.
/s/ ROBERT M. SMITH, JR.
------------------------
Robert M. Smith, Jr.
Director
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1999 AND THE CONSOLIDATED
STATEMENT OF INCOME FOR THE YEAR TO DECEMBER 31, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<DEBT-HELD-FOR-SALE> 84,226,329
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 7,515,900
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 119,131,325
<CASH> 22,514,299
<RECOVER-REINSURE> 13,735,735
<DEFERRED-ACQUISITION> 1,087,506
<TOTAL-ASSETS> 166,376,967
<POLICY-LOSSES> 112,528,589
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 32,760,750
0
1,000
<COMMON> 40,790
<OTHER-SE> 11,670,789
<TOTAL-LIABILITY-AND-EQUITY> 166,376,967
0
<INVESTMENT-INCOME> 22,286,339
<INVESTMENT-GAINS> (138,815)
<OTHER-INCOME> 30,089
<BENEFITS> 5,508,396
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 6,323,394
<INCOME-PRETAX> 5,609,649
<INCOME-TAX> 0
<INCOME-CONTINUING> 5,609,649
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,609,649
<EPS-BASIC> 1.14
<EPS-DILUTED> 1.14
<RESERVE-OPEN> 95,159,629
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 4,398,533
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 4,024,754
<RESERVE-CLOSE> 95,533,408
<CUMULATIVE-DEFICIENCY> 5,423,805
</TABLE>
