================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
COMMISSION FILE NUMBER 000-23481
ESG RE LIMITED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
BERMUDA NOT APPLICABLE
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OF ORGANIZATION)
16 CHURCH STREET
HAMILTON HM11, BERMUDA
(ADDRESS OF EXECUTIVE OFFICES, ZIP CODE)
(441) 295-2185
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No ___
The number of the Registrant's common shares (par value $1.00 per share)
outstanding as of May 12, 1998, was 13,923,799.
================================================================================
<PAGE>
PART I
ITEM 1. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ESG RE LIMITED
CONDENSED CONSOLIDATED BALANCE SHEETS
(U.S. DOLLARS IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
Unaudited
March 31, December 31,
1998 1997
------------------- -------------------
<S> <C> <C>
ASSETS
Fixed maturities - available for sale, at fair value
(cost: $223,853 and $218,694) $ 223,413 $ 218,867
Short-term investments 613 11,913
Cash and cash equivalents 10,315 6,196
------------------- -------------------
Total investments and cash 234,341 236,976
Accrued investment income 3,404 437
Management fees receivable 3,416 3,259
Premiums receivable 97,004 25,785
Reinsurance recoverable on incurred losses 875 397
Prepaid reinsurance premiums 1,297 300
Deferred acquisition costs 20,081 4,147
Funds held by reinsureds 1,719 --
Other assets 2,001 1,767
------------------- -------------------
TOTAL ASSETS $ 364,138 $ 273,068
=================== ===================
LIABILITIES
Unpaid losses and loss expenses $ 20,358 $ 7,846
Unearned premiums 73,832 12,168
Acquisition costs payable 25,678 9,584
Reinsurance premiums payable 1,443 751
Payable for securities purchased 3,007 --
Accrued expenses, accounts payable and other
($75 and $2,520 due to related parties) 3,230 8,344
Dividends payable 1,044 --
------------------- -------------------
TOTAL LIABILITIES 128,592 38,693
Fiduciary liabilities 7,678 10,485
Less: Cash and cash equivalents held in a fiduciary capacity (7,678) (10,485)
------------------- -------------------
-- --
------------------- -------------------
Commitments and contingencies (Note 2) -- --
SHAREHOLDERS' EQUITY
Preference shares: 50,000,000 shares authorized; no shares issued
and outstanding for 1998 and 1997 -- --
Class B common shares: 100,000,000 shares authorized; no shares
issued and outstanding for 1998 and 1997 -- --
Common shares, par value $1 per share: 100,000,000 shares
authorized; 13,923,799 shares issued and outstanding for
1998 and 1997 13,924 13,924
Additional paid-in capital 225,985 225,954
Accumulated other comprehensive income:
Foreign currency translation adjustments, net of tax (426) 32
Unrealized gains (losses) on securities, net of
reclassification adjustments and tax (440) 170
------------------- -------------------
Accumulated other comprehensive income (866) 202
------------------- -------------------
Retained deficit (3,497) (5,705)
------------------- -------------------
Total shareholders' equity 235,546 234,375
------------------- -------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 364,138 $ 273,068
=================== ===================
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
1
<PAGE>
ESG RE LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(U.S. DOLLARS IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31,
--------------------------------------------
1998 1997
----------------------- -------------------
<S> <C> <C>
REVENUES
Net premiums written $ 84,156 $ --
Change in unearned premiums (60,937) --
----------------------- -------------------
Net premiums earned 23,219 --
Management fee revenue 970 2,378
Net investment income 3,020 --
Net realized investment gains 1,153 --
----------------------- -------------------
28,362 2,378
----------------------- -------------------
EXPENSES
Losses and loss expenses 15,642 --
Acquisition costs 5,270 --
Administrative expenses ($304 and $8 to related parties) 3,912 1,219
----------------------- -------------------
24,824 1,219
----------------------- -------------------
NET INCOME BEFORE TAXES 3,538 1,159
Income tax expense 287 709
----------------------- -------------------
NET INCOME $ 3,251 $ 450
======================= ===================
PER SHARE DATA
Basic net income per share $ 0.23 $ 2.50
----------------------- -------------------
Diluted net income per share $ 0.23 $ 2.50
----------------------- -------------------
Weighted average shares outstanding
Basic 13,923,799 180,000
Diluted 14,373,691 180,000
======================= ===================
Dividends declared per share $ 0.075 $ --
======================= ===================
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
2
<PAGE>
ESG RE LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(U.S. DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31,
--------------------------------------
1998 1997
------------------ -------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net cash used in operating activities $ (5,786)$ (216)
------------------ -------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Cost of fixed maturities acquired - available for sale (185,983) --
Proceeds from sale of fixed maturities - available for sale 184,868
Net proceeds from sale of other investment assets 11,300 --
Purchases of fixed assets (218) (11)
Purchases of intangible assets (64) --
------------------ -------------------
Net cash provided by (used in) investing activities 9,903 (11)
------------------ -------------------
CASH FLOWS FROM FINANCIAL ACTIVITIES
Net change in short-term debt -- 277
------------------ -------------------
Net cash provided by financing activities -- 277
------------------ -------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 2 12
------------------ -------------------
Net increase in cash 4,119 62
Cash and cash equivalents at January 1 6,196 15
------------------ -------------------
Cash and cash equivalents at March 31 $ 10,315 $ 77
================== ===================
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
3
<PAGE>
ESG RE LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(U.S. DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31,
--------------------------------------------
1998 1997
---------------------- --------------------
<S> <C> <C>
Net income $ 3,251 $ 450
---------------------- --------------------
Other comprehensive income, net of tax:
Foreign currency translation adjustments (458) 37
Unrealized gains on securities:
Unrealized holding gains arising during period 515 --
Less reclassification adjustment for gains included
in net income (1,125) --
---------------------- --------------------
(610) --
---------------------- --------------------
Other comprehensive income (1,068) 37
---------------------- --------------------
Comprehensive income $ 2,183 $ 487
====================== ====================
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
4
<PAGE>
ESG RE LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
of ESG Re Limited and its subsidiaries (the "Company"), have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles of the United States of
America ("U.S. GAAP") for complete financial statements.
In the opinion of management, these unaudited financial statements
reflect all adjustments considered necessary for a fair presentation of
financial position, results of operations, cash flow and comprehensive income as
of and for the periods presented. These unaudited consolidated financial
statements should be read in conjunction with the audited consolidated financial
statements, and related notes thereto, included in the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1997.
The results of operations for the interim period ended March 31, 1998
are not necessarily indicative of the results to be expected for the full year.
In addition, the preparation of financial statements in accordance with U.S.
GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period, as well as the disclosure of such amounts.
Actual results could materially differ from those estimates and assumptions.
2. COMMITMENTS AND CONTINGENCIES
(a) Employment Contracts
The Company has entered into employments contracts with seven employees
for terms of three to five years, which carry total maximum commitments of $6.1
million (excluding any performance bonuses which are determined by the Board of
Directors of the Company). The contracts remunerate the employees for providing
services to the Company. The contracts include various non-compete clauses
following termination of employment.
5
<PAGE>
(b) Lease Commitments
The Company and its subsidiaries have various obligations under
operating leases.
The future minimum commitments under lease and employment agreements
are as follows:
<TABLE>
<CAPTION>
Employment Lease
U.S. dollars in thousands Commitments Commitments Total
- ---------------------------------------- ----------------------- ---------------------- --------------------
<S> <C> <C> <C>
Years Ending December 31,
1998 $ 2,005 $ 384 $ 2,389
1999 1,676 456 2,132
2000 1,478 469 1,947
2001 463 339 802
2002 401 77 478
Thereafter 100 -- 100
----------------------- ---------------------- --------------------
Total $ 6,123 $ 1,725 $ 7,848
======================= ====================== ====================
</TABLE>
6
<PAGE>
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
To the Board of Directors and Shareholders
of ESG Re Limited
We have reviewed the accompanying condensed consolidated balance sheet of ESG Re
Limited and subsidiaries as of March 31, 1998 and the related condensed
consolidated statements of operations, shareholders' equity and cash flows for
the three-month period ended March 31, 1998. These financial statements are the
responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and of making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to such condensed consolidated financial statements for them to be in
conformity with accounting principles generally accepted in the United States.
We have previously audited, in accordance with auditing standards generally
accepted in the United States, the consolidated balance sheet of ESG Re Limited
and subsidiaries as of December 31, 1997 and the related consolidated statements
of operations, shareholders' equity and cash flows for the year then ended (not
presented herein) and in our report dated February 19, 1998, we expressed an
unqualified opinion on those consolidated financial statements. In our opinion,
the information set forth in the accompanying condensed consolidated balance
sheet as of December 31, 1997 is fairly stated, in all material respects, in
relation to the consolidated balance sheet from which it has been derived.
/s/ Deloitte & Touche
- ---------------------
Hamilton, Bermuda
April 27, 1998
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following is a discussion and analysis of the financial condition
as of March 31, 1998 and the results of operations of ESG Re Limited and
subsidiaries (the "Company") for the three months ended March 31, 1997 and 1998.
This discussion and analysis should be read in conjunction with the attached
unaudited consolidated financial statements and notes thereto and the audited
consolidated financial statements of the Company as of and for the year ended
December 31, 1997 and notes thereto included in the Company's Annual Report to
Shareholders for the fiscal year ended December 31, 1997. The unaudited
consolidated financial statements as of and for the three months ended March 31,
1998 and notes thereto have been reviewed by independent accountants in
accordance with standards established by the American Institute of Certified
Public Accountants.
The results of operations and cash flows for any interim period are not
necessarily indicative of results for the full year. In addition, this quarterly
report contains forward-looking statements regarding future profit levels,
premium growth, cash flows and other matters, which involve risks and
uncertainties that may affect the actual results of operations of the Company.
The following important factors, among others, could cause actual results to
differ materially from those set forth in the forward-looking statements: claims
frequency, claims severity, economic activity, competitive pricing and the
regulatory environment in which the Company operates.
GENERAL
The Company is a specialty reinsurance enterprise which provides
accident, medical, credit, life and special risk reinsurance to insurers and
selected reinsurers on a worldwide basis and underwriting management services to
selected co-reinsurers.
On December 12, 1997, the Company raised gross proceeds of $257 million
in a private placement and an initial public offering (the "Offerings"). As a
result, the Company is now able to assume reinsurance risks for its own account.
Prior to the Offerings, the Company operated as a reinsurance management
services company. The March 31, 1998 financial results included herein represent
the Company's financial performance as a reinsurance entity. The March 31, 1997
results reflect the Company's financial performance as a reinsurance management
services company. Accordingly, comparison between the results of these two
periods is not meaningful.
8
<PAGE>
RESULTS OF OPERATIONS
NET INCOME
For the three months ended March 31, 1998, the Company wrote, on behalf
of itself and co-reinsurers, total premiums of $97.9 million due to a successful
renewal season and premiums from new business. The Company placed $11.8 million
with co-reinsurers, resulting in net premiums written for the three months ended
March 31, 1998 of $86.1 million. During this period, the Company incurred
expenses related to professional services in connection with improving
accounting and control systems and to hiring key executives. Additionally, the
Company made long-term investments in new business locations and computer system
improvements. As a result, total administrative expenses for the period were
$3.9 million or 4.6% of net premiums written and 10.1% of net premiums earned.
The loss and acquisition expense ratios for the three months ended March 31,
1998 were 67.4% and 22.7%, respectively. Net income for the three months ended
March 31, 1998 was $3.3 million.
Consolidated results of operations for the three months ended March 31,
1998 and 1997 were as follows:
U.S. dollars in thousands except per share data 1998 1997
- -----------------------------------------------------------------------------
Net income available to common shareholders $3,251 $450
Basic net income per share $0.23 $2.50
Diluted net income per share $0.23 $2.50
UNDERWRITING RESULTS
Until December 12, 1997 the Company operated as a reinsurance
management services company. In December 1997, the Company assumed 30% of the
pool business it previously managed on behalf of reinsurance clients,
retroactive to January 1, 1997. For the year ended December 31, 1997, the
Company managed approximately $100 million of gross premiums written of which it
assumed approximately $26 million. Gross and net premiums written and net
premiums earned for the three months ended March 31, 1998 were as follows:
9
<PAGE>
Three months ended
U.S. dollars in millions March 31, 1998
- ------------------------------------------------------------------------
Total premiums $97.9
Amount placed with co-reinsurers 11.8
Gross premiums written 86.1
Net premiums written 84.2
Net premiums earned 23.2
Gross premiums written for the three months ended March 31, 1998
consisted of the following:
New Business - approximately $53.8 million or 62% of gross
premiums written were generated from new business. A new
representative office in Toronto, Canada, which was opened in
October 1997 to serve the North American market, underwrote
$17.6 million of gross premiums written.
Two significant contracts for European medical, personal
accident and life business were underwritten in the first
quarter, including one for quota share treaty reinsurance
incepting January 1, 1997. These contracts contributed $23.7
million to gross premiums written and $12.8 million to net
premiums earned for the three months ended March 31, 1998.
Renewal Business - approximately $30.6 million or 36% of gross
premiums written was generated from renewal business.
Historically, the primary renewal period for the international
treaty reinsurance market has been the first quarter of each
calendar year.
1997 Underwriting Year - approximately $1.7 million or 2% of
gross premiums written was attributable to the 1997
underwriting year book of business following the Company's
re-evaluation of gross premiums written.
Underwriting results for the three months ended March 31, 1998, by line
of business and in total, were as follows:
10
<PAGE>
<TABLE>
<CAPTION>
Personal
U.S. dollars in thousands Medical Accident Special Credit Life Total
- ----------------------------- ----------- ------------ --------------- ------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Gross premiums written $43,134 $24,746 $4,992 $2,606 $10,623 $86,101
----------- ------------ --------------- ------------- ------------ -----------
Net premiums written 42,810 23,775 4,845 2,525 10,201 84,156
----------- ------------ --------------- ------------- ------------ -----------
Net premiums earned 7,536 9,144 570 624 5,345 23,219
Losses and loss expenses 5,323 5,923 249 469 3,678 15,642
Acquisition costs 1,886 1,983 210 100 1,091 5,270
Operating costs 759 921 58 63 538 2,339
----------- ------------ --------------- ------------- ------------ -----------
Net underwriting income (loss) $(432) $317 $53 $(8) $38 $(32)
----------- ------------ --------------- ------------- ------------ -----------
</TABLE>
Loss development with respect to the 1997 underwriting year portfolio
contributed a loss of $228 thousand, resulting primarily from additional losses
incurred in one medical contract in the Middle East.
OPERATING RATIOS
The operating ratios for the three months ended March 31, 1998, by line
of business and in aggregate were as follows:
<TABLE>
<CAPTION>
Personal Special In
Medical Accident Risk Credit Life Aggregate
------------- -------------- ------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Loss ratio 70.6% 64.8% 43.7% 75.2% 68.8% 67.4%
Acquisition expense ratio 25.0% 21.7% 36.9% 16.1% 20.4% 22.7%
------------- -------------- ------------- ------------- ------------- --------------
Loss and acquisition
expense ratio 95.6% 86.5% 80.6% 91.3% 89.2% 90.1%
------------- -------------- ------------- ------------- ------------- --------------
Operating expense ratio 10.1%
--------------
Combined ratio 100.2%
--------------
</TABLE>
The three months ended March 1, 1998 represent the first full quarter
that the Company has operated as a reinsurer writing for its own account. In
order to report a combined ratio which gives a meaningful indication of
operating results, the Company has included an operating expense ratio. The
operating expense ratio of 10.1% has been calculated by expressing total
administrative expenses net of management fee revenue and head office expenses,
as a percentage of net premiums earned.
11
<PAGE>
GEOGRAPHIC SPREAD
The increasing geographic diversification of the Company's
underwritings was demonstrated by the distribution of gross premiums written for
the three months ended March 31, 1998 and the year ended December 31, 1997, as
follows:
Three months Year ended
ended December 31,
March 31, 1998 1997
- --------------------- ------------------------ -----------------------
Western Europe 42.3% 52.3%
Eastern Europe 3.2% 5.3%
United Kingdom 5.0% 10.4%
North America 25.1% 1.5%
Latin America 14.3% 19.2%
Other 10.1% 11.3%
- --------------------- ------------------------ -----------------------
Total 100.0% 100.0%
- --------------------- ------------------------ -----------------------
PRODUCT MIX
The distribution of gross premiums written by line of business for the
three months ended March 31, 1998 and the year ended December 31, 1997 was as
follows:
Three months Year ended
ended December 31,
March 31, 1998 1997
- --------------------- ------------------------ -----------------------
Medical 50.1% 38.2%
Personal Accident 28.7% 35.8%
Credit/Life 15.4% 24.5%
Special Risk 5.8% 1.5%
- --------------------- ------------------------ -----------------------
Total 100.0% 100.0%
- --------------------- ------------------------ -----------------------
12
<PAGE>
EXPOSURE MANAGEMENT
The Company manages its underwriting risk exposures through an excess
of loss reinsurance program and co-reinsurance. The Company's excess liability
insurance policy generally provides limits up to a maximum of $30 million per
occurrence, with a minimum attachment point generally of $100,000.
All of the Company's non-North American business is co-reinsured with
three other reinsurance companies that have participations with underwriting
lines of 7.5%, 5.0% and 2.5%.
MANAGEMENT FEE REVENUE
Management fee revenue decreased by $1.4 million or 58% from $2.4
million for the three months ended March 31, 1997 to $970 thousand for the three
months ended March 31, 1998, as the primary focus of the Company's business
shifted from reinsurance management to acting as a reinsurer for its own
account. The management fee income for the three months ended March 31, 1998 was
comprised primarily of fees earned as compensation for underwriting and managing
the reinsurance portfolio on behalf of the Company's co-reinsurers.
INVESTMENT RESULTS
Net investment income and net realized investment gains for the three
months ended March 31, 1998 totaled $3.0 million and $1.2 million, respectively.
As of March 31, 1998, total investments and cash were $234.3 million consisting
mainly of the proceeds raised from the Offerings. As of March 31, 1997, the
Company had no investments other than cash.
The following table reflects the investment results for the three
months ended March 31, 1998:
<TABLE>
<CAPTION>
Net
Net Annualized Realized
Average Investment Effective Investment
(U.S. dollars in thousands) Investments(1) Income(2) Yield Gains
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fixed maturities $ 219,636 $2,922 5.3% $1,153
Short-term investments 6,263 58 3.7% ----
Cash and cash equivalents 8,256 40 1.9% ----
----------------------------------------------------------------------
Total $ 234,155 $3,020 5.2% $1,153
======================================================================
</TABLE>
(1) Average investments are net of pending trades.
(2) Net investment income is net of investment related expenses.
13
<PAGE>
The Company's investment portfolio was positively impacted by a general
increase in prices in the U.S. bond markets, which allowed net investment gains
to be realized on sales of fixed income securities during the period.
ADMINISTRATIVE EXPENSES
Total administrative expenses increased by $2.7 million or 221% from
$1.2 million for the three months ended March 31,1997, to $3.9 million for the
three months ended March 31, 1998. Administrative expenses consisted primarily
of personnel costs, professional fees and foreign exchange losses.
Personnel costs increased by $551 thousand from $488 thousand for the
three months ended March 31, 1997, to $1.0 million for the three months ended
March 31, 1998. This increase in personnel costs is due to the significant
investment in personnel made both prior to and since the Offerings and includes
additions of executives and staff at the holding company and representative
offices in Toronto, Canada and Sydney, Australia.
Professional service fees increased by $1.2 million from $174 thousand
for the three months ended March 31, 1997 to $1.3 million for the three months
ended March 31, 1998. These professional service fees related to the Company's
new public reporting requirements, staff recruiting efforts and computer systems
improvements.
Foreign exchange losses increased by $572 thousand for the three months
ended March 31, 1998 and were incurred as the U.S. dollar strengthened against
most of the other currencies in which the Company operates. These losses are
unrealized and were incurred on translation for reporting purposes. As the
Company maintains a natural hedge in which foreign currency assets are held in
the currencies in which it must pay liabilities, there is no impact on cash from
foreign currency losses.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1998, total investments and cash were $234.3 million
compared to $237.0 million as of December 31, 1997. All fixed maturity
securities in the Company's investment portfolio are classified as available for
sale and are carried at fair value. The following table summarizes the fixed
maturity investment portfolio as of March 31, 1998:
14
<PAGE>
<TABLE>
<CAPTION>
Duration Market Average
U.S. dollars in thousands Fair Value (Years) Yield Rating
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. treasury securities and
obligations of government
agencies and corporations $ 66,729 2.0 5.6% AAA
Obligations of states and
political subdivisions 17,373 5.7 6.1% AA
Corporate securities 131,138 3.1 6.1% AA
Foreign currency debt
securities 8,173 3.7 4.5 AAA
Total $ 223,413 2.9 5.8% AA
====================================================================
</TABLE>
By comparison, at December 31, 1997, the entire portfolio was invested
in U.S. treasury securities and obligations of government agencies and
corporations.
The Company's investment policy objective is to maximize long-term
investment returns while maintaining a liquid, high-quality portfolio. To this
end, the investment policy requires that the portfolio have an average credit
quality rating of AA and no more than 3% of the portfolio shall be invested in a
single issuer (other than issues of sovereign governments with a rating of AA or
better). The current target duration is 2.75 years.
The Company expects that its financial and operational needs for the
foreseeable future will be met by funds generated by operations.
Shareholders' equity increased by $1.4 million from $234.4 million as
of December 31, 1997, to $235.8 million as of March 31, 1998. The major factors
influencing the level of shareholders' equity in the three month period were the
$3.3 million of net income, partially offset by the declaration of a dividend of
$0.075 per common share or $1.0 million on March 9, 1998, an increase in
unrealized investment losses of $610 thousand and an increase in foreign
currency translation losses of $458 thousand. Basic book value per common share
increased to $16.92 as of March 31, 1998 from $16.83 as of December 31, 1997.
Diluted book value per share decreased to $16.39 from $16.61 due to the vesting
of 276,240 Class B Warrants on February 5, 1998.
CURRENT DEVELOPMENTS
A quarterly cash dividend of $0.075 per share was declared on May 4,
1998 by the Company's Board of Directors, payable May 27, 1998, to common
shareholders of record on May 18, 1998.
15
<PAGE>
CURRENCY
The Company's functional currency is the U.S. dollar. However, because
the Company underwrites reinsurance exposures, collects premiums and holds
investments in currencies other than the U.S. dollar, the Company experiences
foreign exchange gains and losses, which in turn affects the results of
operations.
The Company intends to hold investments in the currencies in which it
will collect premiums, pay claims and hold reserves, thus creating a natural
foreign exchange hedge so that resulting foreign exchange rate gains and losses
can be reduced to the extent assets equal liabilities. If in the future the
hedging strategy is not effective, the Company may consider other hedging
activities to reduce its foreign currency exposures.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT
MARKET RISK
Not applicable.
16
<PAGE>
PART II
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORT ON FORM 8-K
(a) Exhibits
Exhibit 10.1 Employment Agreement between ESG Re Limited and
Joan H. Dillard, dated as of March 23, 1998 (effective
April 1, 1998)
Exhibit 11.1 Computation of Earnings Per Share
Exhibit 15.1 Consent of Deloitte & Touche
Exhibit 27.1 Financial Data Schedule
17
<PAGE>
(b) Report on Form 8-K
The Company filed one report on Form 8-K during the reporting period on
February 27, 1998 to announce the resignation of Mr. Gerhard Jurk as a
Class 2 director of the Company and the appointment of Mr. Kenneth
Morse as his replacement to serve until the 1999 Annual General Meeting
of Shareholders and until his successors are duly elected and
qualified. The Company also announced that the Board resolved to
increase the size of the Board by one director, and that Mr. Steven H.
Debrovner was appointed to fill the resulting vacancy as a Class 3
director to serve until the 2000 Annual General Meeting of Shareholders
and until his successors are duly elected and qualified.
18
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
May 15, 1998
ESG RE LIMITED
By: /s/ JOAN H. DILLARD
-----------------------
Name: Joan H. Dillard
Title: Chief Financial Officer
19
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
AGREEMENT made effective as of the 23rd day of March, 1998, among ESG Re
Limited, a Bermuda company (the "Company") and its various subsidiaries and Joan
H. Dillard ("Executive").
WHEREAS, the Company wishes to retain the services of the Executive and
recognizes that the Executive's contribution to the growth and success of the
Company will be substantial; and
WHEREAS, the Executive is willing to commit herself to serve the Company, on the
term and conditions herein provided.
NOW, THEREFORE, in order to effect the foregoing, the Company and the Executive
wish to enter into an employment agreement on the terms and conditions set forth
below. Accordingly, in consideration of the premises and the respective
covenants and agreements of the parties herein contained, and intending to be
legally bound hereby, the parties hereto agree as follows:
1. EMPLOYMENT
The Company hereby agrees to employ the Executive, and the Executive
hereby agrees to be employed by the Company, on the terms and
conditions set forth herein.
2. TERM
The term of the Executive's employment hereunder shall commence as of
the date hereof and shall continue until the close of business on the
third anniversary of the date hereof, subject to earlier termination in
accordance with the terms of this Agreement (the "Term"). The Term
shall be automatically extended for successive one year periods
thereafter unless any of the parties notifies the other in writing of
its intention not to so extend the Term at least one year prior to the
commencement of the next scheduled one year extension.
3. POSITION AND DUTIES
(a) Title and Duties
----------------
The Executive shall serve a Chief Financial Officer of the
Company and shall have such duties, authority and
responsibilities as are normally associated with and
appropriate for such positions. The Executive shall
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report directly to the Chief Executive Officer of the Company.
The Executive shall devote substantially all of her working
time and efforts to the business and affairs of the Company,
at such locations, including Germany, Bermuda, Ireland and
Toronto and/or as mutually agreed upon by the Executive and
the Company. The Executive shall not serve as Director or
Officer of any unaffiliated companies, including but not
limited to, any charitable organization or chamber of commerce
without the written consent of the Company.
(b) Office and Facilities
---------------------
The Executive shall be provided with appropriate office and
secretarial facilities at the Company's offices in Hamburg,
Germany and any other location that the Company reasonably
deems necessary to have an office and support services in
order for the Executive to perform her duties to the Company.
The Executive shall serve as a Director or Officer of the
Company and shall agree to serve on other committees of the
Company or any other affiliated company, without additional
compensation, if so requested by the Company.
4. COMPENSATION
(a) Base Salary
-----------
During the Term, the Company shall pay to the Executive an
annual base salary of US $250,000. The Executive's base salary
shall be paid in substantially equal instalments on a basis
consistent with the Company's payroll practices. The
Executive's base salary, as in effect at any time, is
hereinafter referred to as the "Base Salary". The Compensation
Committee of the Board (the "Compensation Committee") shall
review the Executive's performance on an annual basis and may
increase the Executive's Base Salary, in its sole discretion,
as it deems appropriate.
At the request of the Executive, the Company will pay up to
70% of the Base Salary in Deutsche Mark.
(b) Annual Bonus
------------
The Compensation Committee may award the Executive an annual
bonus, at such time and in such amount as the Compensation
Committee, in its sole discretion, deems appropriate.
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5. EMPLOYEE BENEFITS
(a) Benefit Plans
-------------
The Executive shall be entitled to participate in all employee
benefit plans, which include worldwide medical, dental and
vision coverage, perquisite and fringe benefit arrangements of
the Company generally made available by the Company to its
executives, subject to, and on a basis consistent with the
terms, conditions and administration of such plans and
arrangements.
(b) Expenses
--------
The Executive shall be entitled to receive prompt
reimbursement for all reasonable and customary expenses
incurred by the Executive in performing services hereunder,
including all expenses of travel and living expenses while
away from home on business at the request of and in the
service of the Company or any of its affiliates and promoting
the business of the Company, provided that such expenses are
incurred and accounted for in accordance with the policies and
procedures established by the Company.
(c) Vacation
--------
The Executive shall be entitled to vacations and holidays on a
basis consistent with that offered to other senior executive
officers of the Company.
(d) Tax Equalization
----------------
In the event that the Executive will be subject to taxes in
excess of those that would otherwise have been due under US
tax code as a US citizen working in the US, ESG Re will
compensate the Executive for the difference.
6. TERMINATION OF EMPLOYMENT
The Company and the Executive may each terminate the Executive's
employment hereunder and the Term for any reason.
(a) Termination by the Company without Cause or by the Executive
for Good Reason
------------------------------------------------------------
If the Company shall terminate the Executive's employment
without "Cause" (as defined in Section 6(f)), or if the
Executive resigns for Good
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Reason (as defined in Section 6(f) then, the Executive shall
be entitled to her Base Salary for the greater of (1) the
remainder of the Term, or (2) one year, subject to and
conditioned upon the Executive's compliance with Sections 7
and 8 hereof. Options held by the Executive will be treated as
provided for in the applicable Award Agreement. In addition,
the company will reimburse reasonable relocation costs for a
move back to the United States.
Except as expressly provided above, the Company will have no
further obligations to the Executive hereunder following the
Executive's termination of employment under the circumstances
described in this Section 6(a).
(b) Termination due to Non-Renewal of the Term or Death or
Disability
------------------------------------------------------
If the Executive's employment is terminated due to the
non-renewal of the Term or due to the Executive's death or
disability (as defined in Section 6(f)), the Executive shall
be entitled to a lump sum cash payment equal to the
Executive's Base Salary through the date of termination.
Options held by the Executive will be treated as provided for
in the applicable Award Agreement. In addition, the Company
will reimburse reasonable relocation costs for a move back to
the United States for the spouse or named beneficiary.
Except as expressly provided above, the Company will have no
further obligations to the Executive hereunder following the
Executive's termination of employment under the circumstances
described in this Section 6(b).
(c) Termination by the Company for Cause of by the Executive other
than for Good Reason
--------------------------------------------------------------
If the Executive's employment is terminated by the Company for
Cause or by the Executive other than for Good Reason, the
Executive shall be entitled to a lump sum cash payment equal
to her Base Salary through the date of termination. Options
held by the Executive shall be treated as provided for in the
applicable Award Agreement.
Except as expressly provided above, the Company will have no
further obligations to the Executive hereunder following the
Executive's termination of employment under the circumstances
described in this Section 6(c).
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(d) Termination within one year of a Change in Control
--------------------------------------------------
If the Company terminates the Executive's employment without
Cause or the Executive terminates her employment for Good
Reason within one year following a Change in Control, the
Executive shall be entitled, in addition to the compensation
otherwise payable upon her termination of employment pursuant
to Section 6(a) above, to a lump sum payment which, when added
to the present value of all other benefits or payments to
which the Executive is entitled which would constitute
"Parachute Payments" (as defined in Section 28OG of the U.S.
Internal Revenue Code of 1986, as amended (the "Code"));
equals 2.99 times the Executive's "Base Amount" (as defined in
Section 28OG of the Code). In addition, the Company will
reimburse reasonable relocation costs for a move back to the
United States.
(e) Notice of Termination
---------------------
Any termination of the Executive's employment by the Company
or by the Executive (other than termination pursuant to the
Executive's death) shall be communicated by written Notice of
Termination to the other party hereto in accordance with
Section 11 hereof. If the Company terminates the Executive's
employment for Cause or if the Executive resigns for Good
Reason, the "Notice of Termination" shall mean a notice which
shall indicate the specific termination provision in this
Agreement relied upon and shall set forth in reasonable detail
the facts and circumstances claimed to provide a basis for
termination of the Executive's employment under the provision
so indicated. For purposes of this Agreement, the date of the
Executive's termination of employment shall be deemed to be
the date of receipt of the Notice of Termination.
(f) Definitions - For purpose of this Agreement:
-----------
(i) "Cause" shall mean
(1) The Executive's breach of any material term of this
Agreement, including, but not limited to, the
covenants set forth in Sections 7 and 8 hereof;
(2) The Executive's failure or refusal to perform her
duties hereunder or to perform specific directives of
the Company, provided that such directives do not
violate any applicable law or industry standards;
(3) Dishonesty of the Executive affecting the Company or
any affiliates;
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(4) Any gross or willful conduct of the Executive
resulting in substantial loss to or theft from any of
the Company or any affiliate; or substantial damage
to the Company's reputation or theft from the
Company; or
(5) Alcoholism or use of drugs or any controlled
substances which interferes with the performance of
the Executive's duties and responsibilities under
this Agreement;
(6) The Executive is charged with a felony or other
serious crime, whether or not related to the business
of the Company, including but not limited to, any
crime related to tax evasion, bribery, theft,
political payoffs, etc.
(ii) "Change in Control" shall mean the occurrence of any of the
following: (i) the sale, lease, transfer or other disposition,
in one or a series of related transactions, of all or
substantially all of the assets of the Company other than to
any of the Affiliates, or (ii) a merger or sale of the Company
pursuant to which the shareholders of the Company immediately
prior to such merger or sale do not own a majority of the
stock of the Company or the surviving corporation immediately
after such merger or sale.
(iii) "Disability" shall mean the Executive's adjudication as
mentally incompetent, or mental or physical disability
preventing the Executive from performing her duties under this
Employment Agreement for a period of 180 consecutive days.
(iv) "Good Reason" shall mean (1) a material diminution of the
Executive's duties (per Exhibit A as attached) or the
assignment to the Executive of a title or duties inconsistent
with her position as Chief Financial Officer of the Company,
(2) a material reduction mounting to at least 10% of the
Executive's base salary, or (3) a failure of the Company to
comply with any material provision of this Agreement.
7. NON-COMPETITION
(a) The Executive acknowledges and recognizes the highly
competitive nature of the businesses of the Company and its
affiliates and accordingly agrees as follows:
(i) During the Employment Term and for a period of 18
months following the Executive's termination of
employment (unless such termination of employment
occurs within one year following a Change in Control,
in which case this paragraph shall not be
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applicable) (the "Restricted Period"), the Executive
will not, unless the Executive is given written
permission by the Company, directly or indirectly,
(i) engage in any business for the Executive's own
account that competes with the business of the
Company or any of its affiliates that are engaged in
the insurance or reinsurance business (the "Company
Affiliates"),(ii) enter the employment of, or render
any services to, any person engaged in any business
that competes with the business of the Company or the
Company Affiliates, (iii) acquire a financial
interest in, or otherwise become actively involved
with, any person engaged in any business that
competes with the business of the Company or the
Company Affiliates, directly or indirectly, as an
individual, partner, shareholder, officer, director,
principal agent, trustee or consultant, or (iv)
interfere with business relationships (whether formed
before or after the date of this Agreement) of the
Company or the Company Affiliates.
(ii) Notwithstanding anything to the contrary in this
Agreement, the Executive may, directly or indirectly
own, solely as an investment, securities of any
person engaged in the business of the Company or the
Company Affiliates if the Executive (i) is not a
controlling person or a member of a group which
controls, such person and (ii) does not, directly or
indirectly, own more than one share less than 5% of
any class of securities of such person.
(iii) During the Restricted Period, the Executive will not,
directly or indirectly, (i) solicit or encourage any
employee of the Company or the Company Affiliates to
leave the employment of the Company or the Company
Affiliates, or (ii) hire any such employee who has
left the employment of the Company or the Company
Affiliates (other than as a result of the termination
of such employment by the Company or the Company
Affiliates) within one year after the termination of
such employees employment with the Company or the
Company Affiliates.
(iv) During the Restricted Period, the Executive will not,
directly or indirectly, solicit or encourage to cease
to work with the Company or the Company Affiliates
any consultant then under contract with the Company
or the Company Affiliates.
(b) It is expressly understood and agreed that although the
Executive and the Company consider the restrictions contained
in this Section 7 to be reasonable, if a final judicial
determination is made by a court of competent jurisdiction
that the time or territory or any other restriction contained
in this Agreement is an unenforceable restriction against the
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Executive, the provisions of this Agreement shall not be
rendered void but shall be deemed amended to apply as to such
maximum time and territory and to such maximum extent as such
court may judicially determine or indicate to be enforceable.
Alternatively, if any court of competent jurisdiction finds
that any restriction contained in this Agreement is
unenforceable, and such restriction cannot be amended so as to
make it enforceable, such finding shall not affect the
enforceability of any of the other restrictions contained
herein.
8. CONFIDENTIALITY
The Executive will not at any time (whether during or after her
employment with the Company) disclose or use for her own benefit or
purposes or the benefit or purposes of any other person, firm,
partnership, joint venture, association, corporation or other business
organization, entity or enterprise other than the Company and any of
their subsidiaries or affiliates, any trade secrets, information, data,
or other confidential information relating to customers, development
programs, costs, marketing & trading, investment, sales activities,
promotion, credit and financial data, financing methods, plans, or the
business and affairs of the Company or of any subsidiary or affiliate
of the Company, provided that foregoing shall not apply to information
which is not unique to the Company or any of its subsidiaries or
affiliates or which is generally known to the industry or the public
other than as a result of the Executive's breach of this covenant. The
Executive agrees that upon termination of her employment with the
Company for any reason, she will return to the Company immediately all
memoranda, books, papers, plans, information, letters and other data,
and all copies thereof or therefrom, in any way relating to the
business of the Company and its affiliates, except that she may retain
personal notes, notebooks and diaries. The Executive further agrees
that she will not retain or use for her account at any time any trade
names, trademarks or other proprietary business designations used or
owned in connection with the business of the Company or their
affiliates.
9. EQUITABLE RELIEF
The Executive acknowledges and agrees that the Company's remedies at
law for a breach or threatened breach of any of the provisions of
Section 7 or Section 8 would be inadequate and, in recognition of this
fact, the Executive agrees that, in the event of such a breach or
threatened breach, in addition to any remedies at law, the Company,
without posting any bond or security, shall be entitled to obtain
equitable relief in the form of specific performance, temporary
restraining order, temporary or permanent injunction or any other
equitable remedy which may then be available.
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10. SUCCESSORS; BINDING AGREEMENT
(a) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of the
Company to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession
had taken place. As used in this Agreement, "Company" shall
mean the Company as herein defined and any successor to its
business and/or assets as aforesaid which executes and
delivers the agreement provided for in this Section 10 or
which otherwise becomes bound by all the terms and provisions
of this Agreement by operation of law.
(b) This Agreement and all rights of the Executive hereunder shall
inure to the benefit of and be enforceable by the Executive's
personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If
the Executive should die while any amounts an payable to her
hereunder all such amounts unless otherwise provided herein,
shall be paid in accordance with the terms of this Agreement
to the Executive's devisee, legatee, or other designee or, if
there be no such designee, to the Executive's estate.
11. NOTICE
For the purpose of this Agreement, notices, demands and all other
communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given when personally delivered with
receipt acknowledged or after having been received by certified or
registered mail, return receipt requested, postage prepaid, addressed
as follows:
If to the Executive:
Joan R Dillard
Oberstrasse 75
D - 20144 Hamburg
If to the Company:
ESG Re Limited
Skandia International House
16 Church Street
Hamilton, HM 11
Bermuda
Attention: Chairman
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or to such other address as any party may have furnished to the other
in writing in accordance herewith, except that notices of change of
address shall be effective only upon receipt.
12. MISCELLANEOUS
No provisions of this Agreement may be modified, waived or discharged
unless such waiver, modification or discharge is agreed to in writing
signed by the Executive and such officer of the Company as may be
specifically designated by the Company as the case may be. No waiver by
any party hereto at any time of any breach by the other party hereto
of, or compliance with, any condition or provision of this Agreement to
be performed by such other party shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same or at any prior or
subsequent time. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of Bermuda
without regard to its conflicts of law principles.
13. VALIDITY
The invalidity or unenforceability of any provision or provisions of
this Agreement shall not affect the validity or enforceability of any
other provision of this Agreement, which shall remain in full force and
effect.
14. COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
15. WITHHOLDING
The Company may withhold from any amounts payable under this Agreement
such federal state and local and foreign taxes as may be required to be
withheld pursuant to applicable law or regulation.
16. ENTIRE AGREEMENT
This Agreement sets forth the entire agreement of the parties hereto in
respect of the subject matter contained herein and supersedes all prior
agreements, promises, covenants, arrangements, communications,
representations or warranties, whether oral or written, by any officer,
employee or representative of any party hereto, including any prior
employment agreements other than those contained in the employment
offer dated 5th of March, 1998.
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IN WITNESS WHEREOF, the Company has caused this Agreement to be duly executed
and the Executive has hereunto set his hand, effective as of 23rd day of March,
1998.
ESG Re Limited
By:
------------------------------
Name: W.H. Wan
Title: CEO
Joan H. Dillard
-----------------------------
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EXHIBIT A
CHIEF FINANCIAL OFFICER
ESG RE LIMITED
DUTIES AND RESPONSIBILITIES
1. Manage the Company's accounting, SEC and other regulatory reporting
functions.
2. Ensure the conformance of an international operation with SEC and
international accounting and reporting standards.
3. Establish and maintain a financial/tax analysis, reporting, budgeting
and planning capability that provides appropriate management
information and accountability reporting.
4. Represent the Company in its dealings with shareholders, regulators,
rating agencies and equity analysts; manage overall investors relations
activities and communications.
5. Play a key role in the development and implementation of the Company's
strategy; serve on the Company's Executive Committee.
6. Evaluate and maintain optimal capital structure; lead capital raising
efforts in public or private markets, as necessary.
7. Evaluate and recommend investment policy and strategy consistent with
Company parameters of credit rating, liquidity and liability
characteristics; ensure conformance with stated policy and strategy.
Evaluation, recommendation, policy and strategy will include both the
invested asset portfolio and strategic investments, mergers or
acquisitions.
8. Supervise the Company's systems (IT) operation and development.
9. Manage Treasury operations, including risk management, cash management,
banking relationships and credit facilities, pension and benefit plans.
10. Evaluate adequacy of loss reserves.
11. Provide personnel functions and support to the Company, including:
development of incentive compensation plans, human resource planning
and development, establishing appropriate hiring policies and
practices, implementing and administering all policies and procedures.
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12. Direct and provide management to the General Counsel of the Company or
legal staff, as required.
13. Ensure that an overall integrated framework of internal control is
maintained and that compliance is achieved.
14. Provide regular communication and information to the Board of Directors
regarding the financial results of the Company, significant business
and financial issues, and other items or requests that may arise.
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EXHIBIT 11.1
COMPUTATION OF EARNINGS PER SHARE
The following is a reconciliation of the numerators and denominators of
the basic and diluted earnings per share computations for income from continuing
operations:
<TABLE>
<CAPTION>
Income Shares Per Share
U.S. dollars in thousands except share and per share data (Numerator) (Denominator) Amount
- --------------------------------------------------------- ----------- ------------- ---------
Three Months Ended March 31, 1998
- ---------------------------------------------------------
<S> <C> <C> <C>
Basic earnings per share
Income available to common shareholders $ 3,251 13,923,799 $ 0.23
Effect of Dilutive Securities:
Class A Warrants 292,123
Director and Employee Options 99,344
Class B Warrants 58,425
---------------------------------------------------
Diluted earnings per share
Income available to common shareholders $ 3,251 14,373,691 $ 0.23
===================================================
Three Months Ended March 31, 1997
- ---------------------------------------------------------
Basic and diluted earnings per share
Income available to common shareholders $ 450 180,000 $ 2.50
===================================================
</TABLE>
The Company was recapitalized in December 1997. In order to provide a
presentation comparable to 1998, all 1997 share amounts used in the earnings per
share calculation have been presented on a recapitalized basis.
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EXHIBIT 15.1
April 27, 1998
ESG Re Limited
Skandia International House
#16 Church Street
Hamilton, Bermuda
We have made a review, in accordance with standards established by the American
Institute of Certified Public Accounts, of the unaudited interim financial
information of ESG Re Limited and subsidiaries for the three month periods ended
March 31, 1998 and 1997, as indicated in our report dated April 27, 1998;
because we did not perform an audit, we expressed no opinion on that
information.
We are aware that our report referred to above which is included in your
Quarterly Report on Form 10-Q for the quarter ended March 31, 1998, is
incorporated by reference in Registration Statement #333-40341 on Form S-8.
We are also aware that the aforementioned report, pursuant to Rule 436(c) under
the Securities Act of 1933, is not considered a part of the Registration
Statement prepared or certified by an accountant or a report prepared or
certified by an accountant within the meaning of Sections 7 and 11 of that Act.
Deloitte & Touche
Chartered Accountants
Hamilton, Bermuda
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<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
This schedule contains summary financial information extracted from the
condensed consolidated balance sheet at March 31, 1998 and consolidated
statement of income for the quarter ended March 31, 1998, and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0001049624
<NAME> ESG RE LTD.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<DEBT-HELD-FOR-SALE> 223,413
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 224,026
<CASH> 10,315
<RECOVER-REINSURE> 875
<DEFERRED-ACQUISITION> 20,081
<TOTAL-ASSETS> 364,138
<POLICY-LOSSES> 20,358
<UNEARNED-PREMIUMS> 73,832
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
0
0
<COMMON> 13,924
<OTHER-SE> 221,622
<TOTAL-LIABILITY-AND-EQUITY> 364,138
23,219
<INVESTMENT-INCOME> 3,020
<INVESTMENT-GAINS> 1,153
<OTHER-INCOME> 970
<BENEFITS> 15,642
<UNDERWRITING-AMORTIZATION> 5,270
<UNDERWRITING-OTHER> 0
<INCOME-PRETAX> 3,538
<INCOME-TAX> 287
<INCOME-CONTINUING> 3,251
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,251
<EPS-PRIMARY> 0.23
<EPS-DILUTED> 0.23
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
