SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): March 7, 2000
ESG RE LIMITED
(Exact Name of Registrant as Specified in its Charter)
Bermuda 000-23481 Not Applicable
(State or Other Jurisdiction of (Commission File Number) (IRS Employer
Incorporation) Identification No.)
16 Church Street Not Applicable
Hamilton HM11, Bermuda (Zip Code)
(Address of Principal Executive Offices)
(441) 295-2185
(Registrant's telephone number, including area code)
(Former Name or Former Address, if Changed Since Last Report)
ITEM 5. OTHER EVENTS.
ESG Re Limited reported a fourth quarter, 1999 consolidated net loss of
$26.3 million, or $2.04 per share in disclosing the company's financial
results for the three months ended December 31, 1999. The company has also
reported (i) the repurchase of 2,464,600 common shares, or 18% of the
original shares outstanding, and (ii) a dividend of $0.08 per common share.
Additionally, Standard & Poor's lowered its long-term counterparty credit
and insurer financial strength ratings on the company to double-'B'- plus
from triple -'B'.
ITEM 7. EXHIBITS.
Exhibit 99 News Release dated March 7, 2000 is attached.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: March 14, 2000
ESG RE LIMITED
By: /s/ Joan H. Dillard
-------------------------------
Joan H. Dillard
Chief Financial Officer
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<PAGE>
- --------------------------------------------------------------------------------
ESG
INTELLIGENT
REINSURANCE
FOR IMMEDIATE RELEASE
Contacts: ESG Re Limited
Joan Dillard
Chief Financial Officer
353 1-675-0265 (Dublin)
e--mail: [email protected]
ESG RE LIMITED COMPLETES STRATEGIC REPOSITIONING AND REPORTS 1999
FOURTH QUARTER RESULTS
- --------------------------------------------------------------------------------
HAMILTON, BERMUDA, March 7,2000 - ESG Re Limited (NASDAQ: ESREF) today reported
results for the fourth quarter.
For the fourth quarter of 1999, ESG Re Limited reported a consolidated net loss
of $26.3 million, or $2.04 per share.
A reinsurance underwriting loss of $16.6 million was incurred in the quarter
primarily as a result of the deterioration of several North American medical
accounts written through ESG's London office plus reserve strengthening for
potential developments in this market.
Commenting on the developments, John C. Head III, Chairman and Chief Executive
Officer of ESG Re Limited, said, "Since the third quarter of last year ESG has
made significant accomplishments by refocusing its business and restructuring
the management team. We are on plan to execute the transformation of ESG's
Health Care division into an investment. We have added considerable strength to
our team with the addition of Alasdair Davis, Chief Underwriting Officer and
Tony Jeffery, Chief Actuary. We have completed the staffing of our Shared
Services Center in Dublin and it is now fully operational."
Looking forward, Head added, "Our key markets of Latin America, Asia and Europe
continue to perform well and represent our best opportunity to capture the
widest profit margins. We have trimmed excess capital through our stock
repurchase program to set the stage for enhanced shareholder returns. We have a
strong management team and the systems and infrastructure to support a global
business. Reserves for London medical programs have been strengthened to
recognize weaknesses in our most competitive market."
Results
For the three months ended December 31, 1999, the Company's net loss of $26.3
million compares to net income of $4.0 million for the fourth quarter of 1998.
For the twelve months ended December 31, 1999, the Company had a net loss of
$42.0 million, compared to net income of $14.5 million for the same period in
1998. Net loss per share for the three months ended December 31, 1999 was $2.04
compared to net income per share of $0.29 for the fourth quarter
<PAGE>
of 1998. Net loss per share for the twelve months ended December 31, 1999 was
$3.17 compared to net income per share of $1.03 for the twelve months ended
December 31, 1998, on a diluted basis. Net operating loss for the fourth quarter
1999, which excludes realized investment gains and losses and loss on equity
investments, was $1.96 per share.
For the three months ended December 31, 1999, the Company underwrote a book of
$81.7 million of gross premiums, of which it assumed $69.9 million for its own
account. For the three months ended December 31, 1998, ESG underwrote $46.8
million of gross premiums for itself and co-reinsurers, of which it assumed
$38.0 million for its own account.
For the twelve months ended December 31, 1999, gross premiums increased by 55%
compared to the year ended December 31, 1998. The Company underwrote a book of
$348.3 million of gross premiums, of which it assumed $313.6 million for its own
account. For the year ended December 31, 1998, ESG underwrote $224.2 million of
gross premiums for itself and co-reinsurers, of which it assumed $195.6 million
for its own account.
Total revenues for the three months ended December 31, 1999 were $59.0 million,
compared to $35.7 million for the three months ended December 31, 1998. Total
revenues for the twelve months ended December 31, 1999 were $263.5 million,
compared to $115.8 million for the prior year.
Total expenses for the three months ended December 31, 1999 were $84.9 million,
compared to $31.3 million for the three months ended December 31, 1998. Total
administrative expenses of $12.0 million include $7.2 million of reinsurance
operating expenses, $3.2 million of health care operating expenses and $1.6
million of holding company expenses. For the three months ended December 31,
1998, total administrative expenses of $3.2 million include $3.1 million of
reinsurance operating expenses and $0.1 million of holding company expenses.
Total expenses for the twelve months ended December 31, 1999 were $304.7
million, compared to $100.0 million for the twelve months ended December 31,
1998. Total administrative expenses of $38.4 million include $23.7 million of
reinsurance operating expenses, $11.9 million of health care operating expenses
and $2.8 million of holding company expenses. For the twelve months ended
December 31, 1998, total administrative expenses of $12.0 million include $10.7
million of reinsurance operating expenses and $1.3 million of holding company
expenses.
At December 31, 1999, total assets were $612.2 million and shareholders' equity
was $177.0 million, or $15.26 per common share. At December 31, 1998,
shareholders' equity per common share was $17.58.
Reinsurance Operating Results
The loss and acquisition expense ratios for the three months ended December 31,
1998 and 1999, were 89.6% and 129.5%, respectively. For the twelve months ended
December 31, 1998 and 1999, the loss and acquisition expense ratios were 89.1%
and 106.7%, respectively.
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<PAGE>
The combined ratio for the three months ended December 31, 1999 was 142.3%,
compared to 98.0% for the three months ended December 31, 1998. The operating
expense ratio for the fourth quarter 1999 was 12.8%, compared to 8.4% for the
fourth quarter 1998.
The combined ratio for the twelve months ended December 31, 1999 was 116.2%
compared to 98.0% for the twelve months ended December 31, 1998. The operating
expense ratio for the year ended December 31, 1999 was 9.5%, compared to 8.9%
for 1998.
Share Repurchase Program
The Company has repurchased a total of 2,464,600 common shares, or 18% of the
original shares outstanding.
Dividend Declaration
Separately, the Board of Directors has declared a dividend of $0.08 per common
share payable on March 30, 2000, to shareholders of record on March 15, 2000.
ESG Re Limited provides medical, personal accident, credit life and disability
and special risks reinsurance to insurers and selected reinsurers on a
world-wide basis. The Company distinguishes itself by offering "intelligent
reinsurance" products and services that help its ceding clients to better manage
their risks. These include solutions to particular underwriting problems,
actuarial support, product design, and, in the field of medical expense
reinsurance, loss prevention and disease management.
Uncertainties related to forward looking statements: Certain statements in this
Press Release constitute "forward looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Such forward-looking statements
involve known and unknown risks, uncertainties and other factors, which may
cause the actual results, performance or achievements of the company to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
among other things, the following: The Company's lack of history as a reinsurer
and its increased scope of business: the company's dependence on key clients;
the volatility and unpredictability of the risks the company insures; the
cyclical nature of the reinsurance market; competition and the company's
evaluation by insurance rating agencies; changes in tax laws and regulations;
foreign currency fluctuation; and the adequacy of loss reserves. A further
discussion of factors that could affect the Company's results is included in
reports filed by the Company with the Securities and Exchange Commission and in
the Company's Prospectus dated December 12, 1997.
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<PAGE>
ESG RE LIMITED
Condensed Consolidate Balance Sheets
(U.S. dollars in thousands except share and per share data)
<TABLE>
<CAPTION>
Unaudited
December 31, 1999 December 31, 1998
----------------- -----------------
<S> <C> <C>
ASSETS
Investments $ 181,155 $ 212,387
Cash and cash equivalents 28,468 16,942
Other Investments 12,116 5,917
--------- ---------
Total investments and cash 221,739 235,246
Accrued investment income 3,367 3,629
Management fees receivable 2,003 3,164
Reinsurance balances receivables 276,112 168,274
Reinsurance recoverable on incurred losses 11,462 2,761
Funds retained by ceding companies 15,541 3,592
Prepaid reinsurance premiums 14,778 2,276
Deferred acquisition costs 57,807 37,625
Receivable for securities sold -- --
Deferred tax asset -- 843
Other Assets 6,071 2,222
Cash and cash equivalents held in a fiduciary capacity 3,364 6,741
--------- ---------
TOTAL ASSETS $ 612,244 $ 466,373
========= =========
LIABILITIES
Unpaid losses and loss expenses $ 136,935 $ 44,379
Unearned premiums 186,797 111,884
Acquisition costs payable 73,755 45,487
Reinsurance balances payable 26,025 7,114
Payable for securities purchased 241 --
Accrued expenses, accounts payable, and other liabilities ($125 and
$204 dueto related parties) 8,122 5,927
Fiduciary liabilities 3,364 6,741
--------- ---------
Total liabilities 435,239 221,532
--------- ---------
SHAREHOLDERS' EQUITY
Common shares, par value $1 per share; 100,000,000 shares authorized; 11,598,799
shares issued and outstanding for 1999 and 13,923,799
shares issued and outstanding for 1998 11,599 13,924
Additional paid-in capital 212,487 226,216
Accumulated other comprehensive income:
Foreign currency translation adjustment, net of tax (1,702) (574)
Unrealized gains/(losses) on securities, net of reclassification
adjustments and tax (3,612) 634
--------- ---------
Accumulated other comprehensive income (5,314) 60
--------- ---------
Retained earnings (41,767) 4,641
--------- ---------
Total shareholders' equity 177,005 244,841
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 612,244 $ 466,373
========= =========
Book Value per share $ 15.26 $ 17.58
========= =========
</TABLE>
<PAGE>
ESG RE LIMITED
Condensed Consolidate Statement of Operations
(U.S. dollars in thousands except share and per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Twelve Months Ended
December 31, December 31 December 31, December 31,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES
Net premiums written $ 69,850 $ 37,981 $ 313,638 $ 195,578
Change in unearned premiums (13,568) (6,583) (64,085) (96,737)
------------ ------------ ------------ ------------
Net premiums earned 56,282 31,398 249,553 98,841
Management fee revenue 751 514 2,532 1,894
Net investment income 3,041 3,340 13,575 12,930
Loss on equity investments (205) -- (205) --
Net realized investment (loss)/gain (838) 451 (1,974) 2,162
------------ ------------ ------------ ------------
59,031 35,703 263,481 115,827
------------ ------------ ------------ ------------
EXPENSES
Losses and loss expenses 59,345 18,442 200,016 61,364
Acquisition costs 13,552 9,686 66,230 26,714
Administrative expenses 12,011 3,195 38,414 11,965
------------ ------------ ------------ ------------
84,908 31,323 304,660 100,043
------------ ------------ ------------ ------------
NET (LOSS)/INCOME BEFORE TAXES (25,877) 4,380 (41,179) 15,784
Income tax expense 422 350 815 1,262
------------ ------------ ------------ ------------
NET (LOSS)/INCOME $ (26,299) $ 4,030 $ (41,994) $ 14,522
------------ ------------ ------------ ------------
PER SHARE DATA
Basic net (loss)/income per share $ (2.04) $ 0.29 $ (3.17) $ 1.04
------------ ------------ ------------ ------------
Diluted net (loss)/income per share $ (2.04) $ 0.29 $ (3.17) $ 1.03
------------ ------------ ------------ ------------
Weighted average shares outstanding
Basic 12,907,175 13,923,799 13,260,214 13,923,799
Diluted 12,907,175 13,923,799 13,260,214 14,076,443
------------ ------------ ------------ ------------
Dividends declared per share $ 0.08 $ 0.075 $ 0.32 $ 0.30
------------ ------------ ------------ ------------
</TABLE>
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<PAGE>
ESG RE LIMITED
Statement of Operations
(U.S. dollars in thousands except for per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Twelve Months Ended
December 31, December 31, December 31, December 31,
REINSURANCE DIVISION 1999 1998 1999 1998
- --------------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Gross Managed Premium $ 18,737 $ 46,800 $ 348,265 $ 224,200
Co-Reinsurance 2,971 (7,789) (14,837) (24,328)
--------- --------- --------- ---------
Gross Premium Written 84,708 39,011 333,428 199,872
Retroceded (14,858) (1,030) (19,790) (4,294)
--------- --------- --------- ---------
Net Premium Written 69,850 37,981 313,638 195,578
Net Premium Earned Less: 56,282 31,398 249,553 98,841
Losses & Loss Adjustment Expenses (59,345) (18,422) (200,016) (61,364)
Acquisition Costs (13,552) (9,686) (66,230) (26,714)
--------- --------- --------- ---------
Total Underwriting Expenses (72,897) (28,128) (266,246) (88,078)
--------- --------- --------- ---------
(Loss)/Profit from Underwriting (16,615) 3,270 16,693 10,763
Operating Expenses (7,189) (3,125) (23,664) (10,665)
Net Investment Income 3,041 3,340 13,524 12,930
Loss on equity investments (205) -- (205) --
Net realized investment gains/(losses) (838) 451 (1,974) 2,162
Management Fee Revenue 751 514 2,283 1,894
--------- --------- --------- ---------
Net (Loss)/Income before Taxes $ (21,055) $ 4,450 $ (26,729) $ (17,084)
========= ========= ========= =========
<CAPTION>
Three Months Ended Twelve Months Ended
HEALTH CARE DIVISION December 31, December 31, December 31, December 31,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Management Fee Income $ -- $ -- $ 249 $ --
Investment Income -- -- 51 --
--------- --------- --------- ---------
Total Income -- -- 300 --
--------- --------- --------- ---------
Less:
Personnel Expense (585) -- (1,163) --
Professional Services Fees (1,660) -- (2,456) --
Heart Monitoring Technology services (263) -- (1,558) --
Expenses Associate with COMED (547) -- (5,997)
Other Expenses (123) -- (750)
--------- --------- --------- ---------
Total Expenses (3,178) -- (11,924) --
--------- --------- --------- ---------
Net (Loss) before Taxes $ (3,178) $ -- $ (11,624) $-
========= ========= ========= =========
HOLDING COMPANY $ (1,644) $ (70) $ (2,826) ($ 1,300)
========= ========= ========= =========
TOTAL
Net (Loss)/Income before Taxes $ (25,877) $ 4,380 $ (41,179) $ 15,784
========= ========= ========= =========
</TABLE>
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<PAGE>
ESG RE LIMITED
Product Mix (Gross Written Premium)
The distribution of gross premiums written by line of business for the three
months and twelve months ended December 31, 1999 and for the year ended December
31, 1998 was as follows:
<TABLE>
<CAPTION>
Three months ended Year ended Year ended
December 31, 1999 December 31, 1999 December 31, 1998
------------------ ----------------- -----------------
<S> <C> <C> <C>
Medical 79.3% 76.2% 59.6%
Personal Accident 12.3% 19.9% 26.1%
Credit 6.7% 0.3% 6.2%
Life 1.0% 1.8% 5.5%
Special Risk 0.5% 0.8% 2.6%
Other 0.2% 1.0% --%
------ ------ ------
Total 100.% 100.0% 100.0%
Geographic Mix (Gross Written Premium)
The distribution of gross written premiums for the three months and twelve
months ended December, 1999, and for the year ended December 31, 1998, is as
follows:
<CAPTION>
Three months ended Year ended Year ended
December 31, 1999 December 31, 1999 December 31, 1998
------------------ ----------------- -----------------
<S> <C> <C> <C>
Western Europe 3.2% 21.2% 30.9%
North America 83.8% 63.5% 46.2%
Latin America 13.7% 9.8% 14.9%
Other (0.7)% 5.5% 8.0%
------ ------ ------
Total 100.% 100.0% 100.0%
Fixed Maturity Investment Portfolio at December 31, 1999
<CAPTION>
Fair Duration Market Average
U.S. dollars in thousands Value (Years) Yield Credit Rating
- ------------------------- -------- -------- ------ -------------
Corporate securities $102,355 3.0 7.2% A+
U.S. treasury securities and obligations of U.S. government
corporations and agencies 21,329 2.7 6.2% AAA
Mortgage & Asset backed securities 23,486 1.0 7.8% AAA
Obligations of states and political subdivisions 16,281 2.3 7.1% AA+
Foreign currency debt securities 13,719 3.7 4.7% AAA
-------- ------- ------- ------
Total $177,170 2.7 7.0% AA
-------- ------- ------- ------
</TABLE>
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<PAGE>
ESG RE LIMITED
Operating Ratios (Net Earned Premium)
<TABLE>
<CAPTION>
Three months ended Personal Special
December 31, 1999 Medical Accident Risk Credit Life Other Total
- ------------------ --------- -------- ---- ------ ---- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Loss ratio 112.4% 97.4% 71.8% 73.6% 109.0% (118.7)% 105.4%
Acquisition expense ratio 26.9% 18.0% 39.3% 17.3% 21.0% 0.6% 24.1%
----- ----- ----- ----- ------ ----- -----
Loss and acquisition expense
Ratio 139.3% 115.4% 111.1% 90.9% 130.0% (118.1)% 129.5%
----- ----- ----- ----- ------ ----- -----
Operating expense ratio 12.8%
-----
Combined ratio 142.3%
=====
Three months ended Personal Special
December 31, 1998 Medical Accident Risk Credit Life Other Total
- ------------------ --------- -------- ---- ------ ---- ----- -----
Loss ratio 60.2% 53.0% 79.4% 67.0% 70.3% --% 58.7%
Acquisition expense ratio 35.4% 28.9% 29.7% 19.9% 10.4% --% 30.9%
----- ----- ----- ----- ------ ----- -----
Loss and acquisition expense
Ratio 95.6% 81.9% 109.1% 86.9% 80.7% --% 89.6%
----- ----- ----- ----- ------ ----- -----
Operating expense ratio 8.4%
-----
Combined ratio 98.0
=====%
Three months ended Personal Special
December 31, 1999 Medical Accident Risk Credit Life Other Total
- ------------------ --------- -------- ---- ------ ---- ----- -----
Loss ratio 82.2% 77.7% 29.7% 61.6% 83.6% 37.0% 80.2%
Acquisition expense ratio 28.1% 21.9% 38.6% 20.2% 15.8% 28.9% 26.5%
----- ----- ----- ----- ------ ----- -----
Loss and acquisition expense
Ratio 110.3% 99.6% 68.3% 81.8% 99.4% 65.9% 106.7%
----- ----- ----- ----- ------ ----- -----
Operating expense ratio 9.5%
-----
Combined ratio 116.2%
=====
Three months ended Personal Special
December 31, 1998 Medical Accident Risk Credit Life Other Total
- ------------------ --------- -------- ---- ------ ---- ----- -----
Loss ratio 60.3% 63.0% 33.4% 71.0% 75.7% --% 62.1%
Acquisition expense ratio 34.8% 22.2% 35.2% 17.2% 11.6% --% 27.0%
----- ----- ----- ----- ------ ----- -----
Loss and acquisition expense
Ratio 95.1% 85.2% 68.6% 88.2% 87.3% --% 89.1%
----- ----- ----- ----- ------ ----- -----
Operating expense ratio 8.9%
-----
Combined ratio 98.0%
=====
</TABLE>
