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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-23625
ANNUITY AND LIFE RE (HOLDINGS), LTD.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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BERMUDA NOT APPLICABLE
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
</TABLE>
CUMBERLAND HOUSE, VICTORIA STREET, HAMILTON, BERMUDA
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
441-296-7667
(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 November 4, 1999 was 25,499,999.
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INDEX TO FORM 10-Q
PART I -- FINANCIAL INFORMATION
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ITEM 1. Unaudited Consolidated Financial Statements
Consolidated Balance Sheets September 30, 1999 (unaudited)
and December 31, 1998....................................... 3
Unaudited Consolidated Statements of Operations Three and
Nine Months ended September 30, 1999 and 1998............... 4
Unaudited Consolidated Statements of Comprehensive Income
Three and Nine Months ended September 30, 1999 and 1998..... 5
Unaudited Consolidated Statements of Cash Flows Nine Months
ended September 30, 1999 and 1998........................... 6
Unaudited Consolidated Statements of Changes in
Stockholders' Equity Nine Months ended September 30, 1999
and 1998.................................................... 7
Notes to Unaudited Consolidated Financial Statements........ 8-9
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 10-13
PART II -- OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K............................ 14
Signatures........................................................... 15
Exhibits............................................................. 16
</TABLE>
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ANNUITY AND LIFE RE (HOLDINGS), LTD.
CONSOLIDATED BALANCE SHEETS
UNAUDITED
(EXPRESSED IN UNITED STATES DOLLARS)
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SEPTEMBER 30, 1999 DECEMBER 31, 1998
------------------ -----------------
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ASSETS
Cash and cash equivalents.................................. $ 24,570,501 $ 66,586,267
Fixed maturity investments, available for sale, at fair
value (amortized cost of $286,335,811 at September 30,
1999: $272,305,333 at December 31,1998).................. 278,677,940 276,027,927
Funds withheld at interest................................. 1,534,635,029 1,200,101,268
Accrued investment income.................................. 3,895,294 3,812,062
Receivable for investments sold............................ 613,031 --
Deferred policy acquisition costs.......................... 209,912,109 159,582,286
Other assets............................................... 3,760,046 400,370
-------------- --------------
Total Assets..................................... $2,056,063,950 $1,706,510,180
============== ==============
LIABILITIES
Reserves for future policy benefits........................ $ 30,863,731 $ 22,026,409
Interest-sensitive contracts liabilities................... 1,625,982,866 1,283,675,809
Other reinsurance liabilities.............................. 4,151,185 22,455,437
Payable for investments purchased (Investment pending
settlement).............................................. 3,623,344 --
Accounts payable and accrued expenses...................... 4,475,283 3,012,279
-------------- --------------
Total Liabilities................................ $1,669,096,409 $1,331,169,934
STOCKHOLDERS' EQUITY
Preferred Shares (par value $1.00; 50,000,000 shares
authorized; no shares outstanding)....................... $ -- $ --
Common Shares (par value $1.00; 100,000,000 shares
authorized; 25,499,999 shares outstanding)............... 25,499,999 25,499,999
Additional paid-in capital................................. 329,517,104 329,517,104
Notes receivable from stock sales.......................... (1,266,891) (1,391,068)
Accumulated other comprehensive (loss) income.............. (7,657,871) 3,722,594
Retained earnings.......................................... 40,875,200 17,991,617
-------------- --------------
Total Stockholders' Equity....................... $ 386,967,541 $ 375,340,246
-------------- --------------
Total Liabilities and Stockholders' Equity....... $2,056,063,950 $1,706,510,180
============== ==============
</TABLE>
See accompanying notes to unaudited consolidated financial statements
3
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ANNUITY AND LIFE RE (HOLDINGS), LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
(EXPRESSED IN UNITED STATES DOLLARS)
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3 MONTHS ENDED 3 MONTHS ENDED 9 MONTHS ENDED 9 MONTHS ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998 SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
REVENUES
Net premiums.................. $21,101,366 $10,065,750 $ 57,720,663 $10,065,750
Investment income, net of
related expenses............ 19,528,879 5,366,566 58,365,264 9,666,181
Net realized investment gains
(losses).................... (793,008) 1,018,990 (687,305) 1,167,664
Other......................... 1,250,961 -- 1,639,924 --
----------- ----------- ------------ -----------
Total Revenues...... $41,088,198 $16,451,306 $117,038,546 $20,899,595
----------- ----------- ------------ -----------
BENEFITS AND EXPENSES
Claims and policy benefits.... $17,232,038 $ 8,399,500 $ 48,505,406 $ 8,399,500
Net cost of interest sensitive
contract liabilities........ 4,762,521 -- 12,588,018 --
Policy acquisition costs and
other insurance expenses.... 9,052,163 200,175 25,449,273 200,175
Operating expenses............ 1,326,416 1,191,465 4,552,266 2,444,690
Organizational expenses....... -- -- -- 69,039
----------- ----------- ------------ -----------
Total Benefits and
Expenses.......... $32,373,138 $ 9,791,140 $ 91,094,963 $11,113,404
----------- ----------- ------------ -----------
Net Income.................. $ 8,715,060 $ 6,660,166 $ 25,943,583 $ 9,786,191
=========== =========== ============ ===========
NET INCOME PER COMMON SHARE
(NOTE 3):
Basic......................... $ 0.34 $ 0.26 $ 1.02 $ 0.44
Diluted....................... $ 0.32 $ 0.25 $ 0.95 $ 0.42
</TABLE>
See accompanying notes to unaudited consolidated financial statements
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ANNUITY AND LIFE RE (HOLDINGS), LTD.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
UNAUDITED
(EXPRESSED IN UNITED STATES DOLLARS)
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3 MONTHS ENDED 3 MONTHS ENDED 9 MONTHS ENDED 9 MONTHS ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998 SEPTEMBER 30,1999 SEPTEMBER 30, 1998
------------------ ------------------ ----------------- ------------------
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Net Income for period.............. $ 8,715,060 $ 6,660,166 $25,943,583 $ 9,786,191
Other comprehensive income (loss)
being unrealized holding gains
(losses) on fixed maturity
Investments arising during
period......................... (2,056,950) 6,620,084 (11,380,465) 7,532,438
----------- -------------- ----------- -----------
Total comprehensive income......... $ 6,658,110 $ 13,280,250 $14,563,118 $17,318,629
----------- -------------- ----------- -----------
</TABLE>
See accompanying notes to unaudited consolidated financial statements
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ANNUITY AND LIFE RE (HOLDINGS), LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
(EXPRESSED IN UNITED STATES DOLLARS)
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9 MONTHS ENDED 9 MONTHS ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
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CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................................. $ 25,943,583 $ 9,786,191
Adjustments to reconcile net income to cash flow from
operating activities:
Net realized investment losses (gains)..................... 687,305 (1,167,664)
Changes in:
Accrued investment income.................................. (83,232) (4,781,291)
Reinsurance receivables.................................... -- (21,422,575)
Deferred policy acquisition costs.......................... (50,329,823) --
Other assets............................................... (3,359,676) (157,781)
Reserves for future policy benefits........................ 8,837,322 19,831,500
Interest sensitive contracts, net of funds withheld........ 7,773,296 --
Other reinsurance liabilities.............................. (18,304,252) --
Accounts payable........................................... 1,463,004 625,127
------------- ------------
Net cash (used) provided by operating activities........... $ (27,372,473) $ 2,713,507
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CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of fixed maturity securities........... $ 159,919,267 $285,078,492
Purchase of fixed maturity securities...................... (171,626,737) (626,907,138)
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Net cash used by investing activities...................... (11,707,470) (341,828,646)
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CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from sale of company stock.................... -- 353,419,413
Repayment of Notes Receivable, less Interest accrued....... 124,177 --
Dividends paid to stockholders............................. (3,060,000) --
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Net cash (used) provided by financing activities........... (2,935,823) 353,419,413
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(Decrease) increase in cash and cash equivalents........... (42,015,766) 14,304,274
Cash and cash equivalents, beginning of period............. 66,586,267 250,000
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Cash and cash equivalents, end of period................... $ 24,570,501 $ 14,554,274
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
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ANNUITY AND LIFE RE (HOLDINGS), LTD.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
UNAUDITED
(EXPRESSED IN UNITED STATES DOLLARS)
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9 MONTHS ENDED 9 MONTHS ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
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PREFERRED SHARES PAR VALUE $1.00
Balance at beginning and end of period..................... $ -- $ --
------------ ------------
COMMON SHARES PAR VALUE $1.00
Balance of beginning of period............................. $ 25,499,999 $ 12,000
Issuance of shares......................................... -- 25,499,999
Retirement of shares....................................... -- (12,000)
------------ ------------
Balance at end of period................................... $ 25,499,999 $ 25,499,999
------------ ------------
ADDITIONAL PAID-IN CAPITAL
Balance at beginning of period............................. $329,517,104 $ 238,000
Issuance of shares......................................... -- 334,049,964
Direct equity offering expenses............................ -- (4,774,238)
------------ ------------
Balance at end of period................................... $329,517,104 $329,513,726
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NOTES RECEIVABLE FROM STOCK SALES
Balance at beginning of period............................. $ (1,391,068) $ --
Notes issued............................................... -- (1,325,000)
Repayments................................................. 174,950 --
Accrued interest during period............................. (50,773) (42,690)
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Balance at end of period................................... $ (1,266,891) $ (1,367,690)
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ACCUMULATED OTHER COMPREHENSIVE INCOME
Balance at beginning of period............................. $ 3,722,594 $ --
Net unrealized holding (losses) gains on fixed maturity
investments.............................................. (11,380,465) 7,532,438
------------ ------------
Balance at end of period................................... $ (7,657,871) $ 7,532,438
------------ ------------
RETAINED EARNINGS
Balance at beginning of period............................. $ 17,991,617 $ --
Net income................................................. 25,943,583 9,786,191
Stockholder dividends...................................... (3,060,000) --
------------ ------------
Balance at end of period................................... $ 40,875,200 $ 9,786,191
------------ ------------
TOTAL STOCKHOLDERS' EQUITY................................. $386,967,541 $370,964,664
============ ============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
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ANNUITY AND LIFE RE (HOLDINGS), LTD.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
Annuity and Life Re (Holdings), Ltd. ("Holdings") was incorporated on
December 2, 1997 under the laws of Bermuda. Holdings provides annuity and life
reinsurance to insurers and reinsurers through its wholly-owned subsidiaries:
Annuity and Life Reassurance, Ltd. ("Annuity Reassurance"), licensed under the
insurance laws of Bermuda as a long term insurer; and Annuity and Life Re
America, Inc. ("Annuity & Life Re America"), an insurance holding company based
in the United States which was incorporated on May 28, 1999. Holdings, Annuity
Reassurance, Annuity and Life Re America are collectively referred to herein as
the "Company".
2. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of the Company
have been prepared in accordance with generally accepted accounting principles
for interim financial information and in accordance with Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
These consolidated financial statements should be read in conjunction with the
audited consolidated financial statements and notes thereto contained in the
Company's Form 10K for the fiscal year ended December 31, 1998. In the opinion
of management, all adjustments considered necessary for a fair presentation have
been included in these financial statements.
It should be noted that the financial data included herein is not
necessarily indicative of the results of operations or financial condition of
the Company in the future.
3. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share. The Company was nominally capitalized with 12,000 common
shares of par value $1.00 each during the period from its incorporation to the
date of its initial public offering and did not commence operations until April
17,1998. For this reason the calculation of earnings per share for the nine
months ended September 30,1998 is based upon the earnings and number of shares
outstanding since April 17,1998, the effective date of the public offering; in
the opinion of Management this is the most meaningful presentation.
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3 MONTHS ENDED SEPTEMBER 30, 9 MONTHS ENDED SEPTEMBER 30,
----------------------------- -----------------------------
1999 1998 1999 1998
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<S> <C> <C> <C> <C>
Net Income....................... $ 8,715,060 $ 6,660,166 $25,943,583 $10,235,177
Net average number of common
shareholders outstanding......... 25,499,999 25,499,999 25,499,999 23,270,491
Weighted average number of common
shares outstanding including
shares issuable from exercise
of options and warrants........ 27,218,541 26,629,834 27,177,007 24,574,727
Earnings per share............... $ 0.34 $ 0.26 $ 1.02 $ 0.44
Earnings per share assuming
dilution....................... $ 0.32 $ 0.25 $ 0.95 $ 0.42
</TABLE>
4. SIGNIFICANT TRANSACTION
On September 7, 1999 the Company, through its wholly owned subsidiary,
Annuity and Life Re America, Inc., signed an agreement to acquire Capitol
Bankers Life Insurance Company ("Capitol Bankers") for approximately $9 million
in cash which includes the capital and surplus of Capitol Bankers of
approximately $7 million. Upon completion of the acquisition the Company intends
to contribute additional capital of approximately $18 million. Completion of the
acquisition is subject to regulatory approval and is expected to
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ANNUITY AND LIFE RE (HOLDINGS), LTD.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
occur by the first quarter of 2000. Prior to the closing, the in-force insurance
business of Capitol Bankers will be 100% reinsured by the Company. This
transaction will be accounted for as a purchase.
Capitol Bankers is domiciled in the United States and is authorized to
conduct the life insurance business in 43 states of the United States.
Prospectively, Capitol Bankers will focus its operations strictly on the US life
and annuity reinsurance markets.
5. UNAUDITED QUARTERLY FINANCIAL DATA
The Company's Form 10-Q for the period ended September 30, 1998 reflected a
reinsurance agreement that was structured on a coinsurance basis. Subsequently,
the agreement's terms were modified. Accordingly, certain amounts previously
reported for premiums and acquisition costs for the period ended September 30,
1998 were reclassified. This reclassification had no effect on amounts
previously reported for net income or net income per common share.
6. ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 "Accounting for Derivative Instruments
and Hedging Activities". This Statement is effective for all fiscal quarters of
fiscal years beginning after June 15, 2000. The Company is currently reviewing
the impact of this standard on its financial reporting.
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ANNUITY AND LIFE RE (HOLDINGS), LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
1. GENERAL
Annuity and Life Re (Holdings), Ltd. ("Holdings") was incorporated on
December 2, 1997 under the laws of Bermuda. It provides annuity and life
reinsurance to insurers and reinsurers through its wholly-owned subsidiaries:
Annuity and Life Reassurance, Ltd. ("Annuity Reassurance"), licensed under the
insurance laws of Bermuda as a long term insurer; and Annuity & Life Re America,
Inc. ("Annuity & Life Re America"), an insurance holding company based in the
United States which was incorporated on May 28, 1999. Holdings, Annuity
Reassurance, and Annuity & Life Re America are collectively referred to herein
as the "Company".
2. OPERATING RESULTS
Net Income. For the nine month period ending September 30,1999, the
Company had consolidated net income of approximately $25,944,000 or $1.02 per
common share, $0.95 per common share on a fully diluted basis, compared with
$0.44 per common share, $0.42 per common share on a fully diluted basis for the
initial operating period of approximately five and one-half months ended
September 30, 1998. For the three month period ending September 30, 1999, the
Company had consolidated net income of approximately $8,715,000, or $0.34 per
common share, $0.32 per common share on a fully diluted basis, compared with
$0.26 per common share and $0.25 per common share on a fully diluted basis for
the three months ended September 30, 1998. The Company began its insurance
operations on April 17, 1998 following the completion of its initial public
offering and direct sales of its Common Shares.
Net operating income. In addition to net income, the Company reports net
operating income. This is not a substitute for net income computed in accordance
with generally accepted accounting principles (GAAP), but is an important
measure used by management, equity analysts and investors to measure the
Company's results. The Company defines net operating income as net income
excluding realized gains and losses from the sale of investments. The definition
used for net operating income by the Company may differ from that used by other
public life and annuity reinsurance companies.
For the three month and nine month periods ending September 30, 1999 net
operating income increased 69% and 209%, respectively, over the comparable prior
year periods. Net operating income for the nine month period ending September
30, 1999 was approximately $26,631,000 or $1.04 per common share, $0.98 per
common share on a fully diluted basis, compared with $0.39 per common share,
$0.37 per common share on a fully diluted basis for the initial operating period
of approximately five and one-half months ended September 30, 1998. Net
operating income for the three month period ending September 30, 1999 was
approximately $9,508,000 or $0.37 per common share, $0.35 per common share on a
fully diluted basis, compared with $0.22 per common share, $0.21 per common
share on a fully diluted basis for the three months ended September 30, 1998.
The increase in net operating income is due to the growth and development of the
Company's insurance operations and favorable underwriting and investment
results.
Net Premiums. Net premium revenue for the three month and nine month
periods ending September 30, 1999 was approximately $21,101,000 and $57,721,000,
respectively, an increase of 110% and 473% over the three month period ending
September 30, 1998 and the initial operating period of approximately five and
one-half months ended September 30, 1998. All premium revenue was derived from
ordinary life reinsurance. The growth reflects the level of new business written
and the increase in the face amount of insurance in force. At September 30, 1999
the total face amount of life insurance in force was approximately $36.6 billion
compared with approximately $22.5 billion at December 31, 1998 and $15.0 billion
at September 30, 1998. New business writings and premium revenue levels are
significantly influenced by the seasonal nature of the life reinsurance
marketplace and by large transactions and therefore can fluctuate from period to
period.
Net Investment Income. Total net investment income for the three month and
nine month periods ending September 30, 1999 was approximately $19,529,000 and
$58,365,000, respectively, an increase of 264%
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and 504% over the three months ending September 30, 1998 and the initial
operating period of five and one-half months ended September 30, 1998. The
growth in the investment income is primarily due to the income earned on Funds
Withheld under modified coinsurance agreements related to the Company's Interest
Sensitive Contracts Liabilities; the income earned on the Funds Withheld was
approximately $14,688,000 and $42,937,000 for the three and nine months ended
September 30, 1999. The average yield rate earned on an annualized basis on the
invested assets, excluding the Funds Withheld, during the nine month period
ending September 30, 1999 was approximately 6.31% compared with 6.07% for the
period ending September 30, 1998.
Investment Gains and Losses. Realized investment losses were approximately
$793,000 and $687,000 for the three months and nine months ended September 30,
1999 compared with realized gains of $1,168,000, respectively for the initial
operating period of approximately five and one half months ended September 30,
1998. Such gains and losses result from normal activity in the management of the
Company's investment portfolio.
Realized gains and losses are not considered by the Company to be recurring
components of earnings. The Company makes decisions concerning the sales of
invested assets based on a variety of market, business and other factors.
During the nine months ended September 30, 1999 the Company incurred
unrealized losses of approximately $11,380,000 in comparison with unrealized
gains of approximately $7,532,000 during the period ended September 30, 1998
which were included in Other Comprehensive Income. The change in unrealized
gains and losses is principally related to the increase in the general level of
interest rates during the period.
Claims and Policy Benefits. Claims and policy benefits for the three month
and nine month periods ending September 30, 1999 were approximately $17,232,000
or 82% of premium revenue and $48,505,000 or 84% of premium revenue,
respectively, as compared with $8,399,000 or 83% of premium revenue for the
three months ending September 30,1998 and the initial operating period of
approximately five and one-half months ended September 30, 1998. Mortality
experience has been favorable falling within pricing parameters. The Company
expects mortality to be fairly constant over long periods of time, but it may
fluctuate from period to period. Reserve levels are in part determined by claims
reported from ceding companies, the Company's aggregate experience and overall
mortality trends.
Policy Acquisition and Other Insurance Expenses. Policy acquisition and
other insurance expenses, consisting primarily of allowances and amortization of
deferred policy acquisition costs, were approximately $9,052,000 and $25,449,000
for the three month and nine month periods ending September 30, 1999,
respectively, as compared with $200,000 for the three months ending September
30, 1998 and the initial operating period of approximately five and one-half
months ended September 30, 1999. Generally, policy acquisition costs and other
insurance expenses fluctuate with product mix and business volumes.
Other Operating Expenses. Operating expenses for the three month and nine
month periods ending September 30, 1999 were approximately $1,326,000 or 3% of
total revenue and $4,552,000 or 4% of total revenue, respectively, as compared
with $2,445,000 or 12% of total revenue for the initial operating period of
approximately five and one-half months ending September 30, 1998. The decrease
in the ratio of operating expenses to total revenue is due to the growth and
development of the Company's insurance operations and its revenue base. The
operating expense level is considered by Company Management to be low by
industry standards and is in line with the Company's plan to be a low cost
provider.
3. FINANCIAL CONDITION
Investments
Invested assets, including cash and cash equivalents, amounted to
approximately $303,248,000 at September 30, 1999. Net unrealized losses on
invested assets total $7,658,000 at September 30, 1999 and reflect the increase
in the general level of interest rates during the period.
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The Company's investment policy is designed to achieve above average risk
adjusted returns, maintain a high quality portfolio, maximize current income,
maintain an adequate level of liquidity and match the cash flows of the
portfolio to the required cash flows for the related liabilities.
Funds Withheld at Interest -- Interest-Sensitive Contracts Liabilities
Assets with a carrying value of approximately $1,534,635,000 relate to an
annuity reinsurance agreement and are held by and managed by the ceding company
in segmented portfolios. The liability for the annuity reinsurance is included
on the Company's Balance Sheet as Interest Sensitive Contracts Liabilities.
During the nine month period ending September 30, 1999 these assets and
liabilities each grew approximately 27% primarily due to the level of new
deposits accepted by the Company under the reinsurance agreement.
Liquidity and Capital Resources
The Company's liquidity and capital resources are a measure of the overall
financial strength of the Company and its ability to generate cash flows from
its operations to meet operating and growth needs. The Company's principal
sources of funds are premiums received, net investment income, proceeds from
investments called, redeemed or sold, cash and short term investments. The
principal obligations and uses of the funds are the payment of policy benefits,
acquisition and operating costs and the purchase of investments.
For the nine month period ended September 30, 1999 the Company used
approximately $27,372,000 in its operating activities. This is primarily related
to initial costs associated with writing new life reinsurance and annuity
reinsurance business.
The Company's capital structure currently consists entirely of equity. At
September 30, 1999 total capitalization of the Company after deducting certain
loans to management and including retained earnings and accumulated other
comprehensive (loss) income amounted to approximately $386,968,000. As the
Company develops Management and the Board of Directors continuously reviews its
capital adequacy. Management believes this level of capital is sufficient to
support the Company's insurance business and its planned growth for the near
future.
At September 30, 1999 the Company had no outstanding debt. At September 30,
1999 letters of credit totaling approximately $51,217,000 have been issued in
the ordinary course of the Company's business by the Company's bankers in favor
of certain ceding insurance companies to provide security and to meet regulatory
requirements; these letters of credit are fully collateralized by investments of
the Company. The Company may incur indebtedness in the future in connection with
possible acquisitions of, investments in, joint ventures with or strategic
alliances with companies whose businesses compliment the Company's business.
On April 17, 1998 the Company completed an initial public offering of
19,640,579 common shares; total proceeds received net of underwriting discounts
and commissions were approximately $276.9 million. Simultaneous with the initial
closing of the public offering, direct sales of 5,859,420 common shares and
397,500 Class B warrants were made to strategic investors, certain members of
the Board of Directors and Company management; total net proceeds were
approximately $82.6 million. Substantially all of the net proceeds from these
offerings were used to provide working capital and to capitalize the operating
subsidiary, Annuity and Life Reassurance, Ltd.
On February 11, 1999, April 29, 1999 and July 28, 1999 the Board of
Directors declared quarterly stockholder dividends of $.04 per share payable to
shareholders of record on March 10, 1999, May 20, 1999 and September 2, 1999,
respectively. The continued payment of dividends is dependent on the ability of
Annuity and Life Reassurance, Ltd to achieve satisfactory underwriting and
investment results and other factors determined to be relevant by the Company's
Board of Directors.
The Company currently has no material commitments other than as outlined in
4. Below.
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4. ACQUISITION
On September 7, 1999 the Company, through its wholly owned subsidiary,
Annuity and Life Re America, Inc., signed an agreement to acquire Capitol
Bankers Life Insurance Company ("Capitol Bankers") for approximately $9 million
in cash which includes the capital and surplus of Capitol Bankers of
approximately $7 million. Upon completion of the acquisition the Company intends
to contribute additional capital of approximately $18 million in cash. The
acquisition price and subsequent capital contribution will be funded from
available cash balances and proceeds from the sale of fixed maturity securities
held by the Company. Completion of the acquisition is subject to regulatory
approval and is expected to occur by the first quarter of 2000. Prior to the
closing, the in-force insurance business of Capitol Bankers will be 100%
reinsured by the Company. This transaction will be accounted for as a purchase.
5. YEAR 2000
Many existing computer programs use only two digits to identify a year in
the date field. These programs, if not corrected, could fail or create erroneous
results by or at the year 2000. This "Year 2000" issue is believed to affect
virtually all companies and organizations. All of the Company's data processing
and related systems were purchased after April 17, 1998. Therefore, the Company
believes that its exposure with respect to its own computer systems to Year
2000-related problems will not be significant. The Company does not expect to
incur any material costs in connection with Year 2000-related issues.
However, the Company will be exposed to the risk that its third-party
service providers and client companies may be exposed to Year 2000-related
problems. The Company has no direct control over the Year 2000 compliance
efforts of its third party service providers and client companies. The Company
is monitoring whether such parties will be Year 2000 compliant on a timely basis
and has received assurances that they will be. There can be no assurance,
however, that the Company's operations will not experience disruptions due to
the failure of the Company's third-party service providers or client companies
to become fully Year 2000 compliant in a timely manner or that such failure will
not otherwise have an adverse effect on the Company. Furthermore, the Company's
interaction with third-party service providers and client companies outside the
United States may subject the Company to additional Year 2000 risk as foreign
entities have in general not addressed Year 2000 compliance issues as
comprehensively as their United States counterparts. The Company continues to
monitor developments relating to the issue and has developed contingency plans
with respect to its third party service providers which provide for the
replacement of those which are not Year 2000 compliant with comparable third
party service providers which are Year 2000 compliant.
6. FORWARD-LOOKING AND CAUTIONARY STATEMENTS
The Company and its representatives may from time to time make written or
oral forward-looking statements, including those contained in the foregoing
Management's Discussion and Analysis. In order to take advantage of the "safe
harbor" provisions of the Private Securities Litigation Reform Act of 1995, the
Company is hereby identifying certain important factors which could cause the
Company's actual results, performance or achievement to differ materially from
those that may be contained in or implied by any forward-looking statement made
by or on behalf of the Company. The factors that could cause such forward-
looking statements not to be realized include, without limitation, acceptance in
the market of the Company's reinsurance products; pricing competition; the
amount of underwriting capacity from time to time in the market; general
economic conditions and conditions specific to the reinsurance and investment
markets in which the Company operates; material fluctuations in interest rate
levels; regulatory changes and conditions; rating agency policies and practices;
claims development; and loss of key executives. The Company cautions that the
foregoing list of important factors is not intended to be, and is not,
exhaustive. The Company does not undertake to update any forward-looking
statement that may be made from time to time by or on behalf of the Company.
13
<PAGE> 14
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits -- The following exhibits are filed as part of this report on
Form 10-Q:
11 Computation of Earnings per share
27 Financial Data Schedule
(b) Reports on Form 8-K -- On September 14,1999, the Company filed a report
on Form 8-K dated September 7,1999 under Item 5 to report: (i) that
Annuity and Life Re America, Inc., a subsidiary of the Company, had
agreed to acquire Capitol Bankers Life Insurance Company from Life
Reassurance Corporation of America; (ii) a related administrative
reinsurance agreement; and (iii) the appointment of Bryan J.
Featherstone as President and Chief Executive Officer of Annuity and
Life Re America, Inc.
14
<PAGE> 15
ANNUITY AND LIFE RE (HOLDINGS), LTD.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Annuity and Life Re (Holdings), Ltd.
/s/ LAWRENCE S. DOYLE
--------------------------------------
Name: Lawrence S. Doyle
Title: President and Chief Executive
Officer
(Principal Executive Officer)
Date: November 8, 1999
/s/ WILLIAM W. ATKIN
--------------------------------------
Name: William W. Atkin
Title: Chief Financial Officer and
Treasurer
(Principal Accounting and Financial
Officer)
Date: November 8, 1999
15
<PAGE> 1
EXHIBIT 11
ANNUITY AND LIFE RE (HOLDINGS), LTD.
STATEMENT OF COMPUTATION OF NET INCOME PER COMMON SHARE
UNAUDITED
(EXPRESSED IN UNITED STATES DOLLARS EXCEPT FOR SHARE AMOUNTS)
<TABLE>
<CAPTION>
3 MONTHS ENDED 9 MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- -------------------------
1999 1998 1999 1998
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Net Income:................................... $8,715,060 $6,660,166 $25,943,583 $10,235,177
Net average number of common shareholders
outstanding................................... 25,499,999 25,499,999 25,499,999 23,270,491
Weighted average number of common shares
outstanding including shares issuable from
exercise of options and warrants............ 27,218,541 26,629,834 27,177,007 24,574,727
Earnings per share............................ $ 0.34 $ 0.26 $ 1.02 $ 0.44
Earnings per share assuming dilution.......... $ 0.32 $ 0.25 $ 0.95 $ 0.42
</TABLE>
16
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1999 AND THE CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<DEBT-HELD-FOR-SALE> 278,677,940
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 278,677,940
<CASH> 24,570,501
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 209,912,109
<TOTAL-ASSETS> 2,056,063,950
<POLICY-LOSSES> 30,863,731
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 1,625,982,886
<NOTES-PAYABLE> 0
0
0
<COMMON> 25,499,999
<OTHER-SE> 361,467,542
<TOTAL-LIABILITY-AND-EQUITY> 2,056,063,950
57,720,663
<INVESTMENT-INCOME> 58,365,264
<INVESTMENT-GAINS> (687,305)
<OTHER-INCOME> 1,639,924
<BENEFITS> 61,093,424
<UNDERWRITING-AMORTIZATION> 25,449,273
<UNDERWRITING-OTHER> 0
<INCOME-PRETAX> 25,943,583
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 25,943,583
<EPS-BASIC> 1.02
<EPS-DILUTED> 0.95
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
