GENERAL RE CORPORATION
Financial Centre
P.O. Box 10350
Stamford, CT 06904-2350
August 14, 1995
Securities and Exchange Commission
450 Fifth Street, NW
Washington, D.C. 20549
Gentlemen/Ladies:
Pursuant to the requirements of the Securities Exchange
Act of 1934, we are transmitting herewith the attached
Form 10-Q.
Very truly yours,
Elizabeth A. Monrad
Form 10 - Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR
15 (d) OF THESECURITIES EXCHANGE ACT OF 1934
For Quarter Ended June 30, 1995
Commission File Number 1-8026
GENERAL RE CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 06-1026471
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Financial Centre, P.O. Box 10350
Stamford, Connecticut 06904-2350
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, with area code (203) 328-5000
None
(Former name, former address and former fiscal year,
if changed since last report)
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 * No
Indicate the number of shares outstanding of each of
the issuer's classes of common stock:
Class Outstanding at June 30, 1995
Common Stock, $.50 par value 82,028,212 Shares
GENERAL RE CORPORATION
INDEX
PAGE NO.
PART I. FINANCIAL INFORMATION
Consolidated Balance Sheets
June 30, 1995 and December 31, 1994 3
Consolidated Statements of Income
Three and six months ended June 30, 1995 and 1994 4
Consolidated Statements of Cash Flows
Six months ended June 30, 1995 and 1994 5
Notes to Consolidated Interim Financial Statements 6 - 7
Management's Discussion and Analysis
of Financial Condition and Results
of Operations 8 - 14
PART II. OTHER INFORMATION 15 - 16
2
<TABLE>
General Re Corporation
Consolidated Balance Sheets
(in millions, except share data)
<CAPTION>
(Unaudited)
Assets June 30, 1995 Dec. 31, 1994
<S> <C> <C>
Investments:
Fixed maturities:
Held-to-maturity (fair value: $1,844 in 1995; $1,971 in 1994) $ 1,759 $ 1,900
Available-for-sale (cost: $11,635 in 1995; $10,840 in 1994) 12,012 10,717
Trading (cost: $2,580 in 1995; $1,579 in 1994) 2,697 1,557
Equity securities, at fair value (cost: $2,388 in 1995; $2,318 in 1994) 3,318 2,977
Short-term investments, at amortized cost which approximates fair value 2,151 1,032
Other invested assets 887 715
Total investments 22,824 18,898
Cash 169 242
Accrued investment income 333 272
Accounts receivable 1,990 1,421
Funds held by reinsured companies 2,098 1,942
Reinsurance recoverable 2,403 2,067
Deferred acquisition costs 491 324
Securities purchased under agreements to resell 201 813
Trading account assets 2,817 1,928
Other assets 1,484 1,690
Total assets $34,810 $29,597
Liabilities
Claims and claim expenses $13,548 $12,158
Policy benefits for life/health contracts 2,150 1,960
Unearned premiums 1,994 1,642
Other reinsurance balances 2,429 2,318
Notes payable and commercial paper 156 188
Income taxes 409 196
Securities sold under agreements to repurchase 1,984 938
Securities sold but not yet purchased 836 927
Trading account liabilities 3,170 2,320
Other liabilities 1,231 1,046
Minority interest 1,194 1,044
Total liabilities 29,101 24,737
Cumulative convertible preferred stock (shares issued: 1,728,264
in 1995 and 1,734,717 in 1994; no par value) 148 148
Loan to employee savings and stock ownership plan (147) (147)
1 1
Common stockholders' equity
Common stock (102,827,344 shares issued in 1995 and 1994; par value $.50) 51 51
Paid-in capital 612 604
Unrealized appreciation of investments, net of income taxes 901 421
Currency translation adjustments 22 (20)
Retained earnings 5,643 5,330
Less common stock in treasury, at cost (shares held: 20,799,132 in 1995
and 20,955,202 in 1994) (1,521) (1,527)
Total common stockholders' equity 5,708 4,859
Total liabilities, cumulative convertible preferred stock and
common stockholders' equity $34,810 $29,597
See notes to the consolidated interim financial statements.
</TABLE>
3
<TABLE>
GENERAL RE CORPORATION
Consolidated Statements of Income
(in millions, except per share data)
<CAPTION>
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Premiums and other revenues
Net premiums written
Property/casualty $1,589 $665 $2,595 $1,485
Life/health 220 - 220 -
Total net premiums written $1,809 $665 $2,815 $1,485
Net premiums earned
Property/casualty $1,345 $640 $2,300 $1,414
Life/health 215 - 215 -
Total net premiums earned 1,560 640 2,515 1,414
Net investment income 268 186 462 368
Other revenues 91 49 142 117
Net realized gains on investments 24 21 31 21
Total revenues 1,943 896 3,150 1,920
Expenses
Claims and claim expenses 998 454 1,661 1,108
Life/health benefits 161 - 161 -
Acquisition costs 342 122 570 268
Other operating costs and expenses 157 102 255 210
Total expenses 1,658 678 2,647 1,586
Income before income taxes and minority interest 285 218 503 334
Income tax expense 59 41 94 59
Income before minority interest 226 177 409 275
Minority interest 12 - 12 -
NET INCOME $214 $177 $397 $275
Share Data
Net income per common share $2.58 $2.12 $4.78 $3.27
Dividend per common share $.49 $.48 $.98 $ .96
Average shares outstanding 82.0 81.9 82.0 82.3
See notes to the consolidated interim financial statements.
</TABLE>
4
<TABLE>
GENERAL RE CORPORATION
Consolidated Statements of Cash Flows
(in millions)
<CAPTION>
(Unaudited)
Six months ended
June 30,
1995 1994
<S> <C> <C>
Cash flows from operating activities
Net income $397 $275
Adjustments to reconcile net income to net cash provided
by operating activities:
Change in claim and claim expense liabilities 1,056 316
Change in policy benefits for life and health contracts 4 -
Change in reinsurance recoverable (344) (24)
Change in unearned premiums 285 85
Amortization of acquisition costs 570 268
Acquisition costs deferred (714) (282)
Trading account activities
Change in trading account securities (2,582) 976
Securities purchased under agreements to resell 612 (426)
Securities sold under agreements to repurchase 1,046 (598)
Change in other trading balances 950 (248)
Other changes in assets and liabilities (297) (58)
Net realized gains on investments (31) ( 21)
Net cash from operating activities 952 263
Cash flows from investing activities
Fixed maturities: held-to-maturity
Purchases (24) (8)
Calls and maturities 178 52
Sales - -
Fixed maturities: available-for-sale
Purchases (3,112) (2,536)
Calls and maturities 151 311
Sales 2,409 2,381
Equity securities:
Purchases (438) (432)
Sales 419 374
Net purchases of short-term investments (304) (193)
Net purchases of other invested assets (81) (17)
Net cash used in investing activities (802) (68)
Cash flows from financing activities
Maturity of variable rate notes - (12)
Commercial paper (repayment) borrowing, net (31) 52
Change in contract deposits (122) 67
Cash dividends paid to common stockholders (80) (79)
Acquisition of treasury stock - (222)
Other 10 3
Net cash used in financing activities (223) (191)
Change in cash (73) 4
Cash, beginning of period 242 60
Cash, end of period $ 169 $ 64
See notes to the consolidated interim financial statements.
</TABLE>
5
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED INTERIM FINANCIAL
STATEMENTS
1. General - The interim financial statements have been
prepared on the basis of generally accepted accounting
principles and, in the opinion of management, reflect all
adjustments (consisting of normal, recurring accruals)
necessary for a fair presentation of results for such
periods. The results of operations for any interim period
are not necessarily indicative of results for the full year.
These financial statements should be read in conjunction
with the financial statements and related notes in the
Corporation's 1994 Annual Report filed on Form 10-K.
Certain reclassifications have been made to 1994 balances
to conform to the 1995 presentation. The results from
operations of the Corporation's international reinsurance
operations are reported on a quarter lag.
2. Cologne Re - As a result of the ownership and
control structure, the Corporation's consolidated statements
of income and cash flows include the results from operations
and cash flows of Cologne Re and the related joint-venture
company, GR-CK. These results and cash flows were not
included in the comparable 1994 amounts, since the
formation of GR-CK did not occur until December 28, 1994.
The minority interest included in the Corporation's statement
of income and balance sheet relates to the economic interest
of Cologne Re not owned by GR-CK and the Class A shares
of GR-CK, which are not owned by the Corporation.
3. Income Taxes - The Corporation's effective income
tax rate differs from current statutory rates principally due to
tax-exempt interest income and dividends received
deductions. The Corporation paid income taxes of $86
million and $58 million in the six months ended June 30,
1995 and 1994, respectively.
4. Reinsurance Ceded - The Corporation utilizes
reinsurance to reduce its exposure to large losses. The
Corporation has no significant concentrations of credit risk
with any one reinsurer at June 30, 1995. The income
statement amounts for premiums written, premiums earned
and claims and claim expenses incurred are reported net of
reinsurance. Direct, assumed, ceded and net amounts for the
six months ended June 30, 1995 and 1994 were as follows
(in millions):
Property/Casualty Life/Health Claims and Life/Health
Written Earned Written Earned Claim Expenses Benefits
1995
Direct $236 $216 - - $155 -
Assumed 2,852 2,576 $244 $239 1,961 $186
Ceded (493) (492) (24) (24) (455) (25)
Net $2,595 $2,300 $220 $215 $1,661 $161
1994
Direct $159 $203 - - $93 -
Assumed 1,571 1,448 - - 1,111 -
Ceded (245) (237) - - (96) -
Net $1,485 $1,414 - - $1,108 -
6
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED INTERIM FINANCIAL
STATEMENTS (continued)
5. Allowance for Doubtful Accounts - The Corporation
establishes an allowance for uncollectible reinsurance
recoverables and other doubtful receivables. The allowance
was recorded as a valuation account that reduces the
corresponding asset. The allowance was approximately
$147 million and $121 million at June 30, 1995 and
December 31, 1994, respectively.
6. Per Common Share Data - Income per common
share is based on net income less preferred dividends
divided by the weighted average common shares
outstanding during the period. The weighted average
number of common shares outstanding was 81,996,173
and 81,957,703 for the three and six months ended June
30, 1995, and 81,866,018 and 82,334,568 for the three
and six months ended June 30, 1994.
7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Consolidated
Income from operations, excluding after-tax realized gains,
was $2.37 per share in the second quarter of 1995, an increase
of 20.9 percent from the $1.96 per share earned in the
comparable period in 1994. After-tax realized gains were
$.21 per share in the second quarter of 1995, compared with
$.16 per share in the second quarter of 1994. The improved
results in the second quarter of 1995 were primarily
attributable to growth in after-tax investment income and
increased profitability in the Corporation's international
property/casualty, life/health and financial services operations.
The Corporation's results include the operations of Cologne
Re and the related joint-venture company, GR-CK. These
results were not included in the comparable 1994 amounts,
since the formation of GR-CK did not occur until December
28, 1994.
For the first six months of 1995, net income was $4.78 per
share, compared with $3.27 per share for the same period in
1994. Included in net income were after-tax realized gains of
$.26 per share in the first six months of 1995, compared with
$.16 per share in 1994. For the first half of 1995, domestic
underwriting results improved by approximately $70 million
principally due to the absence of significant catastrophe
claims, while the comparable period of 1994 was adversely
affected by claims from the Northridge, California
earthquake. In addition, each of the Corporation's other
operating segments contributed to the growth in income for
the first six months of 1995, as compared to the same period
in 1994.
Consolidated net premiums written for the second quarter of
1995 were $1,809 million, an increase of 172.1 percent from
$665 million in 1994. Consolidated net premiums written for
the first six months of 1995 were $2,815 million, compared
with $1,485 million in 1994. Domestic property/casualty
premiums written were $704 million in the second quarter of
1995, compared with $588 million in 1994, an increase of
19.5 percent. The international property/casualty subsidiaries'
net premiums written were $885 million in the second quarter
of 1995, an increase of $809 million from the comparable
amount in 1994, with a significant amount of the growth
attributable to the inclusion of Cologne Re's premium
beginning in the second quarter of 1995. In addition, the
underwriting results of the Corporation's wholly owned
European operations, which were predominantly reported on
a full underwriting-year lag in prior years, are now reported
on a one-quarter lag, beginning in 1995. The international
subsidiaries' premiums written increased by $101 million
during the second quarter and $134 million during the first
six months of 1995 due to this change in reporting. Net
premiums written for the life/health segment, a new
reporting segment consisting of Cologne Re's domestic
and international life/health operations, were $220 million
for the second quarter of 1995.
Consolidated net investment income was $268 million in the
second quarter of 1995, compared with $186 million in 1994.
The consolidation of Cologne Re accounts for $63 million of
the $82 million increase in consolidated pretax investment
income in the second quarter of 1995. Net investment
income for the domestic property/casualty operations was
$176 million in the second quarter of 1995, compared with
$170 million in the second quarter of 1994. Net investment
income for the international property/casualty operations
was $61
8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
million in the second quarter of 1995, compared with
$13 million in the second quarter of 1994. Net investment
income for the life/health operations was $26 million in the
second quarter of 1995.
The consolidated effective tax rate was 20.8 percent for the
second quarter of 1995, compared with 18.7 percent in the
second quarter of 1994. The consolidated effective tax rate
for the first six months of 1995 was 18.7 percent, compared
to 17.7 percent in 1994. The increase in the consolidated
effective tax rate for both periods was the result of the increase
in taxable income in the international and financial services
subsidiaries.
At June 30, 1995, total consolidated assets were $34,810
million, compared with $29,597 million at December
31, 1994. The growth in total assets was due to increases
of $2,076 million in the financial services segment, $1,655
million in the domestic property/casualty operations and
$1,482 million in the international property/casualty and
life/health operations. The increase in the financial
services assets primarily relates to the purchase of
investment securities to hedge open swap positions and the
increase in the gross unrealized gain on the swap mark-to-
market balance. The increase in the domestic property/
casualty assets primarily was the result of invested operating
cash flow and increased appreciation in the bond and stock
portfolios. The growth in the assets of the international
property/casualty and life/health operations was due to
operating cash flow, investment appreciation and the
strengthening of the German mark against the U. S. dollar.
During the first six months of 1995, total invested assets
increased by $3,926 million to $22,824 million. The growth
in invested assets was due to increases of $1,908 million in
the financial services segment, $1,211 million in the domestic
property/casualty operations and $807 million in the
international property/casualty and life/health operations.
Common stockholders' equity at June 30, 1995 was $5,708
million, an increase of 17.5 percent from the $4,859 million at
December 31, 1994. The growth in common stockholders'
equity during the first six months of 1995 was principally the
result of net income of $397 million, an increase in after-tax
unrealized investment gains of $480 million, unrealized
foreign currency translation gains of $42 million less common
and preferred stock dividends of $86 million.
The Corporation realized net cash flow from consolidated
operations of $952 million in the first six months of 1995,
compared to $263 million in the comparable period in 1994.
Cash flows from operations for the domestic/property
casualty operations were $460 million and $372 million in
the first six months of 1995 and 1994, respectively. The
financial services operations had net cash flows from
operations of $3 million in the first six months of 1995,
compared to cash outflow of $239 million in the first six
months of 1994. The international property/casualty and
life/health operations had cash flow from operating activities
of $489 million for the first six months of 1995, compared with
$130 million in 1994.
9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
Dividends paid to common stockholders were $80 million and
$79 million in the first six months of 1995 and 1994,
respectively. The Corporation did not repurchase any of its
shares during the first six months of 1995 and at June 30,
1995 had $100 million available under Board-authorized
repurchase programs and additional standing authority to
repurchase shares in anticipation of issuances under various
compensation plans.
During the second quarter of 1995, Cologne Re completed a
rights offering that raised DM 437 million ($317 million at the
June 30, 1995 exchange rate), which increased its capital
(under U.S. GAAP) by 62.9% over the amount reported at
December 31, 1994. In connection with Cologne Re's rights
offering, GR-CK subscribed for its pro rata share,
approximately DM 297 million ($215 million at the June 30,
1995 exchange rate), of the offering and the Corporation
purchased for its own account an additional 106,285
ordinary and preference shares of Cologne Re for
aggregate consideration of $51 million. These purchases
maintained GR-CK's 66.3 percent ownership interest of
Cologne Re and, in addition, gave the Corporation a direct
1nterest of 5.7 percent in Cologne Re, bringing the
Corporation's total consolidated interest to 72.0 percent
at June 30, 1995. The Corporation's results will include the
additional percentage ownership in Cologne Re during the
third quarter.
At June 30, 1995, the Corporation had $150 million of senior
debt outstanding which is rated AAA by Standard and
Poor's Corporation and Aa1 by Moody's Investors Services.
The Corporation also issues short-term commercial paper to
provide additional financial flexibility for its operations.
Commercial paper offered by the Corporation is rated A1+
by Standard & Poor's Corporation and Prime 1 by Moody's
Investors Service. At June 30, 1995, no short-term
commercial paper was outstanding. During August 1995,
the Corporation finalized the placement of $1 billion in lines
of credit with nineteen participating banks. The revolving
credit lines consist of a 364-day facility of $500 million and
a five-year revolving credit facility for the remaining $500
million. The lines of credit provide the Corporation with
support for the commercial paper program and enhance
corporate financial flexibility.
Domestic Property/Casualty
Pretax income for the domestic property/casualty operations
was $204 million in the second quarter of 1995 and 1994.
Pretax income for the segment was $392 million for the first
six months of 1995 compared with $276 million in 1994. The
increase in the segment's year-to-date income was primarily
due to an improved pretax underwriting result of $70 million
and increased pretax net other revenues of $27 million.
In the second quarter of 1995, the statutory combined ratio
for the domestic property/casualty operations was 99.0
percent, compared with 98.5 percent in the second quarter
of 1994 and 101.3 percent for the full year 1994. The
statutory combined ratio for the first six months of 1995 was
99.3 percent, compared with 106.2 percent in 1994. The
combined ratio for first six months of 1994 was adversely
affected by catastrophe claims from the earthquake centered
in Northridge, California that occurred on January 17, 1994.
10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
Net premiums written for the domestic property/casualty
operations were $704 million in the second quarter of 1995
and $1,389 million in the first six months of 1995, representing
increases of 19.5 percent and 17.1 percent from the
comparable amounts in 1994. Net premiums written by
General Reinsurance Corporation's treaty and facultative
operations increased by 21.6 percent during the quarter
and 18.6 percent year-to-date. The Corporation believes
the growth in premiums was attributable to increased
purchases of property reinsurance in the face of heightened
awareness of catastrophe exposures, the increase in
insurance premiums written by smaller-sized and regional
primary companies that generally purchase relatively more
reinsurance, increased reinsurance cessions by primary
companies seeking to deleverage their capital in response
to rating agency, regulatory and market concerns, the
consolidation of the domestic reinsurance market and the
Corporation's marketing efforts. For the General Star
companies, which write primary and excess specialty
insurance, premiums increased by 16.0 percent and 14.0
percent for the quarter and year-to-date. For the Genesis
operations, which provide direct excess insurance, premiums
declined by 20.5 percent for the second quarter of 1995 and
5.0 percent for the first six months of 1995, compared to the
same periods in 1994, as this market remains very
competitive.
Pretax net investment income for the domestic property/
casualty operations was $176 million in the second quarter
of 1995, compared to $170 million in the second quarter of
1994. For the first six months of 1995, pretax net investment
income was $354 million, compared with $339 million in 1994.
The increase in investment income was due to the growth in
the segment's investment portfolio since the first quarter of
1994, an increase in market interest rates during 1994 and
dividend distributions from limited partnership investments.
The segment's year-to-date pretax investment income was
reduced by approximately $19 million due to the $582 million
contributed to the Cologne Re joint venture on December 28,
1994. The investment income on these funds is now included
in the international property/casualty segment. Excluding this
reclassification, the domestic property/casualty segment's net
investment income for the first six months of 1995 grew by 10
.0 percent. The overall pretax yield on the invested asset
portfolio was 5.9 percent in the first six months of 1995,
compared with 6.0 percent in the same period in 1994.
The gross liability for claims and claim expenses for the
domestic property/casualty operations was $9,056 million
at June 30, 1995, an increase of $478 million, or 5.6 percent,
over the year-end 1994 liability. The asset for reinsurance
recoverable on unpaid claims was $1,856 million at June 30,
1995, compared to $1,549 million at December 31, 1994.
At June 30, 1995, the gross liability for claims and claim
expenses and the related asset for reinsurance recoverables
include $1,590 million and $484 million, respectively, for
environmental and latent injury claims. These amounts
include provisions for both reported and incurred but not
reported claims. At June 30, 1995, total assets of the
domestic property/casualty operations were $15,965
million, compared with $14,310 million at December 31,
1994.
11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
International Property/Casualty
The international property/casualty operations' pretax income
in the second quarter of 1995 was $30 million, compared to
$2 million in the second quarter of 1995. Pretax income for
the segment was $50 million for the first six months of 1995,
compared with $18 million in 1994. As stated earlier, the
results of the international property/casualty segment include
the operations of Cologne Re and GR-CK during the second
quarter of 1995. For the second quarter of 1995, income for
the international property/casualty operations increased as
compared to 1994's second quarter due to improved
underwriting results in the wholly owned international
subsidiaries and the inclusion of the results of Cologne Re
and GR-CK.
In the second quarter of 1995, the combined ratio for the
international property/casualty operations was 104.5 percent,
compared with 109.8 percent in the second quarter of 1994.
The combined ratio for the first six months of 1995 was 101.6
percent, compared with 100.0 percent in 1994.
International premiums written were $885 million in the second
quarter of 1995, compared with $76 million in the second
quarter of 1994. For the first six months of 1995 net premiums
written were $1,206 million compared with $298 million in
1994. During 1994, the Corporation combined its
subsidiaries located in the United Kingdom and Switzerland
to enhance client service and to improve the capital efficiency
of its European operations. In the first quarter of 1995, the
combined operation began to include estimated premiums
and losses for the current underwriting year in its financial
results. This change increased net premiums written for the
second quarter and first six months of 1995 by $101 million
and $134 million, respectively. The change added
approximately $2 million to underwriting income before tax
for the first six months of 1995. Excluding Cologne Re's
premiums and the change in estimation method, the
international property/casualty segment's premiums for
the second quarter of 1995 grew by 27.4 percent and 30.7
percent for the first six months of 1995.
Pretax net investment income for the international property/
casualty operations was $61 million in the second quarter
of 1995, compared to $13 million in the second quarter of
1994. For the first six months of 1995, pretax net investment
income was $72 million, compared with $25 million in 1994.
The increase in investment income is due to including
investment income of Cologne Re and GR-CK and growth
in the wholly owned subsidiaries' investment portfolio since
the first quarter of 1994. Excluding the effect of Cologne Re
and GR-CK, the international property/casualty segment's net
investment income for the first six months of 1995 grew by 4.5
percent. The overall pretax yield on the invested asset
portfolio was 5.4 percent in the first six months of 1995,
compared with 7.8 percent in the same period in 1994.
The decline in investment yield is due principally to Cologne
Re's shorter-duration portfolio, the seasonality of dividend
distributions and the contractual sharing of investment income
with ceding companies under certain reinsurance
agreements.
12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
Included in the international property/casualty segments'
pretax income for the first six months of 1995 were foreign
exchange gains of $9 million, compared with pretax losses
of $5 million in 1994. The foreign exchange gains primarily
resulted from the strengthening of European currencies
compared with the British pound, the functional currency
of the Corporation's London based wholly owned subsidiary.
At June 30, 1995, total assets of the international
property/casualty operations were $11,884 million,
compared with $10,402 million at December 31, 1994.
The increase in total assets in 1995 was due to the continued
growth of the international operations' underwriting portfolios
and the strengthening of European currencies compared to
the U.S. dollar. The gross liability for claims and claim
expenses was $4,492 million at June 30, 1995, an increase
of $912 million over the year-end 1994 liability. The asset
for reinsurance recoverable on unpaid claims was $308
million at June 30, 1995, compared to $291 million at
December 31, 1994. At June 30, 1995, the gross liability
for claims and claim expenses included $78 million for
environmental and latent injury claims.
Financial Services
Financial services operations include the Corporation's
derivative products, insurance brokerage and management,
reinsurance brokerage, and investment, underwriting and
real estate management subsidiaries. Pretax income for the
financial services operations was $37 million in the second
quarter of 1995, compared with $13 million in the same
period in 1994. The increase in the segment's income for the
quarter was primarily due to growth in revenues and income
for GRFP and increased income from the brokerage and
underwriting management operations. The growth in GRFP's
income for the quarter compared to 1994's second quarter
was due to improved markets for swap transactions,
principally outside of North America.
Pretax income for the segment in the first six months of 1995
was $46 million, compared with $40 million in 1994. GRFP's
gross trading revenue for the first six months of 1995 was
$70 million,compared with $77 million in 1994.
At June 30, 1995, total assets of the financial services
operations were $6,961 million compared with $4,885
million at December 31, 1994. GRFP's market exposures
arising from derivative products are managed through the
purchase and sale of government securities, futures and
forward contracts or offsetting derivatives transactions.
The amount and nature of the financial services segment's
assets and liabilities are significantly affected by the risk
management strategies utilized by GRFP to reduce market,
currency rate, and interest rate risk. The purchase of
government securities financed through collateralized
repurchase agreements and the sale of government
securities, whose proceeds are invested in reverse
repurchase agreements, may cause short-term fluctuations
in GRFP's assets and liabilities. The use of these
transactions to offset GRFP's market exposures
13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
will increase or decrease the amount of GRFP's trading
account assets or liabilities. While these risk management
strategies may have a significant impact on the amount of
assets and liabilities, they generally do not have a material
effect on the Corporation's results from operations or common
stockholders' equity.
During the first six months of 1995, total invested assets of the
financial services operations increased $1,908 million to
$3,569 million. Securities purchased under agreements to
resell, which represent short-term liquid investment of excess
funds, decreased $612 million in the first six months of 1995
to $201 million. Securities sold under agreements to
repurchase, which are short-term borrowings of funds,
increased $1,046 million in the first six months of 1995 to
$1,984 million. Securities sold, but not yet purchased, which
decreased by $91 million during 1995, represent obligations
of the Corporation to deliver the specified security at the
contracted price, thereby creating a liability to purchase the
security in the market at prevailing prices. Accordingly, the
Corporation's ultimate obligation to satisfy the sale of
securities sold, but not yet purchased may exceed the amount
recognized in the balance sheet. The Corporation controls
this risk and other market risks associated with its derivative
products operations through, among other techniques,
strict market position limits, including periodically stress
testing the portfolio, marking the trading portfolio to market
on a daily basis, and ongoing monitoring and analysis of its
market exposures.
Life/Health
The life/health operations' pretax income in the second
quarter of 1995 was $15 million. This segment includes the
domestic and international life/health operations of Cologne
Re. Pretax income for the quarter is comprised of an
underwriting loss of $12 million, investment income of
$26 million and other income of $1 million. Life/health
premiums written were $220 million in the second quarter
of 1995. Approximately one-half of this segment's premiums
was written in the United States, another 40 percent was
written in continental Europe and the remaining 10 percent
was written throughout the rest of the world. During the
quarter, the U.S. underwriting result experienced favorable
claims experience. Included in the underwriting result for
the period was the amortization of the present value of future
profits. This asset was established at December 31, 1994
as part of the purchase accounting adjustments for the
Cologne Re transaction. During the quarter, $4 million of the
present value of future profits was amortized and included
as a charge in the underwriting result.
The liability for policy benefits for life/health contracts was
$2,150 million at June 30, 1995, an increase of $190 million
or 9.7 percent over the year-end 1994 liability. The asset for
reinsurance recoverable on unpaid losses was $176 million
at June 30, 1995, compared to $149 million at December 31,
1994. Cologne Re manages its invested assets and total
assets on an aggregate basis for the life and property/casualty
business and does not presently disaggregate these accounts
by segment. The invested asset and total asset disclosures
included in the international property/casualty segment include
all of Cologne Re's assets.
14
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit #11 - Statement re: computation of
earnings per share
(b) Reports on Form 8-K
None
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.
GENERAL RE CORPORATION
(Registrant)
Date: August 14, 1995 JOSEPH P. BRANDON
Joseph P. Brandon
Vice President and Chief
Financial Officer
(Principal Financial Officer)
Date: August 14, 1995 ELIZABETH A. MONRAD
Elizabeth A. Monrad
Vice President and Treasurer
(Principal Accounting Officer)
15
<TABLE>
GENERAL RE CORPORATION
COMPUTATION of EARNINGS PER SHARE
(in millions, except per share data)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
Earnings Per Share of Common Stock 1995 1994 1995 1994
<S> <C> <C> <C> <C>
Net income (applicable to
common stock) (a) $212 $174 $392 $270
Average number of common shares
outstanding 82.0 81.9 82.0 82.3
Net income per share $2.58 $2.12 $4.78 $3.27
(a) After deduction of preferred stock dividends of $3
million and $5 million for the three and six months
ended June 30, 1995 and 1994.
(b) Fully diluted earnings per share are not reported
because the effect of potentially dilutive securities
was not significant.
</TABLE>
16
<TABLE> <S> <C>
<ARTICLE> 7
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<DEBT-HELD-FOR-SALE> 14709
<DEBT-CARRYING-VALUE> 1759
<DEBT-MARKET-VALUE> 1844
<EQUITIES> 3318
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 22824
<CASH> 169
<RECOVER-REINSURE> 63
<DEFERRED-ACQUISITION> 491
<TOTAL-ASSETS> 34810
<POLICY-LOSSES> 11384
<UNEARNED-PREMIUMS> 1994
<POLICY-OTHER> 1974
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 156
<COMMON> 51
1
0
<OTHER-SE> 5657
<TOTAL-LIABILITY-AND-EQUITY> 34810
1560
<INVESTMENT-INCOME> 268
<INVESTMENT-GAINS> 24
<OTHER-INCOME> 91
<BENEFITS> 1159
<UNDERWRITING-AMORTIZATION> 342
<UNDERWRITING-OTHER> 156
<INCOME-PRETAX> 286
<INCOME-TAX> 60
<INCOME-CONTINUING> 226
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 214
<EPS-PRIMARY> 2.58
<EPS-DILUTED> 0
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
