SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K/A 1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report: December 28, 1994
(Date of earliest event reported)
GENERAL RE CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 1-8026 06-1026471
(State of Incorporation) (Commission File No.) (I.R.S. Employer
Identification No.)
695 East Main Street
Stamford, Connecticut 06904-2351
(Address of principal executive office) (Zip Code)
Registrant's Telephone Number,
Including area code: (203) 328-5000
GENERAL RE CORPORATION
FORM 8-K/A 1
Item 7. Financial Statements and Exhibits
(a) Financial statements of the business acquired:
(i) Cologne Re Group's audited profit and loss statement for the year ended
December 31,1993, balance sheet as of December 31, 1993, and corresponding notes
are filed as Exhibit 99(a). The Cologne Re Group accounts were compiled in
accordance with German group accounting principles of trade law, company law
provisions, the provisions of insurance supervisory law, the ordinance on the
accounting of insurance companies and the directives for group accounting
published by the German Federal Supervisory Office (collectively referred to
as "German GAAP") for the insurance industry. The Group accounts follow the
layout and specification of items set forth by the German Federal Supervisory
Officer. The effects on the financial statements of the differences between
U.S. generally accepted accounting principles ("U.S. GAAP") and German GAAP are
presumed to be material.
(ii) 1994 interim (twelve months) consolidated financial statements of Cologne
Re prepared under U.S. GAAP; and
(b) Pro forma financial information:
(i) Pro forma financial information of General Re Corporation and its
subsidiaries (the "Corporation") for the year ended December 31, 1994, prepared
as if the transaction with Cologne Re had occurred on January 1, 1994.
(c) Exhibits:
2 General Re - Colonia Konzern Joint Venture Agreement
23 Consent of KPMG Deutsche Treuhand-Gesellschaft AG
99(a) Cologne Re's 1993 Financial Statements based on German GAAP
99(b) Press release dated December 28, 1994 concerning the closing on the
Cologne Re transaction
2
GENERAL RE CORPORATION
FORM 8-K/A 1
INDEX TO FINANCIAL STATEMENTS
Page(s)
FINANCIAL STATEMENTS UNDER ITEM 7(a)
(Unaudited)
Consolidated Statement of Income of Cologne Re
Twelve months ended December 31, 1994 4
Consolidated Balance Sheet of Cologne Re
December 31, 1994 5
Consolidated Statement of Cash Flows of Cologne Re
Twelve months ended December 31, 1994 6
Notes to Consolidated Interim Financial Statements 7-11
PRO FORMA FINANCIAL INFORMATION UNDER ITEM 7(b)
(Unaudited)
Pro Forma Consolidated Statement of Income
Year ended December 31, 1994 13
Notes to Pro Forma Consolidated Statement of Income 14-15
3
Cologne Re
Consolidated Statement of Income
Twelve months ended December 31, 1994
U.S. GAAP Basis
(in millions)
DM
Premiums and other revenues
Net premiums earned:
Property/casualty net premiums earned 2,685
Life and health net premiums earned 1,388
Total net premiums earned 4,073
Net investment income 402
Other revenues 55
Net realized gains on investments 27
Total revenues 4,557
Expenses
Claims and claim expenses 2,139
Life and health benefits 974
Acquisition costs 838
Other operating costs and expenses 352
Total expenses 4,303
Income before income taxes 254
Income tax expense:
Current 51
Deferred 72
Income tax expense 123
Net income 131
The accompanying notes are an integral part of these consolidated financial
statements.
4
Cologne Re
Consolidated Balance Sheet
December 31, 1994
U.S. GAAP Basis
(in millions, except share data)
DM
Assets
Investments:
Fixed maturities:
Held-to-maturity: at amortized cost (fair value: DM 354) 347
Available-for-sale: at fair value (cost: DM 4,834) 4,672
Equity securities: at fair value (cost: DM 954) 945
Short-term investments, at amortized cost which approximates
fair value 1,033
Other invested assets 272
Total investments 7,269
Cash 238
Funds held by reinsured companies 2,693
Accrued investment income 117
Accounts receivable 794
Reinsurance recoverables 578
Deferred acquisition costs 313
Other assets 681
Total assets 12,683
Liabilities
Claims and claim expenses 4,858
Policy benefits for life and health contracts 3,049
Unearned premiums 839
Other reinsurance balances 2,611
Income taxes 105
Other liabilities 526
Total liabilities 11,988
Shareholders' Equity
Common stock (297,700 shares issued and outstanding) 50
Preferred stock (240,000 shares issued and outstanding) 12
Paid-in capital 108
Unrealized appreciation of investments, net of income taxes (103)
Currency translation adjustments, net of income taxes (149)
Retained earnings 777
Total shareholders' equity 695
Total liabilities and shareholders' equity 12,683
The accompanying notes are an integral part of these consolidated financial
statements.
5
Cologne Re
Consolidated Statement of Cash Flows
Twelve months ended December 31, 1994
U.S. GAAP Basis
(in millions)
DM
Cash flows from operating activities:
Net income 131
Adjustments to reconcile net income to net cash provided
by operating activities:
Change in claim and claim expense liabilities 861
Change in policy benefits for life and health contracts 183
Change in reinsurance recoverable (106)
Change in unearned premiums 30
Change in prepaid reinsurance premiums 4
Change in deferred acquisition costs (40)
Other changes in assets and liabilities (151)
Realized gains on investments (27)
Net cash from operating activities 885
Cash flows used in investing activities:
Fixed maturities: held-to-maturity
Purchases (54)
Maturities 15
Fixed maturities: available-for-sale
Purchases (3,378)
Maturities 62
Sales 2,846
Equity securities
Purchases (273)
Sales 162
Purchases of other invested assets (79)
Net purchases of short-term investments (119)
Net cash used in investing activities (818)
Cash flows from financing activities:
Change in contract deposits 58
Cash dividends paid to shareholders:
Common (36)
Preferred (9)
Net cash from financing activities 13
Change in cash 80
Cash, beginning of year 158
Cash, end of year 238
The accompanying notes are an integral part of these consolidated financial
statements.
6
Cologne Re
Notes to Consolidated Interim Financial Statements
1. Summary of Significant Accounting Policies
The following is a description of the significant accounting policies and
practices employed by Kolnische Ruckversicherungs-Gesellschaft AG and
Subsidiaries ("Cologne Re") for the accompanying unaudited, consolidated
financial statements:
General: The consolidated financial statements have been prepared on the basis
of generally accepted accounting principles in the United States ("U.S. GAAP").
The reporting of client underwriting accounts to reinsurers in Cologne Re's
principal markets is customarily delayed as a matter of business practice.
Consequently, the consolidated results include accruals and estimates by
management of premium and loss experience. These estimates are based on the
best available information, including Cologne Re's historical experience,
known premium and loss trends and activity levels, catastrophic loss event
reports and other available management information.
Basis of Presentation: The consolidated financial statements include Cologne Re
and its subsidiaries. All significant intercompany transactions have been
eliminated. The financial statements are expressed in Cologne Re's
functional currency, the German mark ("DM").
Investments: Fixed maturity securities that Cologne Re has both the ability and
intent to hold to maturity are valued at amortized cost. Fixed maturity
securities that Cologne Re may sell prior to maturity in response to changes
in market interest rates, changes in liquidity needs, or other factors are
classified as available-for-sale and are carried at fair value, with unrealized
gains and losses, net of deferred income taxes, excluded from income and
reported in a separate component of shareholders' equity. Equity securities
are carried at fair value, with unrealized gains and losses included in
shareholders' equity. Included in other invested assets are investments in real
estate and mortgage loans carried at cost.
Realized gains or losses on sales of investments are principally determined on
the basis of identified cost and include adjustments to the net realizable value
of investments for declines in value that are considered to be other than
temporary. Investment income is recognized as earned and includes the
amortization of bond discount and accretion of bond premium.
Property/Casualty Operations: Premiums are recognized in income over the
contract period in proportion to the amount of reinsurance provided. Unearned
premium liabilities are established to cover the unexpired portion of
premiums written. Such liabilities are computed by pro rata methods based on
statistical data and reports received from ceding companies. Premiums are
net of retrocessions.
Acquisition costs, consisting of commissions incurred at contract issuance, are
deferred and amortized over the period in which the related premiums are earned,
generally one year. Deferred acquisition costs are reviewed to determine that
they do not exceed recoverable amounts, after considering investment income.
7
Cologne Re
Notes to Consolidated Interim Financial Statements (continued)
The liability for claims and claim expenses is based on reports and information
received from ceding companies. The liability also includes incurred but not
reported losses which are based on past experience. The methods of determining
such estimates and establishing the related liabilities are periodically
reviewed and updated, and any resulting adjustments are included in income
currently. Reinsurance recoveries on unpaid claims and claim expenses are
recognized in a manner consistent with the method for establishing the
related liability.
The liability for unpaid claims and claim expenses includes estimated amounts
for certain types of environmental and latent injury claims. Environmental and
latent injury exposures do not lend themselves to traditional methods of loss
development reserve determination. The estimates may be considered less
reliable than reserves for standard lines of business (e.g., motor business)
due to uncertainties about the ultimate exposure at this time. In addition to
reported claims, Cologne Re has also included an estimate for incurred but
not reported (IBNR) claims. The liability for these types of environmental and
latent injury claims was DM 107 million at December 31, 1994.
Life Insurance Operations: Premiums for traditional life insurance products are
generally recognized as revenues over the premium paying period of the
underlying insurance policies. Benefits and expenses relating to such
revenues are accrued in a manner such that profits are recognized over the
estimated life of the policies. The liability for future policy benefits for
life and health contracts has been computed based upon assumed investment
yields, mortality, and withdrawal rates anticipated at the time the policies
were issued. These assumptions include a margin for adverse deviation and vary
with the characteristics of the reinsurance contract's year of issue, policy
duration, country of risk and other appropriate factors. The interest rate
assumptions used vary by country and range from 3 percent to 7 percent. There
was no participating life business; however, provisions have been made for
profit-sharing commission payments to ceding companies.
Deferred Taxes: Deferred income taxes have been provided for temporary
differences between the bases of assets and liabilities used in the financial
statements and tax return (see Note 2). Deferred income taxes are also
provided for unrealized appreciation (depreciation) of equity securities and
certain fixed maturities by a charge (credit) directly to the related component
of shareholders equity.
Foreign Currency Translation: Assets and liabilities are translated at the rate
of exchange in effect at the close of the period. Gains or losses resulting
from foreign currency transactions (transactions denominated in a currency
other than the German mark) are included in net income.
Contract Deposits: Reinsurance contracts that do not indemnify the ceding
company against loss or liability are recorded as deposits and included in the
balance sheet caption, "other reinsurance balances". These deposits are
treated as financing transactions and are credited or charged with interest
income or expense according to contract terms.
Allowance for Doubtful Accounts: Cologne Re 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 DM 3 million at December 31, 1994.
8
Cologne Re
Notes to Consolidated Interim Financial Statements (continued)
2. German and Foreign Income Taxes
Cologne Re provides for current and deferred taxes based on the tax rate in each
subsidiary's taxing jurisdiction. For Cologne Re's subsidiaries located in
taxing jurisdictions with dual tax rates based on retained and remitted
earnings, deferred taxes have been provided at the retained rate.
Income tax expense for the twelve months ended December 31, 1994 was as follows:
(in DM millions) German Foreign Total
Current 25 26 51
Deferred 75 (3) 72
Total 100 23 123
Cologne Re's effective income tax rate of 49% in 1994 was less than the German
combined tax rate of approximately 57%. This lower rate is principally due to
income earned in jurisdictions with lower tax rates than Germany. Income
taxes paid in 1994 were DM 25 million.
3. Reinsurance Ceded
Cologne Re utilizes reinsurance to reduce its exposure to large losses. These
agreements provide for recovery of a portion of losses from reinsurers. If
reinsurers are unable to meet their obligations under the agreements, Cologne
Re would be liable for such defaulted amounts. Cologne Re holds partial
collateral under these agreements. Cologne Re has no significant concentrations
of credit risk with any reinsurer at December 31, 1994. The income statement
amounts for premiums written, premiums earned and claims and claim expenses
incurred are net of reinsurance. Assumed, ceded and net amounts for these items
in 1994 were as follows:
<TABLE>
<CAPTION>
Premiums Written Premiums Earned
Property/ Life Property/ Life Claims and Life and
(in DM millions) Casualty and Health Casualty and Health Claim Expenses Health Benefits
<S> <C> <C> <C> <C> <C> <C>
Assumed 3,424 1,475 3,366 1,478 2,537 1,088
Ceded (682) (94) (681) (90) (398) (114)
Net 2,742 1,381 2,685 1,388 2,139 974
</TABLE>
Cologne Re
Notes to Consolidated Interim Financial Statements (continued)
4. Investments
The cost, fair value, and gross unrealized appreciation and depreciation of
short-term, fixed maturity, equity and other investments of Cologne Re at
December 31, 1994 were as follows:
<TABLE>
<CAPTION>
Gross Gross
Unrealized Unrealized Fair
(in DM millions) Cost Appreciation Depreciation Value
<S> <C> <C> <C> <C>
Short-term investments 1,033 - 1 1,032
Fixed maturities - held-to-maturity
German federal and state government 22 - - 22
U.S. Government 6 - - 6
Other federal and state government 78 - - 78
Corporate 241 7 - 248
Total fixed maturities-held-to-maturity 347 7 - 354
Fixed maturities - available-for-sale
German federal and state government 880 - 39 841
U.S. Government 659 - 23 636
Other federal and state government 1,510 1 57 1,454
Corporate 1,611 - 33 1,578
Tax-exempt 170 - 11 159
Foreign 4 - - 4
Total fixed maturities-available-e
for sale 4,834 1 163 4,672
Equities 954 16 25 945
Other invested assets 272 60 - 332
Total 7,440 84 189 7,335
1 Cost is amortized cost for short-term investments and fixed maturities, and
original cost for equity securities and other invested assets.
</TABLE>
The contractual maturity of fixed maturities held-to-maturity and available-for
- -sale is shown in the following table. Actual maturities may differ from
contractual maturities because borrowers may have the right to call or prepay
certain obligations.
<TABLE>
<CAPTION>
Held-to-maturity Available-for-sale
Amortized Fair Amortized Fair
(in DM millions) Cost Value Cost Value
<S> <C> <C> <C> <C>
Due in one year or less 37 37 259 257
Due after one year through five years 185 190 2,804 2,707
Due after five years through ten years 123 124 1,286 1,238
Due after ten years 2 3 485 468
Total 347 354 4,834 4,672
</TABLE>
10
Cologne Re
Notes to Consolidated Interim Financial Statements (continued)
5. Shareholders' Equity
At December 31, 1994, capital stock of Cologne Re consisted of 297,700 shares
of outstanding common stock and 240,000 shares of cumulative preferred stock.
The voting common shares include 34,700 shares with a nominal value of DM 1,000
each, 43,000 shares with a nominal value of DM 100 each, and 220,000 shares with
a nominal value of DM 50 each. The preferred shares have a nominal value of
DM 50 each and are entitled to a dividend that is 2 percent per annum greater
than the rate paid on the nominal value of the common shares. The preferred
dividend is also subject to a minimum annual amount of 4 percent of nominal
value, aggregating DM 480,000. While generally having no voting rights, the
preferred shares would acquire voting rights under certain conditions, such as a
consecutive two-year omission of the preferred dividend. The preferred shares
rank equally with common shares in liquidation, unless unpaid dividends are due
the holders of preferred shares.
The 1994 consolidated statement of cash flows includes common and preferred
dividends for both 1993 and 1992, which were paid during 1994.
6. Commitments and Contingencies
Cologne Re leases certain office space under non-cancelable leases expiring in
various years through 2001. Rental expense was DM 1 million in 1994. The
future minimum annual rental commitments under non-cancelable leases were as
follows:
(in DM millions)
1995 1
1996 1
1997 1
1998 1
Subsequent to 1998 2
Total 6
11
General Re Corporation
FORM 8-K/A 1
Pro Forma Financial Information
On December 28, 1994, the Corporation and Colonia Konzern AG ("Colonia") formed
a new company that acquired 75 percent of the common shares and approximately 30
percent of the preferred shares of Kolnische Ruckversicherungs-Gesellschaft
AG ("Cologne Re"), which collectively represents a 66.3 percent economic
interest in Cologne Re. In exchange for its Cologne Re shares, Colonia, for
itself and as trustee for Nordstern Allgemeine Versicherungs AG (collectively,
the "CKAG Group"), received 100 percent of the Class A shares of the new
company, General Re-CKAG Reinsurance and Investment S.A.R.L. ("GR-CK"). The
Corporation initially contributed DM 1,377 million to GR-CK, in exchange for
100 percent of the Class B shares of GR-CK. On December 30, 1994, GR-CK paid
DM 475 million to a subsidiary of the Corporation in exchange for notes with a
principal amount of DM 475 million. The notes pay interest of 8.0 percent
annually to GR-CK and are due on December 30, 2004.
The Class A shares have 49.9 percent of the votes of GR-CK and are entitled to
an annual Class A dividend, which is based on a formula and is subject to a
minimum of approximately DM 36 million, while the Class B shares have 50.1
percent of the votes of GR-CK and are entitled to the earnings of GR-CK in
excess of the Class A dividend. The Corporation has an option after seven years
to purchase the Class A shares of GR-CK owned by the CKAG Group at a formula
price. The option has a minimum exercise price of DM 1,306 million and a
maximum exercise price of DM 1,509 million, subject to certain warranty
adjustments that may reduce the exercise price.
At December 31, 1994, the balance sheets of GR-CK and Cologne Re were included
in the consolidated balance sheet of the Corporation on its Form 10-K, as filed
with the Securities and Exchange Commission on March 10, 1995. Accordingly, no
pro forma balance sheet information has been presented.
The following table presents the unaudited, pro forma consolidated statement of
income of the Corporation for the year ended December 31, 1994. The pro forma
information gives effect to the GR-CK joint venture transaction as of January 1,
1994 (see the notes to the pro forma consolidated statement of income for more
information). The Corporation's actual 1994 financial statements exclude any
results of the joint venture prior to the transaction date of December 28, 1994.
The pro forma consolidated statement of income neither purports to represent
what the Corporation's results of operations actually would have been had the
acquisition and related transactions in fact occurred on the assumed dates, nor
to project the Corporation's results of operations for any future period. The
pro forma adjustments are based upon currently available information and certain
assumptions that the Corporation believes are reasonable in the circumstances.
The pro forma consolidated statement of income should be read in conjunction
with the 1994 financial statements of Cologne Re and the Corporation, including
the notes thereto.
12
General Re Corporation
Pro Forma Consolidated Statement of Income
Year ended December 31, 1994
(in U.S. $ millions)
<TABLE>
<CAPTION>
Unaudited
Corporation Pro forma Pro forma
Historical(1) Cologne Re(2) Adjustments (3) Consolidated
<S> <C> <C> <C> <C>
Premiums and other revenues
Net premiums earned
Property/casualty $2,788 $1,660 $4,448
Life and health - 858 858
Total net premiums earned 2,788 2,518 5,306
Net investment income 749 249 $ 3 (A) 1,001
Other income 234 34 268
Net realized gains on investments 66 17 83
Total revenues 3,837 2,818 3 6,658
Expenses
Claims and claim expenses 1,981 1,323 3,304
Life and health benefits - 602 602
Acquisition costs 614 518 3 (B) 1,135
Other operating costs and expenses 448 218 16 (C) 682
Total expenses 3,043 2,661 19 5,723
Income before taxes and minority interest 794 157 (16) 935
Income tax expense:
Current 152 32 11 195
Deferred (23) 44 (26) (5)
Income tax expense 129 76 (15) (D) 190
Income before minority interest 665 81 (1) 745
Minority interest - - (51) (E) (51)
Net income $665 $81 ($52) $694
Earnings per share:
Net income per share $7.97 $8.32
See the accompanying notes to the pro forma consolidated statement of income.
13
General Re Corporation
Notes to the Pro Forma Consolidated Statement of Income
The pro forma income statement presents the results of the Corporation as if the
transaction establishing GR-CK had occurred on January 1, 1994. It is not
appropriate to assume the results presented would have been the actual amounts
reported by the Corporation if the transaction had occurred on January 1, 1994.
(1) Amounts in the first column present the historical results from operations
reported by the Corporation in its annual report on Form 10-K for the year ended
December 31, 1994.
(2) The second column presents Cologne Re's historical U.S. GAAP results from
operations for the twelve months ended December 31, 1994, before purchase
accounting adjustments. These results are the same as those presented in the
previous section of this Form 8-K, after conversion into U.S. dollars using an
average exchange rate for the period of DM 1.62 to the U.S. dollar.
(3) The third column includes purchase accounting adjustments, pro forma
adjustments to the Corporation's historical operations and the pro forma results
of GR-CK. The principal purchase accounting adjustment affecting operating
results would have been the amortization of goodwill. Under purchase accounting,
the Corporation's investment in GR-CK would have been allocated to the net fair
value of GR-CK's assets and liabilities as of January 1, 1994. Purchase
accounting adjustments, pro forma adjustments and the pro forma results of GR-CK
are as follows:
</TABLE>
<TABLE>
<CAPTION>
Adjustment
Amounts
(in millions)
<S> <C>
(A)Net Investment Income
It was assumed that GR-CK would have received from the Corporation net
proceeds of DM 902 million ($519 million at the then-current exchange rate)
on January 1, 1994. These funds were then assumed to have earned pretax
investment income at 6.5 percent in 1994. The investment income was
converted into U.S. dollars using an average exchange rate for the period of
DM 1.62 to the U.S. dollar. $ 37
It was also assumed that the Corporation initially would have contributed DM
1,377 million ($792 million at the then-current exchange rate) to GR-CK on
January 1, 1994. The Corporation was assumed to have issued immediately
thereafter a note to GR-CK in the amount of DM 475 million ($273 million at
the then-current exchange rate). The net funds contributed to GR-CK of DM
902 million were assumed to be invested in DM-denominated securities earning
6.5 percent during 1994 based on existing yields as of January 1, 1994. (34)
GR-CK was assumed to have earned investment income on its DM 475 million
note from the Corporation at 8.0 percent per annum and the Corporation
would have incurred an offsetting interest expense of DM 38 million. -
$ 3
14
General Re Corporation
Notes to the Pro Forma Consolidated Statement of Income (continued)
Adjustment
Amounts
(in millions)
(B) Acquisition Costs
The Corporation would have recorded a purchase accounting adjustment to
write off the deferred acquisition costs associated with Cologne Re's in-force
life reinsurance business and established an asset for the present value of the
after-tax future profits ("PVP") on this business. The net effect of amortizing
PVP and the reversal of the associated deferred acquisition costs would have
resulted in an additional net expense. $ 3
(C) Other operating costs and expenses
Amortization of goodwill and incremental overhead costs associated with the
investment in the joint venture would have resulted in additional expenses for
the Corporation. $16
(D) Income tax expense
The cash contribution to GR-CK by the Corporation would have lowered
investment income and correspondingly decreased U.S. income taxes. $(21)
Investment income earned in GR-CK would have resulted in additional foreign
tax expense. 22
As a result of its investment in GR-CK, the Corporation would have earned a
net tax benefit due to additional foreign tax credits, which would have reduced
its U.S. income tax expense. (16)
$(15)
(E) Minority interest
The minority interest of third party shareholders in Cologne Re would have
been deducted from the Corporation's earnings. $27
The minority interest of the CKAG Group in the pro forma earnings of GR-CK
would also have been deducted from the Corporation's earnings. 24
$51
15
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: March 10, 1995 By: JOSEPH P. BRANDON
Joseph P. Brandon
Vice President and
Chief Financial Officer
(Principal Financial Officer)
Date: March 10, 1995 By: ELIZABETH A. MONRAD
Elizabeth A. Monrad
Vice President and Treasurer
(Principal Accounting Officer)
16
</TABLE>
