GENERAL RE CORPORATION
Financial Centre
P.O. Box 10350
Stamford, CT 06904-2350
November 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
THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 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 September 30, 1995
Common Stock, $.50 par value 82,288,063 Shares
GENERAL RE CORPORATION
INDEX
PAGE NO.
PART I. FINANCIAL INFORMATION
Consolidated Balance Sheets
September 30, 1995 and December 31, 1994 3
Consolidated Statements of Income
Three and nine months ended September 30, 1995 and 1994 4
Consolidated Statements of Cash Flows
Nine months ended September 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 - 15
PART II. OTHER INFORMATION 16 - 17
2
<TABLE>
General Re Corporation
Consolidated Balance Sheets
(in millions, except share data)
<CAPTION>
(Unaudited)
Assets Sept. 30, 1995 Dec. 31, 1995
<S> <C> <C>
Investments:
Fixed maturities:
Held-to-maturity (fair value: $1,534 in 1995; $1,971 in 1994) $ 1,457 $ 1,900
Available-for-sale (cost: $12,402 in 1995; $10,840 in 1994) 12,952 10,717
Trading (cost: $2,132 in 1995; $1,579 in 1994) 2,128 1,557
Equity securities, at fair value (cost: $2,466 in 1995; $2,318 in 1994) 3,658 2,977
Short-term investments, at amortized cost which approximates fair value 1,629 1,032
Other invested assets 845 715
Total investments 22,669 18,898
Cash 240 242
Accrued investment income 357 272
Accounts receivable 2,481 1,421
Funds held by reinsured companies 2,138 1,942
Reinsurance recoverable 2,518 2,067
Deferred acquisition costs 438 324
Securities purchased under agreements to resell 191 813
Trading account assets 2,259 1,928
Other assets 1,666 1,690
Total assets $34,957 $29,597
Liabilities
Claims and claim expenses $13,824 $12,158
Policy benefits for life/health contracts 2,250 1,960
Unearned premiums 2,013 1,642
Other reinsurance balances 2,871 2,318
Notes payable and commercial paper 156 188
Income taxes 583 196
Securities sold under agreements to repurchase 1,353 938
Securities sold but not yet purchased 562 927
Trading account liabilities 2,577 2,320
Other liabilities 1,319 1,046
Minority interest 1,320 1,044
Total liabilities 28,828 24,737
Cumulative convertible preferred stock (shares issued: 1,726,773
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 630 604
Unrealized appreciation of investments, net of income taxes 1,163 421
Currency translation adjustments (8) (20)
Retained earnings 5,799 5,330
Less common stock in treasury, at cost (shares held: 20,539,281 in 1995
and 20,955,202 in 1994) (1,507) (1,527)
Total common stockholders' equity 6,128 4,859
Total liabilities, cumulative convertible preferred stock and
common stockholders' equity $34,957 $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 Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Premiums and other revenues
Net premiums written
Property/casualty $1,460 $811 $4,055 $2,296
Life/health 235 - 456 -
Total net premiums written $1,695 $811 $4,511 $2,296
Net premiums earned
Property/casualty $1,427 $670 $3,727 $2,083
Life/health 233 - 448 -
Total net premiums earned 1,660 670 4,175 2,083
Net investment income 269 187 717 555
Other revenues 83 57 224 174
Net realized gains (losses) on investments (8) 21 24 42
Total revenues 2,004 935 5,140 2,854
Expenses
Claims and claim expenses 1,035 438 2,696 1,546
Life/health benefits 169 - 317 -
Acquisition costs 376 156 946 424
Other operating costs and expenses 148 116 402 326
Total expenses 1,728 710 4,361 2,296
Income before income taxes and minority interest 276 225 779 558
Income tax expense 67 34 161 93
Income before minority interest 209 191 618 465
Minority interest 10 - 22 -
NET INCOME $199 $191 $596 $465
Share Data
Net income per common share $2.39 $2.29 $7.17 $5.57
Dividend per common share $.49 $.48 $1.47 $1.44
Average shares outstanding 82.2 81.8 82.0 82.1
See notes to the consolidated interim financial statements.
</TABLE>
4
<TABLE>
GENERAL RE CORPORATION
Consolidated Statements of Cash Flows
(in millions)
<CAPTION>
(Unaudited)
Nine months ended
September 30,
1995 1994
<S> <C> <C>
Cash flows from operating activities
Net income $596 $465
Adjustments to reconcile net income to net cash provided
by operating activities:
Change in claim and claim expense liabilities 1,152 498
Change in policy benefits for life/health contracts 112 -
Change in reinsurance recoverable (215) (149)
Change in unearned premiums 282 292
Amortization of acquisition costs 946 424
Acquisition costs deferred (998) (493)
Trading account activities
Change in trading account securities (1,608) 560
Securities purchased under agreements to resell 622 (291)
Securities sold under agreements to repurchase 415 (361)
Change in other trading balances 597 (5)
Other changes in assets and liabilities (899) (15)
Net realized gains on investments (24) (42)
Net cash from operating activities 978 883
Cash flows from investing activities
Fixed maturities: held-to-maturity
Purchases (4) (23)
Calls and maturities 344 244
Sales - -
Fixed maturities: available-for-sale
Purchases (4,624) (3,399)
Calls and maturities 128 245
Sales 3,422 3,032
Equity securities:
Purchases (626) (715)
Sales 568 643
Net purchases of short-term investments (248) (465)
Net purchases of other invested assets (104) (23)
Net cash used in investing activities (1,144) (461)
Cash flows from financing activities
Maturity of variable rate notes - (21)
Commercial paper (repayment) borrowing, net (31) (155)
Change in contract deposits 176 102
Cash dividends paid to common stockholders (121) (118)
Acquisition of treasury stock - (222)
Other 140 7
Net cash used in financing activities 164 (407)
Change in cash (2) 15
Cash, beginning of period 242 60
Cash, end of period $240 $ 75
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 operating results 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
$160 million and $96 million in the nine months ended September 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 September 30, 1995.
The income statement amounts for premiums written, premiums earned,
claims and claim expenses incurred and life/health benefits are reported
net of reinsurance. Direct, assumed, ceded and net amounts for the nine
months ended September 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 $298 $263 - - $145 -
Assumed 4,569 4,266 $508 $500 3,167 $ 370
Ceded (812) (802) (52) (52) (616) (53)
Net $4,055 $3,727 $456 $448 $2,696 $317
1994
Direct $247 $237 - - $157 -
Assumed 2,457 2,183 - - 1,720 -
Ceded (408) (337) - - (331) -
Net $2,296 $2,083 - - $1,546 -
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 approximately $155 million and $121
million at September 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 82,180,498 and 82,032,784
for the three and nine months ended September 30, 1995, and 81,785,662
and 82,149,589 for the three and nine months ended September 30,
1994.
7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Consolidated
Income from operations, excluding after-tax realized gains/losses,
was $2.43 per share in the third quarter of 1995, an increase of 14.6
percent from the $2.12 per share earned in the comparable period
in 1994. Net income for the third quarter of 1995 included after-tax
realized losses of $.04 per share, compared with a gain of $.17 per
share in the third quarter of 1994. The improved results in the third
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. Due to the Corporation's reporting of its international
operations on a quarter lag, the nine-month results include only two
quarters of the results 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 nine months of 1995, net income was $7.17 per share,
compared with $5.57 per share for the same period in 1994. Included
in net income were after-tax realized gains of $.22 per share in the
first nine months of 1995, compared with $.34 per share in 1994. For
the first nine months of 1995, domestic underwriting results improved
by approximately $50 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 nine months of 1995, as compared to
the same period in 1994.
Consolidated net premiums written for the third quarter of 1995 were
$1,695 million, an increase of 109.1 percent from $811 million in 1994.
Consolidated net premiums written for the first nine months of 1995 were
$4,511 million, compared with $2,296 million in 1994. Domestic
property/casualty premiums written were $824 million in the third quarter
of 1995, compared with $758 million in 1994, an increase of 8.7 percent.
Included in net premiums written in the third quarter of 1994 was an
assumed unearned premium portfolio of $105 million. Excluding the
impact of this contract, total domestic property/casualty premiums
grew 26.2 percent. The international property/casualty subsidiaries'
net premiums written were $636 million in the third quarter of 1995,
an increase of $583 million from the comparable amount in 1994, with
a significant amount of the growth attributable to the inclusion of
Cologne Re's premium during the quarter. 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 $97 million
during the third quarter and $232 million during the first nine months
of 1995 due to this change in reporting. Net premiums written for the
life/health segment, which consists of Cologne Re's United States and
international life/health operations, were $236 million for the third
quarter of 1995 and $456 million for the first nine months of 1995.
Consolidated investment income was $269 million in the third quarter
of 1995, compared with $187 million in 1994. The consolidation of
Cologne Re accounts for approximately $59 million of the $82 million
increase in consolidated pretax investment income in the third quarter
of 1995. Net investment income for the domestic property/casualty
operations was $179 million in the third quarter of 1995, compared
with $170 million in the
8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
third quarter of 1994. Net investment income for the international
property/casualty operations was $72 million in the third quarter of
1995, compared with $13 million in the third quarter of 1994. Net
investment income for the life/health operations was $13 million in
the third quarter of 1995. During the third quarter, the Corporation
reclassified investment income earned on certain life reinsurance
contracts from investment income to life/health benefits. The
reclassification had no impact on net income but reduced the
previously reported pretax investment income in the second
quarter by $13 million.
The consolidated effective tax rate was 24.2 percent for the
third quarter of 1995, compared with 15.0 percent in the third
quarter of 1994. The consolidated effective tax rate for the
first nine months of 1995 was 20.6 percent, compared to 16.6
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 September 30, 1995, total consolidated assets were $34,957
million, compared with $29,597 million at December 31, 1994.
The growth in total assets was due to increases of $544 million
in the financial services segment, $2,153 million in the domestic
property/casualty operations and $2,663 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 an increase
in the gross unrealized gain on the swap mark-to-market balance.
The increase in the domestic property/casualty assets was primarily
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 nine months of 1995, total invested assets increased
by $3,771 million to $22,669 million. The growth in invested assets
was due to increases of $826 million in the financial services segment,
$1,804 million in the domestic property/casualty operations and $1,141
million in the international property/casualty and life/health operations.
Common stockholders' equity at September 30, 1995 was $6,128
million, an increase of 26.1 percent from the $4,859 million at
December 31, 1994. The growth in common stockholders' equity
during the first nine months of 1995 was principally the result of
net income of $596 million, an increase in after-tax unrealized investment
gains of $742 million, unrealized foreign currency translation gains
of $12 million less common and preferred stock dividends of
$129 million.
The Corporation realized net cash flow from consolidated operations
of $978 million in the first nine months of 1995, compared to $883
million in the comparable period in 1994. Cash flows from operations
for the domestic property/casualty operations were $850 million and
$717 million in the first nine months of 1995 and 1994, respectively.
The financial services operations had net cash flows from operations
of $11 million in the first nine months of 1995, compared to net outflows
of $28 million in the first nine months of 1994. The international
property/casualty and life/health operations had cash flow from
operating activities of $117 million for the first nine months of
1995, compared with $194 million in 1994.
9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
Dividends paid to common stockholders were $121 million and
$118 million in the first nine months of 1995 and 1994, respectively.
The Corporation did not repurchase any of its shares during the first
nine months of 1995 and at September 30, 1995 had approximately
$100 million available under Board-authorized repurchase programs
and additional standing authority to repurchase shares in anticipation
of share 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. generally accepted
accounting principles by 62.9 percent 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. In
addition, the Corporation has purchased for its own account an
additional 108,677 ordinary and preference shares of Cologne Re for
aggregate consideration of $55 million. These purchases maintained
GR-CK's 66.3 percent ownership interest of Cologne Re and, in
addition, gave the Corporation a direct interest of 5.8 percent in
Cologne Re, bringing the Corporation's total consolidated interest
to 72.1 percent at September 30, 1995. The Corporation's financial
statements will include the additional percentage ownership in
Cologne Re in the fourth quarter.
At September 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
September 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 the Corporation's financial flexibility.
Domestic Property/Casualty
Q3 Q3 YTD YTD
(in millions) 1995 1994 1995 1994
Income before income taxes $161 $187 $553 $463
Pretax realized gains (losses) (14) 16 24 37
Income before income taxes and realized gains (losses) $175 $171 $529 $426
Net premiums written $824 $758 $2,213 $1,945
Net underwriting (loss) (4) (16) (3) (53)
Net investment income 179 170 534 509
Statutory combined ratio 99.1% 98.8% 99.1% 103.8%
10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
Pretax income for the domestic property/casualty operations, excluding
realized gains, increased 2.9 percent in the third quarter of 1995 compared
with the third quarter of 1994 and increased 24.4 percent on a year-to-date
basis. The improvement in pretax income for the segment was primarily
due to improvement of $50 million in the underwriting result and increased
net other revenues of $28 million. The segment's year-to-date pretax
investment income was reduced by approximately $28 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.
In the third quarter of 1995, the statutory combined ratio for the
domestic property/casualty operations was 99.1 percent, compared
with 98.8 percent for the third quarter of 1994 and 101.3 percent
for the full year 1994. The statutory combined ratio for the first
nine months of 1995 was 470 basis points better than 1994's
percentage which was adversely affected by catastrophe claims
from the earthquake centered in Northridge, California that occurred
on January 17, 1994.
Net premiums written for the domestic property/casualty operations
were $824 million in the third quarter of 1995 and $2,213 million in
the first nine months of 1995, representing increases of 8.7 percent
and 13.8 percent from the respective amounts in 1994. Included in
premiums written for the third quarter of 1994 was the assumption
of a net unearned premium portfolio of $105 million related to one
reinsurance contract. Net premiums written by General Reinsurance
Corporation's treaty and facultative operations increased by 8.2
percent during the quarter and 14.5 percent year-to-date. The
Corporation attributes the growth in premiums to increased purchases
of property reinsurance due to insurers' heightened awareness of
catastrophe exposures, the increase in insurance premiums written
by smaller-sized and regional primary insurance 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,
net premiums written increased by 1.8 percent and 9.5 percent for
the quarter and year-to-date. For the Genesis operations, which
provide direct excess insurance, net premiums written increased
by 35.9 percent for the third quarter of 1995 and 7.9 percent for
the first nine months of 1995, compared to the same periods in 1994.
Pretax investment income for the domestic property/casualty
operations increased 5.6 percent and 5.0 percent compared to
the third quarter and first nine months of 1994. The increase in
investment income was due to 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. Excluding the effect of the estimated $28
million reduction in investment income due to the Corporation's
investment in the Cologne Re joint venture, investment income of
the domestic property/casualty segment grew by 10.6 percent for
the first nine months of 1995. The overall pretax yield on the invested
asset portfolio was 5.9 percent in the first nine months of 1995 and 1994.
11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
During the first nine months of 1995, General Re had
approximately $314 million of calls and maturities on
grandfathered tax-exempt bonds. These bonds had an
average yield of approximately 9.0% and the proceeds
from the calls were reinvested at an average yield of
approximately 5.5%. In addition, based on the Corporation's
current investment portfolio and the current yield curve, the
Corporation presently anticipates additional calls of approximately
$665 million of grandfathered tax-exempt bonds with an average
yield of approximately 8.2% through the end of 1996, which will
adversely affect average portfolio yields and investment income.
The gross liability for claims and claim expenses for the domestic
property/casualty operations was $9,070 million at September 30,
1995, an increase of $492 million, or 5.7 percent, over the year-end
1994 liability. The asset for reinsurance recoverable on unpaid claims
was $1,762 million at September 30, 1995, compared to $1,549 million
at December 31, 1994. At September 30, 1995, the gross liability for
claims and claim expenses and the related asset for reinsurance
recoverables include $1,656 million and $499 million, respectively, for
environmental and latent injury claims. These amounts include
provisions for both reported and incurred but not reported claims.
At September 30, 1995, total assets of the domestic property/casualty
operations were $16,463 million, compared with $14,310 million at
December 31, 1994.
International Property/Casualty
Q3 Q3 YTD YTD
(in millions) 1995 1994 1995 1994
Income before income taxes and minority interest $61 $17 $110 $35
Pretax realized gains (losses) 6 5 (3) 7
Income before income taxes, minority interest and
realized gains (losses) $55 $12 $113 $28
Net premiums written $636 $53 $1,842 $351
Net underwriting (loss) (10) 0 (34) (1)
Net investment income 72 13 144 38
Combined ratio 101.8% 100.2% 101.7% 99.8%
The international property/casualty operations' income
before income taxes, minority interest and realized gains
increased 360.0 percent for the third quarter of 1995
compared with the third quarter of 1994 and 310.1 percent
for the first nine months of 1995 compared with the first nine
months of 1994. As stated earlier, the results of the
international property/casualty segment include the
operations of Cologne Re and GR-CK during the second
and third quarter of 1995. For the third quarter of 1995,
income for the international property/casualty operations
increased as compared to 1994's third quarter due to
improved underwriting results in the Corporation's
wholly owned international subsidiaries and the inclusion
of the results of GR-CK and Cologne Re, which reflect
favorable German motor and European property books
of business in 1995.
12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
International net premiums written were $636 million in the
third quarter of 1995, compared with $53 million in the third
quarter of 1994. For the first nine months of 1995, net
premiums written were $1,842 million, compared with
$351 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 third quarter
and the first nine months of 1995 by $97 million and
$232 million, respectively. The change added approximately
$2 million to income before tax for the first nine months
of 1995. Excluding Cologne Re's premiums and the change
in estimation method, the international property/casualty
segment's premiums grew by 22.4 percent for the third
quarter of 1995 and 29.9 percent for the first nine months of 1995.
Pretax investment income for the international property/casualty
operations was $144 million for the first nine months, compared
with $38 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 nine months of 1995 grew by 15.0
percent. The overall pretax yield on the invested asset portfolio
was 4.7 percent in the first nine months of 1995, compared with
7.6 percent in the same period in 1994. The decline in investment
yield was due principally to Cologne Re's shorter-duration portfolio
and the contractual sharing of investment income with ceding
companies under certain reinsurance agreements.
Included in the international property/casualty segments' pretax
income for the first nine months of 1995 were foreign exchange
gains of $7 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 September 30, 1995, total assets of the international
property/casualty operations were $13,065 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 certain European currencies against the
U.S. dollar. The gross liability for claims and claim
expenses was $4,755 million at September 30, 1995,
an increase of $1,175 million over the year-end 1994
liability. The asset for reinsurance recoverable on
unpaid claims was $480 million at September 30,
1995, compared to $291 million at December 31,
1994. At September 30, 1995, the gross and net
liability for claims and claim expenses included
$78 million for environmental and latent injury claims.
13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
Financial Services
Financial services operations include the Corporation's
derivative products, investment management, insurance
brokerage and management, reinsurance brokerage,
underwriting services and real estate management subsidiaries.
In August 1995, the Corporation acquired all of the outstanding
stock of New England Asset Management (NEAM). The
resulting company, General Re-New England Asset
Management, Inc., provides investment management
services primarily for insurance companies. Through
the combination of existing investment management
operations and NEAM, the Corporation has 45 insurance
company clients and approximately $9.3 billion of client
assets under management.
Pretax income for the financial services operations was
$38 million in the third quarter of 1995, compared with
$21 million in the third quarter of 1994. The increase in
the segment's pretax income for the quarter over the
comparable quarter of 1994 was primarily due to growth
in revenues and income for General Re Financial Products
(GRFP) and increased income from the brokerage operations.
The growth in GRFP's income for the quarter compared to
1994's third quarter was due to specialty products and growth
in swap transactions outside of North America. Pretax income
for the segment in the first nine months of 1995 was $84 million,
compared with $61 million in 1994.
At September 30, 1995, total assets of the financial services
operations were $5,429 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
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 nine months of 1995, total invested assets of
the financial services operations increased $826 million to
$2,487 million. Securities purchased under agreements to
resell, which represent short-term liquid investment of excess
funds, decreased $622 million in the first nine months of 1995
to $191 million. Securities sold under agreements to repurchase,
which are short-term borrowings of funds, increased $415 million
in the first nine months of 1995 to $1,353 million. Securities sold,
but not yet purchased, which decreased by $365 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
14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
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
Due to the Corporation's reporting of its international
operations, including all of Cologne Re's business, on a
quarter lag, the nine-month results include only two
quarters of life/health operations. This segment includes the
U.S. and international life/health operations of Cologne Re.
For the second and third quarters of 1995, the life/health
operations' income before taxes and minority interest was
$15 million and $17 million, respectively. Pretax income
for the third quarter is comprised of underwriting income
of $4 million and investment income of $13 million.
Life/health premiums written were $220 million for the
second quarter and $236 million third quarter of 1995.
Approximately one-half of this segment's premium 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 third quarter, the U.S. underwriting result
experienced favorable mortality experience.
The liability for policy benefits for life/health contracts
was $2,250 million at September 30, 1995, an increase of
$290 million or 14.8 percent over the year-end 1994 liability.
The asset for reinsurance recoverable on unpaid losses was
$205 million at September 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/health 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.
15
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: November 14, 1995 JOSEPH P. BRANDON
Joseph P. Brandon
Vice President and Chief Financial Officer
(Principal Financial Officer)
Date: November 14, 1995 ELIZABETH A. MONRAD
Elizabeth A. Monrad
Vice President and Treasurer
(Principal Accounting Officer)
16
<TABLE>
GENERAL RE CORPORATION
COMPUTATION of EARNINGS PER SHARE
(in millions, except per share data)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
Earnings Per Share of Common Stock 1995 1994 1995 1994
<S> <C> <C> <C> <C>
Net income (applicable to
common stock) (a) $196 $188 $588 $457
Average number of common shares
outstanding 82.2 81.8 82.0 82.1
Net income per share $2.39 $2.29 $7.17 $5.57
(a) After deduction of preferred stock dividends of $3 million
and $8 million for the three and nine months ended September 30,
1995 and 1994.
(b) Fully diluted earnings per share are not reported
because the effect of potentially dilutive securities was not significant.
</TABLE>
17
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<DEBT-HELD-FOR-SALE> 15080
<DEBT-CARRYING-VALUE> 1457
<DEBT-MARKET-VALUE> 1534
<EQUITIES> 3658
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 22669
<CASH> 240
<RECOVER-REINSURE> 71
<DEFERRED-ACQUISITION> 438
<TOTAL-ASSETS> 34957
<POLICY-LOSSES> 11582
<UNEARNED-PREMIUMS> 2013
<POLICY-OTHER> 2045
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 156
<COMMON> 51
1
0
<OTHER-SE> 6077
<TOTAL-LIABILITY-AND-EQUITY> 34597
1660
<INVESTMENT-INCOME> 269
<INVESTMENT-GAINS> (8)
<OTHER-INCOME> 83
<BENEFITS> 1204
<UNDERWRITING-AMORTIZATION> 376
<UNDERWRITING-OTHER> 148
<INCOME-PRETAX> 276
<INCOME-TAX> 67
<INCOME-CONTINUING> 209
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 199
<EPS-PRIMARY> 2.39
<EPS-DILUTED> 0
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
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<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
