<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995 COMMISSION FILE NUMBER 1-8026
GENERAL RE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 06-1026471
(STATE OF OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
695 EAST MAIN STREET
STAMFORD, CONNECTICUT 06904-2351
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (203) 328-5000
SECURITIES REGISTERED PURSUANT TO SECTION 12 (B) OF THE ACT:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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<S> <C>
Common Stock, $.50 par value New York Stock Exchange
</TABLE>
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [X]
The aggregate market value on March 1, 1996 of the voting stock held by
nonaffiliates of the registrant was $11,890 million.
The number of shares outstanding of each of the issuer's classes of common stock
as of the close of the period covered by this report:
<TABLE>
<CAPTION>
CLASS OUTSTANDING AT MARCH 1, 1996
- ----------------------------- ----------------------------
<S> <C>
Common Stock, $.50 par value 81,124,013
</TABLE>
Certain information required by Items 10, 11 and 12 of Form 10-K is incorporated
by reference into Part III hereof from the registrant's proxy statement which
will be filed with the Securities and Exchange Commission within 120 days of the
close of the registrant's fiscal year ended December 31, 1995.
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<PAGE> 2
PART I
ITEM 1. BUSINESS
General Re Corporation (the "Corporation") was established in 1980 to serve as
the parent holding company of General Reinsurance Corporation ("GRC," formed in
1921) and its affiliates, together constituting the General Re Group. The
Corporation has global reinsurance and financial services operations in the
United States and 29 countries worldwide. The Corporation operates four
principal businesses: United States property/casualty reinsurance, international
property/casualty reinsurance, life/health reinsurance and financial services.
The Corporation's principal reinsurance operations are based in the United
States and Germany, with significant subsidiaries based in Europe, Australia,
Asia and South America. The Corporation's principal financial services
operations are based in the United States with subsidiaries located in London,
Tokyo and Toronto, Canada. GRC is the largest United States professional
property/casualty reinsurer, and the Corporation is among the four largest in
the world based on net premium writings and capital.
Reinsurance is the business in which a reinsurer agrees to indemnify a primary
insurer against all or part of the risks assumed by the latter under a policy or
policies it has issued. Among its benefits, reinsurance may offer primary
insurers the opportunity to increase underwriting capacity, write larger
individual risks, reduce financial leverage, stabilize operating results, enter
new markets with shared underwriting risk, protect against catastrophic losses
and obtain consultative underwriting services.
The reinsurance industry's overall profitability has historically been subject
to cyclicality, principally due to the insurance industry's underwriting cycle,
overall economic conditions, investment returns, industry capital levels and
insured catastrophic events. The reinsurance industry, both domestically and
globally, has recently experienced consolidation, as reinsurers seek to expand
their markets, obtain critical mass in certain markets and better spread their
risks geographically. In addition, over recent years there has been a shift in
primary insurers' reinsurance purchases toward better capitalized and more
creditworthy reinsurers.
United States Property/Casualty Reinsurance
The Corporation's United States property/casualty subsidiaries produced revenues
of $3,641 million, or 50.5 percent, of consolidated revenues in 1995. The
principal business of these subsidiaries is treaty and facultative reinsurance
underwritten on a direct basis throughout the United States and Canada. The
Corporation predominately writes excess of loss reinsurance across various lines
of business. Casualty reinsurance business represented approximately 49 percent
of the Corporation's United States property/casualty net premiums written in
1995 and property reinsurance business represented approximately 40 percent. The
Corporation also writes excess and surplus lines insurance and provides direct
excess insurance to companies with self-insured programs. These lines
represented approximately 11 percent of the United States property/casualty net
premiums written in 1995.
It is not possible to determine the number of the Corporation's competitors in
the United States property/casualty reinsurance industry. There are virtually no
barriers to entry to the reinsurance industry and competitors may be domestic or
foreign, licensed or unlicensed. Reinsurers compete on the basis of reliability,
financial strength and stability, underwriting consistency, service, business
ethics, price, performance, capacity, terms and conditions. Purchasers of
reinsurance are themselves insurers and, in some cases, reinsurers.
United States property/casualty insurers, including reinsurers, are subject to
regulation by their states of domicile and by those states in which they are
licensed. The Corporation's principal United States subsidiary, GRC, is
domiciled in Delaware and licensed in every state but Hawaii, where it is an
accredited reinsurer. The Corporation's two excess and surplus lines insurers,
the General Star companies, are domiciled in Connecticut and Ohio. The Genesis
companies, which are the Corporation's excess insurance writers for self-insured
programs, are domiciled in Connecticut and North Dakota. The Corporation also
writes excess insurance for self insurers through GRC.
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In addition to solvency regulation, licensed primary insurers are typically
subject to regulatory approval of insurance policy forms and the rates charged
to policyholders; similar approvals are not typically required for either
reinsurance contracts or the rates agreed to between ceding insurers and their
reinsurers. The insurance regulators of every state participate in the National
Association of Insurance Commissioners (the "NAIC"). The NAIC adopts forms,
instructions and accounting procedures for use by United States insurers,
including reinsurers, in preparing and filing annual statutory financial
statements. These forms, instructions and procedures are collectively known as
statutory accounting practices ("SAP"). Every state requires use of the NAIC
annual statement form, although some states require or permit variations from
the NAIC form and SAP. The NAIC is currently in the process of codifying SAP to
bring greater uniformity to insurance accounting practices throughout the United
States.
In addition to its activities relating to the annual statement and SAP, the NAIC
develops model laws and regulations for use by its members. In 1989, the NAIC
adopted its Financial Regulation Standards to guide state legislatures and state
regulators in the development of effective insurer solvency regulation. These
standards are viewed by the NAIC as minimum requirements for an effective state
regulatory scheme.
In 1990, the NAIC adopted a formal accreditation program to encourage states to
comply with its Financial Regulation Standards. Each state insurance department
may be reviewed by an independent accreditation team to determine whether the
state's laws and regulations (including certain NAIC model laws and regulations
or substantially similar equivalents) and the department's administrative
practices comply with these standards. Accredited states may refuse to accept
finncial examination reports of insurers issued by nonaccredited states; other
sanctions may also be imposed by accredited states, including a refusal to
license insurers domiciled in nonaccredited states. As of December 1995, 47
state insurance departments, including Delaware, had been accredited. The extent
of sanctions, if any, imposed by accredited states on insurers domiciled in
unaccredited states is unknown. The NAIC continues to assess the accreditation
program, but has not changed its recommended sanctions.
The NAIC developed its Financial Regulation Standards and Accreditation Program
as an effective national system of solvency regulation to demonstrate that
Federal involvement in the regulation of the business of insurance is
unnecessary. This action was prompted in part by a series of hearings on state
regulation of insurance held by the Energy and Commerce Oversight Subcommittee
of the United States House of Representatives. Legislation mandating a Federal
role in the regulation of insurers and reinsurers was introduced in the 102nd
and 103rd Congress during 1992 and 1993. No such legislation is currently
pending. It is expected that state regulators and some insurers and reinsurers
would vigorously oppose any new legislation, and prospects for passage of such
legislation are uncertain. The final form of any legislation is also uncertain.
The NAIC adopted a risk-based capital formula which applies to statutory annual
statements of life insurers beginning in 1993 and property/casualty insurers
beginning in 1994. The NAIC has also adopted a risk-based capital model law
which supplanted the diverse minimum capital and surplus requirements with the
risk-based capital requirement for those states adopting the model law. The
formula has been made a part of the Financial Regulation Standards; the model
law became a part of these standards during 1994, and states must adopt it or a
substantially similar law within two years. If enacted in an insurer's state of
domicile, the model law would subject an insurer failing its risk-based capital
requirement to various levels of regulatory action. The model law has been
adopted in Delaware, Connecticut and North Dakota. The Corporation's United
States insurance subsidiaries have filed 1995 statutory annual statements which
report risk-based capital well above the threshold for regulatory action.
During 1995, the NAIC adopted a model law related to investments which, if
enacted, would change the amount and kind of permitted investments by insurers.
This model law is not currently included in the Financial Regulation Standards.
The NAIC will consider a different model investment law during 1996 which is
based on a "prudent person" standard. While it is uncertain whether either, or
both, of these model laws eventually will be made a part of the Financial
Regulation Standards, the Corporation does not currently anticipate that either
of the model laws would have a significant effect on the investment management
practices of its United States insurance subsidiaries.
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The Corporation utilizes dividends, primarily from GRC, to satisfy its liquidity
needs. Ordinary dividends by GRC to the Corporation are not subject to any
restriction, other than ten days' advance notice. Extraordinary dividends and
other extraordinary distributions by GRC to the Corporation are subject to
regulatory approval under the Delaware Insurance Holding Company Act. Under this
Act dividends or other distributions distributed in a twelve-month period
exceeding the greater of 10 percent of an insurer's statutory surplus or 100
percent of net income, excluding realized capital gains, for the prior calendar
year are generally considered extraordinary requiring such approval. Based on
these restrictions, dividend payments by GRC to the Corporation without
regulatory approval are limited to $508 million in 1996.
Reference is made to Management's Discussion and Analysis -- Financial
Condition -- Liabilities for additional discussion of regulatory matters.
International Property/Casualty Reinsurance
On December 28, 1994, the Corporation and Colonia Konzern AG ("Colonia") formed
a new company that acquired 75 percent of the ordinary shares and approximately
30 percent of the preference 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"), 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
contributed $884 million (DM 1,377 million) to GR-CK, in exchange for 100
percent of the Class B shares of GR-CK. The Class A shares have 49.9 percent of
the votes of GR-CK and are entitled to an annual Class A dividend, 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. In addition to its
ownership in Cologne Re through GR-CK, the Corporation purchased for its own
account an additional 6.9 percent of the ordinary and preference shares of
Cologne Re during 1995 for aggregate consideration of $68 million, which
increased the Corporation's consolidated economic interest in Cologne Re to 73.2
percent. The Corporation has consolidated GR-CK and Cologne Re in its financial
statements and recorded as minority interests the shares of CKAG in GR-CK and of
other stockholders in Cologne Re.
The Corporation's international property/casualty operations generated revenues
of $2,573 million, or 35.7 percent, of consolidated revenues in 1995. With the
consolidation of Cologne Re's results in 1995, international property/casualty
premium now accounts for a significantly greater portion of the Corporation's
revenues. The Corporation's international business in 1995 was primarily
conducted through operations based in Germany, the United Kingdom, Switzerland,
Ireland, Australia, Austria and Argentina. In total, the Corporation operates
its international reinsurance business in 29 countries throughout the world. In
1995, the international property/casualty operations principally wrote business
through reinsurance treaties with a smaller amount composed of facultative
reinsurance. Approximately 78 percent of international premiums in 1995 were
written on a proportional basis and 22 percent were nonproportional or excess of
loss. Property premiums written in 1995 were approximately 65 percent of total
international property/casualty premiums and casualty premiums were
approximately 35 percent.
In general, regulation of the property/casualty reinsurance industry outside of
the United States is subject to the differing laws and regulations of each
country in which the Corporation has operations or writes premiums. Some
jurisdictions, such as the United Kingdom, impose complex regulatory
requirements on reinsurance companies, while other jurisdictions, such as
Germany, impose fewer requirements. Local reinsurance business conducted by the
Corporation's subsidiaries in some countries require licenses issued by
governmental authorities. These licenses may be subject to modification or
revocation dependent on such factors as amount and types of reserves and minimum
capital and solvency tests. Jurisdictions may impose fines, censure and/or
criminal sanctions for violation of regulatory requirements.
Life/Health Reinsurance
The Corporation's life/health reinsurance operations generated revenues of $742
million, or 10.3 percent, of consolidated revenues in 1995. These operations
include the United States and international life/health
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reinsurance operations of Cologne Re. Life/health net premiums written in 1995
were $709 million. Approximately one half of this segment's premium was written
in continental Europe, another 40 percent was written in the United States and
the remaining 10 percent was written throughout the rest of the world. The
life/health operations provide individual life, group long-term disability,
individual health and finite risk reinsurance. Most of the life/health business
is written on a proportional treaty basis with smaller amounts written on a
facultative basis.
Financial Services
The Corporation's financial services operations include derivative products,
insurance brokerage and management, investment management, reinsurance brokerage
and real estate management operations. Through its subsidiary, General Re
Financial Products Corporation ("GRFP"), a dealer in derivative products, the
Corporation offers a full line of interest rate and cross-currency swaps,
options, and other derivative products in all major currencies from offices or
affiliates in New York, Toronto, London and Tokyo. The financial services
operations produced $254 million, or 3.5 percent, of the Corporation's 1995
revenues.
In 1995, the Corporation expanded its investment management services for other
insurance companies and certain affiliates. In August 1995, the Corporation
acquired all of the outstanding stock of New England Asset Management ("NEAM")
in exchange for stock of the Corporation. The resulting company, General Re-New
England Asset Management, Inc. ("GR-NEAM"), provides investment management
services primarily to insurance companies that seek the Corporation's expertise
in managing insurance company investment portfolios. GR-NEAM, has approximately
45 insurance company clients and approximately $10 billion of client assets
under management at December 31, 1995.
Other Information
The business of the Corporation's operating subsidiaries is primarily developed
and served by employees in the United States, Germany, the United Kingdom,
Australia, Switzerland, Canada, Denmark, Ireland, Spain, New Zealand, Singapore,
Austria, Argentina, France, Spain, Bermuda and Japan. The Corporation employed
3,426 persons at December 31, 1995, of which 2,266 employees are employed in
North America and 1,160 employees in international operations.
Reference is made to Item 7, Management's Discussion and Analysis, and Note 19
to the consolidated financial statements, "Information About the Corporation's
Operations" included in this report. Reference is also made to the caption,
"Property/Casualty Insurance Reserve Disclosures" on pages 26-30 of this report.
ITEM 2. PROPERTIES
The main offices of the Corporation and most of its United States subsidiaries
are located in a six story building in Stamford, Connecticut. This building,
consisting of approximately 560,000 square feet of office space and a multiple
level parking garage, on approximately eight acres of land, was originally owned
by Elm Street Corporation, a wholly owned subsidiary of the Corporation. In
November 1984, the land was leased and the improvements were sold to Stamford
Investment Partners. Subsequently, the land and improvements were leased back by
the Corporation. Under the terms of the lease, the Corporation has the option to
purchase the improvements upon expiration of the 25-year lease or at an earlier
date upon the occurrence of certain events. The Corporation has guaranteed the
rental obligations of Elm Street Corporation in connection with this
transaction.
GRC Realty Corporation, also a wholly owned subsidiary of the Corporation, has
retained title to the Corporation's former home office site in Greenwich,
Connecticut. This site consists of approximately four acres of land and an
office building which has about 160,000 square feet of office space that is
rented to nonaffiliates. The Greenwich site is subject to a mortgage expiring
December 31, 1998, which had a remaining balance of $5 million at December 31,
1995.
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Cologne Re's German operations are principally based in an office building of
approximately 130,000 square feet in Cologne, Germany. The United States
operations of Cologne Re are based in an office building in Stamford,
Connecticut. Cologne Re owns both of these office buildings.
In addition, the Corporation's United States and international operations have
branch and affiliate operations conducted from leased premises in various cities
in the United States and foreign countries. At this time, the Corporation
believes its facilities are suitable for its purpose and provide adequate
capacity for the Corporation's present and anticipated needs.
ITEM 3. LEGAL PROCEEDINGS
The Corporation and its subsidiaries have been named as defendants in litigation
in the ordinary course of conducting insurance business. These lawsuits
generally seek to establish liability under insurance or reinsurance contracts
issued by the subsidiaries, and occasionally seek punitive or exemplary damages.
The Corporation's reinsurance subsidiaries are also indirectly involved in
coverage litigation. In those cases, plaintiffs seek coverage for their
liabilities under insurance policies from insurance companies reinsured by the
Corporation's reinsurance subsidiaries. In the judgment of management, none of
these cases, individually or collectively, is likely to result in judgments for
amounts which, net of claim and claim expense liabilities previously established
and applicable reinsurance, or any other litigation, would be material to the
financial position, results of operations or cash flow of the Corporation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
EXECUTIVE OFFICERS OF THE CORPORATION.
The Executive Officers of the Corporation as of March 1, 1996 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------------- --- ---------------------------------------------------------
<S> <C> <C>
Ronald G. Anderson.......... 47 Vice President, Corporate Development of the Corporation
since March 1995 and Chairman, General Re Financial
Products Corporation since 1991; previously Vice
President, Finance of the Corporation 1985-1991. With the
Corporation since 1984.
Charles F. Barr............. 46 Vice President, General Counsel and Secretary of the
Corporation since 1994; previously Vice President and
Assistant General Counsel of General Reinsurance
Corporation 1992-1994; Second Vice President and
Assistant General Counsel of General Reinsurance
Corporation 1990-1992. With the Corporation since 1989.
Joseph P. Brandon........... 37 Vice President and Chief Financial Officer of the
Corporation since 1991 and Senior Vice President and
Chief Financial Officer of General Reinsurance
Corporation since 1991; previously Vice President, Treaty
Division of General Reinsurance Corporation 1990-1991.
With the Corporation since 1989.
Ronald E. Ferguson.......... 54 Chairman and Chief Executive Officer since 1987. With the
Corporation since 1969.
Ernest C. Frohboese......... 55 Vice President, Investments of the Corporation since 1990
and Senior Vice President and Chief Investment Officer of
General Reinsurance Corporation since 1990. With the
Corporation since 1990.
Christopher P. Garand....... 48 Vice President, Enterprise Risk Manager of the
Corporation since March 1995 and Senior Vice President of
General Reinsurance Corporation since December 1994;
previously Vice President and Manager, Financial Products
and Services, General Reinsurance Corporation 1988-1994.
With the Corporation since 1985.
</TABLE>
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<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------------- --- ---------------------------------------------------------
<S> <C> <C>
James E. Gustafson.......... 49 President and Chief Operating Officer of the Corporation
since March 1995 and Chairman and Chief Executive Officer
of General Reinsurance Corporation since February 1995;
previously Executive Vice President of General
Reinsurance Corporation 1991-1995; Senior Vice President
and Manager of Underwriting of General Reinsurance
Corporation 1982-1991; President and Chief Executive
Officer of General Re Services Corporation 1987-Present.
With the Corporation since 1969.
Theron S. Hoffman........... 48 Vice President, Human Resources of the Corporation since
March 1995 and Senior Vice President of General Re
Services Corporation since 1990. With the Corporation
since 1990.
Tom N. Kellogg.............. 59 Executive Vice President of the Corporation since March
1995 and President and Chief Operating Officer of General
Reinsurance Corporation since February 1995; previously
Executive Vice President and Chief Marketing Officer of
General Reinsurance Corporation 1991-1995. With the
Corporation since 1968.
Dr. Peter Lutke-Bornefeld... 49 Executive Vice President of the Corporation since March
1995 and Chief Executive Officer of Cologne Re since
1993; Member of the Board of Directors of Cologne Re
since 1990. With the Corporation since 1994; joined
Cologne Re in 1979.
Elizabeth A. Monrad......... 41 Vice President and Treasurer of the Corporation since
March 1995 previously Corporate Controller of the
Corporation 1992-1995 and Vice President and Treasurer of
General Reinsurance Corporation since 1992. Previously
with Coopers & Lybrand, Partner, 1989-1992. With the
Corporation since 1992.
Stephen P. Raye............. 52 Vice President, Technology of the Corporation since March
1995 and Senior Vice President of General Re Services
Corporation since 1993; Vice President Information
Systems Division of General Re Services Corporation
1985-1993. With the Corporation since 1977.
Lee R. Steeneck............. 48 Vice President and Actuary of the Corporation since March
1995 and Vice President of General Reinsurance
Corporation since 1986. With the Corporation since 1975.
</TABLE>
The Chairman, President, Secretary and Treasurer are elected by the Board of
Directors for one-year terms. Vice Presidents are appointed and serve at the
discretion of the Board. Other officers may be appointed by and serve at the
discretion of the Chief Executive Officer.
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PART II
ITEM 5. MARKET FOR CORPORATION'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
(a) The common stock of the Corporation is traded on the New York Stock
Exchange. The following table sets forth information as to the closing price of
the Corporation's common stock on the Exchange during 1995 and 1994.
<TABLE>
<CAPTION>
1995 1994
------------------- -------------------
HIGH LOW HIGH LOW
------- ------- ------- -------
<S> <C> <C> <C> <C>
First Quarter........................... $134.13 $122.88 $114.00 $102.50
Second Quarter.......................... 137.63 125.50 125.38 105.75
Third Quarter........................... 152.13 129.88 115.63 104.88
Fourth Quarter.......................... 157.88 142.88 128.50 105.00
</TABLE>
(b) The number of registered holders of common stock at December 31, 1995 was
4,236.
(c) The following table sets forth information as to the cash dividends paid by
the Corporation on shares of its common stock during each of the past two years.
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
First Quarter.................................................. $.49 $.48
Second Quarter................................................. .49 .48
Third Quarter.................................................. .49 .48
Fourth Quarter................................................. .49 .48
</TABLE>
It is the intention of the Corporation to declare quarterly dividends to the
extent deemed appropriate by its Board of Directors. Dividends are paid
principally from amounts received by the Corporation as dividends from GRC and
the other operating subsidiaries.
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ITEM 6. SELECTED FINANCIAL DATA
ELEVEN-YEAR SUMMARY OF SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991 1990
------- ------- ------- ------- ------- -------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS AND RATIOS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED INFORMATION
Total revenues......................... $ 7,210 $ 3,837 $ 3,560 $ 3,387 $ 3,207 $ 2,954
Net premiums written................... 6,102 3,001 2,524 2,349 2,249 2,150
After-tax income before accounting
changes(1, 7)....................... 825 665 697 596 657 614
Per share........................... 9.92 7.97 8.11 6.84 7.46 6.89
Net income............................. 825 665 711 657 657 614
Per share........................... 9.92 7.97 8.28 7.55 7.46 6.89
After-tax income, excluding realized
gains(1, 7)......................... 788 621 604 465 563 566
Per share........................... 9.47 7.43 7.01 5.30 6.37 6.35
Investment income before tax........... 1,017 749 755 755 752 706
Investment income after tax............ 787 622 619 620 618 581
Investments............................ 23,494 18,898 14,346 11,532 10,842 9,510
Total assets(5)........................ 35,946 29,597 19,419 14,700 12,416 11,033
Long-term debt......................... 155 157 192 199 301 302
Common stockholders' equity............ 6,587 4,859 4,761 4,227 3,911 3,270
Return on equity(3).................... 13.8% 12.9% 13.4% 11.4% 15.6% 17.8%
------- ------- ------- ------- ------- -------
UNITED STATES PROPERTY/CASUALTY
OPERATIONS
Net premiums written................... $ 2,964 $ 2,581 $ 2,275 $ 2,177 $ 2,122 $ 2,040
Investment income before tax........... 711 686 705 703 703 662
Pretax income, excluding realized
gains(1)............................ 715 599 643 488 646 648
Statutory surplus...................... 4,607 3,770 3,836 3,452 3,363 2,902
Investments............................ 13,481 11,177 11,601 10,477 10,003 8,848
Net claims and claim expense
liabilities(4)...................... 7,385 7,029 6,803 6,635 6,230 5,816
Statutory loss ratio................... 67.2% 70.7% 70.6% 78.8% 72.5% 68.2%
Statutory expense ratio................ 31.8% 30.6% 30.9% 29.6% 29.7% 30.8%
Statutory combined ratio............... 99.0% 101.3% 101.5% 108.4% 102.2% 99.0%
------- ------- ------- ------- ------- -------
INTERNATIONAL PROPERTY/CASUALTY
OPERATIONS
Net premiums written................... $ 2,429 $ 420 $ 249 $ 172 $ 127 $ 110
Investment income before tax........... 247 52 43 47 44 39
Pretax income, excluding realized
gains(1, 7)......................... 138 45 24 24 30 25
Investments(6)......................... 7,535 6,060 589 509 469 442
Net claims and claim expense
liabilities(4)...................... 4,352 3,289 253 202 164 156
Loss ratio............................. 77.0% 69.2% 75.1% 80.2% 75.8% 71.5%
Expense ratio.......................... 25.5% 28.8% 29.7% 31.2% 34.7% 37.5%
Combined ratio......................... 102.5% 98.0% 104.8% 111.4% 110.5% 109.0%
------- ------- ------- ------- ------- -------
LIFE/HEALTH OPERATIONS
Net premiums written................... $ 709 -- -- -- -- --
Investment income before tax........... 40 -- -- -- -- --
Pretax income, excluding realized
gains(1, 7)......................... 35 -- -- -- -- --
Net policy benefits for life/health
contracts(4)........................ 2,061 $ 1,811 -- -- -- --
------- ------- ------- ------- ------- -------
FINANCIAL SERVICES
Revenues, excluding net realized
gains............................... $ 250 $ 229 $ 211 $ 115 $ 100 $ 88
Pretax income, excluding realized
gains(1)............................ 100 85 58 10 1 6
------- ------- ------- ------- ------- -------
COMMON STOCKHOLDERS' INFORMATION
Average common shares outstanding...... 82.1 82.1 84.5 85.7 87.1 88.0
Dividend per common share.............. $ 1.96 $ 1.92 $ 1.88 $ 1.80 $ 1.68 $ 1.52
Total common dividends................. 161 157 159 153 146 133
Cost of common share repurchases....... 35 207 134 179 59 236
Common stockholders' equity per
share............................... 80.22 59.35 56.92 49.89 45.14 37.50
Common share price:(8) High............ 157.88 128.50 132.75 123.13 101.88 93.00
Low............ 122.88 102.50 105.38 78.63 84.88 69.00
Year end....... 155.00 123.50 107.00 115.75 101.88 93.00
------- ------- ------- ------- ------- -------
</TABLE>
See page 11 and notes to consolidated financial statements.
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ELEVEN-YEAR SUMMARY OF SELECTED FINANCIAL DATA -- (CONTINUED)
<TABLE>
<CAPTION>
1989 1988 1987 1986 1985 CAGR(2)
------- ------ ------ ------ ------ -----
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS AND RATIOS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED INFORMATION
Total revenues................................ $ 2,742 $2,719 $3,115 $2,853 $1,772 15.1 %
Net premiums written.......................... 1,898 1,903 2,365 2,561 1,646 14.0
After-tax income before accounting
changes(1,7)............................... 599 513 469 321 142 19.2
Per share.................................. 6.52 5.39 4.62 3.14 1.52 20.6
Net income.................................... 599 480 511 329 139 19.5
Per share.................................. 6.52 5.04 5.04 3.22 1.45 21.2
After-tax income, excluding realized
gains(1,7)................................. 559 518 458 298 137 19.1
Per share.................................. 6.08 5.44 4.52 2.92 1.46 20.6
Investment income before tax.................. 673 570 506 413 301 12.9
Investment income after tax................... 558 494 435 345 254 12.0
Investments................................... 8,799 7,866 6,969 5,978 4,182 18.8
Total assets(5)............................... 10,390 9,394 8,902 8,078 6,005 19.6
Long-term debt................................ 263 114 115 115 116 2.9
Common stockholders' equity................... 3,084 2,695 2,563 2,413 1,794 13.9
Return on equity(3)........................... 19.3% 19.7% 18.4% 14.2% 8.7% --
------- ------ ------ ------ ------ -----
UNITED STATES PROPERTY/CASUALTY OPERATIONS
Net premiums written.......................... $ 1,789 $1,780 $2,251 $2,485 $1,591 6.4 %
Investment income before tax.................. 638 539 479 386 273 10.0
Pretax income, excluding realized gains(1).... 612 511 449 271 104 21.3
Statutory surplus............................. 2,684 2,319 2,009 1,840 1,091 15.5
Investments................................... 8,417 7,532 6,666 5,725 3,939 13.1
Net claims and claim expense liabilities(4)... 5,535 5,218 4,739 4,024 2,913 9.8
Statutory loss ratio.......................... 70.6% 70.0% 74.3% 79.6% 84.8% --
Statutory expense ratio....................... 29.0% 29.1% 25.5% 23.7% 26.0% --
Statutory combined ratio...................... 99.6% 99.1% 99.8% 103.3% 110.8% --
------- ------ ------ ------ ------ -----
INTERNATIONAL PROPERTY/CASUALTY OPERATIONS
Net premiums written.......................... $ 109 $ 123 $ 114 $ 76 $ 55 46.1 %
Investment income before tax.................. 31 27 24 21 18 29.9
Pretax income, excluding realized gains(7).... 35 33 26 23 10 30.0
Investments(6)................................ 342 299 279 221 177 45.5
Net claims and claim expense liabilities(4)... 121 109 105 73 60 53.5
Loss ratio.................................... 62.4% 64.4% 64.2% 61.0% 78.0% --
Expense ratio................................. 33.2% 31.3% 31.9% 31.2% 31.9% --
Combined ratio................................ 95.6% 95.7% 96.1% 92.2% 109.9% --
------- ------ ------ ------ ------ -----
LIFE/HEALTH OPERATIONS
Net premiums written.......................... -- -- -- -- -- --
Investment income before tax.................. -- -- -- -- -- --
Pretax income, excluding realized gains(7).... -- -- -- -- -- --
Net policy benefits for life/health
contracts(4)............................... -- -- -- -- -- --
------- ------ ------ ------ ------ -----
FINANCIAL SERVICES
Revenues, excluding net realized gains........ $ 90 $ 101 $ 106 $ 101 $ 91 10.6 %
Pretax income, excluding realized gains(1).... 14 27 30 28 23 15.8
------- ------ ------ ------ ------ -----
COMMON STOCKHOLDERS' INFORMATION
Average common shares outstanding............. 91.3 95.3 101.4 102.0 93.7 --
Dividend per common share..................... $ 1.36 $ 1.20 $ 1.00 $ 0.88 $ 0.78 9.7 %
Total common dividends........................ 124 114 101 90 73 8.2
Cost of common share repurchases.............. 206 268 274 -- -- --
Common stockholders' equity per share......... 34.28 29.04 26.20 23.47 18.48 15.8
Common share price(8): High................... 95.75 59.25 68.38 68.88 52.50 11.6
Low................... 55.00 45.88 48.75 49.44 30.57 14.9
Year end.............. 87.13 55.25 55.88 55.50 50.06 12.0
------- ------ ------ ------ ------ -----
</TABLE>
See page 11 and notes to consolidated financial statements.
10
<PAGE> 11
NOTES TO THE ELEVEN-YEAR SUMMARY OF SELECTED FINANCIAL DATA
Only continuing operations are presented. Balance sheet data are as of December
31st. International property/casualty and life/health operations are reported on
a one-quarter lag. The International property/casualty operations include
Cologne Re for balance sheet amounts in 1995 and 1994 and income statement
amounts in 1995. Only nine months of Cologne Re's 1995 results are included in
the Corporation's 1995 results due to the one-quarter reporting lag.
(1) Excludes cumulative effect of accounting changes. The balance sheet data in
the table on pages 9 and 10 reflect the adoption of Statement of Financial
Accounting Standards No. 115, Accounting For Certain Investments in Debt and
Equity Securities in 1994 and the adoption of Statement of Financial
Accounting Standards No. 113, Accounting and Reporting for Reinsurance of
Short-Duration and Long-Duration Contracts in 1993, with reclassifications
made for 1992. Adoption of Standard No. 113 did not affect results from
operations or common stockholders' equity. In 1993, the Corporation adopted
the accounting prescribed by the Emerging Issues Task Force for
multiple-year, retrospectively rated reinsurance contracts. The cumulative
effect from prior years recorded in 1993 increased net income by $14 million
or $.17 per share. In 1992, the Corporation adopted Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes. The cumulative
effect from prior years recorded in 1992 increased net income by $61 million
or $.71 per share.
(2) Represents compound annual growth rate.
(3) Return on equity is income from continuing operations excluding after-tax
realized gains and cumulative effects of accounting changes divided by
average common stockholders' equity at the beginning and end of the year.
(4) Net of reinsurance.
(5) In 1994 the Corporation adopted FASB Interpretation No. 39, Offsetting of
Amounts Related to Certain Contracts and FASB Interpretation No. 41,
Offsetting of Amounts Related to Certain Repurchase and Reverse Repurchase
Agreements. The combined effect of adopting the Interpretations increased
reported assets and liabilities at December 31, 1994 and 1993 by $950
million and $1,747 million, respectively, and had no effect on results from
operations or common stockholders' equity.
(6) Also includes investments for life/health operations.
(7) After deducting minority interest.
(8) The common share price information is based on the Corporation's daily
closing price on the New York Stock Exchange.
11
<PAGE> 12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OPERATING RESULTS
Consolidated
Comparison of 1995 with 1994
Net income in 1995 was $825 million or $9.92 per share, an increase of 24.5
percent over the $7.97 per share earned in 1994. These results include after-tax
realized gains of $.45 per share in 1995 and $.54 per share in 1994. The
improved results in 1995 were primarily attributable to increased underwriting
profitability in the United States property/casualty operations, growth in
after-tax investment income, increased income from the Corporation's
international property/casualty operations and inclusion of Kolnische
Ruckversicherungs-Gesellschaft AG's ("Cologne Re") life/health operations. Due
to the Corporation's reporting of its international operations on a quarter lag,
the 1995 results include only three quarters of the year's results for Cologne
Re and the related joint-venture company, General Re-CKAG Reinsurance and
Investment S.a r.l. ("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.
Consolidated net premiums written in 1995 were $6,102 million, an increase of
$3,101 million or 103.3 percent, from $3,001 million in 1994. United States
property/casualty premium volume was $2,964 million in 1995, compared with
$2,581 million in 1994, an increase of 14.9 percent. Net premiums written in the
international property/casualty reinsurance operations were $2,429 million in
1995, compared to $420 million in 1994, with $1,651 million of the growth
attributable to the inclusion of Cologne Re's premium during the year. 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 wholly
owned European subsidiaries' net premiums written increased by $263 million
during 1995 due to this change in reporting, although net income was not
materially affected by the change. Net premiums written for the life/health
segment, which consist of Cologne Re's United States and international
life/health operations, were $709 million for 1995.
Consolidated investment income was $1,017 million in 1995, compared with $749
million in 1994. The consolidation of Cologne Re accounts for approximately $193
million of the $268 million increase in consolidated investment income in 1995.
The growth of pretax investment income in the United States operations was
adversely affected by the shift in assets from taxable to tax-advantaged
securities over the last few years in response to the Corporation's tax planning
strategies, the maturity and calls of higher yielding securities and the use of
the Corporation's cash flow from operations for stock repurchases. Investment
income for the United States property/casualty operations was $711 million in
1995, an increase of 3.7 percent over $686 million earned in 1994. Investment
income for the international property/casualty operations increased 375.4
percent to $247 million in 1995, compared with $52 million in 1994. Excluding
the effect of Cologne Re, the international property/casualty operations
investment income grew 24.2 percent in 1995. The life/health operations had
investment income of $40 million in 1995. The financial services operations had
investment income of $19 million in 1995, compared with $11 million in 1994.
Comparison of 1994 with 1993
Net income in 1994 was $665 million or $7.97 per share, a decrease of 3.7
percent from $8.28 per share earned in 1993. These results include after-tax
realized gains of $.54 per share in 1994 and $1.10 per share in 1993. Net income
in 1993 also included a cumulative benefit of $.17 per share resulting from the
adoption of the accounting prescribed by the Emerging Issues Task Force for
multiple-year, retrospectively rated reinsurance contracts. Excluding after-tax
realized gains and cumulative-effect adjustments, after-tax income for the year
ended December 31, 1994 was $7.43 per share, an increase of 6.0 percent over
$7.01 per share in 1993.
Consolidated net premiums written in 1994 were $3,001 million, an increase of
$477 million or 18.9 percent from $2,524 million in 1993. United States
property/casualty premium volume was $2,581 million in 1994, compared with
$2,275 million in 1993, an increase of 13.4 percent. Net premiums written in the
international
12
<PAGE> 13
property/casualty operations were $420 million in 1994, an increase of 69.0
percent over 1993 premium volume.
Consolidated investment income was $749 million in 1994, compared with $755
million in 1993. The level of investment income was adversely affected by the
shift in assets from taxable to tax-advantaged securities in response to the
Corporation's tax planning strategies, the use of the Corporation's cash flow
from operations for stock repurchases, and an increase in lower yielding,
short-term securities during the year to fund the investment in Cologne Re.
Investment income for the United States property/casualty operations was $686
million in 1994, a decrease of 2.7 percent over $705 million earned in 1993.
Investment income for the international property/casualty operations increased
20.9 percent to $52 million in 1994, compared with $43 million in 1993. The
financial services operations had investment income of $11 million in 1994,
compared with $7 million in 1993.
United States Property/Casualty
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
----------------------------
1995 1994 1993
------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
Income before taxes and accounting changes....................... $ 750 $ 660 $ 802
Less: net realized gains......................................... 35 61 159
------ ------ ------
Income before taxes, accounting changes and realized gains....... $ 715 $ 599 $ 643
====== ====== ======
Net premiums written............................................. $2,964 $2,581 $2,275
Net underwriting income (loss)................................... 13 (46) (23)
Statutory combined ratio......................................... 99.0% 101.3% 101.5%
Investment income................................................ $ 711 $ 686 $ 705
Net other income (loss).......................................... (9) (41) (38)
</TABLE>
United States property/casualty pretax income in 1995, excluding realized gains
and the cumulative effect of accounting changes, increased 19.4 percent from
1994's income. This growth in pretax income was primarily due to improvement in
the underwriting result of $59 million, an increase in investment income of $25
million and increased net other income (loss) of $32 million. The 1994
underwriting result was adversely affected by the earthquake in Northridge,
California on January 17th. The increase in investment income of 3.7 percent in
1995 was due to growth in the segment's investment portfolio since the beginning
of 1994 and an increase in market interest rates during 1994. Excluding the
effect of an estimated $38 million reduction in investment income due to the
Corporation's investment in the Cologne Re joint venture, which is now included
in the international segment, investment income of the United States
property/casualty segment grew by 9.3 percent in 1995. The improvement in net
other income (loss) in 1995 was due to increased fee income on financial
reinsurance transactions accounted for as deposits, and an increase in income
from the Corporation's affiliates carried under the equity method.
The combined underwriting ratio is computed based on the relationship of losses
and underwriting expenses to premiums. This ratio is the Corporation's principal
indicator of underwriting performance, with 100 percent or lower generally
indicating an underwriting profit. In 1995, the statutory combined ratio for the
United States property/casualty segment was 99.0 percent, compared to 101.3
percent in 1994 and 101.5 percent in 1993. The 1995 underwriting result was
consistent with the Corporation's operating objective of achieving an
underwriting profit.
13
<PAGE> 14
Net premiums written in 1995 for the United States property/casualty operations
were $2,964 million, an increase of 14.9 percent from $2,581 million in 1994.
Net premiums written by operating unit expressed as a percentage of total United
States property/casualty premiums were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-------------------------
1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
General Reinsurance Corporation (treaty/facultative)................ 89.2% 88.6% 89.2%
General Star Companies (excess and surplus)......................... 7.0 7.4 6.8
Genesis Companies (direct excess and alternative markets)........... 3.8 4.0 4.0
----- ----- -----
Total............................................................... 100.0% 100.0% 100.0%
===== ===== =====
</TABLE>
While the United States primary insurance market grew at approximately 3.9
percent in 1995, according to A.M. Best, General Reinsurance Corporation's
("GRC") treaty and facultative premiums grew by 15.5 percent. The Corporation
believes that the growth in premiums written was due to marketing efforts,
increased purchases of property reinsurance due to greater sensitivity to
catastrophe exposures, the increase in insurance premiums written by medium- and
smaller-sized primary companies that generally purchase relatively more
reinsurance, the migration back to the United States of some insurance and
reinsurance premiums that were being written in the London market, increased
reinsurance cessions by primary companies as they seek to deleverage their
capital in response to rating agency concerns and increased demand for
reinsurance from better capitalized and more creditworthy reinsurers. In 1996,
GRC's net premiums written will be adversely affected by the nonrenewal of a
treaty which accounted for approximately $244 million of net premiums written.
The lost after-tax investment income from nonrenewal of this contract is
estimated to be less than $5 million for 1996.
For the General Star operations, which principally write excess specialty
insurance, net premiums written grew 10.2 percent in 1995 due to increased
marketing activities and improved rates for property business in the Southeast.
General Star has produced a statutory underwriting profit for eleven consecutive
years.
The Genesis operations provide direct excess insurance and reinsurance to
companies with self-insurance programs. Net premiums written for Genesis
increased during the year by 9.0 percent over 1994 levels principally due to
growth in casualty premiums.
Net premiums written for the United States property/casualty insurance segment
were $2,581 million in 1994, an increase of 13.4 percent over $2,275 million in
1993. As discussed in Note 3 to the consolidated financial statements, North
Star Reinsurance Corporation, a wholly owned subsidiary, was sold to Signet Star
Holdings, Inc. in 1993. The disposal affects premium comparisons relative to
prior years. During the first quarter of 1993, North Star had net premiums
written of $41 million. North Star's first-quarter premiums for 1993 are
included with GRC in the preceding table.
International Property/Casualty
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
--------------------------
1995 1994 1993
------ ---- ------
(IN MILLIONS)
<S> <C> <C> <C>
Income before taxes and minority interest.......................... $ 213 $ 53 $ 24
Less: net realized gains........................................... 24 8 --
Less: minority interest............................................ 51 -- --
------ ---- ------
Income excluding realized gains and after minority interest........ $ 138 $ 45 $ 24
====== ==== ======
Net premiums written............................................... $2,429 $420 $ 249
Net underwriting income (loss)..................................... (63) 6 (13)
Combined ratio..................................................... 102.5% 98.0% 104.8%
Investment income.................................................. $ 247 $ 52 $ 43
Net other income (loss)............................................ 4 (13) (5)
</TABLE>
14
<PAGE> 15
Income before taxes and minority interest for the international
property/casualty operations was $213 million in 1995, an increase of 299.1
percent from 1994. Included in these results were net realized gains of $24
million in 1995, compared with $8 million in 1994. The segment's results in 1995
were significantly affected by the inclusion of Cologne Re's results and are not
directly comparable to the results in 1994 (see below for a description of the
Cologne Re transaction). Since Cologne Re's results are reported on a quarter
lag, the 1995 amounts include only nine months of activity for Cologne Re.
Cologne Re's results in 1995, net of financing, opportunity costs and minority
interest, contributed approximately $35 million to the Corporation's after-tax
income, excluding realized gains.
International net premiums written were $2,429 million in 1995, compared with
$420 million in 1994. The premium growth is principally attributable to the
inclusion of $1,651 million of Cologne Re's property/casualty premiums beginning
in the second quarter of 1995. In addition, the international property/casualty
growth reflects the continued expansion of existing and new client
relationships. In the second quarter of 1995, the Corporation's wholly owned
European operations began to include estimated premiums and losses for the
current underwriting year in its financial results. This change increased net
premiums written by approximately $263 million and added approximately $1
million to net income in 1995.
Income before taxes for the international property/casualty operations of $53
million in 1994 increased 120.8 percent over 1993 levels. Included in these
results were realized gains of $8 million in 1994. Growth in the income for the
international property/casualty operations resulted principally from an
underwriting profit of $6 million in 1994, compared to an underwriting loss of
$13 million in 1993. Underwriting results improved over 1993 due to stronger
pricing and demand in higher margin businesses, particularly in the
Corporation's European operations. International net premiums written of $420
million in 1994 increased $171 million, or 69.0 percent, over 1993 premiums of
$249 million. The premium growth reflects the continued expansion of existing
client relationships, an increase in reinsurance rates, and the acquisition of
new reinsurance relationships, particularly in European operations. Premium
growth in 1994 also resulted from expanded operations in Madrid and the opening
of new offices in Cologne, Milan, Paris and Singapore during the prior two
years.
Cologne Re
On December 28, 1994, the Corporation and Colonia Konzern AG ("Colonia") formed
a new company that acquired 75 percent of the ordinary shares and approximately
30 percent of the preference 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,
"CKAG"), received 100 percent of the Class A shares of the new company, GR-CK.
The Corporation initially contributed $884 million (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 $302 million (DM 475 million) to the Corporation in exchange
for notes in the 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 intercompany
notes have been eliminated in consolidation. The funds invested in GR-CK are
subject to certain investment restrictions according to the joint-venture
agreement.
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 will also receive an annual
Class B cash dividend of 50.1 percent of GR-CK's distributable income, as
defined in the joint-venture agreement. The dividend related to 1995 on the
Class A and B shares will be paid in 1996.
The Corporation has an option after seven years to purchase the Class A shares
of GR-CK owned by the CKAG at a formula price. The option has a minimum exercise
price of DM 1,306 million and a maximum of DM 1,509 million, subject to certain
warranty and other adjustments that may affect the exercise price. If the
Corporation does not exercise its option to purchase the Class A shares of GR-CK
from CKAG, CKAG has
15
<PAGE> 16
the option to purchase the Class B shares of GR-CK from the Corporation under a
similar exercise price formula.
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 United States generally accepted accounting
principles by 62.9 percent over the amount 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 to its ownership in Cologne Re through GR-CK, the
Corporation purchased for its own account an additional 6.9 percent of the
ordinary and preference shares of Cologne Re during 1995 for aggregate
consideration of $68 million, which increased the Corporation's consolidated
economic interest in Cologne Re to 73.2 percent.
Life/Health
Due to the Corporation's reporting of its international operations, including
all of Cologne Re's business, on a quarter lag, the 1995 results include only
three quarters of life/health operations. This segment includes the U.S. and
international life/health operations of Cologne Re. During 1995 the life/health
operations' income before taxes and minority interest was $51 million. This
consists of pretax income of $15 million, $17 million, and $19 million in the
second, third and fourth quarters, respectively. Pretax income during 1995
resulted from underwriting income of $10 million, investment income of $40
million and realized gains of $1 million. Life/health premiums written were $709
million during 1995. Approximately one-half of this segment's premium was
written in continental Europe, another 40 percent was written in the United
States and the remaining 10 percent was written throughout the rest of the
world.
Financial Services
The financial services operations include the Corporation's derivative products,
insurance brokerage and management, investment management, reinsurance brokerage
and real estate management operations. Pretax income for the financial services
operations was $103 million in 1995, an increase of 26.4 percent from $82
million earned in 1994. The increase in 1995 income was principally due to
increased profitability of the Corporation's derivative products subsidiary,
General Re Financial Products Corporation ("GRFP"), and revenues from General Re
Underwriting Services Limited ("GRUS"). GRUS provides underwriting services for
Tempest Reinsurance Company Limited ("Tempest"), an affiliated Bermuda-based
company specializing in excess property catastrophe reinsurance.
Tempest is negotiating an exchange of shares of Tempest for shares in ACE
Limited, a Bermuda insurer. The transaction would be subject to approval by both
companies' Boards of Directors and shareholders. If the transaction is
consummated, the Corporation would sell back to Tempest its 20.7 percent
interest in Tempest for cash consideration. In addition, the underwriting
services provided to Tempest by GRUS would be terminated. The financial effect
of this transaction would be recorded in 1996.
GRFP is a dealer in derivative products and offers a full line of interest rate
and cross-currency swaps, options, and other derivative products. GRFP's gross
trading revenue was $142 million in 1995, compared with $135 million in 1994 and
$142 million in 1993. The growth in GRFP's trading revenue for the year compared
to 1994 was due to specialty products and growth in swap transactions outside of
North America. The overall growth in the derivatives market in the United States
was slower than outside of the United States due to continuing concerns about
controls over the inappropriate use of derivative products by certain end users.
GRFP closely monitors its derivatives operations and actively manages its open
positions to control its exposures. GRFP hedges its exposure to market risk
(which includes foreign exchange, interest rate, swap spread, volatility,
correlation, and yield curve risks) in connection with its dealer activities by
purchasing or selling futures contracts, entering into forward foreign exchange
contracts, purchasing or selling United States and foreign government securities
or entering into offsetting transactions.
The Corporation's insurance and reinsurance brokerage operations also
contributed to the increased profitability of the financial services segment in
1995. In addition, the Corporation has expanded its investment
16
<PAGE> 17
management services. In August 1995, the Corporation acquired all of the
outstanding stock of New England Asset Management in exchange for stock of the
Corporation and combined it with the Corporation's own investment management
subsidiary. The resulting company, General Re-New England Asset Management, Inc.
("GR-NEAM"), provides investment management services primarily for other
insurance companies that seek the Corporation's expertise in managing insurance
company investment portfolios. GR-NEAM has approximately 45 insurance company
clients and approximately $10 billion of client assets under management at
December 31, 1995.
Pretax income for the financial services operations was $82 million in 1994, an
increase of 40.4 percent from $58 million earned in 1993. The increase in 1994
income was principally due to increased profitability of GRFP and new revenues
from GRUS.
FINANCIAL CONDITION
Assets/Investments
At December 31, 1995, total assets were $35,946 million, compared with $29,597
million at December 31, 1994. The $6,349 million of growth in assets was
attributable to an increase of $3,110 million in the total assets of the United
States property/casualty operations, $2,713 million in the international
reinsurance operations, and $526 million in the financial services segment. The
growth in the assets of the United States property/casualty operations was
primarily due to the favorable bond and stock markets in 1995 and the investment
of operating cash flows. The increase in the assets of the international
operations was due to the investment of operating cash flows and the
strengthening of the German mark compared to the United States dollar which
increased assets by approximately $800 million.
The Corporation's invested assets increased from $18,898 million at December 31,
1994 to $23,494 million at December 31, 1995. The $4,596 million increase in
invested assets was the result of an increase of $2,304 million in the United
States property/casualty segment, an increase of $1,475 million in the
international reinsurance operations and an increase of $817 million in the
financial services operations. The unrealized appreciation after deferred income
taxes on the Corporation's investment portfolio was $1,468 million and $421
million at December 31, 1995 and December 31, 1994, respectively. The increase
was due to the favorable effect on bond prices of declining interest rates and
appreciation in the equity markets in the United States. At December 31, 1995,
all fixed maturity securities of the Corporation have been categorized as either
available-for-sale or trading. Most of the securities transferred to the
available-for-sale category were tax-exempt securities grandfathered under the
Tax Reform Act of 1986 that the Corporation anticipates being called within the
near future. The recategorization of the held-to-maturity securities increased
investments by $82 million, and common stockholders' equity by $53 million.
17
<PAGE> 18
UNITED STATES PROPERTY/CASUALTY
Invested Assets
The Corporation's investment portfolios are managed for after-tax total return
while maintaining high credit quality across the portfolios. At December 31,
1995, total invested assets of the United States property/casualty operations
were $13,481 million, a 20.6 percent increase over 1994 invested assets.
The composition of the United States property/casualty invested assets was as
follows:
<TABLE>
<CAPTION>
DECEMBER 31
---------------
1995 1994
----- -----
<S> <C> <C>
Short-term securities........................................ 1.3% 2.0%
Unites States taxable bonds.................................. 18.0 24.5
Tax-exempt bonds............................................. 51.8 45.7
Nondollar bonds.............................................. 2.1 2.6
Convertible securities....................................... 0.3 0.5
United States common equities................................ 18.3 16.7
Foreign equities............................................. 1.2 2.3
Preferred equities........................................... 3.2 2.8
Other investments............................................ 3.8 2.9
----- -----
Total........................................................ 100.0% 100.0%
===== =====
</TABLE>
Throughout 1995, the Corporation continued to shift assets toward tax-advantaged
securities due to improved underwriting profitability and increased
international profits. Furthermore, municipal bonds became attractive relative
to taxable bonds for all but the shortest maturities as the spread between
taxable and tax-exempt bonds became historically narrow due to concerns about
tax reform which could adversely affect tax-exempt bonds. The Corporation also
added to its preferred stock holdings in 1995, since these securities were an
attractive after-tax alternative to municipal bonds.
To minimize its exposure to shifts in interest rates, the Corporation balances
the duration (a present-value weighted measure of average life) of its
property/casualty claim liabilities with the duration of fixed maturity
investments in the investment portfolio. The table below shows the average
maturity and effective duration of the United States taxable and tax-exempt
portfolios:
<TABLE>
<CAPTION>
DECEMBER 31
----------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Average maturity in years
Taxable portfolio...................................................... 9.4 4.7 7.0
Tax-exempt (nongrandfathered)(1)....................................... 12.0 13.0 13.0
Effective duration in years
Taxable portfolio...................................................... 5.2 3.2 5.1
Tax-exempt (nongrandfathered)(1)....................................... 7.2 7.1 7.0
</TABLE>
- ---------------
(1) Bonds purchased after August 7, 1986 that do not remain fully tax-exempt
under the Tax Reform Act of 1986.
At December 31, 1995, the effective average maturity of the fixed-maturity
portfolio was 10.6 years, compared to an estimated average life of 9.1 years for
the Corporation's property/casualty claim liabilities. The duration of the fixed
maturity portfolio was 6.2 years, compared with 4.7 years for the
property/casualty claim liabilities. This compares with 1994 durations of 5.0
years and 4.6 years, respectively. The increase in the duration of the
Corporation's liabilities at December 31, 1995 was principally due to the sharp
decline in interest rates in 1995 and, to a lesser extent, due to the mix of
premiums written. Of the increase in the duration of the portfolio assets,
approximately two thirds was due to the decline in interest rates, with the rest
accounted for by specific shifts in the portfolio during the year.
18
<PAGE> 19
Included in fixed-maturity investments were mortgage-backed securities ("MBS")
of $622 million (2.7 percent of consolidated invested assets) and other
asset-backed securities ("ABS") of $113 million (0.5 percent of consolidated
invested assets) at December 31, 1995. These securities have interest and
principal repayment patterns that differ from typical fixed maturities. MBS
issued by quasi-federal agencies, federally supported institutions and
corporations can either be direct pass-throughs of cash flows from the
underlying mortgages or can be a grouping of underlying mortgages into various
principal repayment tranches, known as collateralized mortgage obligations
("CMOs"). The MBS portfolio comprises pass-through securities (45 percent) and
CMOs (55 percent) based on December 31, 1995 market values. The CMO portfolio is
composed of almost entirely planned amortization class ("PACs") securities which
have experienced less volatility in repayment of principal than other types of
CMO securities. ABS are usually debt instruments which are collateralized by
credit card or auto loan receivables whose interest and principal payments will
vary with the underlying receivable. Almost all of the MBS and ABS portfolios
are publicly traded and market values were obtained from an external pricing
service.
At December 31, 1995, equity investments in the United States portfolio totaled
$3,107 million, representing 19.5 percent of the United States property/casualty
investment portfolio. The United States equity portfolio is well diversified and
primarily consists of holdings in companies with large capitalizations that,
collectively, have a calculated volatility approximating the Standard & Poor's
500 index.
A small portion of the United States investment portfolio was dedicated to
nontraditional, private investments. These alternative investments, included in
the balance sheet caption, "Other invested assets," were $344 million (1.5
percent of consolidated invested assets) and $325 million (1.7 percent of
consolidated invested assets) at December 31, 1995 and 1994, respectively. Most
of these investments are interests in limited partnerships run by professional
managers. Over time, these investments are expected to provide a higher return
than the overall portfolio. This segment, however, also may entail a greater
amount of risk both in terms of limited liquidity and greater uncertainty of
returns compared to the rest of the Corporation's portfolio. The Corporation
evaluates the fair value of these alternative investments on a quarterly basis
by reviewing available financial information of the investee and performing
other financial analyses in consultation with external advisors. Any changes in
the fair value of limited partnerships are included in unrealized appreciation
or depreciation in common stockholders' equity, unless a decline in fair value
is considered other than temporary, resulting in a charge to income.
Credit Quality
Credit considerations are an important part of the Corporation's fixed maturity
investment strategy. The overall fixed-maturity portfolio continued to average a
credit rating of AA. The distribution of the Corporation's United States
property/casualty fixed-maturity portfolio by credit quality was as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995
-----------------------
TAXABLE TAX-EXEMPT
------- -----------
<S> <C> <C>
AAA..................................................... 62.1% 48.8%
AA...................................................... 6.9 25.5
A....................................................... 19.0 23.3
BBB..................................................... 8.3 1.2
Below BBB............................................... 0.9 --
Nonrated................................................ 2.8 1.2
----- -----
Total................................................... 100.0% 100.0%
===== =====
</TABLE>
Investment Returns
The overall pretax yield on the United States property/casualty invested assets
was 5.9 percent in 1995 and 1994. During 1995, the segment had approximately
$486 million of calls and maturities on grandfathered tax-exempt bonds. These
bonds had an average yield of approximately 8.9 percent and the proceeds from
the calls were reinvested at an average yield of approximately 5.3 percent. In
addition, based on its current investment
19
<PAGE> 20
portfolio and the current yield curve, the Corporation presently anticipates
additional calls and maturities of approximately $404 million on grandfathered
tax-exempt bonds with an average yield of approximately 7.8 percent through the
end of 1996. Reinvestment of these funds may adversely affect average portfolio
yields and investment income.
Pretax total return for the United States portfolio was 19.2 percent in 1995,
compared with a negative return of 2.6 percent in 1994. With lower interest
rates and sharply higher stock prices, all investment sectors recorded higher
returns in 1995 than in 1994.
INTERNATIONAL PROPERTY/CASUALTY AND LIFE/HEALTH
The Corporation's international property/casualty and life/health reinsurance
operations had invested assets of $7,535 million at December 31, 1995, an
increase of $1,475 million from December 31, 1994. These portfolios include
$6,026 million of Cologne Re's investments, $1,050 million in wholly owned
international operations' investments and $459 million of GR-CK investments.
GR-CK's investment portfolio consisted of high credit quality, German mark
denominated securities with an average maturity of approximately 6 years.
The composition of Cologne Re's investment portfolio was as follows:
<TABLE>
<CAPTION>
DECEMBER 31
---------------
1995 1994
----- -----
<S> <C> <C>
Short-term securities........................................ 19.2% 16.1%
Bonds........................................................ 68.8 71.1
Common equities.............................................. 7.2 8.6
Real estate and other investments............................ 4.8 4.2
----- -----
Total........................................................ 100.0% 100.0%
===== =====
</TABLE>
The primary goal of Cologne Re's investment policy is the optimization of
after-tax investment income taking into consideration the duration and currency
structure of Cologne Re's reinsurance liabilities. The investment objectives of
Cologne Re's subsidiary companies are determined by specific investment
guidelines which take into consideration the different legal requirements in
their respective jurisdictions. The investments of the subsidiaries are
monitored and reviewed by Cologne Re's Finance Department.
At December 31, 1995, Cologne Re's invested assets were $6,026 million, an
increase of $1,309 million, or 27.8 percent from year-end 1994. The fixed
maturity portfolio consisted of high credit quality securities. Almost all bonds
were investment grade; the average rating of the portfolio was above AA. The
common equity portfolio of Cologne Re was well diversified with holdings
principally from the major European stock markets, United States, and Japan. The
real estate portfolio was internationally diversified with principal holdings in
Germany. The relatively high share of short-term investments in Cologne Re's
portfolio is due to the need to hedge investment crediting provisions in certain
financial reinsurance contracts, a specific "barbell" bond strategy in 1995 and
an unusually high volume of cash at the end of the reporting period.
As part of its foreign exchange risk management program, Cologne Re's investment
portfolio is globally diversified, with most fixed maturities having a term less
than five years. The currency structure of the investment portfolio is
determined by Cologne Re's reinsurance business. Cologne Re hedges its currency
risk by seeking to match its assets and liabilities by currency. Due to the high
volatility and the significant movements in the currency markets during 1995,
Cologne Re remained relatively neutral in its currency exposures.
20
<PAGE> 21
The composition of Cologne Re's invested assets by currency was as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995
-----------------
<S> <C>
United States dollar......................................................... 34.9%
German mark.................................................................. 32.5
Great Britain pound.......................................................... 13.5
French franc................................................................. 3.4
Australian dollar............................................................ 3.3
Japanese yen................................................................. 1.2
Other currencies............................................................. 11.2
-----
Total........................................................................ 100.0%
=====
</TABLE>
The overall pretax yield on Cologne Re's portfolio was 5.1 percent during 1995.
Cologne Re writes a significant portion of its business in property lines of
business and, accordingly, invests in shorter duration securities as part of its
program to match its asset and liability durations. In addition, Cologne Re's
reported investment yield is decreased by the sharing of investment income under
certain reinsurance agreements.
The invested assets of the Corporation's wholly owned international subsidiaries
of $1,050 million at December 31, 1995 consist of 77.4 percent in fixed
maturities, 14.7 percent in equities and 7.9 percent in short-term investments.
The overall pretax yield on these operations was 7.6 percent in 1995 and 1994.
The portfolio of each subsidiary is managed by local professional asset managers
who are overseen by a local Board of Directors and the Corporation's Investment
Department. The portfolio is diversified by country of issuer and duration to
match the currency and duration structure of the reinsurance operations.
The composition of the Corporation's wholly owned international subsidiaries'
investment portfolio by currency was as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995
-----------------
<S> <C>
Great Britain pound.......................................................... 25.8%
Australian dollar............................................................ 24.9
United States dollar......................................................... 12.8
German mark.................................................................. 9.6
French franc................................................................. 6.3
Other currencies............................................................. 20.6
-----
Total........................................................................ 100.0%
=====
</TABLE>
LIABILITIES
The gross liability for claims and claim expenses, which provides for future
obligations arising from current and prior property/casualty reinsurance
transactions, amounted to $14,252 million and $12,158 million at December 31,
1995 and 1994, respectively. Growth in the liability of $2,094 million during
1995 was due to $778 million in the United States property/casualty segment and
$1,316 million in the international property/casualty segment. In addition to
the gross liability for property/casualty claim and claim expenses, the
Corporation, through its interest in Cologne Re, had a gross liability for
policy benefits for life/health contracts of $2,263 million and $1,960 million
at December 31, 1995 and 1994, respectively. The asset for reinsurance
recoverable on paid and unpaid losses was $2,794 million at December 31, 1995,
compared to $2,067 million at December 31, 1994. Growth of $727 million in the
asset for reinsurance recoverable was due to $422 million associated with the
United States property/casualty segment, $253 million for the international
property/casualty operations and $52 million related to the life/health
operations.
The ongoing financial integrity of the Corporation is dependent on reserve
adequacy. The gross liability and reinsurance recoverable for claims and claim
expenses were based on the Corporation's analysis of reports and individual case
estimates received from ceding companies. The liability and related
recoverables, which include an amount estimated by the Corporation for claims
and claim expenses incurred but not reported ("IBNR"), are evaluated
continuously by management, annually by the Corporation's independent account-
21
<PAGE> 22
ants in conjunction with their audit and periodically by independent consulting
actuaries at the discretion of the Board of Directors. Any resulting adjustments
are included in the current period's income.
The liability for claims and claim expenses for 1994 and prior accident years
for the United States operations, net of related reinsurance recoveries,
increased by $13 million in 1995. The increase was principally the result of the
net effect of reserve strengthening for environmental and latent injury claims,
partly offset by favorable loss development on casualty lines of business. The
liability for prior accident years was decreased by $36 million in 1994 and was
increased by $140 million during 1993. The adverse income impact in 1993 was the
result of reserve strengthening principally for environmental and latent injury
claims. The liability for claims and claim expenses for 1994 and prior accident
years for the international operations, net of related reinsurance recoveries
and foreign exchange, increased by $1 million in 1995.
Included in the Corporation's liability for claims and claim expenses are
liabilities for environmental and latent injury damage claims. These claims are
principally related to claims arising from cleanup costs associated with
hazardous waste sites and bodily injury claims relating to asbestos products.
These amounts include provisions for both reported and IBNR claims. The table
below presents the three-year development of the balance sheet liability for
environmental and latent injury claims:
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
Gross liability, beginning of year............................... $1,478 $1,332 $1,092
Reinsurance recoverable.......................................... 382 444 358
------ ------ ------
Liability, net of reinsurance, beginning of year................. 1,096 888 734
Amount incurred during year...................................... 298 239 224
Less: amount paid during year.................................... 136 100 70
Cologne Re (first included in December 31, 1994 balance sheet)... -- 69 --
------ ------ ------
Liability, net of reinsurance, end of year....................... 1,258 1,096 888
Reinsurance recoverable.......................................... 498 382 444
------ ------ ------
Gross liability, end of year..................................... $1,756 $1,478 $1,332
====== ====== ======
</TABLE>
The Corporation continually estimates its liabilities and related reinsurance
recoverable for environmental and latent injury claims and claim expenses. While
most of the Corporation's liabilities for such claims arise from exposures in
the United States, the Corporation has also provided for international
environmental and latent injury exposures. Environmental and latent injury
exposures do not lend themselves to traditional methods of loss development
determination and therefore may be considered less reliable than reserves for
standard lines of business (e.g., automobile). The estimate is composed of four
parts: known claims, development on known claims, IBNR and direct excess
coverage litigation expenses. Although reliability is constrained by
uncertainties, the Corporation has confidence in the reported, known claim
liabilities and, based on alternative methods, has projected a fairly reliable
estimate of development for these claims. The Corporation has also included an
estimate for IBNR which is based on fitted curves of estimated future claim
emergence; this estimate is less reliable than the estimated liability for
reported claims. The effect of joint and several liability on the severity of
claims and a provision for future claims inflation have been included in the
loss development estimate.
The Corporation has established a liability for litigation costs associated with
coverage disputes arising out of direct excess insurance policies (rather than
from reinsurance assumed). Certain subsidiaries were parties in 108 active
direct excess coverage cases involving environmental and latent injury claims at
December 31, 1995. Such coverage litigation expenses are estimated using an
actuarial estimate of actionable items and their projected costs. The
Corporation paid $8 million in such costs during 1995, and as of December 31,
1995, the liability for future litigation costs related to coverage disputes for
environmental and latent injury claims was $165 million (included in the table
above). As coverage disputes are tried and verdicts rendered, the Corporation
expects that the settled case law will result in a downward trend in future
direct excess litigation expenses. Because reinsurance contracts generally
contain arbitration clauses which control disputes between
22
<PAGE> 23
the ceding company and the reinsurer, the Corporation does not expect the future
costs associated with reinsurance disputes to be material.
Comprehensive environmental laws have been enacted in most European countries,
generally imposing sanctions in the form of fines, cleanup costs or civil damage
awards. To date, insureds in Europe have generally not recovered the costs from
insurers arising from environmental cleanup except those claims considered
sudden and accidental. Changes in environmental regulations and litigation
practices within the European Union may affect future claim development.
Ceding companies report information about environmental and latent injury claims
based upon their individual and differing methodologies for characterizing
claims. For example, some ceding companies report one claim for a policyholder
with a number of exposure sites, whereas others report each exposure at each
site as a separate claim. In addition, a substantial number of latent injury
claims, which are often reported to the Corporation on a precautionary basis by
the ceding companies and insureds prior to reaching the reinsured layer, close
without reinsurance payment. Due to these factors, the Corporation is unable to
provide meaningful claim count information.
The liability for environmental and latent injury claims and claim expenses is
management's best estimate of future claim and claim expense payments and
recoveries which are expected to develop over the next several decades. The
Corporation continues to monitor evolving case law and its effect on
environmental and latent injury claims. Changing government regulations, newly
identified toxins, newly reported claims, new theories of liability, new
contract interpretations and other factors could significantly affect future
claim development. While the Corporation has recorded its current best estimate
of its liabilities for unpaid claims and claim expenses, it is reasonably
possible that these estimated liabilities, net of estimated reinsurance
recoveries, may increase in the future and that the increase may be material to
the Corporation's results from operations, cash flows and financial position. It
is not possible to estimate reliably the amount of additional net loss, or the
range of net loss, that is reasonably possible.
The Corporation discounts certain liabilities associated with workers'
compensation claims. Current statutory rules allow the discounting of "tabular
reserves" as defined and allow discounting of nontabular reserves if permitted
by the insurer's state of domicile. As of December 31, 1995, GRC recorded $1,406
million in claim liability discount, of which $923 million relates to tabular
reserves and $483 million relates to nontabular reserves for medical costs
associated with tabular reserve claims. The Delaware Insurance Department has
confirmed that GRC may discount both its tabular reserves and the medical
expenses associated with such tabular reserves at 4.5 percent per year.
Financial Services Assets and Liabilities
The asset and liability positions of the financial services operations fluctuate
based on ongoing derivatives transactions and related risk management
activities. The purchase of United States and foreign government securities
(fixed maturities at fair value), which are primarily financed through
collateralized repurchase agreements (securities sold under agreements to
repurchase), and the sale of United States and foreign government securities
(securities sold but not yet purchased), whose proceeds are invested in reverse
repurchase agreements (securities purchased under agreements to resell),
contribute to the short-term fluctuations in the operations' total assets and
liabilities, while generally not having any material effect on common
stockholders' equity. During 1995, invested assets of these operations increased
$817 million to $2,478 million. Securities purchased under agreements to resell
(an asset) declined $747 million in 1995 to $66 million. Securities sold under
agreements to repurchase (a liability) increased $325 million in 1995 to $1,263
million. Securities sold but not yet purchased represent obligations of the
Corporation to deliver the specified security at the contracted price, thereby
creating a liability to repurchase 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 liability for securities sold but not yet purchased decreased
$313 million in 1995 to $614 million at December 31, 1995.
GRFP controls its market risk exposures through the use of cash instruments and
derivative transactions. GRFP's components of market risk include foreign
exchange, interest rate, swap spread, volatility, correlation
23
<PAGE> 24
and yield curve risk. GRFP controls these risk exposures by taking offsetting
positions in either cash instruments or other derivatives to reduce the overall
exposure to loss due to movements in these variables. GRFP manages its exposures
on a portfolio basis. Under this approach, GRFP monitors its market risk on a
daily basis across all swap and option products by calculating the effect on
operating results of potential changes in market variables over a one week
period, based on historical market volatility data and informed judgment. GRFP's
1995 aggregate weekly market risk limit across all trading books was $10
million.
GRFP sets market risk limits for each type of risk based on a 95 percent
probability that movements in market rates will not affect the results from
operations in excess of the limit over a one-week period. Since inception,
GRFP's largest consolidated weekly position change has been $5 million. In
addition to these daily and weekly assessments of risk, GRFP prepares periodic
stress tests to assess its exposure to extreme movements in various market risk
factors.
The "value-at-risk" table below shows the aggregate risk management limit, as
defined, and highest and lowest profits and losses recorded over one-week
periods.
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-------------
1995 1994
---- ----
(IN MILLIONS)
<S> <C> <C>
RISK LIMIT USAGE
Average................................................................ $ 8 $ 8
PROFIT AND LOSS
Highest................................................................ 4 3
Lowest................................................................. (4) (5)
Average................................................................ -- --
</TABLE>
GRFP evaluates and records a fair-value adjustment against trading revenue to
recognize counterparty credit exposure and future costs associated with
administering each contract. The expected credit exposure for each trade is
initially established on the trade date and is determined through the use of a
proprietary credit exposure model that is based on historical default
probabilities, market volatilities and, if applicable, the legal right of
setoff. These exposures are continually monitored and adjusted due to changes in
the credit quality of the counterparty, changes in interest and currency rates
or changes in other factors affecting credit exposure. The fair value allowance
for counterparty credit exposures and future administrative costs on existing
contracts was $67 million and $55 million at December 31, 1995 and 1994,
respectively. GRFP has not experienced any credit losses as a result of
counterparty defaults.
Equity
Common stockholders' equity at December 31, 1995 was $6,587 million, an increase
of 35.6 percent over $4,859 million at December 31, 1994. The change in common
stockholders' equity was primarily due to net income of $825 million, after-tax
unrealized appreciation of $1,047 million, less stock repurchases of $35 million
and dividends paid of $172 million. Common stockholders' equity at December 31,
1994 increased 2.1 percent over the $4,761 million at year end 1993.
24
<PAGE> 25
LIQUIDITY AND CAPITAL RESOURCES
A summary of the Corporation's cash flow by business segment was as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1995 1994 1993
------- ------- -----
(IN MILLIONS)
<S> <C> <C> <C>
Operating activities:
United States property/casualty....................... $ 985 $ 968 $ 899
International property/casualty and life/health....... 555 215 80
Financial services.................................... 49 (97) (94)
------- ------- -----
Consolidated operating cash flow........................ 1,589 1,086 885
------- ------- -----
Investing activities:
United States property/casualty....................... (848) (16) (871)
International property/casualty and life/health....... (805) (189) (60)
Financial services.................................... 21 189 17
Net purchase of shares in GR-CK....................... -- (582) --
Cash obtained on purchase of GR-CK.................... -- 153 --
------- ------- -----
Consolidated investing cash flow........................ (1,632) (445) (914)
------- ------- -----
Financing activities:
United States property/casualty....................... (149) (350) (16)
International property/casualty....................... 216 (22) (18)
Financial services.................................... (8) (87) 82
------- ------- -----
Consolidated financing cash flow........................ 59 (459) 48
------- ------- -----
Consolidated change in cash............................. $ 16 $ 182 $ 19
======= ======= =====
</TABLE>
The Corporation's cash flow from operations was $1,589 million in 1995, compared
with $1,086 million in 1994, and $885 million in 1993. In the Corporation's
prior years' financial statements, GRFP's interrelated cash flows were
disaggregated for financial reporting purposes into operating, investing, and
financing activities. In 1995, all of GRFP's trading-related cash flows have
been included in operating cash flow to improve the meaningfulness of the cash
flow presentation. Prior years' cash flow statements have been reclassified to
conform to the new presentation.
United States and international operating cash flows grew in 1995 and 1994,
primarily in response to growth in the property/casualty reinsurance business.
United States property/casualty financing cash flows include the Corporation's
stock repurchases and dividends to stockholders. As discussed earlier, the
Corporation made a net cash investment in 1994 of $582 million in GR-CK, the
holding company which owns approximately 66.3 percent of the economic interest
of Cologne Re. The funds invested in GR-CK are subject to certain restrictions
according to the joint-venture agreement. The Corporation's United States cash
flow should not be significantly affected by the joint-venture structure, since
interest paid to GR-CK on the intercompany note will generally be funded by
dividends received from GR-CK.
Dividends paid to the Corporation's common and preferred stockholders were $172
million, $168 million and $170 million in 1995, 1994 and 1993, respectively. The
Corporation used $35 million, $207 million and $134 million to repurchase
235,200 shares, 1,912,500 shares and 1,213,600 shares of its common stock in the
years ended December 31, 1995, 1994 and 1993, respectively. Through December 31,
1995, the Corporation has purchased $1,598 million (22,144,500 shares) of its
common stock since the inception of the repurchase program in 1987. On February
14, 1996, the Corporation's Board of Directors authorized an additional $300
million of stock repurchases, in addition to the standing authority to
repurchase shares in anticipation of shares to be issued under various
compensation plans. On the same day, the Board of Directors also declared a
regular quarterly dividend of $.51 per share on the common stock of the
Corporation. This represents an
25
<PAGE> 26
increase of 4.1 percent over the $.49 per share dividend paid in prior quarters
during 1995 and the 20th consecutive year in which the Corporation has had a
dividend increase.
At December 31, 1995, the Corporation had $150 million of senior debt
outstanding, which is rated AAA by Standard & Poor's and Aa1 by Moody's. The
Corporation issues commercial paper to provide additional financial flexibility
for its operations. Commercial paper offered by the Corporation has been rated
A1+ by Standard & Poor's and Prime 1 by Moody's. At December 31, 1995, no
commercial paper was outstanding. During August 1995, the Corporation modified
its $1.0 billion lines of credit to extend the commitment period for half of the
facility. The new credit lines with nineteen participating banks consist of a
364-day facility of $500 million and a five-year 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. At December 31, 1995, the Corporation had no outstanding loans
under this facility.
GRC, the Corporation's principal United States reinsurance subsidiary, has a
claims-paying rating of AAA by Standard & Poor's and a financial strength rating
of Aaa by Moody's. Each of these ratings represents the highest category for the
respective rating agency. GRC was also rated A++ by A.M. Best Company, a leading
insurance industry rating agency. Cologne Re has a claims-paying rating of AAA
by Standard & Poor's and an A rating from A.M. Best Company.
New Accounting Standards
See Note 2 on page 41 for a discussion of new accounting standards.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
GENERAL RE CORPORATION
INDEX TO RESERVE DISCLOSURES, FINANCIAL STATEMENTS AND SCHEDULES
<TABLE>
<CAPTION>
PAGES
--------
<S> <C>
RESERVE DISCLOSURES
Property/Casualty Insurance Claim Disclosures (Unaudited).......................... 27-32
FINANCIAL STATEMENTS
Report of Independent Accountants.................................................. 33
Consolidated Statements of Income.................................................. 34
Consolidated Balance Sheets........................................................ 35
Consolidated Statements of Common Stockholders' Equity............................. 36
Consolidated Statements of Cash Flows.............................................. 37
Notes to Financial Statements...................................................... 38-65
FINANCIAL STATEMENT SCHEDULES
I. Condensed Financial Information of Registrant................................... S-1-S-3
V. Supplementary Insurance Information............................................. S-4
</TABLE>
Schedules other than those listed above have been omitted since they are either
not required, not applicable or repeat information disclosed in the notes to
financial statements.
26
<PAGE> 27
PROPERTY/CASUALTY INSURANCE CLAIM DISCLOSURES
The consolidated financial statements include estimated liabilities for unpaid
claims and claim expenses of the Corporation's United States and international
property/casualty reinsurance subsidiaries. The provision for reported but
unpaid claims and claim expenses is based on client reports and individual case
estimates, including anticipated salvage and subrogation recoverable. A
provision is included for incurred but not reported ("IBNR") claims and claim
expenses on the basis of past experience. Historic premium, claim and claim
expense data are organized in actuarial formats, analyzed for credibility, and
processed through actuarial formulae. Using actuarial judgment, forecasts of
IBNR claims and claim expenses are determined and tested for validity. The
Corporation strives for accuracy in its reserving structure and monitors its
predictions against actual claims and claim expense emergence. The methods of
making such estimates and for establishing the resulting liabilities are
continually reviewed and updated. All adjustments to the reserve structure
(which encompasses claims from up to 50 years ago) are included in current
operating results.
The actuary relied upon by management in forming the basis of its belief as to
the reasonableness of claim and claim expense liabilities is Lee R. Steeneck,
FCAS, MAAA, Vice President and Actuary of General Re Corporation. In addition to
the ongoing review by management, these liabilities are subject to independent
review on a regular basis. The Corporation's independent public accountants use
actuaries during their annual financial statement audit to review both current
balance sheet liabilities and income statement provisions. In addition, the
Audit Committee of the Board of Directors has periodically engaged the services
of an actuarial consulting firm to compare the claim liabilities established by
management with the estimates of an independent consulting actuary.
27
<PAGE> 28
The table below provides a reconciliation of the beginning and ending claim and
claim expense liability, net of reinsurance, for 1995, 1994 and 1993.
TABLE 1
RECONCILIATION OF LIABILITY
FOR PROPERTY/CASUALTY CLAIMS AND CLAIM EXPENSES
(IN MILLIONS)
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Balance at January 1.......................................... $12,158 $ 8,452 $ 8,204
Reinsurance recoverables on unpaid claims and claim
expenses................................................. (1,841) (1,396) (1,366)
------- ------- -------
Net balance at January 1...................................... 10,317 7,056 6,838
Incurred claims and claim expenses related to:
Current year................................................ 3,666 2,017 1,583
Prior years................................................. 14 (36) 140
------- ------- -------
Total incurred claims and claim expenses...................... 3,680 1,981 1,723
Claim and claim expense payments related to:
Current year................................................ 773 423 214
Prior years................................................. 1,584 1,206 1,291
------- ------- -------
Total payments................................................ 2,357 1,629 1,505
------- ------- -------
Effect of foreign exchange.................................... 97 -- --
------- ------- -------
Net balance at December 31.................................... 11,737 7,408 7,056
Reinsurance recoverables on unpaid claims and claim
expenses................................................. 2,515 1,615 1,396
Cologne Re unpaid claims and claim expenses (first included at
December 31, 1994).......................................... -- 3,135 --
------- ------- -------
Balance at December 31........................................ $14,252 $12,158 $ 8,452
======= ======= =======
</TABLE>
The Corporation discounts certain United States workers' compensation loss
reserves at an interest rate of 4.5 percent per annum, the same rate used for
reporting to state regulatory authorities with respect to the same claim
liabilities. These claims are characterized by periodic indemnity payments
principally for wage loss and medical/rehabilitation expenses which are
generally fixed or determinable, both in amount and duration. The amortization
of the discount is included in current operating results as part of the
development of prior years' liabilities. The effect of discounting reduced
liabilities for claims and claim expenses, net of reinsurance, is as follows:
28
<PAGE> 29
TABLE 2
RECONCILIATION OF DISCOUNTING
NET LIABILITY FOR CLAIMS AND CLAIM EXPENSES
(IN MILLIONS)
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Cumulative discount, beginning of the year....................... $1,328 $1,319 $1,222
Additional discount for the year................................. 131 64 146
Amortization of discount......................................... (53) (55) (49)
------ ------ ------
Cumulative discount, end of the year............................. $1,406 $1,328 $1,319
====== ====== ======
</TABLE>
Table 3 reconciles the difference between liabilities for claims and claim
expenses, net of reinsurance, reported in the consolidated financial statements
under GAAP with that reported in annual statements filed with state insurance
regulators in accordance with SAP.
TABLE 3
GAAP TO SAP RECONCILIATION OF NET LIABILITY FOR
CLAIMS AND CLAIM EXPENSES
(IN MILLIONS)
<TABLE>
<CAPTION>
DECEMBER 31, 1995
-----------------
<S> <C>
Consolidated GAAP basis:
Gross...................................................................... $14,252
Ceded...................................................................... (2,515)
-------
Net........................................................................ 11,737
Assumed loss portfolios...................................................... (450)
Net liability of international subsidiaries.................................. (4,352)
-------
United States liability reported on a SAP basis.............................. $ 6,935
=======
</TABLE>
Table 4 presents the development of net balance sheet liabilities for the
Corporation's United States property/casualty operations from 1985 through 1995.
Table 5 presents the development of the gross balance sheet liability for the
Corporation's United States property/casualty operations from 1992 through 1995.
Reference is made to Exhibit 28, "Combined United States Property/Casualty
Insurance Company Schedule P" for a more detailed review of SAP liabilities on
an accident year basis.
The first data row shows the estimated net liability for unpaid claims and claim
expenses recorded at the balance sheet date for each of the indicated years.
This liability represents the estimated amount of claims and claim expenses,
including IBNR, that are outstanding as of the balance sheet date.
The upper "triangle" of data shows the reestimated amount of the previously
recorded net liability based on experience as of the end of each succeeding
year. The estimate is increased or decreased as more information becomes known
about the frequency and severity of claims for individual years.
The "Cumulative (Deficiency) Redundancy" represents the aggregate change in the
initial estimates from the original balance sheet date through December 31,
1995. Annual changes in the estimates are included in current operating results
each year as the liabilities are reevaluated. The deficiencies shown in the
tables represent cumulative differences between the original estimate and the
current balance sheet liabilities and therefore they should not be summed. The
lower "triangle" of data shows the cumulative amount paid with respect to the
previously recorded liability as of the end of each succeeding year.
29
<PAGE> 30
TABLE 4
ANALYSIS OF UNITED STATES
NET CLAIMS AND CLAIM EXPENSE DEVELOPMENT
(IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31 1985 1986 1987 1988 1989 1990 1991 1992 1993
- --------------------------------- ------- ------- ------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net liability for unpaid claims
and claim expenses............. $ 2,924 $ 4,043 $ 4,738 $5,217 $5,549 $5,842 $6,230 $6,635 $6,803
Net liability reestimated as of:
1 year later................... 3,443 4,348 4,903 5,185 5,537 5,856 6,286 6,775 6,767
2 years later.................. 3,742 4,691 4,927 5,247 5,481 5,778 6,352 6,850 6,845
3 years later.................. 4,000 4,757 4,991 5,166 5,502 5,906 6,475 6,994
4 years later.................. 4,123 4,874 4,983 5,236 5,683 6,091 6,638
5 years later.................. 4,268 4,910 5,044 5,420 5,900 6,319
6 years later.................. 4,321 5,022 5,284 5,642 6,173
7 years later.................. 4,442 5,225 5,528 5,958
8 years later.................. 4,654 5,467 5,855
9 years later.................. 4,935 5,830
10 years later................. 5,284
Total cumulative (deficiency)
redundancy*.................. $(2,360) $(1,787) $(1,117) $ (741) $ (624) $ (477) $ (408) $ (359) $ (42)
Cumulative amount of net
liability paid through:
1 year later................... $ 622 $ 890 $ 747 $ 812 $ 927 $ 905 $1,044 $1,291 $1,207
2 years later.................. 1,229 1,385 1,354 1,436 1,584 1,613 1,955 2,195 2,063
3 years later.................. 1,614 1,877 1,846 1,903 2,115 2,332 2,570 2,850
4 years later.................. 1,980 2,267 2,209 2,320 2,689 2,769 3,072
5 years later.................. 2,280 2,565 2,546 2,814 3,025 3,184
6 years later.................. 2,503 2,842 2,965 3,085 3,362
7 years later.................. 2,724 3,207 3,203 3,375
8 years later.................. 2,965 3,413 3,472
9 years later.................. 3,146 3,659
10 years later................. 3,363
<CAPTION>
YEAR ENDED
DECEMBER 31 1994 1995
- --------------------------------- ------ -------
<S> <C<C> <C>
Net liability for unpaid claims
and claim expenses............. $7,029 $ 7,385
Net liability reestimated as of:
1 year later................... 7,042
2 years later..................
3 years later..................
4 years later..................
5 years later..................
6 years later..................
7 years later..................
8 years later..................
9 years later..................
10 years later.................
Total cumulative (deficiency)
redundancy*.................. $ (13)
Cumulative amount of net
liability paid through:
1 year later................... $1,176
2 years later..................
3 years later..................
4 years later..................
5 years later..................
6 years later..................
7 years later..................
8 years later..................
9 years later..................
10 years later.................
</TABLE>
- ---------------
* The liability for workers' compensation tabular reserves for claims and claim
expenses is discounted as discussed herein. Therefore, the liability
reestimated for each year includes the effect of the discount and its
amortization.
30
<PAGE> 31
TABLE 5
ANALYSIS OF UNITED STATES
GROSS CLAIMS AND CLAIM EXPENSE DEVELOPMENT
(IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------------------
1992 1993 1994 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
Gross liability for unpaid claims and claim expenses.... $7,968 $8,122 $8,578 $9,356
Gross liability reestimated as of:
1 year later.......................................... 8,087 8,180 8,865
2 years later......................................... 8,149 8,438
3 years later......................................... 8,570
Total cumulative (deficiency) redundancy................ (602) (316) (287) xxx
Cumulative amount of gross liability paid through:
1 year later.......................................... 1,620 1,351 1,502
2 years later......................................... 2,641 2,419
3 years later......................................... 3,432
</TABLE>
A number of major trends occurred within the industry which have significantly
affected the development of the Corporation's liabilities for claims and claim
expenses displayed in Tables 4 and 5. Starting in 1979, the Corporation
considerably strengthened the liability for claims and claim expenses for latent
injury (e.g., asbestos-related) and environmental (e.g., hazardous waste)
claims. When originally written, these exposures, some dating back to the 1940s,
were not known to cause bodily harm or property damage. Coverage, if any, was
provided to policyholders on a very limited basis. Liberal interpretations of
very carefully worded insurance policy contract language have, in retrospect,
created unanticipated liabilities for the property/casualty insurance industry.
Adjustments to the Corporation's liabilities have been made in each year's
current operating results since 1979 to reflect the evolution of case law which
has widened the nature and extent of insurance and reinsurance coverage for
these exposures.
In the mid 1980s, the Corporation also strengthened its reserves for reinsurance
of medical malpractice liability insurance business written on the occurrence
form. The crisis in medical malpractice insurance led the Corporation to
eliminate occurrence coverage and solely reinsure on a claims made basis.
Reinsurance of other classes of professional liability coverage is also
generally written on a claims made basis. Patterns of reinsurance liability
emergence for claims made coverages differ substantially from such patterns for
occurrence coverages. Subsequent to the mid 1980's, reserve strengthening on
environmental and latent injury claims and excess liability business for
qualified self insurers, written on both an excess of specific loss and
aggregate basis, has been partially offset by favorable development on
reinsurance of liability business.
High levels of social and economic inflation have had a leveraged effect on
liabilities for claims and claim expenses. Implicit within the reserve structure
is an increase in both the frequency and severity of claims between years. In
recent years, some of the Corporation's clients have increased the amount of
their retained risk which partially offsets the effect of social and economic
inflation.
The Corporation purchases reinsurance, in both the United States and
international markets, which provides protection from large property, liability
or workers' compensation claims and allows the Corporation to offer greater
capacity to clients for certain lines of business. The Corporation increased its
capacity over time by retaining more risk and by purchasing additional
reinsurance protection above its retentions. The Corporation has selected
financially sound reinsurers and anticipates receiving the full amounts
recoverable, net of allowances provided for uncollectible reinsurance
recoverables.
Table 6 and Table 7 present the development of net and gross balance sheet
liabilities for the Corporation's international property/casualty operations
beginning in 1994. The accident-year information required to complete Table 6
and Table 7 for the Corporation's wholly owned international subsidiaries was
not available
31
<PAGE> 32
in prior years. These liabilities, however, were not significant to the
consolidated total in prior periods. Due to customary lags in underwriting
activity reports from ceding companies in Europe, there may be correlated
development of both premium and claims in the international operations and
fluctuations due to currency movement. The effect of currency movements on these
liabilities has been separately reported in these two tables below.
TABLE 6
ANALYSIS OF INTERNATIONAL
NET CLAIMS AND CLAIM EXPENSE DEVELOPMENT
(IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------
1994 1995
------ ------
<S> <C> <C>
Net liability for unpaid claims and claim expenses......................... $3,447 $4,352
Net liability reestimated as of:
1 year later............................................................. 3,545
Effect of foreign exchange................................................. 97
Total cumulative (deficiency) redundancy................................... (1)
Cumulative amount of net liability paid through:
1 year later............................................................. 408
</TABLE>
TABLE 7
ANALYSIS OF INTERNATIONAL
GROSS CLAIMS AND CLAIM EXPENSE DEVELOPMENT
(IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------
1994 1995
------ ------
<S> <C> <C>
Gross liability for unpaid claims and claim expenses....................... $3,753 $4,896
Gross liability reestimated as of:
1 year later............................................................. 3,858
Effect of foreign exchange................................................. 97
Total cumulative (deficiency) redundancy................................... (8)
Cumulative amount of gross liability paid through:
1 year later............................................................. 565
</TABLE>
In evaluating the information included in Tables 4 - 7, it should be noted that
conditions and trends affecting the development of liabilities in the past may
not occur in the future. Accordingly, it is not appropriate to extrapolate
future redundancies or deficiencies based on these tables. Current actuarial
studies indicate that liabilities for claims and claim expense as of December
31, 1995, net and gross of reinsurance, are adequate.
32
<PAGE> 33
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of General Re Corporation
Stamford, Connecticut
We have audited the consolidated financial statements and schedules of General
Re Corporation and subsidiaries listed in the index on page 26 of this Form
10-K. These financial statements and schedules are the responsibility of the
Corporation's management. Our responsibility is to express an opinion on these
financial statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of General
Re Corporation and subsidiaries as of December 31, 1995 and 1994, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles. In addition, in our opinion, the financial
statement schedules referred to above, when considered in relation to the basic
financial statements taken as a whole, present fairly, in all material respects,
the information required to be included therein.
COOPERS & LYBRAND L.L.P.
New York, New York
February 6, 1996
33
<PAGE> 34
GENERAL RE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN MILLIONS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
PREMIUMS AND OTHER REVENUES
Net premiums written
Property/casualty.................................. $5,393 $3,001 $2,524
Life/health........................................ 709 -- --
------- ------- -------
--- --- ---
Total net premiums written........................... $6,102 $3,001 $2,524
========== ========== ==========
Net premiums earned
Property/casualty.................................. $5,141 $2,788 $2,446
Life/health........................................ 696 -- --
------- ------- -------
--- --- ---
Total net premiums earned............................ 5,837 2,788 2,446
Investment income.................................... 1,017 749 755
Other revenues....................................... 292 234 200
Net realized gains on investments.................... 64 66 159
------- ------- -------
--- --- ---
Total revenues............................. 7,210 3,837 3,560
------- ------- -------
--- --- ---
EXPENSES
Claims and claim expenses............................ 3,680 1,981 1,723
Life/health benefits................................. 505 -- --
Acquisition costs.................................... 1,345 614 552
Other operating costs and expenses................... 563 448 400
------- ------- -------
--- --- ---
Total expenses............................. 6,093 3,043 2,675
------- ------- -------
--- --- ---
Income before income taxes,
cumulative-effect adjustments and
minority interest........................ 1,117 794 885
Income tax expense (benefit):
Current............................................ 288 152 160
Deferred........................................... (41) (23) 28
------- ------- -------
--- --- ---
Income tax expense................................... 247 129 188
------- ------- -------
--- --- ---
Income before cumulative-effect adjustments
and minority interest.................... 870 665 697
Minority interest.................................... 45 -- --
------- ------- -------
--- --- ---
Income before cumulative-effect
adjustments.............................. 825 665 697
Cumulative effect of accounting changes.............. -- -- 14
------- ------- -------
--- --- ---
Net income................................. $ 825 $ 665 $ 711
========== ========== ==========
SHARE DATA:
Income before cumulative-effect adjustments.......... $ 9.92 $ 7.97 $ 8.11
Cumulative effect of accounting changes.............. -- -- .17
------- ------- -------
--- --- ---
Net income per common share.......................... $ 9.92 $ 7.97 $ 8.28
========== ========== ==========
Dividends per share to common stockholders........... $ 1.96 $ 1.92 $ 1.88
Average common shares outstanding.................... 82,085,315 82,071,651 84,542,686
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
34
<PAGE> 35
GENERAL RE CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
(IN MILLIONS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
ASSETS
INVESTMENTS:
Fixed maturities:
Held-to-maturity (fair value: $1,971 in 1994)....................... -- $ 1,900
Available-for-sale (cost: $14,108 in 1995; $10,840 in 1994)......... $14,987 10,717
Trading (cost: $2,316 in 1995; $1,579 in 1994)...................... 2,317 1,557
Equity securities, at fair value (cost: $2,597 in 1995; $2,318 in
1994)............................................................... 3,944 2,977
Short-term investments, at amortized cost which approximates fair
value............................................................... 1,449 1,032
Other invested assets.................................................. 797 715
------- -------
Total investments...................................................... 23,494 18,898
------- -------
Cash..................................................................... 258 242
Accrued investment income................................................ 390 272
Accounts receivable...................................................... 2,368 1,421
Funds held by reinsured companies........................................ 2,180 1,942
Reinsurance recoverable.................................................. 2,794 2,067
Deferred acquisition costs............................................... 434 324
Securities purchased under agreements to resell.......................... 66 813
Trading account assets................................................... 2,434 1,928
Other assets............................................................. 1,528 1,690
------- -------
Total assets................................................... $35,946 $29,597
======= =======
LIABILITIES
Claims and claim expenses................................................ $14,252 $12,158
Policy benefits for life/health contracts................................ 2,263 1,960
Unearned premiums........................................................ 1,913 1,642
Other reinsurance balances............................................... 3,056 2,318
Notes payable and commercial paper....................................... 155 188
Income taxes............................................................. 634 196
Securities sold under agreements to repurchase........................... 1,263 938
Securities sold but not yet purchased.................................... 614 927
Trading account liabilities.............................................. 2,627 2,320
Other liabilities........................................................ 1,357 1,046
Minority interest........................................................ 1,224 1,044
------- -------
Total liabilities.............................................. 29,358 24,737
------- -------
Cumulative convertible preferred stock (shares issued 1,724,037 in 1995
and 1,734,717 in 1994; no par value)................................... 147 148
Loan to employee savings and stock ownership plan........................ (146) (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.......................................................... 635 604
Unrealized appreciation of investments, net of deferred income taxes..... 1,468 421
Currency translation adjustments, net of deferred income taxes........... (11) (20)
Retained earnings........................................................ 5,986 5,330
Less common stock in treasury, at cost (shares held: 20,714,069 in 1995
and 20,955,202 in 1994)................................................ (1,542) (1,527)
------- -------
Total common stockholders' equity.............................. 6,587 4,859
------- -------
Total liabilities, cumulative convertible preferred stock and
common stockholders' equity.................................. $35,946 $29,597
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
35
<PAGE> 36
GENERAL RE CORPORATION
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
(IN MILLIONS)
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
COMMON STOCK:
Beginning of year........................................... $ 51 $ 51 $ 51
Change for the year......................................... -- -- --
------- ------- -------
End of year.............................................. 51 51 51
------- ------- -------
PAID-IN CAPITAL:
Beginning of year........................................... 604 596 589
Stock issued under stock option and other incentive
arrangements............................................. 24 6 5
Other....................................................... 7 2 2
------- ------- -------
End of year.............................................. 635 604 596
------- ------- -------
UNREALIZED APPRECIATION OF INVESTMENTS, NET OF DEFERRED INCOME
TAXES:
Beginning of year........................................... 421 651 517
Cumulative effect of accounting change (FAS 115), net of
deferred income taxes of $201 million.................... -- 373 --
Change for the year......................................... 1,641 (942) 203
Deferred income taxes....................................... (594) 339 (69)
------- ------- -------
End of year.............................................. 1,468 421 651
------- ------- -------
CURRENCY TRANSLATION ADJUSTMENTS, NET OF DEFERRED INCOME
TAXES:
Beginning of year........................................... (20) (42) (19)
Change for the year......................................... 9 22 (23)
------- ------- -------
End of year.............................................. (11) (20) (42)
------- ------- -------
RETAINED EARNINGS:
Beginning of year........................................... 5,330 4,830 4,285
Net income.................................................. 825 665 711
Dividends paid on common stock.............................. (161) (157) (159)
Dividends paid on preferred stock, net of income taxes...... (8) (8) (7)
------- ------- -------
End of year.............................................. 5,986 5,330 4,830
------- ------- -------
COMMON STOCK IN TREASURY:
Beginning of year........................................... (1,527) (1,325) (1,196)
Cost of shares acquired during year......................... (35) (207) (134)
Issued under stock option and other incentive
arrangements............................................. 20 5 5
------- ------- -------
End of year.............................................. (1,542) (1,527) (1,325)
------- ------- -------
Total common stockholders' equity................... $ 6,587 $ 4,859 $ 4,761
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
36
<PAGE> 37
GENERAL RE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN MILLIONS)
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................. $ 825 $ 665 $ 711
Cumulative effect of accounting changes..................... -- -- (14)
Adjustments to reconcile net income to net cash provided by
operating activities:
Change in claim and claim expense liabilities............ 1,462 571 248
Change in policy benefits for life/health contracts...... 174 -- --
Change in reinsurance recoverable........................ (305) (220) (30)
Change in unearned premiums.............................. 188 261 4
Amortization of acquisition costs........................ 1,345 614 552
Acquisition costs deferred............................... (1,470) (672) (559)
Trading account activities
Change in trading account securities................... (1,602) 1,232 (1,126)
Securities purchased under agreements to resell........ 747 (681) (439)
Securities sold under agreements to repurchase......... 325 (628) 1,597
Change in other trading balances....................... 586 26 (117)
Other changes in assets and liabilities.................. (622) (16) 217
Realized gains on investments............................ (64) (66) (159)
-------- -------- --------
Net cash from operating activities.................. 1,589 1,086 885
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Fixed maturities: held-to-maturity
Purchases................................................ -- (40) (66)
Calls and maturities..................................... -- 296 395
Sales.................................................... -- -- --
Fixed maturities: available-for-sale
Purchases................................................ (5,771) (4,375) (4,020)
Calls and maturities..................................... 811 267 624
Sales.................................................... 3,839 4,042 2,495
Equity securities
Purchases................................................ (902) (999) (1,372)
Sales.................................................... 723 978 1,014
Net purchases of other invested assets...................... (101) (61) (168)
Net (purchases) sales of short-term investments............. (231) (124) 184
Net purchase of shares in GR-CK............................. -- (582) --
Cash obtained on purchase of GR-CK.......................... -- 153 --
-------- -------- --------
Net cash used in investing activities............... (1,632) (445) (914)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of notes payable................................. -- (21) (6)
Commercial paper borrowing (repayment), net................. (31) (230) 251
Change in contract deposits................................. 147 171 98
Cash dividends paid to stockholders: Common................. (161) (157) (159)
Preferred............. (11) (11) (11)
Acquisition of treasury stock............................... (30) (222) (134)
Other....................................................... 145 11 9
-------- -------- --------
Net cash from (used in) financing activities........ 59 (459) 48
-------- -------- --------
Change in cash................................................ 16 182 19
Cash, beginning of year....................................... 242 60 41
-------- -------- --------
Cash, end of year............................................. $ 258 $ 242 $ 60
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
37
<PAGE> 38
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION: General Re Corporation and Subsidiaries (the "Corporation") is a
global reinsurance and financial services company. The Corporation operates in
four principal business segments: United States property/casualty reinsurance,
international property/casualty reinsurance, life/health reinsurance and
financial services. The Corporation is the largest professional
property/casualty reinsurer domiciled in the United States and is among the four
largest in the world.
The Corporation's United States property/casualty subsidiaries produced revenues
of $3,641 million, or 50.5 percent, of consolidated revenues in 1995. The
principal business of these subsidiaries is treaty and facultative reinsurance
underwritten on a direct basis throughout the United States and Canada. The
Corporation predominately writes excess-of-loss reinsurance across various lines
of business.
The Corporation's international property/casualty operations produced revenues
of $2,573 million, or 35.7 percent, of consolidated revenues in 1995. With the
consolidation of the results of Kolnische Ruckversicherungs-Gesellschaft AG
("Cologne Re") in 1995, international property/casualty premium now accounts for
a significantly greater portion of the Corporation's revenues. The Corporation's
international business in 1995 was primarily conducted through operations based
in Germany, the United Kingdom, Switzerland, Ireland, Australia, and Argentina.
The Corporation's life/health reinsurance operations produced revenues of $742
million, or 10.3 percent, of the consolidated total in 1995. These operations
include the United States and international life/health reinsurance operations
of Cologne Re.
The Corporation's financial services operations include derivative products,
insurance brokerage and management, investment management, reinsurance brokerage
and real estate management operations. Through its subsidiary, General Re
Financial Products Corporation ("GRFP"), a dealer in derivative products, the
Corporation offers a full line of interest rate and cross-currency swaps,
options, and other derivative products in all major currencies from offices or
affiliates in New York, Toronto, London and Tokyo. The financial services
operations produced $254 million, or 3.5 percent, of the Corporation's 1995
revenues.
The following are the significant accounting policies and practices of the
Corporation:
BASIS OF PRESENTATION: The Corporation's consolidated financial statements have
been prepared on the basis of generally accepted accounting principles in the
United States. The consolidated financial statements include the Corporation and
its subsidiaries. All significant intercompany transactions have been
eliminated. International property/casualty and life/health subsidiaries report
their results on a quarter lag. In 1995, all of GRFP's trading-related cash
flows have been classified as operating in the statement of cash flows. Certain
other reclassifications have been made to 1994 and 1993 balances to conform to
the 1995 presentation.
INVESTMENTS: Fixed maturity securities that the Corporation has both the ability
and intent to hold to maturity are classified as held-to-maturity and carried at
amortized cost. Fixed maturity securities that the Corporation may sell prior to
maturity in response to changes in market interest rates, changes in liquidity
needs, or other factors and equity securities are classified as
available-for-sale and carried at fair value, with unrealized gains and losses,
net of deferred income taxes, excluded from income and reported in a separate
component of common stockholders' equity. Fixed maturity securities that are
held for resale are classified as trading and carried at fair value, with
unrealized gains and losses included in income. During the fourth quarter of
1995, the Corporation reassessed its categorization of fixed maturities in
response to recent additional classification guidance issued by the Financial
Accounting Standards Board. At December 31, 1995, all fixed maturity securities
of the Corporation have been categorized as either available-for-sale or
trading. Most of the securities transferred to the available-for-sale category
were tax-exempt securities grandfathered under the Tax Reform Act of 1986 that
the Corporation anticipates being called within the near future. The
38
<PAGE> 39
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
recategorization of these securities had no effect on net income and increased
common stockholders' equity by $53 million.
Realized gains or losses on sales of investments are primarily 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. Realized gains or losses include gains and losses arising from the
translation into United States dollars of investments held by the United States
operations and denominated in foreign currencies. Investment income is
recognized as earned and includes the amortization of bond discount and
accretion of bond premium.
Included in other invested assets are investments in reinsurance joint ventures,
limited partnerships and real estate. Reinsurance ventures reported under the
equity method are carried at initial cost with adjustment after acquisition for
the Corporation's proportionate share of the venture's earnings. The amount of
the adjustment is included in income. Limited partnership investments are
carried at estimated fair value. Real estate is valued at cost and depreciated
over its estimated useful life.
PROPERTY/CASUALTY OPERATIONS
PREMIUMS EARNED: Premiums are recognized in income over the contract period
in proportion to the amount of insurance or 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. In the
absence of ceding company reports, premiums are estimated using historical
information and management judgment. Premium adjustments on contracts and
audit premiums are accrued on an estimated basis throughout the contract
term. Premiums are net of retrocessions.
ACQUISITION COSTS: Acquisition costs, consisting principally of commissions
and brokerage expenses incurred at contract issuance, are deferred and
amortized over the contract 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.
CLAIMS AND CLAIM EXPENSES: The liability for claims and claim expenses is
based on reports and individual case estimates received from ceding
companies. The liability also includes incurred but not reported claims and
claim expenses, which are actuarially estimated based on past experience
and are reduced by anticipated salvage and subrogation recoverable. The
methods of determining such estimates and establishing the related
liabilities are regularly reviewed and updated, and any resulting
adjustments are included in income currently. Reinsurance recoveries on
unpaid claims and claim expenses, net of uncollectible amounts, are
recognized as assets at the same time and in a manner consistent with the
Corporation's method for establishing the related liability. Workers'
compensation liabilities, after deduction of reinsurance recoverable for
unpaid losses, were $1,244 million and $1,186 million at December 31, 1995
and 1994, respectively, after being discounted at an interest rate of 4.5
percent.
LIFE/HEALTH OPERATIONS
PREMIUMS EARNED: Premiums for life contracts are recognized in income when
due. Premiums for health contracts are earned over the contract period in
proportion to the amount of insurance or reinsurance provided. Unearned
premium liabilities are established to cover the unexpired portion of
health premiums written. Premiums are reported net of retrocessions.
ACQUISITION COSTS: Acquisition costs, principally commissions that vary
with and are primarily related to the acquisition of new business, are
deferred and amortized with interest over the premium-paying period of
traditional life and health insurance policies.
39
<PAGE> 40
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
POLICY BENEFITS FOR LIFE/HEALTH CONTRACTS: The liability for policy
benefits for life contracts has been computed based upon assumed investment
yields and mortality and withdrawal rates anticipated at the later of
either the acquisition of Cologne Re or at the date of contract issuance.
These assumptions include a margin for adverse deviation and vary with the
characteristics of the reinsurance contract's date of issuance, policy
duration and country of risk. The interest rate assumptions used vary by
country ranging principally from 3.0 percent to 7.0 percent. Appropriate
provisions for profit-sharing commissions to ceding companies have been
recorded.
PRESENT VALUE OF FUTURE PROFITS: The present value of future profits
("PVP") is the actuarially determined present value of the projected
profits from the continuation of in-force reinsurance on existing insurance
policies on the date Cologne Re was acquired. The calculation of the
estimated profits includes anticipated future premiums, death and benefit
payments, reserve changes, profit sharing amounts, expenses and related
investment income. PVP was determined using risk-adjusted discount rates
ranging primarily from 10.0 percent through 16.0 percent. The interest
rates selected for the valuation were determined based on the applicable
interest rates in the country of risk and the risk inherent in the
realization of the estimated future profits. PVP, which is included in
"Other assets" on the balance sheet, was $125 million at December 31, 1995
and is being amortized over the duration of the related life business,
approximately 20 years, based upon the assumed underlying profits of the
business acquired using a 7.0 percent interest rate.
FUNDS HELD BY REINSURED COMPANIES: Funds held by reinsured companies represent
ceded premium retained by the ceding company for a period according to
contractual terms. The Corporation generally earns investment income on these
balances during the period funds are held. Funds held assets specifically
related to life/health benefits were $1,682 million and $1,482 million at
December 31, 1995 and 1994, respectively.
GOODWILL: The Corporation amortizes on a straight-line basis goodwill recorded
in connection with its business combinations. Included in "Other assets" was
goodwill of $495 million and $509 million at December 31, 1995 and 1994,
respectively, which was principally related to the Cologne Re joint venture. The
Corporation's goodwill is amortized over the lesser of the expected life of the
related operations acquired or 40 years. The amount of goodwill reported for the
Cologne Re transaction will fluctuate based on changes in the value of the
German mark (functional currency) to the United States dollar (reporting
currency) during the period.
DEFERRED INCOME TAXES: Deferred income taxes have been provided for all
temporary differences between the bases of assets and liabilities used in the
financial statements and the Corporation's United States and foreign tax
returns. Deferred income taxes are also provided for unrealized appreciation
(depreciation) of equity securities and certain fixed maturities, and for
foreign currency translation gains or losses by a charge or credit directly to
the applicable component of common stockholders' equity.
FOREIGN CURRENCY TRANSLATION: Revenues and expenses in foreign currencies are
translated at the average rate of exchange during the period. Assets and
liabilities are translated at the rate of exchange in effect at the close of the
period. Gains or losses resulting from translating foreign currency financial
statements are accumulated in a separate component of common stockholders'
equity. Gains or losses resulting from foreign currency transactions
(transactions denominated in a currency other than the entity's functional
currency) are included in net income.
DEPOSITS: Reinsurance contracts that do not indemnify the ceding company against
loss or liability are recorded as deposits and included in "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: Allowances are provided for uncollectible
reinsurance recoverables and other doubtful receivables. The allowance is
recorded as a valuation account and reduces the corresponding asset. The
allowance was $135 million and $121 million at December 31, 1995 and 1994,
respectively.
40
<PAGE> 41
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FINANCIAL SERVICES: GRFP's derivative contracts are carried at estimated fair
value which is determined using financial models which incorporate current
interest rates, currency rates, and security values. Securities owned,
securities sold but not yet purchased and futures contracts are carried at fair
value. Realized and unrealized gains or losses from selling or valuing
securities and contractual commitments at fair value are included in "Other
revenues." Included in the balance sheet captions, trading account assets and
liabilities, are the unrealized gains and losses on interest rate and currency
swaps, forward currency commitments and option products. These estimated
unrealized gains and losses, which have been included in income, represent the
fair value of estimated future cash flows for these transactions. Purchases of
securities under agreements to resell and sales of securities under agreements
to repurchase are accounted for as collateralized investing and financing
transactions and are recorded at their contractual resale or repurchase amounts,
plus accrued interest.
ACCOUNTING ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets, liabilities,
revenues and expenses. The Corporation's principal estimates include
property/casualty claims and claim expenses, policy benefits for life/health
contracts, estimated premium for situations where the Corporation has not
received ceding company reports and nonexchange traded financial instruments.
The Corporation utilizes historical information, actuarial analyses, financial
modeling and other analytical techniques to prepare these estimates. Actual
results for all these items could differ from the estimates included in the
Corporation's income statement, balance sheet and statement of cash flows.
EARNINGS PER SHARE: Earnings per common share were based on earnings, less
preferred dividends, divided by the weighted average common shares outstanding
during each year.
2. ACCOUNTING CHANGES
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation.
The Statement establishes financial accounting and reporting standards for
stock-based employee compensation plans. The Statement defines a fair-value
based method of accounting for stock option plans whereby compensation cost is
measured at the grant date based on the value of the award and is recognized
over the service period. Under the new Statement, companies may continue to
measure compensation cost of stock-based plans using the current accounting
prescribed by Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees. Companies electing to remain with the accounting in Opinion
No. 25 must make pro forma disclosures of net income and earnings per share as
if the fair-value based method of accounting defined in the Statement were
applied. The Statement is effective in 1996. The Corporation intends to continue
its current method of accounting for stock-based compensation plans. Therefore,
the adoption of the Statement will have no effect on the Corporation's results
from operations, financial position or cash flows.
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of. The Statement
established accounting standards for the determination of impairment of long-
lived assets, certain identifiable intangibles and goodwill. The Statement
requires that long-lived assets and intangibles be reviewed for impairment using
an estimate of future undiscounted cash flows compared to the carrying amount of
the assets. The Statement is effective in 1996. It is anticipated the adoption
of the Statement will have no material impact on the results from operations,
financial position or cash flows of the Corporation.
Effective January 1, 1994, the Corporation adopted Statement of Financial
Accounting Standards No. 115, Accounting for Certain Investments in Debt and
Equity Securities. The after-tax effect of Statement No. 115 decreased common
stockholders' equity by $81 million at December 31, 1994. The Statement's
adoption had
41
<PAGE> 42
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
no effect on the Corporation's results from operations. See Note 1 for
additional details on the Corporation's investment accounting policies.
On July 22, 1993, the Emerging Issues Task Force of the Financial Accounting
Standards Board reached a consensus on accounting for multiple-year,
retrospectively rated reinsurance contracts. The Corporation adopted the EITF's
prescribed method of accounting for such contracts during the third quarter of
1993. Accordingly, the Corporation reported a cumulative-effect adjustment of
$14 million, or $.17 per share, principally to recognize an asset for the
amounts due from retrocessionaires related to favorable contract experience
through January 1, 1993.
3. REINSURANCE VENTURES
Cologne Re
On December 28, 1994, the Corporation and Colonia Konzern AG ("Colonia") formed
a new company that acquired 75 percent of the ordinary shares and approximately
30 percent of the preference shares of 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, "CKAG"), received 100 percent of the Class A
shares of the new company, General Re-CKAG Reinsurance and Investment S.a r.1.
("GR-CK"). The Corporation initially contributed $884 million (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 $302 million (DM 475 million) to the Corporation in
exchange for notes in the 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
intercompany notes have been eliminated in consolidation. The funds invested in
GR-CK are subject to certain restrictions according to the joint venture
agreement.
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 will also receive an annual
Class B cash dividend of 50.1 percent of GR-CK's distributable income, as
defined in the joint-venture agreement. The dividend related to 1995 on the
Class A and B shares will be paid in 1996.
The Corporation has an option after seven years to purchase the Class A shares
of GR-CK owned by the CKAG at a formula price. The option has a minimum exercise
price of DM 1,306 million and a maximum of DM 1,509 million, subject to certain
warranty adjustments that may reduce the exercise price. If the Corporation does
not exercise its option to purchase the Class A shares of GR-CK from CKAG, CKAG
has the option to purchase the Class B shares of GR-CK from the Corporation
under a similar exercise price formula.
The acquisition of the shares of Cologne Re through GR-CK has been accounted for
as a purchase. The Corporation has consolidated GR-CK and Cologne Re in its
financial statements and recorded as minority interests the share of CKAG in
GR-CK and of the other stockholders in Cologne Re. The assets and liabilities of
Cologne Re were included in the Corporation's balance sheet at December 31, 1994
at management's then best estimate of their fair values. The final evaluation of
assets and liabilities was completed during 1995. The cost of the initial
acquisition has been allocated on the basis of the estimated fair market value
of the assets acquired and the liabilities assumed at the time of the
transactions, with the excess of cost over net assets acquired recorded as
goodwill.
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 United States generally accepted accounting
principles by 62.9 percent over the amount 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
42
<PAGE> 43
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
million at the June 30, 1995 exchange rate), of the offering. In addition to its
ownership in Cologne Re through GR-CK, the Corporation purchased for its own
account an additional 6.9 percent of the ordinary and preference shares of
Cologne Re during 1995 for aggregate consideration of $68 million, which
increased the Corporation's consolidated economic interest in Cologne Re to 73.2
percent. The purchase of Cologne Re shares during 1995 was accounted for as a
step acquisition. Under the step acquisition method of accounting, the fair
value of assets and liabilities are recorded at each acquisition date with the
excess of cost over fair value recorded as incremental goodwill.
The following unaudited, pro forma information was prepared assuming the
transaction with Cologne Re had occurred as of the beginning of the periods
presented. These results were prepared for informational purposes and do not
purport to be the actual results of the entities, had they been combined at that
time. The pro forma information includes all significant adjustments to the
historical results which were directly attributable to the transaction and were
expected to have a continuing effect on the Corporation.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-------------------------------------------
1994 1993
------------------- -------------------
AS PRO AS PRO
REPORTED FORMA REPORTED FORMA
-------- ------ -------- ------
(IN MILLIONS, EXCEPT PER SHARE INFORMATION)
<S> <C> <C> <C> <C>
Revenues.............................................. 3,837 $6,658 3,560 $6,236
After-tax income before cumulative-effect
adjustments......................................... 665 694 697 720
Per common share...................................... 7.97 8.32 8.11 8.39
</TABLE>
Engineering Insurance Group
On December 30, 1994, General Reinsurance Corporation ("GRC") exchanged its 50.0
percent partnership interest in Engineering Insurance Group ("EIG"), a machinery
breakdown insurer, for nonvoting preferred stock in EIG having a value of $20
million. The preferred stock pays dividends at a rate of 6.5 percent per annum.
Signet Star Holdings
In 1993, the Corporation entered into a joint venture with W.R. Berkley
Corporation ("Berkley") to form Signet Star Holdings, Inc. ("SSH"), which
acquired the common stock of North Star Reinsurance Corporation ("North Star"),
a wholly owned subsidiary of the Corporation, and Signet Reinsurance Company, a
wholly owned subsidiary of Berkley. Under the agreement, the Corporation
acquired shares representing 40.0 percent of the equity interest of SSH, $36
million of 6.96 percent convertible debt due in January 2003 and $40 million of
9.8 percent senior debt due in January 2000. The Corporation accounted for its
interest in SSH under the equity method. In November 1993, SSH called the senior
debt at par plus accrued interest. The Corporation, through its wholly owned
subsidiary, GRC, has retained the net claim and claim expense liability of North
Star for all reinsurance contracts underwritten by North Star prior to January
1, 1993. These claim and claim expense liabilities are currently in runoff and
did not have a material effect on the Corporation's results from operations or
financial position during 1995.
In December 1995, the Corporation sold its 40.0 percent interest in SSH to
Berkley in exchange for 458,667 shares of Series B cumulative redeemable
preferred stock of Berkley having an aggregate liquidation preference of $69
million. The preferred stock has a dividend rate that increases quarterly to 6.0
percent during the first twelve months after issuance. Thereafter, the rate is
subject to readjustment based on the then current market interest rate. Prior to
this transaction, the Corporation purchased the common stock of North Star from
SSH for its then current statutory surplus of $10 million. In addition, the $36
million SSH convertible debt was redeemed at par plus accrued interest and
replaced with a $36 million subordinated note of SSH,
43
<PAGE> 44
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
maturing on July 1, 2003, bearing an interest rate of 6.5 percent for which the
principal and interest are guaranteed by Berkley.
Tempest Reinsurance Company Limited
In September 1993, the Corporation acted as sponsor in the formation of Tempest
Reinsurance Company Limited ("Tempest"), a Bermuda-based reinsurance company
specializing in excess property catastrophe reinsurance. The Corporation
accounted for its 20.7 percent interest in Tempest of $143 million and $112
million at December 31, 1995 and 1994, respectively, under the equity method.
The Corporation provides underwriting and investment management services for
Tempest.
Tempest is negotiating an exchange of shares of Tempest for shares in ACE
Limited, a Bermuda insurer. The transaction would be subject to approval by both
companies' Boards of Directors and shareholders. If the transaction is
consummated, the Corporation would sell back to Tempest its 20.7 percent
interest in Tempest for cash consideration. In addition, the underwriting
services provided to Tempest by the Corporation would be terminated. The
financial effect of this transaction would be recorded in 1996.
4. STATUTORY FINANCIAL INFORMATION
The Corporation's United States reinsurance and insurance subsidiaries file
financial statements prepared in accordance with statutory accounting practices
prescribed or permitted by insurance regulators. Statutory accounting differs
from generally accepted accounting principles in the reporting of certain
reinsurance contracts, investments, subsidiaries, acquisition expenses,
furniture and equipment, deferred income taxes and certain other items. Combined
statutory surplus at December 31, 1995 and 1994 was $4,607 million and $3,770
million, respectively, and combined statutory net income for the years ended
December 31, 1995, 1994 and 1993 was $621 million, $511 million and $655
million, respectively.
The Corporation's subsidiaries prepare their statutory financial statements in
accordance with accounting practices prescribed or permitted by their
domiciliary state's insurance department. Prescribed accounting practices
include a variety of publications of the National Association of Insurance
Commissioners ("NAIC"), as well as state laws, regulations, and general
administrative rules. Permitted statutory accounting practices encompass all
accounting practices not so prescribed that have been permitted by the insurance
department of the insurer's domiciliary state. As discussed in Note 1, the
Corporation discounts certain workers' compensation liabilities at an annual
rate of 4.5 percent. Included in the discount recognized for statutory purposes
at December 31, 1995 was $483 million resulting from discounting permitted by
the domiciliary insurance department.
The Corporation's international subsidiaries prepare statutory financial
statements based on local laws and regulations. Some jurisdictions, such as the
United Kingdom, impose complex regulatory requirements on reinsurance companies,
while other jurisdictions, such as Germany, impose fewer requirements. Local
reinsurance business conducted by the Corporation's subsidiaries in some
countries require licenses issued by governmental authorities. These licenses
may be subject to modification or revocation dependent on such factors as amount
and types of reserves and minimum capital and solvency tests. Jurisdictions may
impose fines, censure and/or criminal sanctions for violation of regulatory
requirements.
44
<PAGE> 45
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. INVESTMENTS
The cost, fair value and gross unrealized appreciation and depreciation of
short-term, fixed maturity, equity and other investments were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995
-----------------------------------------------------
GROSS GROSS
UNREALIZED UNREALIZED FAIR
COST1 APPRECIATION DEPRECIATION VALUE
------- ------------ ------------ -------
(IN MILLIONS)
<S> <C> <C> <C> <C>
SHORT-TERM INVESTMENTS......................... $ 1,449 -- -- $ 1,449
FIXED MATURITIES -- AVAILABLE-FOR-SALE
U.S. Government.............................. 1,354 $ 83 $ 3 1,434
German federal and state governments......... 857 52 -- 909
Tax exempt................................... 6,665 521 2 7,184
Corporate.................................... 2,556 133 5 2,684
Mortgage-backed.............................. 598 28 -- 626
Asset-backed................................. 108 5 -- 113
Non United States............................ 1,970 74 7 2,037
------- ------ --- -------
Total fixed
maturities -- available-for-sale........ 14,108 896 17 14,987
------- ------ --- -------
FIXED MATURITIES -- TRADING
U.S. Government.............................. 730 8 -- 738
Non United States............................ 1,586 35 42 1,579
------- ------ --- -------
Total fixed maturities -- trading......... 2,316 43 42 2,317
------- ------ --- -------
EQUITIES....................................... 2,597 1,365 18 3,944
OTHER INVESTED ASSETS.......................... 733 65 1 797
------- ------ --- -------
Total................................ $21,203 $2,369 $ 78 $23,494
======= ====== === =======
</TABLE>
- ---------------
1 Cost is amortized cost for short-term investments and fixed maturities and
original cost for equity securities and other invested assets.
45
<PAGE> 46
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1994
-----------------------------------------------------
GROSS GROSS
UNREALIZED UNREALIZED FAIR
COST1 APPRECIATION DEPRECIATION VALUE
------- ------------ ------------ -------
(IN MILLIONS)
<S> <C> <C> <C> <C>
SHORT-TERM INVESTMENTS......................... $ 1,032 -- -- $ 1,032
FIXED MATURITIES -- HELD-TO-MATURITY
U.S. Government.............................. 3 -- -- 3
German federal and state governments......... 14 -- -- 14
Tax exempt................................... 1,432 $ 80 $ 5 1,507
Corporate.................................... 160 -- -- 160
Non United States............................ 291 2 6 287
------- ------ ---- -------
Total fixed
maturities -- held-to-maturity.......... 1,900 82 11 1,971
------- ------ ---- -------
FIXED MATURITIES -- AVAILABLE-FOR-SALE
U.S. Government.............................. 1,214 -- 25 1,189
German federal and state governments......... 552 -- -- 552
Tax exempt................................... 3,814 109 131 3,792
Corporate.................................... 2,210 10 42 2,178
Mortgage-backed.............................. 647 2 20 629
Asset-backed................................. 253 -- 9 244
Non United States............................ 2,150 -- 17 2,133
------- ------ ---- -------
Total fixed
maturities -- available-for-sale........ 10,840 121 244 10,717
------- ------ ---- -------
FIXED MATURITIES -- TRADING
U.S. Government.............................. 511 -- 1 510
Non United States............................ 1,068 1 22 1,047
------- ------ ---- -------
Total fixed maturities -- trading......... 1,579 1 23 1,557
------- ------ ---- -------
EQUITIES....................................... 2,318 719 60 2,977
OTHER INVESTED ASSETS.......................... 642 92 19 715
------- ------ ---- -------
Total................................ $18,311 $1,015 $357 $18,969
======= ====== ==== =======
</TABLE>
- ---------------
1 Cost is amortized cost for short-term investments and fixed maturities and
original cost for equity securities and other invested assets.
Gross gains of $117 million, $57 million and $120 million and gross losses of
$73 million, $120 million and $22 million were realized on sales of
available-for-sale fixed maturities in 1995, 1994 and 1993, respectively. The
contractual maturities of fixed maturity investments are shown in the following
table. Actual maturities may differ from contractual maturities because
borrowers may have the right to call or prepay certain obligations.
46
<PAGE> 47
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1995
AVAILABLE-FOR-SALE
---------------------
AMORTIZED FAIR
COST VALUE
--------- -------
(IN MILLIONS)
<S> <C> <C>
Due in one year or less......................................... $ 642 $ 667
Due after one year through five years........................... 3,432 3,586
Due after five years through ten years.......................... 4,206 4,477
Due after ten years............................................. 5,122 5,518
Mortgage and asset-backed....................................... 706 739
------- -------
Total........................................................... $14,108 $14,987
======= =======
</TABLE>
Realized gains or losses recognized in income for fixed maturities and equity
securities were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31
--------------------
1995 1994 1993
--- ---- ---
(IN MILLIONS)
<S> <C> <C> <C>
Fixed maturities................................................ $44 $(63) $98
Equity securities............................................... 20 129 61
--- ---- ---
Total realized gains............................................ 64 66 159
Income taxes.................................................... 25 22 66
--- ---- ---
Realized gains on investments, after income taxes............... $39 $ 44 $93
=== ==== ===
</TABLE>
Dividend, interest and other investment income was as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
------------------------
1995 1994 1993
------ ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
Fixed maturities............................................ $ 850 $648 $658
Equity securities........................................... 111 75 76
Short-term investments...................................... 62 35 22
Miscellaneous, net.......................................... 26 8 12
------ ---- ----
Total investment income..................................... 1,049 766 768
Investment expenses......................................... (32) (17) (13)
------ ---- ----
Investment income........................................... $1,017 $749 $755
====== ==== ====
</TABLE>
Securities with a market value of approximately $635 million at December 31,
1995 were on deposit with various state or governmental departments to comply
with insurance laws.
47
<PAGE> 48
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. CLAIMS AND CLAIM EXPENSES
The table below provides a reconciliation of the beginning and ending claim and
claim expense liability, net of reinsurance, for the years presented.
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
(IN MILLIONS)
<S> <C> <C> <C>
Balance at January 1.......................................... $12,158 $ 8,452 $ 8,204
Reinsurance recoverables on unpaid claims and claim
expenses................................................. (1,841) (1,396) (1,366)
------- ------- -------
Net balance at January 1...................................... 10,317 7,056 6,838
Incurred claims and claim expenses related to:
Current year................................................ 3,666 2,017 1,583
Prior years................................................. 14 (36) 140
------- ------- -------
Total incurred claims and claim expenses...................... 3,680 1,981 1,723
------- ------- -------
Claim and claim expense payments related to:
Current year................................................ 773 423 214
Prior years................................................. 1,584 1,206 1,291
------- ------- -------
Total payments................................................ 2,357 1,629 1,505
------- ------- -------
Effect of foreign exchange.................................... 97 -- --
------- ------- -------
Net balance at December 31.................................... 11,737 7,408 7,056
Reinsurance recoverables on unpaid claims and claim
expenses................................................. 2,515 1,615 1,396
Cologne Re unpaid claims and claim expenses (first included at
December 31, 1994).......................................... -- 3,135 --
------- ------- -------
Balance at December 31........................................ $14,252 $12,158 $ 8,452
======= ======= =======
</TABLE>
The liability for claims and claim expenses for 1994 and prior accident years
for the Corporation's property/casualty operations, net of related reinsurance
recoveries, increased by $13 million in 1995. The increase was principally the
result of the net effect of reserve strengthening for environmental and latent
injury claims, partly offset by favorable loss development on casualty lines of
business. The liability for United States operations for prior accident years
was decreased by $36 million in 1994, and increased by $140 million during 1993.
The adverse effect on income in 1993 was the result of reserve strengthening
principally for environmental and latent injury claims. The liability for claims
and claim expenses for 1994 and prior accident years for the international
operations, net of related reinsurance recoveries and foreign exchange,
increased by $1 million in 1995.
The Corporation continually estimates its liabilities and related reinsurance
recoveries for environmental and latent injury claims and claim expenses. These
exposures do not lend themselves to traditional methods of loss development
determination and, therefore, may be considered less reliable than reserves for
standard lines of business (e.g., automobile). The estimate is composed of four
parts: known claims, development on known claims, incurred but not reported
("IBNR") and direct excess coverage litigation expenses. Although reliability is
constrained by uncertainties, the Corporation has confidence in the reported,
known claim liabilities and, based on alternative methods, has projected a
fairly reliable estimate of development for these claims. The Corporation has
also included an estimate for IBNR which is based on fitted curves of estimated
future claim emergence. This estimate is less reliable than the estimated
liability for reported claims. The effect of joint and several liability on the
severity of losses and a provision for future claim inflation have been included
in the loss development estimate. The Corporation has established a liability
for litigation costs associated with coverage disputes arising out of direct
excess insurance policies, rather than from reinsurance assumed. Direct excess
coverage litigation expenses are estimated using a modified count and amount
actuarial study.
48
<PAGE> 49
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The gross liability for environmental and latent injury claims and claim
expenses and the related reinsurance recoverable were $1,756 million and $498
million, respectively, at December 31, 1995. The liability for environmental and
latent injury claims and claim expenses is management's best estimate of future
claim and claim expense payments and recoveries which are expected to develop
over the next several decades. The Corporation continues to monitor evolving
case law and its effect on environmental and latent injury claims. Changing
government regulations, newly identified toxins, newly reported claims, new
theories of liability, new contract interpretations and other factors could
significantly affect future claim development. While the Corporation has
recorded its current best estimate of its liabilities for unpaid claims and
claim expenses, it is reasonably possible that these estimated liabilities, net
of estimated reinsurance recoveries, may increase in the future and that the
increase may be material to the Corporation's results from operations, cash
flows and financial position. It is not possible to estimate reliably the amount
of additional net loss, or the range of net loss, that is reasonably possible.
7. FEDERAL, FOREIGN AND LOCAL INCOME TAXES
Income tax expense (benefit) was as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
------------------------------------------------------------------------------
1995 1994 1993
------------------------ ------------------------ ------------------------
UNITED UNITED UNITED
STATES FOREIGN TOTAL STATES FOREIGN TOTAL STATES FOREIGN TOTAL
------ ------- ----- ------ ------- ----- ------ ------- -----
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Current................ $169 $ 119 $288 $ 99 $ 53 $152 $137 $ 23 $160
Deferred............... (90) 49 (41 ) (21) (2) (23 ) 27 1 28
---- ---- ---- ---- ---- ---- ---- ---- ----
Total............. $ 79 $ 168 $247 $ 78 $ 51 $129 $164 $ 24 $188
==== ==== ==== ==== ==== ==== ==== ==== ====
</TABLE>
Income taxes were established on a consolidated basis for all United States and
international subsidiaries of the Corporation. No provision has been made for
United States income taxes on that portion of cumulative undistributed income of
wholly owned international subsidiaries of $125 million at December 31, 1995,
which is considered permanently reinvested. Applicable United States income
taxes have been recorded for Cologne Re's income since it distributes dividends
to its shareholders on an annual basis.
The Corporation's effective income tax rate is less than the United States
statutory rate due to permanent differences between financial statement income
and taxable income. An analysis of the Corporation's effective tax rate as a
percentage of pretax income follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-------------------------
1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
United States statutory tax rate............................ 35.0% 35.0% 35.0%
Reduction in taxes resulting from:
Tax-exempt bond interest.................................. (10.3) (14.6) (12.7)
Dividends received deduction.............................. (1.5) (1.9) (1.3)
Foreign tax rate differential/credits..................... 0.4 0.2 0.5
Miscellaneous............................................. (1.5) (2.4) (0.3)
----- ----- -----
Effective tax rate.......................................... 22.1% 16.3% 21.2%
===== ===== =====
</TABLE>
Income taxes paid were $216 million, $138 million and $142 million in 1995, 1994
and 1993, respectively.
49
<PAGE> 50
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of the net deferred income tax liability were as follows:
<TABLE>
<CAPTION>
DECEMBER 31
-------------
1995 1994
---- ----
(IN MILLIONS)
<S> <C> <C>
DEFERRED INCOME TAX ASSETS:
Claim and claim expense liabilities................................. $ 69 $(10)
Alternative minimum tax credit...................................... -- 12
Unearned premiums................................................... 77 64
Accruals not currently deductible................................... 57 52
United States temporary differences from foreign operations......... 72 22
Other............................................................... 48 50
---- ----
Total deferred tax assets........................................ 323 190
---- ----
DEFERRED INCOME TAX LIABILITIES:
Unrealized appreciation of investments.............................. 710 199
Deferred acquisition costs.......................................... 61 56
Deferred charges.................................................... 13 14
Discount on fixed maturity investments.............................. 40 26
Derivative financial instruments.................................... 11 15
Other............................................................... 43 48
---- ----
Total deferred tax liabilities................................... 878 358
---- ----
Net deferred income tax liability..................................... $555 $168
==== ====
</TABLE>
8. NOTES PAYABLE AND COMMERCIAL PAPER
The carrying amounts of the Corporation's loans payable were as follows:
<TABLE>
<CAPTION>
DECEMBER 31
-------------
1995 1994
---- ----
(IN MILLIONS)
<S> <C> <C>
9.0% debenture due in 2009............................................ $150 $150
7.7% mortgage payable through 1998.................................... 5 7
---- ----
Total notes payable.............................................. $155 $157
==== ====
</TABLE>
The 9.0 percent debenture due in 2009 has a covenant requiring the Corporation
not to encumber its common stock holding in GRC, the largest subsidiary of the
Corporation. The mortgage payable is collateralized by the Corporation's prior
home office.
The Corporation issues commercial paper for financial flexibility and liquidity
purposes. Information on the commercial paper program is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
----- ----- -----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Year end balance............................................ -- $ 31 $ 261
Average interest rate at year end........................... -- 5.96% 3.20%
Average maturity at year end (in days)...................... -- 29.8 30.2
Average outstanding balance during the year................. $ 21 $ 209 $ 179
Average interest rate for the year.......................... 5.78% 4.13% 3.08%
</TABLE>
50
<PAGE> 51
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In August 1995, the Corporation modified its $1.0 billion of available lines of
credit with nineteen participating banks. The credit lines consist of a 364-day
facility of $500 million and a five-year credit facility of the remaining $500
million. The credit agreements with the banks require the Corporation to
maintain a minimum consolidated tangible net worth, as defined, of $2.5 billion.
All $1.0 billion of available lines of credit were unused at December 31, 1995
and 1994. Interest expense and interest paid for all loans payable and
commercial paper were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
--------------------------
1995 1994 1993
---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
Interest expense............................................ $15 $25 $23
Interest paid............................................... 15 25 23
</TABLE>
9. RETIREMENT PLANS
The Corporation has noncontributory pension plans covering substantially all
employees. Plans for United States employees provide pension benefits that are
generally computed on the basis of the average earnings during the three
consecutive years of highest earnings during the employee's service. The
Corporation's funding policy is to contribute sufficient amounts to meet the
minimum annual funding required by applicable regulations, plus such additional
amounts as it may determine to be appropriate from time to time. Pension plan
assets are principally invested in investment-grade fixed maturities and
equities. Cologne Re provides unfunded pension benefits to its employees based
on years of service and age at retirement.
The components of pension expense related to both funded and unfunded plans were
as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31
----------------------
1995 1994 1993
---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
Service cost-benefits earned during the year.................. $ 13 $ 10 $ 10
Interest cost on projected benefit obligation................. 16 12 11
Actual (return) loss on plan assets........................... (29) 4 (14)
Net amortization and deferral................................. 22 (12) 5
---- ---- ----
Pension expense............................................... $ 22 $ 14 $ 12
==== ==== ====
</TABLE>
The projected benefit obligation for United States employees was determined
using an assumed discount rate of 7.0 percent in 1995, 8.25 percent in 1994 and
7.25 percent for 1993, and an assumed long-term compensation increase of 5.75
percent in 1995, 6.0 percent for 1994 and 5.5 percent for 1993. An assumed
long-term rate of return on plan assets of 8.5 percent was used in determining
pension expense in 1995, 1994 and 1993. The projected benefit obligation for
Cologne Re employees was determined using an assumed discount rate of 7.0
percent in 1995 and 1994 and an assumed long-term compensation increase of 3.5
percent in 1995 and 1994.
Through unfunded plans, the Corporation provides pension benefits for certain
employees above amounts allowed under tax qualified plans. The Corporation also
provides postretirement retainers through unfunded plans for members of the
Board of Directors.
51
<PAGE> 52
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table sets forth the plans' funded status and amount recognized in
the Corporation's consolidated balance sheet:
<TABLE>
<CAPTION>
DECEMBER 31
---------------------------------------
1995 1994
----------------- -----------------
FUNDED UNFUNDED FUNDED UNFUNDED
------ -------- ------ --------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Accumulated benefit obligation:
Vested.......................................... $107 $ 62 $ 85 $ 50
Nonvested....................................... 13 10 10 7
---- ----- ---- ----
Accumulated benefit obligation.................... 120 72 95 57
Effect of projected salary increases.............. 60 34 33 31
---- ----- ---- ----
Projected benefit obligation.................... 180 106 128 88
Plan assets at fair value......................... 143 -- 111 --
---- ----- ---- ----
Projected benefit obligation in excess of plan
assets.......................................... (37) (106) (17) (88)
Unrecognized net (gain) loss...................... 12 13 (5) 6
Unrecognized prior service cost................... (6) 6 (6) 6
Unrecognized net (asset) obligation at
transition...................................... (6) 5 (9) 2
---- ----- ---- ----
Accrued pension liability....................... $(37) $ (82) $(37) $(74)
==== ===== ==== ====
</TABLE>
Substantially all of the Corporation's employees in the United States will
become eligible for certain health care and group life insurance benefits upon
retirement from the Corporation. Effective January 1, 1993, the Corporation
adopted Statement of Financial Accounting Standards No. 106, Employers'
Accounting for Postretirement Benefits Other Than Pensions. The Corporation has
funded the benefit cost of current retirees, with the retiree paying a portion
of the costs. The retiree's portion of the costs varies depending upon the
individual's length of service with the Corporation upon retirement. As of
December 31, 1995 and 1994, the Corporation had funded $3 million and $2
million, respectively, for postretirement health care benefits for current
retirees and had an accrued liability of $27 million and $23 million,
respectively, for current employees.
10. EMPLOYEE SAVINGS AND STOCK OWNERSHIP PLAN
The Corporation has a leveraged Employee Savings and Stock Ownership Plan
("ESSOP") in which substantially all United States employees may participate.
The ESSOP borrowed $150 million from the Corporation at 9.25 percent, payable
annually through 2014. The proceeds of this borrowing were used by the ESSOP to
purchase 1,754,386 shares of 7.25 percent ($6.20 dividend per share) cumulative
convertible preferred stock of the Corporation. All preferred stock outstanding
is held by the ESSOP and is convertible into common stock, under certain
conditions, on a one-to-one basis. The preferred stock is held by the ESSOP
trustee as collateral for the loan from the Corporation. The Corporation makes
contributions to the ESSOP which, together with the dividend on shares of the
preferred stock, are sufficient to make loan interest and principal repayments
back to the Corporation. As interest and principal are repaid, a portion of the
preferred stock is allocated to participating employees. The Corporation
recognizes compensation expense for the ESSOP based on the shares-allocated
method.
52
<PAGE> 53
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following summarizes ESSOP activity:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
(IN MILLIONS, EXCEPT SHARE DATA
)
<S> <C> <C> <C>
YEARS ENDED DECEMBER 31
Dividends paid on preferred stock:
Allocated shares................................. $ 2 $ 2 $ 1
Unallocated shares............................... 9 9 10
Compensation expense................................ 4 5 4
Contribution to ESSOP............................... 4 4 4
Interest income from ESSOP.......................... 14 14 14
ESSOP SHARE INFORMATION AT DECEMBER 31
Fair value per share................................ $157.00 $125.60 $110.50
Shares allocated to employees during the year....... 59,672 72,051 61,540
Committed to be released............................ 2,602 2,881 15,847
</TABLE>
11. INCENTIVE PLANS
The Corporation has a Long-Term Compensation Plan (the "Plan") which provides
for the granting of incentive and nonqualified stock options to members of the
Board of Directors, key executives and managerial employees. The Plan provides
that the exercise price of the options granted may not be less than the fair
market value of the Corporation's common stock on the date the options are
granted. The options are exercisable cumulatively 20 percent each year
commencing one year from the date of grant and expire ten years from the grant
date. In certain circumstances, replacement options may be granted upon exercise
of an original option, with the exercise price equal to the current market price
and with a term extending to the expiration date of the original option.
The Plan also permits the granting of stock appreciation rights ("SARs") in
connection with options granted under the Plan. SARs permit the grantee to
surrender an exercisable option for an amount equal to the excess of the market
price of the common stock over the option price when the right is exercised. No
SARs have been granted since 1988.
53
<PAGE> 54
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following summarizes the activity for options and SARs:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-------------------------------------
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
STOCK OPTIONS
Outstanding, beginning of year............................ 3,107,851 2,501,412 2,125,983
Granted ($123.50 to $157.19 per share).................... 944,987 814,532 546,467
Exercised ($41.88 to $126.94 per share)................... (360,074) (171,093) (124,707)
Canceled.................................................. (43,635) (34,030) (44,691)
Voided due to SARs exercise............................... (1,200) (2,970) (1,640)
--------- --------- ---------
Outstanding, end of year.................................. 3,647,929 3,107,851 2,501,412
========= ========= =========
Options exercisable ($55.25 to $131.94 per share)......... 1,628,404 1,479,718 1,181,462
========= ========= =========
Shares available for future options....................... 3,881,185 1,807,096 1,884,038
========= ========= =========
STOCK APPRECIATION RIGHTS
Outstanding, beginning of year............................ 9,200 12,170 13,810
Exercised................................................. (1,200) (2,970) (1,640)
--------- --------- ---------
Outstanding, end of year.................................. 8,000 9,200 12,170
========= ========= =========
</TABLE>
The Plan also permits the granting of restricted stock awards as compensation to
key executives and managerial employees. Shares of restricted stock become
outstanding upon grant, receive dividends and have voting rights identical to
other outstanding shares of common stock. Restrictions lapse upon termination of
the restriction period or upon death, disability or normal retirement. During
1995, 1994 and 1993, the Corporation made aggregate compensatory restricted
stock awards of 31,900, 17,250, and 38,250 shares, respectively. The cost of
restricted stock awards is based on the market value of the common stock at the
date of grant and is recognized as expense over the restriction period.
The Plan also provides for bonus awards to be made in cash, common stock, share
units or restricted stock options ("RSOs"). RSOs restrictions lapse five years
after the grant date and RSOs expire ten years after the grant date. RSOs are
included in the table above. Share units are paid in shares of common stock at a
designated future date in advance of the bonus award period. The expense of the
Plan was $4 million in 1995, $2 million in 1994 and $1 million in 1993.
12. LEASES
The Corporation leases office space and computer equipment under noncancelable
leases expiring in various years through 2010. Several of the leases have
renewal options with various terms and rental rate adjustments. Rental expense
was $31 million in 1995, $32 million in 1994 and $33 million in 1993. At
December 31, 1995, the future minimum annual rental commitments under
noncancelable leases were as follows:
<TABLE>
<CAPTION>
(IN MILLIONS)
<S> <C>
1996................................................... $ 28
1997................................................... 26
1998................................................... 25
1999................................................... 22
2000................................................... 21
Subsequent to 2000..................................... 134
------
Total.................................................. $ 256
=========
</TABLE>
54
<PAGE> 55
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum rental payments above have not been reduced by $20 million of
anticipated sublease rental income on noncancelable leases.
13. REINSURANCE
Premiums, claims and claim expenses and life/health benefits are reported net of
reinsurance in the Corporation's statements of income. Direct, assumed, ceded
and net amounts for these items were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
------------------------------------------------------------------------
PROPERTY/CASUALTY LIFE/HEALTH
PREMIUMS PREMIUMS
-------------------- ------------------ CLAIMS AND LIFE/HEALTH
WRITTEN EARNED WRITTEN EARNED CLAIM EXPENSES BENEFITS
------- ------- ------- ------ -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
1995
Direct.......................... $ 405 $ 364 -- -- $ 207 --
Assumed......................... 6,091 5,900 $ 793 $780 4,372 $ 558
Ceded........................... (1,103) (1,123) (84) (84) (899) (53)
------- ------- ---- ---- ------ ----
Net........................ $ 5,393 $ 5,141 $ 709 $696 $3,680 $ 505
======= ======= ==== ==== ====== ====
1994
Direct.......................... $ 438 $ 423 -- -- $ 290 --
Assumed......................... 3,058 2,785 -- -- 2,118 --
Ceded........................... (495) (420) -- -- (427) --
------- ------- ------
Net........................ $ 3,001 $ 2,788 -- -- $1,981 --
======= ======= ======
1993
Direct.......................... $ 378 $ 357 -- -- $ 233 --
Assumed......................... 2,634 2,606 -- -- 2,000 --
Ceded........................... (488) (517) -- -- (510) --
------- ------- ------
Net........................ $ 2,524 $ 2,446 -- -- $1,723 --
======= ======= ======
</TABLE>
The Corporation utilizes reinsurance to reduce its exposure to large claims.
These agreements provide for recovery of a portion of certain claims and claim
expenses from reinsurers. If the reinsurers are unable to meet their obligations
under the agreements, the Corporation would be liable for such defaulted
amounts. The Corporation holds partial collateral under these agreements and has
never suffered a significant loss because of defaults. The Corporation utilizes
various United States and international reinsurers as part of its retrocessional
program. Prior to being included in the Corporation's retrocessional program,
reinsurers are reviewed for their anticipated long-term creditworthiness by the
Corporation's Retrocessional Market Committee. At December 31, 1995, the largest
reinsurance recoverable on unpaid claims and claim expenses from any single
reinsurer was $399 million. The reinsurer is rated A++ by A.M. Best and has a
Standard & Poor's claims paying rating of AAA.
As part of its retrocessional program, the Corporation placed a portion of its
reinsurance with various Lloyd's of London syndicates. The syndicates act as
managing agents for individual "Names" who bear the risks and rewards of the
syndicates' underwriting results. Under Lloyd's current structure, Names have
unlimited liability for potential claims. During 1995 Lloyd's announced a plan
of "Reconstruction and Renewal," which is intended to act as a means to end
litigation associated with losses from prior syndicate years, especially those
years exposed to United States environmental and other mass tort exposures. The
plan would allow Names to reinsure their pre-1992 underwriting years to a newly
formed corporate reinsurer called "Equitas," which will reinsure and manage the
runoff of these claims. The intent of the plan is to close out for accounting
purposes Names' potential exposures for these prior underwriting years. Names,
however, still have potential exposure
55
<PAGE> 56
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
for these losses if Equitas is unable to meet its obligations. At December 31,
1995, the Corporation's reinsurance recoverables on paid and unpaid claims and
claim expenses from all Lloyd's syndicates aggregated approximately $127
million.
14. DIVIDENDS
General Re Corporation ("Parent") is the ultimate controlling entity in the
Parent's insurance holding company system, which includes United States
insurance companies that are subject to the insurance holding company acts of
Delaware and various other states. The Corporation is dependent upon the ability
of its operating subsidiaries to transfer funds in the form of loans, advances
or dividends. The insurance holding company laws require the filing of annual
reports by the insurance company members of the system and regulate transactions
between the holding company and affiliated insurance companies to the extent
that such transactions must be fair, reasonable and assure the adequacy of
insurance companies' statutory surplus in relation to their liabilities and
financial needs.
The laws also subject extraordinary dividends and other extraordinary
distributions to insurance company stockholders to regulatory approval. Under
the insurance laws of the State of Delaware, GRC's state of domicile, dividends
or distributions in a twelve-month period exceeding the greater of 10 percent of
an insurance company's surplus or 100 percent of net income, excluding realized
gains, for the previous calendar year are generally considered extraordinary and
require such approval. Based on these restrictions, dividend payments by GRC to
the Parent without regulatory approval are limited to $508 million in 1996.
Generally, international subsidiaries are subject to fewer restrictions on the
payment of dividends.
15. GENERAL RE FINANCIAL PRODUCTS
General
General Re Financial Products Corporation ("GRFP") is a dealer in derivative
financial instruments. GRFP's products include cross-currency and interest rate
swaps, interest rate caps and floors, foreign exchange contracts, options and
options on swaps. These instruments are carried at their current estimates of
fair value, which is a function of underlying interest rates, currency rates,
security values, volatilities and the creditworthiness of counterparties. Future
changes in interest rates, currency rates, security values, and interest rate
volatilities or a combination thereof may affect the fair value of these
instruments with any resulting adjustment, including amounts in excess of those
previously recognized in the financial statements, being included currently in
the income statement. In the course of conducting its business, GRFP also
engages in a variety of other related transactions to manage its exposure to
market and credit risks.
GRFP reduces exposure to market, currency rate and interest rate risk in
connection with its dealer activities by purchasing or selling futures
contracts, entering into forward contracts, purchasing or selling government
securities, purchasing or selling exchange-traded interest rate options, or
entering into offsetting transactions. These hedging instruments are carried at
fair value and contain elements of market and credit risk associated with the
execution, settlement and financing of these instruments similar to the
financial instruments described above.
Trading Revenue
The results of GRFP's trading activities are summarized by category of products
in the following table. Trading revenues include any associated gains and losses
on hedging instruments. Trading revenue was included in "Other revenues" in the
income statement.
56
<PAGE> 57
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31
----------------------
1995 1994 1993
---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
Interest rate and foreign currency swaps.............................. $110 $105 $116
Interest rate and foreign currency options............................ 32 30 26
---- ---- ----
Gross trading revenues................................................ $142 $135 $142
==== ==== ====
</TABLE>
Nature and Terms
GRFP is engaged as a dealer in various types of derivative instruments, which
are described below:
Interest rate and currency swaps are agreements between two parties to exchange,
at particular intervals, payment streams calculated on a specified notional
amount. The parties to a cross-currency swap typically exchange a principal
amount in two currencies at inception of the contract, agreeing to reexchange
the currencies at a future date and agreed exchange rate.
Interest rate, equity and currency options grant the purchaser the right but not
the obligation to either purchase from or sell to the writer a specified
financial instrument under agreed terms. Interest rate caps and floors require
the writer to pay the purchaser at specified future dates the amount, if any, by
which the option's underlying market interest rate exceeds the fixed cap or
falls below the fixed floor rate, applied to a notional amount.
Futures contracts are commitments to either purchase or sell a financial
instrument at a future date for a specified price and are usually settled in
cash. Forward-rate agreements are contracts that settle in cash at a specified
future date based on the differential between agreed interest rates applied to a
notional amount.
GRFP is party to a variety of foreign exchange spot and forward contracts in its
dealer and risk management activities. Foreign exchange contracts generally
involve the exchange of two currencies at agreed rates; spot contracts usually
require the exchange to occur within two business days of the contract date.
A summary of contract and notional amounts of interest rate contracts at
December 31, 1995 and 1994 is included in the table below. For swap and option
transactions, the contract and notional amounts represent the amount of
principal volume, which is referenced by the counterparties in computing
payments to be exchanged, and are not indicative of GRFP's exposure to market or
credit risk, future cash requirements or receipts from such transactions.
Approximately 74 percent of the notional volume outstanding for swap and option
contracts at December 31, 1995 have a term of five years or less and
substantially all of the instruments have a term of less than ten years.
<TABLE>
<CAPTION>
DECEMBER 31
---------------------
1995 1994
-------- --------
(IN MILLIONS)
<S> <C> <C>
Interest rate and currency swap agreements............................. $260,200 $201,076
Options written........................................................ 43,574 35,933
Options held........................................................... 44,134 36,723
Financial futures contracts:
Commitments to purchase.............................................. 14,572 7,002
Commitments to sell.................................................. 15,105 7,366
Forward rate agreements................................................ 15,700 10,339
Foreign exchange spot and forward contracts............................ 10,228 7,720
</TABLE>
57
<PAGE> 58
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FAIR VALUE OF TRADING INSTRUMENTS
The table below discloses the fair values at the reporting date (which are also
the carrying amounts) for each class of derivative financial instruments and
other instruments held or issued by GRFP for trading purposes, as well as the
average fair values during the year, based on quarterly observations. The net
fair values are net of amounts offset pursuant to rights of setoff and
qualifying master netting arrangements with various counterparties. Interest
rate and foreign currency swaps shown in the table below include forward rate
agreements and foreign exchange spot and forward contracts.
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------------------------------
1995 1994
--------------------- ---------------------
ASSET LIABILITY ASSET LIABILITY
------- --------- ------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Interest rate and foreign currency swaps............ $ 9,562 $ 9,833 $ 4,740 $ 4,758
Interest rate and foreign currency options.......... 759 709 602 523
------- ------- ------- -------
Gross total fair value.............................. 10,321 10,542 5,342 5,281
Adjustment for counterparty netting................. (8,085) (8,085) (3,474) (3,474)
------- ------- ------- -------
After netting total fair value...................... 2,236 2,457 1,868 1,807
Security receivables/payables....................... 198 170 60 513
------- ------- ------- -------
Trading account assets/liabilities.................. $ 2,434 $ 2,627 $ 1,928 $ 2,320
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
AVERAGE 1995 AVERAGE 1994
--------------------- ---------------------
ASSET LIABILITY ASSET LIABILITY
------- --------- ------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Interest rate and foreign currency swaps............ $ 8,244 $ 8,680 $ 4,574 $ 4,479
Interest rate and foreign currency options.......... 679 568 559 490
------- ------- ------- -------
Gross total fair value.............................. 8,923 9,248 5,133 4,969
Adjustment for counterparty netting................. (6,560) (6,560) (2,710) (2,710)
------- ------- ------- -------
After netting total fair value...................... 2,363 2,688 2,423 2,259
Security receivables/payables....................... 191 152 472 493
------- ------- ------- -------
Trading account assets/liabilities.................. $ 2,554 $ 2,840 $ 2,895 $ 2,752
======= ======= ======= =======
</TABLE>
RISK MANAGEMENT
Market Risk
GRFP's components of market risk include foreign exchange, interest rate, swap
spread, volatility, correlation, equity and yield curve risk. GRFP controls
these risk exposures by taking offsetting positions in either cash instruments
or other derivatives to reduce the overall exposure to loss due to movements in
these variables. GRFP manages its exposures on a portfolio basis. Under this
approach, GRFP monitors its market risk on a daily basis across all swap and
option products by calculating the impact on operating results of potential
changes in market variables over a one week period, based on historical market
volatility data and informed judgment. GRFP's 1995 aggregate weekly market risk
limit across all trading books was $10 million.
GRFP sets market risk limits for each type of risk based on a 95 percent
probability that movements in market rates will not affect the results from
operations in excess of the limit over a one-week period. Since inception,
GRFP's largest weekly position change has been $5 million. In addition to these
daily and weekly assessments of risk, GRFP prepares periodic stress tests to
assess its exposure to extreme movements in various market risk factors.
58
<PAGE> 59
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Credit Risk
Credit risk arises from the possible inability of counterparties to meet the
terms of their contracts. In the event counterparties are unable to fulfill
their contractual obligations, future losses due to defaults may exceed amounts
currently recognized in the balance sheet. Counterparties to the financial
instruments are, in decreasing order of magnitude, foreign and United States
commercial banks, United States government-chartered organizations, sovereigns,
supranationals and corporations. The spread of counterparties over geographical
location and industry sector is such that GRFP does not believe that it has a
significant concentration of credit risk to any particular changes in economic
or other conditions. GRFP evaluates the creditworthiness of its counterparties
by performing formal internal credit analyses and by referring to ratings of
widely accepted credit rating services. Counterparty credit limits are
determined based on this analysis and counterparty credit exposures are
monitored in accordance with these limits. GRFP receives cash and/or investment
grade securities from certain counterparties as collateral and, where
appropriate, may purchase credit insurance or enter into other transactions to
mitigate its credit exposure. GRFP also incorporates into contracts with certain
counterparties provisions that allow the unwinding of these transactions in the
event of a downgrade in credit rating or other indications of a decline in
creditworthiness of either the counterparty or GRFP.
GRFP assesses credit risk by counterparty across all transactions with a
counterparty. Assuming non-performance by all counterparties on all contracts
potentially subject to a loss, the maximum potential loss, based on the cost of
replacement at market rates prevailing at December 31, 1995, approximated $2,236
million. This value is net of amounts offset pursuant to rights of setoff and
qualifying master netting arrangements with various counterparties and is
presented in accordance with Interpretation No. 39, Offsetting of Amounts
Related to Certain Contracts. The Interpretation further clarifies the
definition of a right of setoff. The maximum potential loss will increase or
decrease during the life of the transaction as a function of remaining time to
maturity, contract values, and interest and currency rates. In the judgment of
management, the likelihood that all counterparties would default, resulting in a
maximum potential loss, is remote. GRFP has not had any credit losses as a
result of counterparty defaults.
The following table presents GRFP's derivatives portfolio by counterparty credit
quality and maturity at December 31, 1995. The amounts shown on the left side of
the table are gross of all netting arrangements and collateral held by GRFP. Net
fair value shown on the table represents gross exposure net of amounts offset
pursuant to rights of setoff and qualifying master netting arrangements with
various counterparties. Net exposure shown on the table is net fair value less
collateral held by GRFP.
<TABLE>
<CAPTION>
GROSS AMOUNTS
------------------------------------------------
DUE AFTER
FIVE NET
DUE BEFORE YEARS THROUGH DUE AFTER FAIR NET
FIVE YEARS TEN YEARS TEN YEARS TOTAL VALUE EXPOSURE
---------- ------------- --------- ------- ------ --------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Counterparty credit quality
AAA................................... $ 969 $ 882 $ 268 $ 2,119 $ 314 $ 314
AA.................................... 2,347 1,460 738 4,545 964 916
A..................................... 2,014 1,130 259 3,403 861 496
BBB................................... 114 69 71 254 97 --
------ ------ ------ ------- ------ ------
Total................................. $5,444 $ 3,541 $ 1,336 $10,321 $2,236 $1,726
====== ====== ====== ======= ====== ======
</TABLE>
In connection with certain purchases and sales of government securities, GRFP
enters into collateralized repurchase and reverse repurchase agreements which
may result in credit losses in the event the counterparty to the transaction is
unable to fulfill its contractual obligations. Principally all of these
transactions are collateralized by government securities. In addition to
interest amounts shown in Note 8, GRFP had $90 million, $83 million and $53
million of interest expense in 1995, 1994 and 1993, respectively, on related
59
<PAGE> 60
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
collateralized borrowings. GRFP's exposure to credit risks associated with the
nonperformance of counterparties in fulfilling these contractual obligations can
be directly affected by market fluctuations, which may impair the
counterparties' ability to satisfy their obligations. It is GRFP's policy to
take possession of securities purchased under agreements to resell. GRFP
monitors the market value of the underlying securities as compared to the
related receivable, including accrued interest, and requests additional
collateral when appropriate. Counterparties to repurchase agreements and futures
transactions are commercial banks and securities brokers and dealers. Securities
purchased under agreements to resell and securities sold under agreements to
repurchase are presented in accordance with FASB Interpretation No. 41,
Offsetting of Amounts Related to Certain Repurchase and Reverse Repurchase
Agreements.
GRFP enters into futures contracts for delayed delivery of foreign currencies or
securities in which the seller/purchaser agrees to make/take delivery at a
specified future date of a specified instrument, at a specified price or yield.
Risks arise from the inability of the exchange to meet the terms of the
contracts and from a futures broker's inability to remit additional margin.
Legal Risk
GRFP regularly consults with internal and external legal counsel (in relevant
jurisdictions) to determine legality and enforceability of various transactions
with different types of counterparties. When there is perceived risk that a
proposed counterparty may lack legal capacity to enter into a transaction, the
relevant statutes, regulations, and consents are examined.
Liquidity Risk
GRFP is subject to liquidity risk on its portfolio of open transactions.
Movements in underlying market variables affect both future cash flows intrinsic
in the transactions, and collateral required to be posted to certain
counterparties to cover the value of open positions. Management believes GRFP
has sufficient resources to cover its potential liquidity needs through its
access to the Corporate commercial paper program and lines of credit.
60
<PAGE> 61
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
16. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following are the estimated fair values of the Corporation's financial
instruments:
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------------------------------
1995 1994
--------------------- ---------------------
STATEMENT FAIR STATEMENT FAIR
VALUE VALUE VALUE VALUE
--------- ------- --------- -------
(IN MILLIONS)
<S> <C> <C> <C> <C>
FINANCIAL ASSETS
Invested assets (see Note 5)....................... $ 23,494 $23,494 $ 18,898 $18,969
Cash............................................... 258 258 242 242
Securities purchased under agreements to resell.... 66 66 813 813
Mortgage receivable (included in other assets)..... 86 123 88 115
Loan to ESSOP...................................... 146 181 147 160
Contract deposit assets............................ 193 193 77 77
Trading account assets............................. 2,434 2,434 1,928 1,928
FINANCIAL LIABILITIES
9.0% debenture due in 2009......................... 150 186 150 155
7.7% mortgage payable through 1998................. 5 5 7 7
Commercial paper................................... -- -- 31 31
Securities sold under agreements to repurchase..... 1,263 1,263 938 938
Securities sold but not yet purchased.............. 614 614 927 927
Contract deposit liabilities....................... 1,668 1,668 1,361 1,361
Trading account liabilities........................ 2,627 2,627 2,320 2,320
</TABLE>
The Corporation uses various methods and assumptions in estimating the fair
value of financial instruments. The following valuation methods and assumptions
were utilized by the Corporation in estimating the fair value of financial
instruments.
Investments -- Fair values for fixed maturities and equity securities were
generally based on quoted market prices or dealer quotes. The fair value of
investments in limited partnerships, which were included in other invested
assets on the balance sheet, was determined by reviewing available
financial information of the investee and by performing other financial
analyses in consultation with external advisors. Fair values for
investments in real estate were determined using discounted cash flow
analyses for each property. Fair values for reinsurance ventures were based
on the Corporation's proportionate share in the entity's stockholders'
equity, since the cost of determining fair value exceeds the benefits
derived. The carrying amounts for short-term investments approximate their
fair values.
Mortgage and loans receivable/payable -- The fair value of the
Corporation's mortgage and notes receivable/payable was estimated using
discounted cash flow analyses, based on the Corporation's current
incremental borrowing rates for similar types of arrangements. The fair
value of the Corporation's 9.0 percent debenture due in 2009 was based on a
market price quotation.
Contract deposit assets/liabilities -- The fair value of contract deposit
assets and liabilities approximates their carrying value.
Securities purchased under agreements to resell, securities sold under
agreements to repurchase -- The carrying value for these financial
instruments approximates their fair value.
61
<PAGE> 62
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Trading account assets/liabilities -- The fair value for trading account
assets/liabilities was based on the use of valuation models that utilize,
among other factors, current interest and foreign exchange rates and market
volatility data.
Securities sold but not yet purchased -- The fair value for securities sold
but not yet purchased was based on quoted market prices.
17. LEGAL PROCEEDINGS
The Corporation and its subsidiaries have been named as defendants in litigation
in the ordinary course of conducting its insurance business. These lawsuits
generally seek to establish liability under insurance or reinsurance contracts
issued by the subsidiaries, and occasionally seek punitive or exemplary damages.
The Corporation's reinsurance subsidiaries are also indirectly involved in
coverage litigation. In those cases, plaintiffs seek coverage for their
liabilities under insurance policies from insurance companies reinsured by the
Corporation's reinsurance subsidiaries. In the judgment of management, none of
these cases, individually or collectively, is likely to result in judgments for
amounts which, net of claim and claim expense liabilities previously established
and applicable reinsurance, or any other litigation, would be material to the
financial position, results of operations or cash flow of the Corporation.
18. COMMON AND PREFERRED STOCK
The Corporation has the authority to issue 250 million shares of $.50 par value
common stock, of which 102 million have been issued. Common stock purchased in
the open market is carried at cost and shown as a reduction to common
stockholders' equity. When treasury shares are reissued, the treasury stock
account is reduced for the cost of the common stock reissued on a first-in,
first-out basis. No treasury stock of the Corporation is held by any subsidiary.
The number of shares included in treasury stock were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-----------------------------------------
1995 1994 1993
---------- ----------- -----------
<S> <C> <C> <C>
Balance, beginning of year............................. 20,955,202 19,195,866 18,112,410
Net purchases (reissuances)............................ (241,133) 1,759,336 1,083,456
---------- ---------- ----------
Balance, end of year................................... 20,714,069 20,955,202 19,195,866
========== ========== ==========
</TABLE>
The Corporation also has the authority to issue 20 million shares of preferred
stock, of which 1,724,037 are issued and outstanding and held by the ESSOP, and
1 million (Series A Junior Participating Preferred) are reserved for the
Stockholders' Rights Plan. Under the Stockholders' Rights Plan, one Right
attaches to each outstanding share of common stock. In the event a person or
group acquires or commences a tender or exchange offer for 20 percent or more of
the Corporation's common stock, each Right entitles common stockholders to
purchase Series A Junior Participating Stock, which is convertible to common
stock having a value equal to two times the exercise price.
19. INFORMATION ABOUT THE CORPORATION'S OPERATIONS
The Corporation conducts its operations principally through the following
business segments: the property/casualty reinsurance operations, which include
both United States and international subsidiaries, life/health operations and
financial services.
62
<PAGE> 63
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following is a summary of industry segment activity for 1995, 1994 and 1993:
<TABLE>
<CAPTION>
1995 -- INDUSTRY SEGMENTS
-------------------------------------------------------------------
PROPERTY/CASUALTY LIFE/HEALTH FINANCIAL SERVICES CONSOLIDATED
----------------- ----------- ------------------ ------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Net premiums written
Property/casualty...................... $ 5,393 -- -- $ 5,393
Life/health............................ -- $ 709 -- 709
------- ---- ------ -------
Total net premiums written.......... $ 5,393 $ 709 -- $ 6,102
======= ==== ====== =======
Net premiums earned
Property/casualty...................... $ 5,141 -- -- $ 5,141
Life/health............................ -- $ 696 -- 696
Investment income........................ 958 40 $ 19 1,017
Other revenues........................... 56 5 231 292
Net realized gains on investments........ 60 1 3 64
------- ---- ------ -------
Total revenues...................... 6,215 742 253 7,210
------- ---- ------ -------
Claims and claim expenses................ 3,680 -- -- 3,680
Life/health benefits..................... -- 505 -- 505
Acquisition costs........................ 1,196 149 -- 1,345
Other operating costs and expenses....... 375 38 150 563
------- ---- ------ -------
Total expenses...................... 5,251 692 150 6,093
------- ---- ------ -------
Income before income taxes and
minority interest.............. $ 964 $ 50 $ 103 $ 1,117
======= ==== ====== =======
Total assets -- December 31......... $30,535 -- $5,411 $ 35,946
======= ==== ====== =======
</TABLE>
<TABLE>
<CAPTION>
1994 -- INDUSTRY SEGMENTS
-------------------------------------------------------------------
PROPERTY/CASUALTY LIFE/HEALTH FINANCIAL SERVICES CONSOLIDATED
----------------- ----------- ------------------ ------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Net premiums written..................... $ 3,001 -- -- $ 3,001
======= ==== ====== =======
Net premiums earned...................... $ 2,788 -- -- $ 2,788
Investment income........................ 738 -- $ 11 749
Other revenues........................... 16 -- 218 234
Net realized gains on investments........ 69 -- (3) 66
------- ---- ------ -------
Total revenues...................... 3,611 -- 226 3,837
------- ---- ------ -------
Claims and claim expenses................ 1,981 -- -- 1,981
Acquisition costs........................ 614 -- -- 614
Other operating costs and expenses....... 303 -- 145 448
------- ---- ------ -------
Total expenses...................... 2,898 -- 145 3,043
------- ---- ------ -------
Income before income taxes.......... $ 713 -- $ 81 $ 794
======= ==== ====== =======
Total assets -- December 31......... $24,712 -- $4,885 $ 29,597
======= ==== ====== =======
</TABLE>
63
<PAGE> 64
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1993 -- INDUSTRY SEGMENTS
-------------------------------------------------------------------
PROPERTY/CASUALTY LIFE/HEALTH FINANCIAL SERVICES CONSOLIDATED
----------------- ----------- ------------------ ------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Net premiums written..................... $ 2,524 -- -- $ 2,524
======= =======
Net premiums earned...................... $ 2,446 -- -- $ 2,446
Investment income........................ 748 -- $ 7 755
Other revenues........................... (3) -- 203 200
Net realized gains on investments........ 159 -- -- 159
--
------- ------ -------
Total revenues......................... 3,350 -- 210 3,560
--
------- ------ -------
Claims and claim expenses................ 1,723 -- -- 1,723
Acquisition costs........................ 552 -- -- 552
Other operating costs and expenses....... 247 -- 153 400
--
------- ------ -------
Total expenses......................... 2,522 -- 153 2,675
--
------- ------ -------
Income before income taxes and
accounting changes.................. $ 828 -- $ 57 $ 885
======= == ====== =======
Cumulative effect of accounting
changes............................. $ 14 -- -- $ 14
======= == ====== =======
Total assets -- December 31............ $15,180 -- $4,239 $ 19,419
======= == ====== =======
</TABLE>
The following table is a summary of the Corporation's business by geographic
area. Allocations to geographic area have been made on the basis of subsidiary
location.
<TABLE>
<CAPTION>
GEOGRAPHIC AREA
------------------------------------------------
UNITED STATES INTERNATIONAL CONSOLIDATED
------------- ------------- ------------
(IN MILLIONS)
<S> <C> <C> <C>
1995
Revenues.............................................. $ 4,150 $ 3,060 $ 7,210
Income before income taxes and minority interest...... 783 334 1,117
Identifiable assets at December 31.................... 23,839 12,107 35,946
1994
Revenues.............................................. $ 3,317 $ 520 $ 3,837
Income before income taxes............................ 663 131 794
Identifiable assets at December 31.................... 20,184 9,413 29,597
1993
Revenues.............................................. $ 3,311 $ 249 $ 3,560
Income before income taxes and accounting changes..... 866 19 885
Identifiable assets at December 31.................... 18,549 870 19,419
</TABLE>
64
<PAGE> 65
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
20. UNAUDITED QUARTERLY FINANCIAL DATA
Summarized quarterly financial results and other data were as follows:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
------ ------ ------ ------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
1995
Net premiums written
Property/casualty..................................... $1,007 $1,589 $1,460 $1,337
Life/health........................................... -- 220 235 254
Net premiums earned
Property/casualty..................................... 955 1,345 1,427 1,414
Life/health........................................... -- 215 233 248
Investment income....................................... 193 255 269 300
Expenses................................................ 989 1,644 1,728 1,732
Net income.............................................. 183 214 199 229
Per common share:
Net income............................................ 2.20 2.58 2.39 2.75
Common dividends...................................... .49 .49 .49 .49
</TABLE>
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
------- ------- ------- -------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
1994
Net property/casualty premiums written.................... $820 $665 $811 $705
Net property/casualty premiums earned..................... 774 639 670 705
Investment income......................................... 182 186 187 194
Expenses.................................................. 908 679 710 746
Net income................................................ 98 176 191 200
Per common share:
Net income.............................................. 1.15 2.12 2.29 2.41
Common dividends........................................ .48 .48 .48 .48
</TABLE>
65
<PAGE> 66
ITEM 9. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURES
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Reference is made to the captions "Board of Directors" and "Election of
Directors" in the Proxy Statement. Information with respect to the Corporation's
Executive Officers is set forth under the caption "Executive Officers of the
Corporation" at the end of Part I of this report, which information is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Reference is made to the caption, "Executive Compensation" in the Proxy
Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Reference is made to the caption, "Security Ownership of Certain Beneficial
Owners and Management" in the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) FINANCIAL STATEMENTS SCHEDULES AND EXHIBITS
1. The Financial Statements, Reserve Disclosures (unaudited) and
Financial Statement Schedules listed in Item 8 are filed as part of
this Report.
<TABLE>
<C> <S> <C>
2. Exhibits
3.(a) The Restated Certificate of Incorporation of General Re Corporation, as
amended, is incorporated by reference herein from the Corporation's Annual Report on
Form 10-K for the fiscal year ended December 31, 1987.
(b) The By-Laws of the Corporation, as amended and restated.
4.1 Rights Agreement, dated as of September 11, 1991 between the Corporation
and The Bank of New York, as Rights Agent, is incorporated by reference from
the Corporation's Annual Report on Form 10-K for the fiscal year ended
December 31, 1994.
10.(a) The General Re Corporation 1995 Long-Term Compensation Plan.(1)
(b) Form of Indemnity Agreement among the Corporation and directors and
executive officers is incorporated by reference from the Corporation's
Annual Report on Form 10-K for the fiscal year ended December 31, 1994.(1)
(c) The General Reinsurance Supplemental Benefit Equalization Plan.(1)
(d) The General Re Corporation Retirement Plan for Directors.(1)
(e) The General Re Corporation Deferred Compensation Plan for Directors.(1)
</TABLE>
- ---------------
1 Management contracts or compensatory plans filed pursuant to Item 14(c).
66
<PAGE> 67
<TABLE>
<C> <S> <C>
11. Computation of Earnings Per Share.
21. Subsidiaries of the Registrant.
23. Consent of Independent Accountants.
24. Powers of Attorney of Directors.
27. Financial Data Schedule.
28. Combined United States Property/Casualty Insurance Companies Schedule P
to be filed under cover of Form SE.
</TABLE>
(B) REPORTS ON FORM 8-K
Form 8-K, dated November 22, 1995, filed on November 22, 1995, containing
Item 5.
67
<PAGE> 68
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) 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)
By ELIZABETH A. MONRAD
(Elizabeth A. Monrad, Vice
President and Treasurer)
Dated: March 25, 1996
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT
HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND
IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------------------------------------------------- ---------------
<C> <S> <C>
RONALD E. FERGUSON Chairman and Chief Executive March 25, 1996
(Ronald E. Ferguson) Officer and Director
JOSEPH P. BRANDON Vice President and Chief Financial March 25, 1996
(Joseph P. Brandon) Officer
(Principal Financial Officer)
ELIZABETH A. MONRAD Vice President and Treasurer March 25, 1996
(Elizabeth A. Monrad) (Principal Accounting Officer)
*LUCY WILSON BENSON Director March 25, 1996
(Lucy Wilson Benson)
*WALTER M. CABOT Director March 25, 1996
(Walter M. Cabot)
*WILLIAM C. FERGUSON Director March 25, 1996
(William C. Ferguson)
*DONALD J. KIRK Director March 25, 1996
(Donald J. Kirk)
*KAY KOPLOVITZ Director March 25, 1996
(Kay Koplovitz)
*EDWARD H. MALONE Director March 25, 1996
(Edward H. Malone)
*ANDREW W. MATHIESON Director March 25, 1996
(Andrew W. Mathieson)
*DAVID E. MCKINNEY Director March 25, 1996
(David E. McKinney)
</TABLE>
68
<PAGE> 69
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------------------------------------------------- ---------------
<C> <S> <C>
*STEPHEN A. ROSS Director March 25, 1996
(Stephen A. Ross)
*WALTER F. WILLIAMS Director March 25, 1996
(Walter F. Williams)
</TABLE>
- ---------------
*By either Charles F. Barr or Robert D. Graham pursuant to a power of attorney.
69
<PAGE> 70
GENERAL RE CORPORATION
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
GENERAL RE CORPORATION
CONDENSED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
(PARENT COMPANY)
(IN MILLIONS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
ASSETS
Fixed maturities, available-for-sale................................... $ 212 $ 94
Equity securities, at fair value....................................... 70 --
Short-term investments, at amortized cost which approximates fair
value............................................................... 21 20
Investment in subsidiaries, at equity.................................. 6,559 5,009
Other invested assets.................................................. 39 92
Other assets........................................................... 32 20
Due from subsidiaries.................................................. 32 49
------- -------
Total assets................................................... $ 6,965 $ 5,284
======= =======
LIABILITIES
Commercial paper....................................................... -- $ 31
Notes payable due 2009................................................. $ 150 150
Income taxes........................................................... 125 134
Other liabilities...................................................... 102 109
------- -------
Total liabilities.............................................. 377 424
------- -------
Cumulative convertible preferred stock (shares issued: 1,724,037 in 1995
and 1,734,717 in 1994; no par value)................................... 147 148
Loan to employee savings and stock ownership plan........................ (146) (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........................................................ 635 604
Unrealized appreciation of investments, net of deferred income taxes... 1,468 421
Currency translation adjustments, net of deferred income taxes......... (11) (20)
Retained earnings...................................................... 5,986 5,330
Less common stock in treasury, at cost (shares held: 20,714,069 in 1995
and 20,955,202 in 1994)............................................. (1,542) (1,527)
------- -------
Total common stockholders' equity.............................. 6,587 4,859
------- -------
Total liabilities, cumulative convertible preferred stock and
common stockholders' equity................................... $ 6,965 $ 5,284
======= =======
</TABLE>
S-1
<PAGE> 71
GENERAL RE CORPORATION
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT--(CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CONDENSED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(PARENT COMPANY)
(IN MILLIONS)
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
REVENUES
Distributions from subsidiaries
Insurance subsidiaries........................................... $420 $441 $295
Other subsidiaries............................................... 8 394 5
---- ---- ----
Total distributions from subsidiaries....................... 428 835 300
Investment income................................................... 11 26 33
Other revenues...................................................... 22 37 8
Net realized gains (losses) on investments.......................... (6) 6 (3)
---- ---- ----
455 904 338
---- ---- ----
EXPENSES
Other operating costs and expenses.................................. 29 29 26
Income tax expense (benefit)........................................ 4 (4) (15)
---- ---- ----
33 25 11
---- ---- ----
Income before equity income and cumulative-effect
adjustments............................................... 422 879 327
---- ---- ----
Equity in net income of subsidiaries less dividends received of $428
in 1995, $835 in 1994 and $300 in 1993.............................. 403 (214) 370
Cumulative effect of accounting changes............................... -- -- 14
---- ---- ----
Net income.................................................. $825 $665 $711
==== ==== ====
</TABLE>
S-2
<PAGE> 72
GENERAL RE CORPORATION
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT--(CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CONDENSED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(PARENT COMPANY)
(IN MILLIONS)
<TABLE>
<CAPTION>
1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income....................................................... $ 825 $ 665 $ 711
Cumulative effect of accounting changes.......................... -- -- (14)
Equity in net income of subsidiaries less dividends received..... (403) 214 (370)
Other............................................................ 8 351 (294)
----- ----- -----
Net cash from operating activities....................... 430 1,230 33
----- ----- -----
CASH FLOWS FROM INVESTING ACTIVITIES
Fixed maturities:
Purchases..................................................... (344) (132) (484)
Sales......................................................... 146 276 362
Maturities.................................................... 74 40 95
Equity securities:
Sales......................................................... -- 1 --
Other invested assets............................................ -- 105 (25)
Net sales (purchases) of short-term investments.................. 3 (20) 75
Purchase of shares in GR-CK...................................... -- (884) --
Capital contribution to subsidiaries............................. (125) (6) (10)
----- ----- -----
Net cash (used in) from investing activities............. (246) (620) 13
----- ----- -----
CASH FLOWS FROM FINANCING ACTIVITIES
Commercial paper borrowing (repayment), net...................... (31) (230) 251
Cash dividends paid to stockholders
Common........................................................ (161) (157) (159)
Preferred..................................................... (11) (11) (11)
Acquisition of treasury stock.................................... (30) (222) (134)
Other............................................................ 45 11 9
----- ----- -----
Net cash used in financing activities.................... (188) (609) (44)
----- ----- -----
Change in cash..................................................... (4) 1 2
Cash, beginning of year............................................ 4 3 1
----- ----- -----
Cash, end of year.................................................. $ -- $ 4 $ 3
===== ===== =====
</TABLE>
S-3
<PAGE> 73
GENERAL RE CORPORATION
SCHEDULE V--SUPPLEMENTARY INSURANCE INFORMATION
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN MILLIONS)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COLUMN H
COLUMN C COLUMN E BENEFITS, COLUMN I
COLUMN B GROSS POLICY CLAIMS, AMORTIZATION
COLUMN A DEFERRED CLAIMS BENEFITS COLUMN F COLUMN G LOSSES OF DEFERRED COLUMN J COLUMN K
YEAR POLICY AND COLUMN D FOR NET NET AND POLICY OTHER NET
AND ACQUISITION CLAIM UNEARNED LIFE/HEALTH PREMIUM INVESTMENT SETTLEMENT ACQUISITION OPERATING PREMIUMS
SEGMENT COST EXPENSES PREMIUMS CONTRACTS REVENUE INCOME EXPENSES COSTS EXPENSES WRITTEN
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
1995
Property/Casualty
United
States... $ 226 $ 9,356 $1,115 -- $2,853 $711 $1,919 $ 706 $266 $2,964
International... 183 4,896 667 -- 2,288 247 1,761 490 111 2,429
Life/health... 25 -- 131 $ 2,263 696 40 505 149 36 709
---- ------- ------ ------ ------ ---- ------ ------ ---- ------
Total... $ 434 $14,252 $1,913 $ 2,263 $5,837 $998 $4,185 $1,345 $413 $6,102
==== ======= ====== ====== ====== ==== ====== ====== ==== ======
1994
Property/Casualty
United
States... $ 204 $ 8,578 $1,008 -- $2,394 $686 $1,709 $ 535 $251 $2,581
International... 120 3,580 494 -- 394 52 272 79 52 420
Life/health... -- -- 140 $ 1,960 -- -- -- -- -- --
---- ------- ------ ------ ------ ---- ------ ------ ---- ------
Total... $ 324 $12,158 $1,642 $ 1,960 $2,788 $738 $1,981 $ 614 $303 $3,001
==== ======= ====== ====== ====== ==== ====== ====== ==== ======
1993
Property/Casualty
United
States... $ 147 $ 8,122 $ 777 $ -- $2,225 $705 $1,557 $ 510 $213 $2,275
International... 6 330 63 -- 221 43 166 42 34 249
---- ------- ------ ------ ------ ---- ------ ------ ---- ------
Total... $ 153 $ 8,452 $ 840 $ -- $2,446 $748 $1,723 $ 552 $247 $2,524
==== ======= ====== ====== ====== ==== ====== ====== ==== ======
</TABLE>
- ---------------
Note: The totals shown in the Schedule include only the property/casualty and
life/health operations of the Corporation and may not correspond with
consolidated amounts.
S-4
<PAGE> 74
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE
- ------- ----------------------------------------------------------------------------------- ------------
<C> <S> <C>
3(b) The By-Laws of the Corporation, as amended and restated............................
10(a) The General Re Corporation 1995 Long-Term Compensation Plan........................
(c) The General Reinsurance Supplemental Benefit Equalization Plan.....................
(d) The General Re Corporation Retirement Plan for Directors...........................
(e) The General Re Corporation Deferred Compensation Plan for Directors................
11 Computation of Earnings Per Share..................................................
21 Subsidiaries of Registrant.........................................................
23 Consent of Independent Accountants.................................................
24 Powers of Attorney of Directors....................................................
27 Financial Data Schedule............................................................
</TABLE>
<PAGE> 1
EXHIBIT 3(b)
BY-LAWS
OF
GENERAL RE CORPORATION
AS AMENDED
SEPTEMBER 13, 1995
<PAGE> 2
BY-LAWS
OF
GENERAL RE CORPORATION
ARTICLE I
Meetings of Stockholders
Section 1.1 Annual Meetings. The annual meeting of the
stockholders for the election of directors and for the transaction of such
other business as properly may come before such meeting shall be held on such
date and at such time and place within or without the State of Delaware as may
be designated by the Board of Directors.
Section 1.2 Special Meetings. Except as otherwise provided
in Article VII of the Certificate of Incorporation of the Corporation, special
meetings of the stockholders for any proper purpose or purposes may be called
only by the Board of Directors, pursuant to a resolution adopted by the Board
of Directors, to be held on such date and at such time and place within or
without the State of Delaware as the Board of Directors shall direct.
Section 1.3 Notice of Meeting. Written notice, signed by the
Chairman of the Board, the President, or the Secretary or an Assistant
Secretary, of every meeting of stockholders stating the purpose or purposes for
which the meeting is called, and the date and time when, and the place where,
it is to be held shall be given either personally or by mail, to each
stockholder entitled to vote at such meeting not less than ten (10) nor more
than sixty (60) days before the meeting, except as otherwise provided by
statute. If mailed, such notice shall be directed to a stockholder at his
address as it shall appear on the stock books of the Corporation, unless he
shall have filed with the Secretary a written request that notices intended for
him be mailed to some other address, in which case it shall be mailed to the
address designated in such request.
Section 1.4 Quorum. The presence at any meeting, in person
or by proxy, of the holders of record of a majority of the shares then issued
and outstanding and entitled to vote shall be necessary and sufficient to
constitute a quorum for the transaction of business, except where provided
otherwise by statute.
Section 1.5 Adjournments. In the absence of a quorum, a
majority in interest of the stockholders entitled to vote, present in person or
by proxy, or, if no stockholder entitled to vote is present in person or by
proxy, any officer entitled to preside or act as secretary of such meeting, may
adjourn the meeting from time to time until a quorum shall be present.
- 1 -
<PAGE> 3
Section 1.6 Voting. Directors shall be chosen in
accordance with Section 2.2 hereof, and, except where otherwise provided by
statute, the Certificate of Incorporation of the Corporation, or these By-laws,
all other questions shall be determined by a majority of the votes cast on such
question.
Section 1.7 Proxies. Any stockholder entitled to vote may
vote by proxy, provided that the instrument authorizing such Proxy to act,
shall have been executed in writing (which shall include telegraphing or
cabling) by the stockholder himself or by his duly authorized attorney.
Section 1.8 Judges of Election. The Board of Directors may
appoint Judges of Election to serve at any election of directors and at
balloting on any other matter that may properly come before a meeting of
stockholders. If no such appointment shall be made, or if any of the Judges so
appointed shall fail to attend, or refuse or be unable to serve, then such
appointment may be made by the presiding officer at the meeting.
Section 1.9. Shareholder Proposed Business at Annual
Meetings. No business may be transacted at an annual meeting of stockholders,
other than business that is either (a) specified in the notice of meeting (or
any supplement thereto) given by or at the direction of the Board of Directors
(or any duly authorized committee thereof), (b) otherwise properly brought
before the annual meeting by or at the direction of the Board of Directors (or
any duly authorized committee thereof) or (c) otherwise properly brought before
the annual meeting by any stockholder of the Corporation (i) who is a
stockholder of record on the date of the giving of the notice provided for in
this Section 1.9 and on the record date for the determination of stockholders
entitled to vote at such annual meeting and (ii) who complies with the notice
procedures set forth in this Section 1.9.
In addition to any other applicable requirement, for business
to be properly brought before an annual meeting by a stockholder, such
stockholder must have given timely notice thereof in proper written form to the
Secretary of the Corporation.
To be timely, a stockholder's notice to the Secretary must be
delivered to or mailed and received at the principal executive offices of the
Corporation not less than sixty (60) days nor more than ninety (90) days prior
to the date of the annual meeting; provided, however, that in the event that
less than seventy (70) days' notice or prior public disclosure of the date of
the annual meeting is given or made to stockholders, notice by the stockholder
in order to be timely must be so received not later than the close of business
on the seventh (7th) day following the day on which such notice of the date of
the annual meeting was mailed or such public disclosure of the date of the
annual meeting was made, whichever first occurs.
To be in proper written form, a stockholder's notice to the
Secretary must set forth as to each matter such stockholder proposes to bring
before the annual meeting
- 2 -
<PAGE> 4
(i) a brief description of the business desired to be brought before the annual
meeting and the reasons for conducting such business at the annual meeting,
(ii) the name and record address of such stockholder, (iii) the class or series
and number of shares of capital stock of the Corporation which are owned
beneficially or of record by such stockholder, (iv) a description of all
arrangements or understandings between such stockholder and any other person or
persons (including their names) in connection with the proposal of such
business by such stockholder and any material interest of such stockholder in
such business and (v) a representation that such stockholder intends to appear
in person or by proxy at the annual meeting to bring such business before the
meeting.
No business shall be conducted at the annual meeting of
stockholders except business brought before the annual meeting in accordance
with the procedures set forth in this Section 1.9, provided, however, that,
once business has been properly brought before the annual meeting in accordance
with such procedures, nothing in this Section 1.9 shall be deemed to preclude
discussion by any stockholder of any such business. If the presiding officer
of an annual meeting determines that business was not properly brought before
the annual meeting in accordance with the foregoing procedures, the presiding
officer shall declare to the meeting that the business was not properly brought
before the meeting and such business shall not be transacted.
ARTICLE II
Board of Directors
Section 2.1 Number. The number of directors which shall
constitute the whole Board of Directors shall not be less than nine (9) nor
more than twenty-one (21) and shall be established from time to time by the
affirmative vote of (i) a majority of the directors in office at the time of
such vote, or (ii) the holders of 60% in interest of the outstanding Voting
Shares (as defined in the Certificate of Incorporation of the Corporation) of
the Corporation (considered for this purpose as one class) including the
holders of 60% in interest of the outstanding Voting Shares of the Corporation
held by persons other than an Interested Stockholder (as defined in the
Certificate of Incorporation of the Corporation). When the number of directors
is changed, any increase or decrease in the number of directorships shall be
apportioned among the classes so as to make all classes as equal in number as
possible, provided, however, that no reduction in the number of directors shall
have the effect of shortening the term of any incumbent director.
Section 2.2 Term of Office. Directors shall be classified
by dividing them into three classes, each consisting as nearly as possible of
an equal number of members. At each annual meeting of stockholders, one class
of directors shall be elected by a majority of the votes cast to hold office
for a term of three years, and until their successors are elected or until the
earliest of the following:
- 3 -
<PAGE> 5
(a) The Annual Meeting of Stockholders next following the
individual Director's 72nd birthday;
(b) Resignation in accordance with Section 2.7 hereof;
(c) Removal in accordance with Section 2.8 hereof; or
(d) Ineligibility in accordance with Section 2.10 hereof.
Section 2.3 Chairman of the Board of Directors. At the
first meeting of the Board of Directors at which a quorum thereof shall be
present after the election of Directors at the annual meeting of stockholders,
a Chairman of the Board of Directors shall be elected from the members thereof
by a vote of the majority of those directors present. The term of the Chairman
of the Board of Directors shall be for one year except that he shall serve
until his successor has been duly elected and qualified.
The Chairman of the Board may be removed from the
Chairmanship at any time, either with or without cause, by a vote of a majority
of all the directors then in office. Such removal shall not affect his status
as a member of the Board.
The Chairman of the Board shall preside at all meetings of
the stockholders and of the Board of Directors. By virtue of his office he
shall be a member of the Executive and Finance Committees. He shall make
reports to the directors and stockholders and shall perform all such other
duties as are incident to his office or required of him by the Board of
Directors and by the Executive and Finance Committees.
Section 2.4 Vacancies and Additional Directorships. Except
as otherwise fixed pursuant to the provisions of the Certificate of
Incorporation of the Corporation with respect to the rights of the holders of
any class or series of stock having a preference over the Common Stock as to
dividends or upon liquidation to select directors under specified
circumstances, newly created directorships resulting from any increase in the
number of directors and any vacancies on the Board of Directors resulting from
death, resignation, disqualification, removal or other cause shall be filled
solely by the affirmative vote of a majority of the remaining directors then in
office, even though less than a quorum of the Board of Directors. Any director
elected in accordance with the preceding sentence shall hold office for the
remainder of the full term of the class of directors in which the new
directorship was created or the vacancy occurred and until such director's
successor shall have been elected and qualified, or until his resignation under
Section 2.7 hereof or his death, or his removal under the provisions of Section
2.8 hereof, or his ineligibility under the provisions of Section 2.10 hereof.
Section 2.5 Meetings. A meeting of the Board of Directors
shall be held for organization, for the election of officers and for the
transaction of such other
- 4 -
<PAGE> 6
business as may properly come before the meeting, within sixty (60) days after
each annual election of directors.
The Board of Directors by resolution may provide for the
holding of regular meetings and may fix the times and places at which such
meetings shall be held. Notice of regular meetings shall not be required to be
given, provided that whenever the time or place of regular meetings shall be
fixed or changed, notice of such action shall be mailed promptly to each
director who shall not have been present at the meeting at which such action
was taken, addressed to him at his residence or usual place of business.
Special meetings of the Board of Directors may be called by
the Chairman of the Board, the President, or any two (2) directors. Except as
otherwise required by statute, notice of each special meeting shall be mailed
to each director, addressed to him at his residence or usual place of business,
or shall be sent to him at such place by telegram, radio or cable, telephoned
or delivered to him personally, not later than two (2) days before the day on
which the meeting is to be held. Such notice shall state the time and place of
such meeting, but unless otherwise required by statute, the Certificate of
Incorporation of the Corporation or these By-laws, need not state the purposes
thereof.
Notice of any meeting need not be given to any director who
shall attend such meeting in person or who shall waive notice thereof, before
or after such meeting, in writing or by telegram, radio or cable.
Section 2.6 Quorum. One-third of the total number of
members of the Board of Directors as constituted from time to time, but not
less than five (5), shall be necessary and sufficient to constitute a quorum
for the transaction of business. In the absence of a quorum, a majority of
those present at the time and place of any meeting may adjourn the meeting from
time to time until a quorum shall be present and the meeting may be held as
adjourned without further notice or waiver. A majority of those present at any
meeting at which a quorum is present may decide any question brought before
such meeting, except as otherwise provided by law, the Certificate of
Incorporation of the Corporation or by these By-laws.
Section 2.7 Resignation of Directors. Any director may
resign at any time by giving written notice of such resignation to the Board of
Directors, the Chairman of the Board, the President, or the Secretary. Any
such resignation shall take effect at the time specified therein or, if no time
be specified, upon receipt thereof by the Board of Directors or one of the
above-named officers; and, unless specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
Section 2.8 Removal of Directors. At any special meeting
of the stockholders, duly called as provided in these By-laws, any director or
directors including the Chairman of the Board may be removed from office
pursuant to Article VI
- 5 -
<PAGE> 7
of the Certificate of Incorporation of the Corporation. At such meeting a
successor or successors may be elected in the manner provided in Section 1.6 or
if any such vacancy is not so filled, it may be filled by the directors as
provided in Section 2.4.
Section 2.9 Compensation of Directors. Directors shall
receive such reasonable compensation for their services as such, whether in the
form of salary or a fixed fee for attendance at meetings, with expenses, if
any, as the Board of Directors may from time to time determine. Nothing herein
contained shall be construed to preclude any directors from serving the
Corporation in any other capacity and receiving compensation therefor.
Section 2.10 Eligibility. No person shall be eligible to
hold the office of Director before he has attained the age of 21 years.
Any employee of the Corporation or of any affiliated
corporation who also serves as a Director will cease to be a Director if he
ceases to be an employee after May 1, 1984.
Such an employee Director shall be ineligible to serve as a
Director after the termination of his employment except in the case of the
Chief Executive Officer who shall become ineligible upon the second anniversary
of the termination of his employment as Chief Executive Officer.
Section 2.11 Nomination of Directors. Nominations for
election to the Board of Directors of the Corporation at a meeting of the
stockholders may be made by the Board of Directors, or on behalf of the Board
of Directors by any nominating committee appointed by the Board of Directors,
or by any stockholder of the Corporation entitled to vote for the election of
directors at such meeting. Such nominations, other than those made by or on
behalf of the Board, shall be made by notice in writing delivered or mailed by
first class United States mail, postage prepaid, to the Secretary of the
Corporation, and received by him not less than sixty (60) days nor more than
ninety (90) days prior to any meeting of the stockholders called for the
purpose of electing directors; provided, however, that if less than thirty-five
(35) days' notice of the meeting is given to the stockholders, such nomination
shall have been mailed or delivered to the Secretary of the Corporation not
later than the close of business on the seventh (7th) day following the day on
which the notice of meeting was mailed. Such notice shall set forth as to each
proposed nominee who is not an incumbent director (i) the name, age, business
address and, if known, residence address of each nominee proposed in such
notice, (ii) the principal occupation or employment of each such nominee, (iii)
the number of shares of each class of stock of the Corporation which are
beneficially owned by each such nominee and by the nominating stockholder, and
(iv) any other information concerning the nominee that must be disclosed of
nominees in proxy solicitations pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended. Such notice shall be accompanied by the
written consent of each proposed nominee to serve as a director of the
Corporation, if so
- 6 -
<PAGE> 8
elected. No person shall be eligible for election as a director of the
Corporation unless nominated in accordance with the procedures set forth
herein.
The presiding officer of the meeting may, if the facts
warrant, determine and declare to the meeting that a nomination was not made in
accordance with the foregoing procedure, and if he should so determine, he
shall so declare to the meeting and the defective nomination shall be
disregarded.
Section 2.12 Election by Holders of Preferred Stock.
Notwithstanding the foregoing, whenever the holders of any one or more classes
or series of Preferred Stock issued by the Corporation shall have the right,
voting separately by class or series, to elect directors at an annual or
special meeting of stockholders, the election, term of office, filling of
vacancies and other features of such directorship shall be governed by the
terms applicable thereto, and such directors so elected shall not be divided
into classes pursuant to these By-laws unless expressly provided by such terms.
ARTICLE III
Committees of the Board
Section 3.1 Committees. The Board of Directors shall have
power to constitute and appoint such committees from their members as in its
judgment may be advantageous or desirable for the transaction of the business
of the Corporation. The Board shall delineate the functions and authority of
each committee, provided, however, that such committees shall have no power to
amend these by-laws or to alter the number of directors. Said Committees may
adopt their own rules of procedure, elect their own respective Chairman, and
may hold their respective meetings at such times and at such place or places as
they may find convenient.
Section 3.2 Removal. Any member of any Committee may be
removed at any time by the Board of Directors with or without cause.
Section 3.3 Compensation. Committee members shall receive
such reasonable compensation for their services as such, whether in the form of
salary or a fixed fee for attendance at meetings, with expenses, if any, as the
Board of Directors may from time to time determine. Nothing herein contained
shall be construed to preclude any committee member from serving the
Corporation in any other capacity and receiving compensation therefor.
ARTICLE IV
Officers
Section 4.1 Election. The Board of Directors shall elect a
Chairman of the Board, a President, a Treasurer and a Secretary and may elect
one or more Executive Vice Presidents, Senior Vice Presidents, Vice Presidents
and a Comptroller. Such officers
- 7 -
<PAGE> 9
shall be elected at the next regular meeting of the Board of Directors after
the annual meeting of the stockholders and shall perform such duties as may be
designated by these By-laws or by the Board of Directors. The Board of
Directors may also elect from its membership one or more directors to serve as
Vice-Chairman.
All elected officers shall hold office for one year and until
their successors shall be elected and qualified or until their death,
resignation or removal. One person may hold more than one office except that
the offices of Chairman of the Board and Secretary or President and Secretary
may not be held by the same person. A vacancy in any office may be filled for
the unexpired term by the Board of Directors or by the Executive Committee at
any regular meeting or at any special meeting of either the Board of Directors
or the Executive Committee called for that purpose. The Chairman of the Board
shall be a director, but the other officers need not be directors. Either the
Chairman of the Board or the President shall be designated Chief Executive
Officer. The Chief Executive Officer may from time to time appoint other
officers who shall hold office at his pleasure and who shall perform such
duties as he may designate. Whenever in these By-laws the term Secretary shall
be used, it shall be deemed to apply to the elected Secretary unless the
context shall clearly otherwise indicate.
Section 4.2 Chief Executive Officer. The Chief Executive
Officer shall preside at all meetings of the stockholders. By virtue of his
office he shall be a member of the Executive and Finance Committees. He shall
make reports to the stockholders and shall perform such other duties as shall
be required of him by the Board of Directors and by the Executive and Finance
Committees.
Section 4.3 Chairman of the Board. The Chairman of the Board
shall be an executive officer and shall perform such duties as shall be
required of him by the Chief Executive Officer.
Section 4.4 President. The President shall be subject to the
direction and supervision of the Chief Executive Officer, exercise general
supervision with respect to the operations of the Corporation and perform such
duties as shall be required of him by the Chief Executive Officer.
Section 4.5 Vice Chairman. The Vice Chairman shall be an
executive officer of the Corporation and shall perform such duties as shall be
required of him by the Chief Executive Officer.
Section 4.6 Executive Vice Presidents, Senior Vice Presidents
and Vice Presidents. The Executive Vice Presidents, the Senior Vice
Presidents, the Vice Presidents and each of them, shall aid the Chief Executive
Officer and the President in their duties and advise with them regarding the
general interests of the Corporation, and shall perform all such other duties
as are incident to the office of Executive Vice President, Senior Vice
President or Vice President or required of them by the Chief Executive
Officer or the President. In the absence or incapacity of the Chief Executive
- 8 -
<PAGE> 10
Officer, the President, and the Vice Chairman, the Board of Directors or the
Executive Committee shall designate one of the Executive Vice Presidents,
Senior Vice Presidents or Vice Presidents who shall discharge the duties of the
President with the same force and effect as if performed by the President.
Section 4.7 Secretary. The Secretary shall give, or cause to
be given, notice of all meetings of the stockholders, directors and committees,
and all other notices required by law or by these By-laws, and in case of his
absence or refusal or neglect to do so any such notice may be given by any
person thereunto directed by the Chief Executive Officer, or by the President,
or by the directors upon whose requisition the meeting is called as provided in
these By-laws. He shall record or cause to be recorded all proceedings of the
meetings of the stockholders and of the directors, and of the various
committees. He shall have custody of the corporate seal, and shall affix the
same to all instruments requiring it when authorized by the Board of Directors,
the Chief Executive Officer, the President or the Executive Committee. He
shall perform such other duties as may be assigned to him from time to time by
the Chief Executive Officer or the President. If any Assistant Secretaries are
appointed pursuant to the provisions of Article IV, Section 4.1 of these
By-laws, such Assistant Secretaries shall have the power to perform any or all
of the duties of the elected Secretary and their actions in so doing shall be
binding on the Corporation. They shall in addition perform such duties as may
be assigned to them from time to time by the Chief Executive Officer or
President.
Section 4.8 Treasurer. Subject to the authority and control
of the Board of Directors or of the Chairman of the Board, the Treasurer shall
have supervision of the custody of the funds of the Corporation, and of all
bonds, mortgages, notes, securities and other effects of the Corporation, and
shall deposit the same or cause the same to be deposited to the account of the
Corporation in such depositories as may be designated by the Board of Directors
or the Executive Committee. He shall have charge of the books of account and
the accounting records and statements of the Corporation with respect to all of
its business and affairs. He shall perform such other duties as may be
assigned to him from time to time by the Chief Executive Officer or the
President.
Section 4.9 Removal. Any officer specifically elected
pursuant to the provisions of Section 4.1 may be removed at any time, either
with or without cause, at any meeting of the Board of Directors by the vote of
a majority of all the directors then in office. Any officer or agent appointed
in accordance with the provisions of Section 4.1 may be removed, either with or
without cause, by the Board of Directors at any meeting, by the vote of a
majority of the directors present at such meeting, or by any superior officer
or agent upon whom such power of removal shall have been conferred by the Board
of Directors.
Section 4.10 Vacancies. A vacancy in any office by reason of
death, resignation, removal, disqualification or any other cause shall be
filled for the unexpired portion of the term in the manner prescribed by these
By-laws for regular election or appointment to such office.
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ARTICLE V
INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS
Section 5.1. The Corporation shall indemnify any person who
was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of the
Corporation) by reason of the fact that he is or was a director, officer or
employee of the Corporation or is or was serving at the request of the
Corporation as a director, officer or employee of another corporation,
partnership, joint venture, trust or other enterprise, or is or was an agent of
the Corporation whose contract specifies that he is entitled to indemnification
under these By-laws, against expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding if he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best
interests of the Corporation and, with respect to any criminal action or
proceedings, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the Corporation, and with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
Section 5.2. The Corporation shall indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action or suit by or in the right of the Corporation to
procure a judgment in its favor by reason of the fact that he is or was a
director, officer or employee of the Corporation, or is or was serving at the
request of the Corporation as a director, officer or employee of another
corporation, partnership, joint venture, trust or other enterprise, or is or
was an agent of the Corporation whose contract specifies that he is entitled to
indemnification under these By-laws, against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation, except that no indemnification shall be made in respect to any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the Corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
Section 5.3 To the extent that such director, officer,
employee or agent has been successful on the merits or otherwise in defense of
any action, suit or proceeding referred to in Section 5.1 or 5.2, or in defense
of any claim, issue or matter
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therein, he shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection therewith.
Section 5.4 Any indemnification under Sections 5.1 or 5.2
(unless ordered by a court) shall be made by the Corporation only as authorized
in the specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he has met
the applicable standard of conduct set forth in Sections 5.1 and 5.2. Such
determination shall be made (1) by the Board of Directors by a majority vote of
a quorum consisting of directors who were not parties to such action, suit or
proceeding, or (2) if such a quorum is not obtainable, or, even if obtainable,
a quorum of disinterested directors so directs, by independent legal counsel in
a written opinion or (3) by the stockholders.
Section 5.5 Expenses incurred in defending a civil or
criminal action, suit or proceeding shall be paid by the Corporation in advance
of the final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of the director, officer, employee or agent to
repay such amount if it shall ultimately be determined that he is not entitled
to be indemnified by the Corporation as authorized in these By-laws.
Section 5.6 The indemnification and advancement of expenses
provided by or granted pursuant to the other sections of these By-laws shall
not be deemed exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be entitled under any By-law,
agreement, vote of stockholders or disinterested directors or otherwise, both
as to action in his official capacity and as to action in another capacity
while holding such office.
Section 5.7 The Corporation, when authorized by the Board
of Directors, shall purchase and maintain insurance on behalf of any person who
is or was a director, officer, employee or agent of the Corporation, or is or
was serving at the request of the Corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise against any liability asserted against him and incurred by him in
any such capacity or arising out of his status as such, whether or not the
Corporation would have the power to indemnify him against such liability under
the provisions of these By-laws.
Section 5.8 The indemnification and advancement of expenses
provided by, or granted pursuant to, these By-laws shall, unless otherwise
provided when authorized or ratified, continue as to a person who has ceased to
be a director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
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ARTICLE VI
Execution of Instruments and Deposit of
Corporate Funds
Section 6.1 Execution of Instruments Generally. The
Chairman of the Board, the President, any Vice President, the Secretary or the
Treasurer may enter into any contract or execute and deliver any instrument in
the name and on behalf of the Corporation. The Board of Directors may
authorize any officer or officers, or agent or agents, to enter into any
contract or execute and deliver any instrument in the name and on behalf of the
Corporation, and such authorization may be general or confined to specific
instances.
Section 6.2 Deposits. All funds of the Corporation not
otherwise employed shall be deposited from time to time to its credit in such
banks or trust companies or with such bankers or other depositories as the
Board of Directors may select, or as may be selected by any officer or officers
or agent or agents authorized so to do by the Board of Directors. Endorsements
for deposit to the credit of the Corporation in any of its duly authorized
depositories shall be made in such manner as the Board of Directors from time
to time may determine.
Section 6.3 Checks, Drafts, etc. All checks, drafts or
other orders for the payment of money, and all notes or other evidences of
indebtedness issued in the name of the Corporation, shall be signed by such
officer or officers or agent or agents of the Corporation, and in such manner,
as from time to time shall be determined by the Board of Directors.
Section 6.4 Proxies. Proxies to vote with respect to
shares of stock of other corporations owned by or standing in the name of the
Corporation may be executed and delivered from time to time on behalf of the
Corporation by the Chairman of the Board, the President or a Vice President or
by any other person or persons thereunto authorized by the Board of Directors.
ARTICLE VII
Record Dates
Section 7.1 In order that the Corporation may determine the
stockholders entitled to notice of, or to vote at any meeting of stockholders
or any adjournment thereof, or to express consent to corporate action in
writing without a
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<PAGE> 14
meeting, or entitled to receive payment of any dividend or other distribution
or allotment of any rights, or entitled to exercise any rights in respect of
any change, conversion or exchange of stock, or for the purpose of any other
lawful action, the Board of Directors may fix, in advance, a record date which
shall not be more than sixty (60) nor less than ten (10) days before the date
of such meeting, nor more than sixty (60) days prior to any other action. Only
those stockholders of record on the date so fixed shall be entitled to any of
the foregoing rights, notwithstanding the transfer of any such stock on the
books of the Corporation after any such record date fixed by the Board of
Directors.
ARTICLE VIII
Corporate Seal
Section 8.1 The Corporate seal shall be circular in form
and shall bear the name of the Corporation and words and figures denoting its
organization under the laws of the State of Delaware and the year thereof and
otherwise shall be in such form as shall be approved from time to time by the
Board of Directors.
ARTICLE IX
Fiscal Year
Section 9.1 The fiscal year of the Corporation shall be the calendar year.
ARTICLE X
Amendments
Section 10. 1 Except as otherwise provided in this Section
10.1, all By-laws of the Corporation may be amended, altered or repealed and
new By-laws may be made by the affirmative vote of at least a majority of the
Board of Directors (including, in the event there exists an Interested
Stockholder, a majority of Continuing Directors, as such terms are defined in
the Certificate of Incorporation of the Corporation), cast at any regular or
special meeting at which a quorum is present, or by the affirmative vote of
such sufficient proportion of stockholders, cast at any special or annual
meeting of stockholders, at which a quorum is present, provided in Article XII
of the Certificate of Incorporation of the Corporation. Notwithstanding the
foregoing, the provisions of Section 1.2, Section 2.1, Section 2.2, Section
2.4, Section 2.11 or this Section 10.1 of these By-laws shall not be amended,
altered or repealed, nor shall any new provision inconsistent therewith be
adopted, except by the affirmative vote of such sufficient proportion of
stockholders, cast at any special or annual meeting of stockholders, at
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<PAGE> 15
which a quorum is present, provided in Article XII of the Certificate of
Incorporation of the Corporation.
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<PAGE> 1
EXHIBIT 10(a)
GENERAL RE CORPORATION
1995 LONG-TERM COMPENSATION PLAN
EFFECTIVE JANUARY 1, 1995
<PAGE> 2
GENERAL RE CORPORATION
1995 LONG-TERM COMPENSATION PLAN
1. PURPOSE.
This 1995 Long-Term Compensation Plan (the "Plan") of General
Re Corporation, a Delaware corporation (the "Company") is intended to encourage
stock ownership by certain officers, key employees and Non-Employee Directors
of the Company or any Subsidiary, to encourage such employees to remain in the
employ of the Company or its Subsidiaries and to have a proprietary interest in
the success of the Company. Toward this objective, the Committee may grant
Awards consisting of Stock Options, Approved Stock Options, Stock Appreciation
Rights, Restricted Stock, Share Units, and Bonuses under the Plan.
2. DEFINITIONS.
For the purposes of this Plan:
(a) "AWARD" means any form of incentive or performance
award granted under the Plan, whether singly or in combination, to a
Grantee by the Committee pursuant to such terms, conditions,
restrictions and/or limitations (if any) as the Committee may
establish by the Award Notice or otherwise. Awards granted under the
Plan may consist of:
(1) "Annual Incentive Bonuses" or "Long-Term Performance
Bonuses" (collectively, "Bonuses") granted pursuant
to Section 6(c);
(2) "Approved Stock Options" granted under the United
Kingdom Sub-Plan of the Plan;
(3) "Restricted Stock" granted pursuant to Section 6(d);
(4) "Share Units" granted pursuant to Section 6(c) and
6(e);
(5) "Stock Appreciation Rights" or "SARs" granted
pursuant to Section 6(b); and/or
<PAGE> 3
(6) "Stock Options" granted pursuant to Section 6(a).
(b) "AWARD NOTICE" means the written notice from the
Committee to a Grantee that establishes the terms, conditions,
restrictions and/or limitations (if any) applicable to an Award.
(c) "AWARD PERIOD" means the period established by the
Committee over which the attainment of incentive or performance goals
shall be measured. With respect to Annual Incentive Bonuses, such
Award Period shall be a fiscal year. With respect to Long-Term
Performance Bonuses, such Award Period shall consist of not less than
three nor more than five consecutive fiscal years.
(d) "CHANGE IN CONTROL" occurs if (i) any person,
including a "group" as defined in Section 13(d)(3) of the Exchange
Act, shall become the beneficial owner of shares of the Company with
respect to which 20% or more of the total number of votes for the
election of the Board of Directors of the Company may be cast; (ii) as
a result of, or in connection with, any cash tender offer, exchange
offer, merger or other business combination, sale of assets or
contested election or combination of the foregoing, the persons who
were prior to the institution thereof directors of the Company shall
cease to constitute a majority of the Board of Directors of the
Company; or (iii) stockholders of the Company shall approve an
agreement pursuant to which the Company will cease to be an
independent publicly owned corporation or for a sale or other
disposition of all or substantially all of the assets of the Company.
(e) "CODE" means the Internal Revenue Code of 1986, as
amended.
(f) "COMMITTEE" means the Compensation Committee of the
Board of Directors of the Company, as described in Section 3 hereof.
(g) "COMMON STOCK" means the common stock, par value
$0.50 per share, of the Company.
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<PAGE> 4
(h) "DISABLED" or "DISABILITY" means having a physical
or mental condition that renders the Grantee incapable of performing
the work for which the Grantee was employed or similar work and that
qualifies the Grantee for benefits under a Company-sponsored or
Subsidiary-sponsored long-term disability plan.
(i) "EXCHANGE ACT" means the Securities Exchange Act of
1934, as amended.
(j) "EXERCISE PRICE" means the price at which each
Incentive Stock Option and Nonqualified Stock Option granted under the
Plan can be exercised.
(k) "FAIR MARKET VALUE" shall be deemed to be, on a per
share basis, the mean between the opening and closing sales price of
Common Stock on the Composite Tape for New York Stock Exchange-listed
stocks on the date as of which the determination is being made or, if
no sales were reported on such date, on the next preceding day on
which there were sales of Common Stock so reported.
(l) "GRANT DATE" shall mean the date on which the Award
is authorized by the Committee or such later date as may be specified
by the Committee in such authorization.
(m) "GRANTEE" shall mean any person to whom an Award
has been granted.
(n) "INCENTIVE STOCK OPTION" means an Award granted
pursuant to Section 6(a) hereof consisting of an option which meets
the requirements of Section 422 of the Code.
(o) "NON-EMPLOYEE DIRECTOR" shall mean each member of
the Board of Directors of the Company who is not also an employee of
the Company.
(p) "NON-QUALIFIED STOCK OPTION" means an Award granted
pursuant to Section 6(a) hereof consisting of an option which is not
an Incentive Stock Option nor an Approved Stock Option.
(q) "PARENTAL LEAVE OF ABSENCE" means a leave of absence
by an employee from active employment, due to the
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<PAGE> 5
birth of a child, placement of a child with the employee in connection
with adoption of such child by the employee, or caring for a child
immediately following such birth or placement for adoption, provided
that the absence from employment does not exceed twelve (12)
consecutive months, excluding the period of absence in which the
employee is on short-term disability due to pregnancy.
(r) "RELATIVE TOTAL RETURN TO SHAREHOLDERS" means
the comparison of the total return to shareholders including
reinvestment of dividends on General Re Corporation Common Stock versus
the total return an individual could have received if the individual
had invested in an index comprised of the Standard & Poors 500 and a
group of property/casualty, multiline insurance and/or reinsurance
companies as determined from time to time by the Committee.
(s) "REPORTING PERSON" means a Grantee who is subject
to the reporting requirements of Section 16(a) of the Exchange Act.
(t) "SHARE UNIT" means the accounting entry maintained
by the Company for the purpose of reflecting the Company's unsecured
and unfunded promise to deliver one share of Common Stock to the
Grantee at the time and on the conditions set forth in Section 6(e).
(u) "RESTRICTED STOCK OPTION" means any Stock Option
where the Common Stock issuable thereunder is subject to such
restrictions as to the transfer and sale thereof as shall be set forth
in the Award Notice.
(v) "SUBSIDIARY" means any corporation of which at
least 50% of the voting stock is owned, directly or indirectly, by the
Company.
(w) "TERMINATION OF EMPLOYMENT" means the earliest
date on which an employee shall no longer be employed by the Company
or any Subsidiary. Whether an authorized leave of absence or absence
on military or government service shall constitute Termination of
Employment for purposes of this Plan shall be determined by the
Committee. Unless otherwise specified hereunder, retirement shall be
considered to mean any retirement pursuant to any applicable
retirement plan of
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<PAGE> 6
the Company or any of its Subsidiaries. A Parental Leave of Absence
shall not constitute Termination of Employment for purposes of this
Plan provided that the employee returns to active employment with the
Company or any Subsidiary within twelve (12) consecutive months after
the date the Parental Leave of Absence began. In the event that an
employee does not return to active employment on or before the twelve
(12) month anniversary date of the date the Parental Leave of Absence
began, the employee shall have three (3) months following the
anniversary date of the Parental Leave of Absence within which to
exercise all Stock Options that are exercisable through the employee's
date of termination.
For purposes of the Plan, discharge for cause shall mean
Termination of Employment by the Employer which the Committee, in its
discretion, determines to be for cause, including any separation from
service by the Grantee from his employer which is effected by reason
of fraud, deceit, or other gross misconduct by the Grantee performed
within the scope of his employment. "Termination for good reason"
means any separation from service because of the involuntary
assignment of the Grantee to duties materially different from his
position prior to such Change in Control, a reduction of the Grantee's
salary which is greater than ten percent of the Grantee's salary at
the annual rate in effect at the time of the Change in Control, or the
relocation of the Grantee's regular assigned workplace by more than 25
additional miles from residence.
(x) "UNITED KINGDOM SUB-PLAN" means that portion of the
Plan applicable to persons described in Section 4(b) hereof. The
United Kingdom Sub-Plan is attached hereto as Appendix A.
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<PAGE> 7
3. ADMINISTRATION.
(a) THE COMMITTEE. The Plan shall be administered by
the Committee. The Committee shall consist of not less than three
members of the Company's Board of Directors who shall be ineligible to
receive Awards under the Plan or stock options or rights under any
other plan of the Company or any of its Subsidiaries (unless the Board
of Directors determines that such options or rights can be granted
pursuant to the Plan or under another plan without adversely affecting
the Committee's status as "disinterested" for purposes of Rule 16b-3
under the Exchange Act) and who shall qualify as "outside directors"
for purposes of Section 162(m) of the Code. The Board of Directors
may fill any Committee vacancy and may remove any member of the
Committee at any time with or without cause.
(b) AUTHORITY OF THE COMMITTEE. The Committee shall
have the authority to (1) interpret the Plan; (2) establish such rules
and regulations as it deems necessary for the proper operations and
administration of the Plan; (3) select key executive and managerial
employees to receive Awards under the Plan; (4) establish and
administer performance objectives in connection with Awards made under
the Plan, and certify that such performance objectives have been met;
(5) determine the form of an Award, the number of shares of Common
Stock or Share Units subject to the Award, all the terms, conditions,
restrictions and/or limitations, if any, of an Award, including the
time and conditions of exercise or vesting, and the terms of any Award
Notice, which may include the waiver or amendment of prior terms and
conditions or acceleration or early vesting or payment of an Award
under certain circumstances determined by the Committee; (6) determine
whether Awards would be granted singly, in combination or in tandem;
(7) grant waivers of Plan terms, conditions, restrictions, and
limitations; (8) accelerate the vesting, exercise, or payment of an
Award or the Award Period when such action or actions would be in the
best interest of the Company; (9) reduce the amount of any Award based
upon any additional corporate performance, individual performance or
other factors, circumstances or events which the Committee deems
relevant; (10) prescribe, amend and rescind rules and regulations
relating to the Plan; and (11) take any and all other action it deems
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<PAGE> 8
necessary or advisable for the proper operation or administration of
the Plan. All determinations of the Committee shall be made by a
majority of its members, and its determinations shall be final,
binding and conclusive. No member of the Committee shall be liable
for any action, interpretation or construction made in good faith with
respect to the Plan or any Award thereunder. The Committee, in its
discretion, may delegate its authority and duties under the Plan to
the Chief Executive Officer and/or to other senior officers of the
Company under such conditions and/or subject to such limitations as
the Committee may establish; provided, however, that only the
Committee may select, grant and certify Awards to Reporting Persons
and to persons whose compensation is subject to Section 162(m) of the
Code.
4. ELIGIBILITY.
(a) The persons who shall be eligible to receive Awards
pursuant to this Plan are:
(1) key executive and managerial employees (including
officers, whether or not they are directors) of the
Company or of any Subsidiary, as the Committee shall
from time to time select;
(2) each Non-Employee Director of the Company who
qualifies for automatic grants of Nonqualified Stock
Options pursuant to Section 6(a)(2) and Restricted
Stock pursuant to Section 6(d);
(b) Employees described in subsection (a) whose
remuneration is liable to income tax in the United Kingdom under
Schedule E (i.e., employees who are resident and ordinarily resident
in the United Kingdom and whose duties are performed there) shall also
be eligible to receive Awards pursuant to the United Kingdom Sub-Plan.
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<PAGE> 9
5. PARTICIPATION.
The Committee shall select, from time to time, Grantees from
those persons eligible under Section 4 above who, in the opinion of the
Committee, further the Plan's purposes.
6. FORM OF AWARDS, AND TERMS AND CONDITIONS THEREOF.
The terms and conditions of the Awards granted under the Plan
shall be as set forth in the Award Notice and as follows:
(a) STOCK OPTIONS. Stock Options granted under the Plan
may, in the discretion of the Committee, be Incentive Stock Options,
Nonqualified Stock Options and Approved Stock Options. The terms and
conditions of Approved Stock Options are not set forth in the main
portion of this Plan but are instead set forth in Appendix A hereto.
(1) Amount of Award. The aggregate Fair Market Value
(determined at the time an Incentive Stock Option is
granted) of the stock with respect to which Incentive
Stock Options first become exercisable during any
calendar year under the terms of this Plan for any
Grantee may not exceed $100,000. For purposes of
this $100,000 limit, the Grantee's Incentive Stock
Options under this Plan and all plans maintained by
the Grantee's employer corporation and its parent and
subsidiary corporations shall be aggregated.
The total number of shares of Common Stock with
respect to which Nonqualified Stock Options or SARs
may be granted to any one individual under the Plan
through December 31, 1999 may equal but shall not
exceed ten percent (10%) of the aggregate number of
shares of Common Stock that may be issued under the
Plan.
(2) Automatic Grants to Non-Employee Directors. Each
Non-Employee Director will automatically
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<PAGE> 10
receive a Nonqualified Stock Option to acquire 500
shares of Common Stock on the first business day of
1995 and of each calendar year thereafter during
which such Non-Employee Director shall serve on the
Company's Board of Directors.
(3) Exercise Price. The Exercise Price of any Stock
Option shall be the Fair Market Value of Common Stock
on the Grant Date; provided, however, that the
Exercise Price of any Incentive Stock Option granted
to any employee who on the Grant Date owns more than
10 percent of the total combined voting power of all
classes of stock of the Company shall not be less
than 110 percent of the Fair Market Value of such
shares on the Grant Date.
The Exercise Price shall be payable in United States
dollars in cash or by certified check, bank draft or
postal or express money order. The Committee may, at
the request of a Grantee
(A) accept payment of the Exercise Price from
residents of a foreign country in currency of
that country;
(B) arrange short-term outside financing for the
purpose of financing the Exercise Price of
the option;
(C) approve and comply with any procedures
necessary to allow a broker to sell and remit
to the Company the sale proceeds of the
portion of the shares to be acquired upon
exercise with a Fair Market Value equal to
the sum of the Exercise Price and any tax
withholding required; or
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(D) accept prior acquired shares of Common Stock
which have been held by the Grantee for at
least six (6) months in partial or full
payment of the Exercise Price. Common Stock
so accepted shall be valued at its Fair
Market Value on the date the Incentive Stock
Option or Nonqualified Stock Option is
exercised.
(4) Term of Stock Options and Timing of Exercise.
(A) In General. Each Stock Option granted under
the Plan shall be exercisable in whole or in
part at such time or times as the Committee
in its sole discretion may determine;
provided, however, that
(i) Nonqualified Stock Options issued to
Non-Employee Directors shall be first
exercisable six (6) months from the
Grant Date;
(ii) Incentive Stock Options granted to
an employee who, on the Grant Date,
owns more than 10 percent of the
combined voting power of all
classes, shall not be exercisable
after the expiration of five (5)
years from the Grant Date;
(iii) No Stock Option awarded to any
Grantee shall be exercisable after
the expiration of ten (10) years
from the Grant Date;
(iv) No Stock Option or SAR held by a
Grantee who is a Reporting Person
shall be exercisable during the
first six (6) months of its term.
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(B) Termination of Employment, Termination of
Board Service or Death. If a Grantee's
employment or membership on the Company's
Board of Directors terminates on account of
death, Disability or retirement, the Stock
Options otherwise exercisable by the Grantee
through the date of such termination may be
exercised within five years of such date;
provided, however, that no Stock Option may
be exercised after the expiration date
thereof. Any Stock Option exercisable after
death may be exercised by the decedent's
legal representatives.
In the event a Grantee's employment or
service on the Company's Board of Directors
shall terminate on account of resignation,
discharge not for cause or expiration of
elected term, the Stock Options otherwise
exercisable by the Grantee through the date
of such termination may be exercised by the
Grantee no later than three (3) months
following the date of such termination except
that in the case of employee Nonqualified
Stock Options, the Committee may, in its sole
discretion, provide for a later date;
provided, however, that no Stock Option may
be exercised after the expiration date
thereof.
If a Grantee's employment shall terminate on
account of discharge for cause, the Grantee
shall forfeit all outstanding Stock Options
as of the date of termination.
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To the extent not then exercisable in
accordance with this Section, unless the
Committee shall, in its discretion, determine
otherwise, the Stock Options of a Grantee who
resigns or whose employment terminates shall,
except as set forth in Section 8, terminate
on the date his employment terminates.
(5) Replacement Options. In the event a Grantee
exercises a Nonqualified Stock Option by using shares
of Common Stock, which the Grantee has owned for at
least six (6) months, in partial or full payment of
the Exercise Price, the Grantee shall automatically
be granted a new Nonqualified Stock Option to
purchase a number of shares of Common Stock equal to
the number of shares of Common Stock used in payment
of the Exercise Price (the "Replacement Option").
Replacement Options shall be granted with respect to
only the number of shares of Common Stock issuable
under the original Award.
Notwithstanding any provision of this Plan to the
contrary, (a) the Replacement Option shall become
first exercisable one year after the Grant Date
thereof provided that, as of that date, the Grantee
owns shares of Common Stock acquired as a result of
the exercise of the original Nonqualified Stock Option
equal to the excess of the shares received on exercise
of the original Nonqualified Stock Option less the sum
of the exercise price of the original Nonqualified
Stock Option plus any income tax due as a result of
the exercise of the original Nonqualified Stock
Option, and (b) the Replacement Option shall expire on
the same date that the original Nonqualified Stock
Option (with respect to which the Replacement Option
was granted)
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would have expired by its terms. All other provisions
of this Plan pertaining to Nonqualified Stock Options
shall apply to Replacement Options.
(b) STOCK APPRECIATION RIGHTS.
(1) In General. SARs may be granted by the Committee
with respect to any Stock Option granted pursuant to
the Plan. Such SARs shall be granted at the time of
the grant of the related Stock Option. Each such
related SAR shall be subject to the same terms and
conditions (and any such additional terms and
conditions as the Committee may deem appropriate) as
the Stock Option to which it relates. Upon the
exercise of all or a portion of a related SAR, all or
such portion of the Option related to the SAR which
has been exercised shall terminate. On the exercise
of all or a portion of a Stock Option which is
related to a SAR, all or such portion of the SAR
which is related to the Option which has been
exercised shall terminate.
(2) SARs Related to Incentive Stock Options. With
respect to SARs related to an Incentive Stock Option,
the following conditions shall apply to such related
SAR:
(A) The SAR shall expire no later than the
underlying Incentive Stock Option;
(B) The SAR shall be for no more than 100% of the
difference between the Exercise Price of the
underlying Incentive Stock Option and the
Fair Market Value of the stock subject to the
underlying Incentive Stock at the time the
SAR is exercised;
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(C) The SAR shall be transferable only when the
underlying Incentive Stock Option is
transferable, and under the same conditions;
(D) The SAR may be exercised only when the
underlying Incentive Stock Option is eligible
to be exercised and only when the Fair Market
Value of the stock subject to the underlying
Incentive Stock Option exceeds the Exercise
Price.
(3) Exercise of SARs. The Exercise Price of a SAR
related to an Option, regardless of when issued,
shall be the same as the Exercise Price of the
Incentive Stock Option or Nonqualified Stock Option
to which it relates.
Upon exercise of a SAR, unless subject to Section
6(b)(4), the Grantee shall be entitled to receive an
amount equal to the product of:
(x) the amount by which the Fair Market Value of
Common Stock on the date of exercise of the
SAR exceeds the Exercise Price per share
specified in the SAR, multiplied by
(y) the number of shares of Common Stock in
respect of which the SAR shall have been
exercised.
(4) Form and Time of Payment of Related SARs. The amount
to which a Grantee is entitled on exercise of a
related SAR may be satisfied in Common Stock, in cash
or in a combination of both, as determined by the
Committee, in its discretion. If the Committee
determines to satisfy all or part of the amount due
the Grantee in Common Stock, the number of shares
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of Common Stock to which the Grantee is entitled
shall be the largest whole number obtained by
dividing the dollar amount to be satisfied in Common
Stock pursuant to the exercise of the related SAR by
the Fair Market Value of Common Stock, on the date of
exercise. Fractional shares shall be distributed on
exercise of any related SAR in cash.
(c) ANNUAL INCENTIVE BONUSES AND LONG-TERM PERFORMANCE
BONUSES.
(1) Performance Objective. Prior to the commencement of
each Award Period (or during the first 90 days of
such Award Period to the extent permitted under
regulations issued by the U.S. Department of
Treasury under Section 162(m) of the Code), the
Committee shall determine, in writing, for each
Grantee or group of Grantees a "Performance
Objective" as determined under Section 6(c)(2).
Notwithstanding the foregoing, in the event of an
adjustment in the accounting standards applicable to
the Performance Objective, such Performance Objective
may be revised by the Committee in a manner
consistent with such adjustment. Also prior to the
commencement of an Award Period (or during the 90-day
period described above), the Committee shall
determine the distributable percentage to be applied
to the Bonus opportunity in the event the Performance
Objective for the Award Period is not fully achieved
or is exceeded. Notwithstanding the amount of any
Bonus granted hereunder, the Committee retains the
discretion to award a Bonus that is less than the
amount otherwise payable for the Award Period. The
Committee shall issue an Award Notice to each Grantee
which states his Performance Objective and Bonus
opportunity as soon as practicable after such grant.
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(2) Amount and Form of Bonus.
(A) Annual Incentive Bonus. The Committee shall
determine an annual Performance Objective for
the Company and its Subsidiaries for each
Award Period, shall select Grantees and shall
determine the percentage of the Grantee's
salary rate (as of the end of the fiscal year)
which would be paid to a Grantee as an Annual
Incentive Bonus based upon such criteria as
shall be determined by the Committee in its
sole discretion. Performance Objectives
applicable to an Annual Incentive Bonus may be
measured by the Company's statutory
underwriting combined ratio, a targeted
improvement in the Company's statutory
underwriting combined ratio, the Company's
statutory underwriting combined ratio relative
to the cumulative statutory underwriting
combined ratio of the companies reporting to
the Reinsurance Association of America
(excluding the General Re Group companies),
the total return on various company investment
portfolios and other measures the Committee
deems appropriate. To the extent such Annual
Incentive Bonus Award is made to a Grantee who
is a Reporting Person, no such Award may be
paid unless the Committee has certified, in
writing, that the Performance Objective for
the Award Period has been met. Subject to the
Committee's certification, the Committee shall
award an Annual Incentive Bonus to all
Grantees who are Reporting Persons not to
exceed, in the aggregate, 1% of the
consolidated net income of the Company and its
Subsidiaries; provided, however, that no such
Grantee may receive an Annual
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Incentive Award in excess of $1,500,000.
(B) Long-Term Performance Bonuses. The Committee
shall designate Award Periods of not less than
three nor more than five (5) consecutive
fiscal years, the first Award Period to
commence January 1, 1995, with respect to
which Long-Term Performance Bonuses shall be
awarded. The Performance Objective applicable
to a Long-Term Performance Bonus shall be
based on the relative total return to
stockholders over the Award Period. Such
Bonus shall be determined as a target
percentage of the Grantee's paid salary for
the final year of the Award Period, but in no
event may a Grantee receive a Long-Term
Performance Bonus in excess of $1,500,000.
Prior to the commencement of each Award Period
(or during the 90-day period described
above), the Committee shall determine, in
writing, for each Grantee or group of Grantees
a Performance Objective based on Relative
Total Return to Shareholders over the Award
Period and may range from 0-200% of the
Grantee's target. In the case of an Award
Period consisting of five (5) consecutive
fiscal years, during the first three (3) such
years the Committee may, in its discretion,
select additional employees who are not
Reporting Persons to receive a Long-Term
Performance Bonus, determine for each such
Grantee a Performance Objective based on his
entry into the Plan as of January 1 of the
year following his selection and the pro rata
amount of his Long-Term Performance Bonus
opportunity, and determine the distributable
percentage to be applied to the Long-Term
Performance Bonus opportunity in the event
the Performance Objective for
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<PAGE> 19
the shorter Award Period is not achieved. The
Committee shall issue an Award Notice to each
Grantee which states his Performance Objective
and Long-Term Performance Bonus opportunity as
soon as practicable after such grant. To the
extent a Long-Term Performance Bonus Award is
made to a Grantee who is a Reporting Person,
no such Award may be paid unless the Committee
has certified, in writing, that the
Performance Objective for the Award Period has
been met.
(3) Crediting and Payment of Bonuses. The Committee shall
determine, in its sole discretion, to credit, award or
pay Annual Incentive Bonuses and Long-Term Performance
Bonuses in cash, Common Stock, Share Units or
Restricted Stock Options, or some combination thereof,
and may, in its sole discretion, offer a Grantee the
opportunity to defer the payment of some or all of his
Annual Incentive Bonus or Long-Term Performance Bonus
into Share Units and Restricted Stock Options,
provided that in the case where a Grantee is offered
the opportunity to defer the payment of a Bonus such
election must be made, in the case of the Annual
Incentive Bonus, before the beginning of the
applicable Award Period; and in the case of the
Long-Term Performance Bonus, before the beginning of
the last year in the Award Period. The terms and
conditions of a Restricted Stock Option will be the
same as those applicable to Stock Options under
Section 6(a) other than such restrictions as the
Committee, in its discretion, may approve.
(4) Termination of Employment. If a Grantee's employment
by the Company or a Subsidiary terminates for any of
the reasons stated below prior to the end of an Award
Period for which he was (a) eligible for an Annual
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<PAGE> 20
Incentive Bonus, or (b) awarded a Long-Term
Performance Bonus opportunity, the amount of his Bonus
shall be determined as follows:
(A) If the Grantee retires under a Company or
Subsidiary pension plan, dies, is Disabled, or
his employment is involuntarily terminated not
for cause or in such other circumstances as
the Committee may in its sole discretion
determine, such Grantee shall receive the
proportion of his Bonus (upon determination by
the Committee of the degree of success in
achieving the Performance Objective) which the
number of full months of active service of the
Grantee during the Award Period bears to the
total number of months in such Award Period;
(B) If the Grantee resigns or is discharged
(whether or not for cause) he will forfeit his
Bonus, provided, however, that if said
Grantee's employment terminates during a
Long-Term Performance Bonus Award Period, such
Grantee shall receive whatever portion of his
Long-Term Performance Bonus as the Committee
in its sole discretion shall determine.
(d) RESTRICTED STOCK.
(1) Transfer of Restricted Stock. As soon as practicable
following the Grant Date, a certificate or
certificates for all shares of Restricted Stock
granted to a Grantee by the Committee shall be
registered in the name of the Grantee and held for the
Grantee by the Company. The Grantee shall thereupon
be a stockholder and have all the rights of a
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<PAGE> 21
stockholder with respect to such shares, including the
right to vote and receive all dividends or other
distributions made or paid with respect to such
shares. As the restrictions are released, a
certificate (without the legend mentioned below) for
the number of shares with respect to which
restrictions have been released will be delivered to
the Grantee as soon as practicable.
Such Restricted Stock, and any new, additional or
different securities, cash or other property, the
Grantee may become entitled to receive with respect to
such Restricted Stock by virtue of the events
described in Section 8 shall be subject to the
restrictions described in Paragraph (3) below. In
order to enforce such restrictions, the Committee
shall cause a legend or legends to make specific
reference to such restrictions on all certificates for
Restricted Stock.
(2) Automatic Grants to Non-Employee Directors. Each
Non-Employee Director will automatically receive a
grant of 65 shares of Restricted Stock pursuant to
this Section 6(d) on the first business day following
the date the Plan is approved by the Company's
stockholders, and the first business day of each
calendar year thereafter during which such
Non-Employee Director shall serve on the Company's
Board of Directors. Notwithstanding any provision in
this Section 6(d) to the contrary, no shares of
Restricted Stock held by a Non-Employee Director may
be sold, exchanged, transferred, pledged, hypothecated
or otherwise disposed of by the Grantee until the
later of (i) the expiration of five (5) years from
the Grant Date or (ii) retirement from membership on
the Board of Directors of the Company pursuant to the
By-Laws of the Company.
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(3) Specific Restrictions and Release of Restrictions . In
addition to such other restrictions that the Committee
may deem advisable in its sole discretion, no shares
of Restricted Stock held by a Grantee may be sold,
exchanged, transferred, pledged, hypothecated, or
otherwise disposed of by the Grantee until their
release as provided below:
(A) Committee Discretionary Release. The above
restrictions on the shares of Restricted Stock
shall be released with respect to the
percentage of shares as of such date (or such
dates), as determined by the Committee in its
sole discretion;
(B) Disability or Retirement. In the event of the
Grantee's termination of employment with the
Company due to (i) Disability or (ii)
retirement on or after normal retirement date
under a Company or Subsidiary pension plan,
all restrictions on the shares of such
Restricted Stock held by the Grantee shall
lapse;
(C) Death. In the event of the Grantee's
termination of employment due to the Grantee's
death, all restrictions on the shares of such
Restricted Stock held by the Grantee shall
lapse and such shares shall be delivered to
the Grantee's beneficiary.
(D) Other Termination of Employment. In the event
of the Grantee's termination of employment
after the Grant Date for reasons other than
those stated in subparagraphs (B) and (C)
above and Section 9, the Grantee shall forfeit
all shares of Restricted Stock on which
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restrictions still apply; provided, however,
that the Committee may, at its sole
discretion, determine as to the Grantee the
degree to which restrictions on shares of such
Restricted Stock held by the Grantee shall
lapse.
(e) SHARE UNITS. The Committee shall award Share Units to
such Grantees, in such amounts, and subject to such vesting and/or
acceleration schedules as it shall determine from time to time. Share
Units shall vest at the time set forth in the Award Notice. Shares of
Common Stock shall in no event be delivered earlier than the fifth
anniversary of the Grant Date, nor later than the date of the Grantee's
death, Disability, retirement under a Company or Subsidiary pension
plan, a Change-in-Control, or as otherwise determined by the Committee
in its sole discretion. The value of a Share Unit at Grant Date shall
be determined by the Committee in its discretion by taking into account
the illiquidity of the Share Units, the five-year investment risk, the
absence of voting rights and the risk of forfeiture; provided, however,
that the value shall in no event be less than 75% of the Fair Market
Value of a share of Common Stock on the Grant Date. Additional Share
Units shall be credited to the Grantee's account to reflect cash
dividends, as determined by the Committee in its sole discretion. Any
new Share Units credited with respect to an original grant of Share
Units shall be treated as if credited as of such original Grant Date.
If during the time Share Units are outstanding a Grantee's employment
is terminated for cause or the Grantee engages in the unauthorized use
of proprietary information, both of which conditions shall be
determined by the Committee in its sole discretion, the Grantee shall
forfeit all Share Units credited to his account.
(1) Termination of Employment. In the event of the
Grantee's termination of employment with the Company
due to (i) Disability, (ii) retirement on or after the
Grantee's normal retirement date under a Company or
Subsidiary pension plan or (iii) death the Grantee's
Share Units shall immediately vest (to the extent not
otherwise vested) and become
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payable. In the event of the Grantee's termination of
employment after the Grant Date for reasons other than
those stated in this subparagraph and Section 9, the
Grantee shall forfeit all nonvested Share Units
provided, however, that the Committee may, at its sole
discretion, determine that, as to the Grantee, such
Share Units shall vest.
(2) Payment of Share Units. Share Units shall be payable
in shares of Common Stock. Any fractional share
shall be paid in cash based on the Fair Market Value
of a share of Common Stock on the appropriate
determination date.
7. STOCK SUBJECT TO THE PLAN.
The stock issuable under the Plan shall be shares of the
Company's authorized but unissued Common Stock or Common Stock held in the
Company's treasury. The total number of shares of Common Stock with respect to
which Awards (including Incentive and Approved Stock Options) may be granted
under the Plan may equal but shall not exceed in the aggregate 5.0 million
shares; provided, however, that from the aggregate limit, (a) the maximum number
of shares of Common Stock with respect to which Restricted Stock and Share Units
may be awarded under the Plan shall not exceed 500,000 shares unless such
Restricted Stock and Share Units are transferred in lieu of cash compensation,
(b) the maximum number of shares available for Stock Options and Restricted
Stock granted to Non-Employee Directors shall not exceed 60,000 shares, and (c)
the maximum number of shares available for Stock Options and SARs to an employee
shall not exceed ten (10) percent of the shares available under the Plan.
For purposes of determining the number of shares of Common
Stock remaining available under the Plan, the exercise of a SAR related to such
Option shall be equivalent to the exercise of the related Stock Option. Any
shares of Common Stock related to Awards which terminate by expiration,
forfeiture, cancellation or otherwise without issuance of shares, are settled in
cash in lieu of Common Stock, or are exchanged in the Committee's discretion for
Awards not involving Common Stock, shall be available again for grant under the
Plan to Grantees who are not Reporting Persons; provided, however, that only the
new number of
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<PAGE> 25
shares of Common Stock actually issued shall be counted where shares of Common
Stock are tendered in payment of the Exercise Price. An outstanding related SAR
shall not be taken into account in determining the aggregate number of shares
with respect to which Stock Options may thereafter be granted.
(a) Additional Agreements. The Committee may, as a
condition precedent to the exercise of any Award, require the Grantee
thereof (or, in the event of the Grantee's death, his legal
representatives, legatees or distributees) to enter into such agreement
or to make such representations as may be required to make lawful the
transfer of shares of Common Stock to the Grantee upon exercise of a
Stock Option or otherwise and the ultimate disposition of the shares so
acquired.
8. RECAPITALIZATION, MERGER, CONSOLIDATION AND SIMILAR TRANSACTIONS.
Subject to any required action by stockholders, the aggregate
number of shares of Common Stock and Restricted Stock issuable under the Plan,
the Exercise Price of any Stock Option or SAR, and the number of Share Units
credited to a Grantee's Bonus account or otherwise granted shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of Common Stock resulting from a subdivision or consolidation of shares
or the payment of a stock dividend on Common Stock other than a stock dividend
that is a substitute for a cash dividend or any other increase in the number of
such shares effected without receipt of consideration by the Company; provided
that no such adjustment in Exercise Price may reduce the Exercise Price to an
amount per share which is less than the par value of such share.
Subject to any required action by stockholders, in the event of
the dissolution or liquidation of the Company, a merger or consolidation of the
Company, a merger or consolidation in which the Company is not the surviving
corporation, or a merger or consolidation in which the Company is the surviving
corporation but the holders of Common Stock receive securities of another
corporation
(a) any Award granted hereunder shall pertain to and
apply to the securities, cash or other property
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<PAGE> 26
(subject to adjustment by cash payment in lieu of fractional interests)
to which a holder of the number of shares of Common Stock equal to the
number of shares the Grantee would have been entitled; and
(b) the Committee shall, in its discretion, have the
power, prior to such event, (i) to cancel any or all Awards which are
then exercisable and, in consideration of such cancellation, pay to
each Grantee an amount in cash with respect to each share of Common
Stock as to which an Award is then exercisable equal to the difference
between the value per share of the consideration, as determined by the
Committee in its discretion, received by holders of Common Stock as a
result of such dissolution, liquidation, merger or consolidation and
the Exercise Price, and to terminate without consideration all Awards
not then exercisable; or (ii) if the holders of Common Stock receive
property other than cash as a result of such dissolution, liquidation,
merger or consolidation, to provide for the exchange of an Award which
is then exercisable for a Stock Option or SAR on some or all of such
property and, incident thereto, make an equitable adjustment, as
determined by the Committee, in the Exercise Price of each affected
Award, the number of shares or other property subject to the Award and,
if appropriate, provide for a cash payment to the Grantees in partial
consideration for the exchange for their Award and to terminate without
consideration all Awards not then exercisable. The foregoing
adjustment shall be made by the Committee, whose determination in that
respect shall be final, binding and conclusive.
If changes in capitalization of the Company other than those
referred to above shall occur, the Committee may, but need not, make such
adjustments in the number and class of shares of Restricted Stock that may
thereafter be granted or in the number and class of shares of Restricted Stock
then outstanding as the Committee may consider appropriate to prevent dilution
or enlargement of rights.
Except as provided herein, the Grantee shall have no rights by
reason of any subdivision or consolidation of shares of stock of any class, the
payment of any stock dividend or any
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other increase or decrease in the number of shares of stock of any class, any
dissolution, liquidation, merger, consolidation or change in control or any
issue by the Company of shares of stock of any class, or securities convertible
into shares of stock of any class and no adjustment by reason thereof shall be
made with respect to the Exercise Price or number of shares of Common Stock
subject to an Award.
Notwithstanding anything to the contrary in the Plan, neither
the Board nor the Committee shall have any authority to take any action under
the Plan where such action would affect the Company's ability to account for any
business combination as a "pooling of interests."
9. CHANGE IN CONTROL.
Notwithstanding any other provision to the contrary, upon a
Change in Control
(a) all Stock Options shall become immediately and fully
exercisable;
(b) all Long-Term Performance Bonuses shall become
immediately payable or creditable, where applicable, based upon the
assumption that the Performance Objectives have been fully achieved or,
if greater, on actual performance achieved; but in no event for an
amount greater than the proportion of the Bonus which the number of
months served during the Award Period prior to such occurrence bears to
the total number of months in the Award Period, and all amounts
deferred pursuant to Section 6(c)(3), if any, shall be immediately
payable in a lump sum payment in cash;
(c) all Annual Incentive Bonuses shall become immediately
payable or creditable, where applicable, based upon the assumption that
the Performance Objectives have been fully achieved; but in no event
for an amount greater than the proportion of the Bonus which the number
of months served during the Award Period prior to such occurrence bears
to the total number of months in the Award Period, and all amounts
deferred pursuant to Section 6(c)(3), if any, shall be immediately
payable in a lump sum payment in cash;
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(d) Restricted Stock Options and Share Units credited
pursuant to Section 6(c)(3) shall become fully vested (to the extent
not otherwise vested) and payable;
(e) where the Grantee's employment with the Company
terminates (other than by reason of death, Disability, retirement on or
after normal retirement date under a Company or Subsidiary pension
plan, termination for cause or voluntary termination by the Grantee
except for good reason) within two years thereafter, all restrictions
on all shares of Restricted Stock (or cash, securities or other
property) and Share Units, granted pursuant to Section 6(e), held by
the Grantee under the Plan shall lapse. Notwithstanding the foregoing,
if a Change in Control occurs, the Committee may, at its sole
discretion, determine that all or some percentage of the restrictions
shall lapse as to the shares of such Restricted Stock and/or Share
Units held by the Grantee.
10. TERM OF PLAN.
The Plan shall become effective as of January 1, 1995, subject
to its approval by the Company's shareholders at the 1995 annual meeting. The
Plan shall remain in effect until December 31, 1999 or until the exercise,
expiration or termination or payment of all Stock Options, Approved Stock
Options, SARs, Long-Term Performance Bonuses and Share Units under the Plan,
whichever is later; provided that Awards shall not be granted under the Plan
after December 31, 1999.
11. NONTRANSFERABILITY OF AWARDS AND DESIGNATION OF BENEFICIARIES.
No Awards under the Plan shall be subject in any manner to
alienation, anticipation, sale, assignment, pledge, encumbrance or transfer,
other than by will or by the laws of descent or distribution or (except with
respect to Incentive Stock Options) pursuant to a qualified domestic relations
order as defined by Section 414(p) of the Code or Section 206(d) of the Employee
Retirement Income Security Act of 1974, as amended, by the Grantee and no other
persons shall otherwise acquire any rights therein. During the lifetime of a
Grantee, Stock Options and SARs shall be exercisable only by the Grantee and
shall not be assignable or transferable except as provided above.
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A Grantee may name one or more beneficiaries to receive any
payment of an Award to which the Grantee may be entitled under the Plan in the
event of the Grantee's death, on a form to be provided by the Committee. A
participant may change the Grantee's beneficiary designation from time to time
in the same manner. The last such designation received by the Committee shall
be controlling; provided, however, that no designation, or change or revocation
thereof, shall be effective unless received by the Committee prior to the
Grantee's death, and in no event shall it be effective as of the date prior to
such receipt.
If no designated beneficiary is living on the date on which any
payment becomes payable to a participant's beneficiary, such payment will be
payable to the person or persons in the first of the following classes of
successive preference:
(a) widow or widower, if then living,
(b) surviving children, equally,
(c) surviving parents, equally,
(d) surviving brothers and sisters, equally,
(e) executors and administrators,
and the term "beneficiary" as used in the Plan shall include such person or
persons.
12. REPORTING PERSONS.
With respect to all Awards granted to Reporting Persons, the
Award Notice shall provide that:
(a) Awards requiring exercise shall not be exercisable
until at least six months after the Grant Date of the Award, except in
the case of the death or Disability of the Grantee; and
(b) Shares of Common Stock issued pursuant to any Award
may not be sold by the Grantee for at least six months after
acquisition, except in the case of the death or Disability of the
Grantee; provided, however, that (unless an Award Notice provides
otherwise) the limitation of this Section 12 shall apply only if or to
the extent required by Rule 16b-3 under the Exchange Act. Award Notices
for Awards to Reporting Persons
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shall also comply with any future restrictions imposed by such Rule
16b-3.
3. WITHHOLDING OF TAXES.
No Stock Option may be exercised (A) during the period
beginning on the third business day following the date of release for
publication of the quarterly or annual summary statements of the earnings of the
Company and ending on the twelfth business day following such date, (B) six
months before the Award becomes taxable or (C) during any other period in which
a Withholding Election may be made under the provisions of Rule 16b-3
promulgated pursuant to the Exchange Act. Any fractional share of Common Stock
required to satisfy such tax obligations shall be disregarded and the amount due
shall be paid in cash by the Grantee.
4. AMENDMENT OF THE PLAN.
The Board of Directors or the Committee or its delegate, may
from time to time and in the event of a Change in Control suspend or discontinue
the Plan or revise or end it in any respect whatsoever except that, without
approval of the Company's stockholders, no such revision or amendment shall
increase the number of shares subject to the Plan, decrease the price at which
Stock Options or SARs may be granted, increase the amount to be received on
exercise of an SAR or Stock Option, materially increase the benefits accruing to
Grantees under the Plan, or materially modify the requirements as to eligibility
for participation in the Plan; and no such suspension, discontinuance, revision
or amendment shall in any manner affect any Stock Option or SAR theretofore
granted without the consent of the Grantee or the transferee of the Stock Option
or SAR.
15. APPLICATION OF FUNDS.
Any cash proceeds received by the Company from the issuance of
Common Stock pursuant to exercised Options will be used for general corporate
purposes.
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16. NO RIGHT TO CONTINUED EMPLOYMENT OR AWARDS.
Eligibility for, or participation in, the Plan shall not give
any employee any right to remain in the employ of the Company or any Subsidiary.
Further, the adoption of this Plan shall not be deemed to give any person any
right to be selected as a Grantee or to be granted an Award.
17. NO OBLIGATION TO EXERCISE OPTIONS OR SARs.
The granting of a Stock Option or SAR shall impose no
obligation upon the Grantee to exercise such Option or SAR.
18. RIGHTS OF A STOCKHOLDER; STATUS AS A GENERAL CREDITOR.
Unless and until such time as Common Stock is deliverable to
the Grantee under the terms of the Plan, a Grantee or a transferee shall have no
rights as a stockholder with respect to any shares covered by his or her Award;
but only a general creditor of the Company. Except as herein provided, no
adjustment shall be made for dividends (ordinary or extraordinary, whether in
cash, securities or other property) or any other distributions for which the
record date is prior to the date as of which such stock is issued.
19. INDEMNIFICATION OF COMMITTEE.
The Company shall indemnify, to the full extent permitted by
law, each person made or threatened to be made a party to any civil or criminal
action or proceeding by reason of the fact that he, or his testator or
intestate, is or was a member of the Committee.
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<PAGE> 32
20. COMPLIANCE WITH CERTAIN LAWS.
(a) The Company intends that issuances and exercise of Stock
Options and SARs under the Plan to persons subject to Section 16(b) of
the Exchange Act comply with the requirements of Rule 16b-3 under the
Exchange Act during the term of the Plan, that issuances and exercises
of Incentive Stock Options comply with Section 422 of the Code, and
that Awards comply with Section 162(m) of the Code. Should any
provision of the Plan not be necessary to comply so with the
requirements of Rule 16b-3, Section 422 or Section 162(m) or should any
additional provision be necessary for the Plan and grants and exercises
thereunder to so comply, the Board of Directors of the Company or
Committee may amend the Plan to add or modify provisions of the Plan
accordingly.
(b) Should any option or portion thereof designated or
granted by the Committee as an Incentive Stock Option fail to meet the
requirements of Section 422, for any reason whatsoever upon the
issuance, exercise, sale of shares received on the exercise or
otherwise, then, in such event, the Grantee shall be deemed for all
purposes of this Plan to have been granted a Nonqualified Stock Option
covering the same number of shares, at the same price, with the same
duration and exercisable on the same terms as the Incentive Stock
Option or portion thereof which failed to meet the requirements of
Section 422.
(c) Notwithstanding anything contained in the Plan to the
contrary, the Company shall have no obligation to issue or deliver
shares of Common Stock in respect of any Award prior to (1) the
approval of the Plan by a majority of the stockholders of the Company
voting, in person or by proxy, at the 1995 Annual Meeting of
Shareholders, (2) the obtaining of any approval or the satisfaction of
any waiting period or other condition any governmental agency which the
Committee shall, in its sole discretion, determine to be necessary or
advisable, (3) the admission of such shares to listing on the stock
exchange on which Common Stock may be listed, and (4) the completion of
any registration or other qualification of said shares under any state
or federal law or ruling or any governmental body which the Committee
shall, in its sole discretion, determine to be necessary or advisable.
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<PAGE> 33
21. GOVERNING LAW.
The Plan shall be governed by the internal laws of the State of
New York (and not its choice of law provisions) to the extent not superseded by
applicable Federal law.
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<PAGE> 34
Appendix A
GENERAL RE CORPORATION
1995 LONG TERM COMPENSATION PLAN
UK APPROVED STOCK OPTION PLAN
SPECIAL ADDENDUM FOR THE UK STOCK OPTION PLAN
This Addendum is supplemental to the 1995 Long-Term Compensation Plan
of General Re Corporation dated January 1, 1995, and all or any variations or
amendments thereto (hereinafter together referred to as "the Main Plan") and
shall apply for the purposes of granting Options to any Employee (as hereinafter
defined) whose remuneration is liable to income tax under Schedule E in the
United Kingdom. This Addendum shall apply in relation to all Options granted or
to be granted to any such Employee, other than options specifically designated
as not being granted under this Addendum. For the purposes of this Addendum,
words and phrases herein mentioned shall have the meanings ascribed to them in
Section 11 hereof.
1. Purpose
The Purpose of the U.K. Plan ("this Plan") is to provide a means by
which certain directors, officers and employees of General Re Europe Limited or
General Re Financial Securities, Limited (individually or collectively, the "UK
Companies"), each a United Kingdom company, and their Subsidiaries may be given
an Option to purchase Common Stock of General Re Corporation, a Delaware, U.S.A.
corporation ("the Company"), under a Plan approved by the Board of Inland
Revenue under ICTA 1988 Schedule 9. This Plan is intended to advance the
interests of the UK Companies and their Subsidiaries (hereinafter collectively
referred to as "the Group") by encouraging stock ownership on the part of
certain directors, officers and employees of companies within the Group
("Employees") by enabling the Group to secure and retain the services of such
Employees, and by providing such individuals with an additional incentive to
advance the success of the Group. This Plan shall be available for the grant of
Options to different Employees and groups of Employees and in different
jurisdictions in such amounts to such Employees and on such terms as the
Committee (as hereafter defined) shall in their absolute discretion at any time
and from time to time determine this Plan in any way that they think fit
<PAGE> 35
to provide benefits to Employees in any way and to comply with the local tax
laws of any jurisdiction; provided that any such variation shall not extend the
terms of this Plan or the number of shares over which Options may be granted or
otherwise in the opinion of the Committee (whose decision thereupon shall be
conclusive) go outside the bounds, limits, and intent of this Plan.
The Committee may set out such varied Plan in an addendum to the Main
Plan or in any separate document or set of documents and such plan shall have
effect provided that it is expressed to be supplemental to the Main Plan.
2. Shares Subject to Option
Subject to adjustment as provided in Section 4 hereof and to the
provisions of ICTA 1988, Options may be granted pursuant to the Main Plan
(including grants pursuant to this Plan) by the Company from time to time to
purchase up to an aggregate of 5.0 million shares of its Common Stock. Common
Stock that is no longer subject to purchase pursuant to an Option granted under
the Main Plan or this Plan, by reason of the expiration of an Option or
otherwise, may be re-optioned under the Main Plan or this Plan. The Company
shall not be required upon the exercise of any Option, to issue or deliver any
Common Stock prior to the completion of such registration or other qualification
of such Common Stock under any national, state or federal law, rule or
regulation as the Compensation Committee shall determine to be necessary or
desirable.
In the event of any recapitalization, merger, consolidation or similar
transaction, where possible, the number of shares of Common Stock shall be
adjusted in accordance with the provisions of Section 8 of the Main Plan;
provided, however, that they shall first obtain the agreement of the Board of
the Inland Revenue in writing and that the Auditors shall have confirmed in
writing that in their opinion such adjustment is fair and reasonable and that
any Option so adjusted is capable of being exercised after such adjustment as
well as prior to such adjustment in respect of the same proportion of the equity
capital of the Company and provided that no such adjustment shall result in the
issue of Common Stock in consequence of the exercise of an Option at a price per
share which is less than the nominal value thereof. Notice of any such
adjustment shall be
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<PAGE> 36
given to the Optionee by the Compensation Committee, who may call in Option
Certificates for endorsement.
Provided that in the period of 10 years commencing at the Adoption Date
or such shorter period as shall be determined by the Main Plan, the aggregate
number of shares of Common Stock over which Options may be granted under the
Main Plan (including grants under this Plan) or the Company or any other plan
that is adopted by the Company shall not exceed 10 percent of the total ordinary
share capital of the Company in issue at the Date of Grant.
3. Participants
Persons eligible to be granted Options under this Plan shall be limited
to such Employees selected by the Committee, provided, however, that no Offer of
an Option shall be made to any Employee if the Date of Grant is less than 2
years before the normal retirement date under the contract of employment by
virtue of which he is eligible to participate in this Plan. Participation in
this Plan by an Employee is a matter entirely separate from any pension right or
entitlement he may have and from his terms or conditions of employment and
participation in this Plan shall in no respects whatever affect in any way an
Employee's pension rights or entitlement or terms or conditions of employment
and in particular (but without limiting the generality of the foregoing words)
no Employee who ceases to be a director, officer, employee of the Group shall be
entitled to any compensation for any loss of any right or benefit or prospective
right or benefit under this Plan, which he might otherwise have enjoyed whether
such compensation is claimed by way of damages for wrongful dismissal or other
breach of contract or by way of compensation for loss of office or otherwise
howsoever and notwithstanding that he may have been dismissed wrongfully or
unfairly within the meaning of the Employment Protection (Consolidation) Act
1978.
If there shall be application for Options for more shares of Common
Stock than are available under the Main Plan or any segmented part thereof or
than the Committee shall have decided to grant at any point in time, the
Committee shall scale down the applications or select amongst the applicants as
they shall in their absolute discretion think fit to ensure that no such limit
shall be exceeded.
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<PAGE> 37
4. Terms and Conditions of Options
Options granted pursuant to this Plan shall be evidenced by agreements
in such forms, not inconsistent with this Plan, as the Committee shall from time
to time approve, and shall contain such terms and conditions as the Committee in
its sole discretion shall determine (including, but not limited to, provisions
as to the Option Price, Option Term, sequence to exercise, manner of exercise,
assignability, and provision for death, disability, and termination of
employment, provided that any conditions relating to a performance target to be
satisfied prior to the exercise of an Option shall require the prior approval of
the Inland Revenue) and the following provisions shall apply:
(a) Option Price and Material Interests
The Option Price shall be determined on grant by the Committee and
shall be not less than the greater of (i) Fair Market Value and (ii) the nominal
value of a share of Common Stock on the Grant Date.
(b) Term of Option
Each Option under this Plan shall expire one day prior to the end of
ten years from the date the Option is granted or the date the Plan is
terminated, except that under the circumstances described in Section 4(e),
Options may expire and terminate at an earlier date.
Except as otherwise provided in this Plan, each Option shall be
exercisable at any time or from time after the third anniversary of the Date of
Grant and prior to termination of the Option unless the Committee shall in their
absolute discretion waive this condition.
(c) Time of Granting Options
The Grant of an Option shall occur only if, within 30 days of the Date
of Grant, an Option Certificate, together with a cheque for such sum (not
exceeding US $1 or its equivalent in any other currency) as the Committee may
prescribe made payable to the Company in consideration of the grant of the
Option, shall
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<PAGE> 38
have been duly executed and delivered by or on behalf of the company and the
Employee to whom such Option shall be granted. Options may be granted at any
time hereunder provided that no Option shall be granted hereunder which grant
would result or be likely to result in a breach by the Committee or the
Directors or any of them of any provision of (if relevant) the Listing Rules of
the London Stock Exchange.
(d) Limitation on Amount of Option
No Option shall be granted to an Employee if immediately following such
grant he would hold Subsisting Options over Common Stock with an aggregate
Subscription Price exceeding the greater of Pound Sterling 100,000 or four times
the amount of the Employee's Relevant Emoluments for the current or preceding
year of assessment (whichever of those years gives the greater amount) or, if
there were no Relevant Emoluments for the preceding Year of Assessment, four
times the amount of the Relevant Emoluments for the period of twelve months
beginning with the first day during the current Year of Assessment in respect of
which there are Relevant Emoluments.
For the purposes of this Section, Options shall include all options
granted under this Plan and all options granted under any other plan approved
under Schedule 9 and established by the Company or any member of the Group.
For the purpose of calculating the limits on aggregate Subscription
Price specified in Section 4(d) hereof, the Option Price of each Option
expressed in US dollars shall be converted into pounds sterling at the middle
spot rate of exchange quoted in New York by any recognized bank, selected by the
Committee, at the close of business on the Date of Grant of each such Option
granted to an Employee, and the sum of such sterling amounts shall be aggregated
to give the aggregate sterling Option Price.
(e) Death or Cessation of Employment of Optionee
(i) If an Optionee dies, his legal personal
representatives may exercise the Option within but not later than 12
months after the date of his death. To the extent that any Option so
exercisable is not exercised within such period it shall forthwith
cease and determine.
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<PAGE> 39
(ii) If an Optionee ceases to be an Employee by reason of
injury, sickness, disability (evidenced to the satisfaction of the
Committee) or redundancy within the meaning of the Employment
Protection (Consolidation) Act 1978, he may exercise all or any of his
Options within the later of the periods of:
(A) 12 months from such cessation; or
(B) 42 months from the Date of Grant.
To the extent that any Option so exercisable is not exercised within
such period it shall forthwith cease and determine.
(iii) If an Optionee ceases to be an Employee due to
retirement at retirement age under his contract of employment he shall
be entitled to (or where he retires before reaching the retirement age
under his contract of employment, he may at the absolute discretion of
the Committee) exercise all or any of his Options within the later of
the period of:
(A) 12 months from such cessation; or
(B) 42 months from the Date of Grant.
To the extent that any Option so exercisable is not exercised within
such period it shall forthwith cease and determine.
(iv) If an Optionee ceases to be an Employee for any reason
other than as set out in Section 4(e)(i),(ii), and (iii), he may
exercise all or any of his Options only at the absolute discretion of
the Committee and where such exercise is permitted it shall be within
such period as may be specified by the Committee.
(f) Acceleration of Options Upon Change of Control
If a Change in Control (as defined in Section 2(d) of the Main Plan)
occurs, all Options shall become immediately exercisable.
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<PAGE> 40
(g) Technical Loss of Employment
If an Optionee ceases to be an Employee by reason only that his office
or employment either is with a company which ceases to be Affiliate or relates
to a business or part of a business which is transferred to a person who is
neither an Affiliate nor an associated company of the Company he may exercise
any Option in whole or in part within three (3) months of his so ceasing
(subject always to any other applicable overall period for exercise of the
Option). To the extent that any Option so exercisable is not exercised within
such period, it shall cease and determine.
(h) Assignment
No Option nor any right thereunder shall be capable of being
transferred, assigned, charged or otherwise alienated, save that on the death of
an Optionee, an Option may pass to his personal representative.
(i) Exercise of Options
(i) Options may be exercised in whole or in part.
(ii) In order to exercise an Option in whole or in part,
the Optionee (or as the case may be, his personal representative(s))
must deliver to the Committee a notice in writing specifying the number
of shares of Common Stock in respect of which the Option is being
exercised accompanied by payment in full, in cash, for the Common Stock
in respect of which the Option is exercised. Such notice shall take
effect on the day it is delivered and such day shall constitute, for
all purposes, the date of exercise of such Option. Such notice shall be
given only in such form as the Committee may from time to time
prescribe. In the event of an Option being exercised in part only, the
balance of the Option not thereby exercised shall continue to be
exercisable in accordance with this Section 4 and the provisions of
this rule until such time as it shall lapse in accordance with and
subject to the rules of this Plan. The Option Certificate shall also
be lodged with the Committee on the exercise of any Option or any part
thereof.
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<PAGE> 41
(iii) As soon as practicable and in any event not less than
thirty days after receipt by the Committee of such notice, Option
Certificate and payment, Common Stock in respect of which the Option
has been exercised shall be issued by the Committee upon definitive
Stock Certificates. If, under the terms of a resolution passed or an
announcement made by the Company prior to the date of exercise of an
Option, a dividend is to be paid or is proposed to be paid to the
holders of the Common Stock on the register of members in respect of a
record date prior to such date of exercise, the Common Stock to be
allotted upon such exercise will not rank for such dividend. Subject
as aforesaid the Common Stock so to be allotted shall be identical and
rank pari passu in all respects with the fully paid Common Stock of the
same class in issue on the date of such exercise.
(iv) No Option may be exercised by an individual at any
time when he is precluded by paragraph 8 of Schedule 9 from
participating in this Plan.
5. Administration
(a) This Plan shall be administered by the Committee in accordance
with the terms of the Main Plan.
(b) Subject to the provisions of this Plan, the Committee shall
have full power to grant Options under this Plan, to construe or interpret this
Plan, to prescribe, amend and rescind rules and regulations relating to it and
to make all other determinations necessary or advisable for its administration.
Provided that no such construction, interpretation, prescription, amendment,
recision, or determination shall either reduce the value of any Option or shares
of Common Stock purchased pursuant to such an Option or take effect if such
action would result in the loss, cancellation, or withdrawal of any relief or
exemption from taxation previously applicable thereto.
(c) Subject to the provisions of Sections 3 and 4 hereof, the
Committee may, from time to time, determine which Employees shall be granted
Options under this Plan, the number of shares of Common Stock subject to each
Option, and the time or
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<PAGE> 42
times at which Options shall be granted or exercised, and to grant such Options
under this Plan.
(d) No member of the Board of Directors or of the Committee shall
be liable for any action or determination made in good faith with respect to
this Plan or to any Option and service on the Committee shall constitute service
as a director, entitling such Committee member to indemnification and
reimbursement for such service to the same extent as for service rendered as a
director.
(e) All allotments and issues of Common Stock shall be subject to
any necessary consents of HM Treasury or other authorities in the United States,
the United Kingdom or elsewhere under enactments or regulations for the time
being in force and it shall be the responsibility and at the expense of the
Company to comply with any requirements to be fulfilled in order to obtain or
obviate the necessity for any such consent.
(f) The Company shall at all times keep available for allotment
authorized and unissued or treasury Common Stock of the Company at least
sufficient to satisfy all subsisting Options.
(g) Any notice or other document required to be given hereunder to
any Optionee shall be delivered to him or sent by post to him at his home
address according to the records of the Company or such other address as may
appear to the Company to be appropriate. Any notice or other document required
to be given to the Company shall be delivered or sent by post to the relevant
registered office or offices. Notices sent by post shall be deemed to have been
given on the day but one following the date of posting.
(h) Optionees not otherwise entitled thereto shall be sent copies
of all notices and other documents sent by the Company to its ordinary
shareholders generally.
(i) The decision of the Compensation Committee in any dispute or
question relating to any Option shall be final and conclusive subject to the
terms of this Plan.
6. Adoption Date and Termination
(a) The Adoption Date of this Plan is January 1, 1995.
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<PAGE> 43
(b) This Plan shall terminate on December 31, 1999, but the
Committee may terminate this Plan at any time prior to ten years from the
Adoption Date of this Plan. Termination of this Plan shall not alter or
impair, without the consent of the Optionee, any of the rights or obligations
and any Option theretofore granted under this Plan.
7. Use of Proceeds
The proceeds from the sale of shares of Common Stock pursuant to the
exercise of the Options will be used for the Company's general corporate
purpose.
8. Amendments
(1) The Committee may, with the prior written approval of the Board
of Inland Revenue, from time to time, alter, amend, suspend, or discontinue
this Plan, or alter or amend any and all Option agreements granted
thereunder; provided, however, that no such action of the Compensation
Committee may alter the provisions of this Plan so as to:
(a) Decrease the minimum Option Price;
(b) Extend the term of this Plan beyond five years or the maximum
term of the Options granted beyond ten years;
(c) Withdraw the administration of the Plan from the Compensation
Committee;
(d) Permit any member of the Compensation Committee to be eligible
to receive or hold an Option under this Plan;
(e) Alter any outstanding Option Agreement to the detriment of the
Optionee without his consent;
(f) Decrease, directly or indirectly (by cancellation and
substitution of Options or otherwise), the Option Price applicable to any
Option granted under this Plan.
(2) (a) Notwithstanding the provisions of this Section 8(2), the
Compensation Committee may at any time make such alterations (including
additions) to this Plan as
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<PAGE> 44
are necessary to secure that this Plan receives initial approval from the
Board of Inland Revenue under Schedule 9.
(b) Subject to Section 8(2)(d) the Directors may, from time to
time at their absolute discretion, amend, waive, or replace any of the
provisions of this Plan provided that, except with the prior approval of the
Company's shareholders,
(i) no amendment, waiver, or replacement to the
advantage of Optionees shall be made to Sections 1 and 2 or this
Section 8(2)(b) or 8(2)(d) of the Plan or to the definitions of
Employee, Common Stock, Option Price, Date of Grant, Market Value or
Relevant Emoluments; and
(ii) the effect of Sections 3, 4 and 5 of this Plan
shall not be altered.
(c) No amendment, waiver, or replacement to this Plan shall be
made which would have the effect of abrogating or altering adversely any of
the subsisting rights of Optionees except with consent on their part.
(d) No amendment to this Plan shall be made without the prior
approval of the Board of Inland Revenue in writing.
(e) Written notice of any amendment made or to be made in
accordance with this Section 8 shall be given to all Optionees.
9. Governing Law
This Plan shall (notwithstanding the law applicable to any other
contract with an Employee) be construed according to the laws of England.
10. Inland Revenue Requirements
The Company shall provide to the Inland Revenue, within such time
as the Inland Revenue may direct, information requested by the Inland Revenue
under paragraph 6 of Schedule 9 and an Optionee shall:
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<PAGE> 45
(i) provide to the Company in timely fashion such
information as the Company shall reasonably request; and
(ii) consent to the Company providing information
concerning him to the Inland Revenue,
for the purpose of complying with such a request from the Inland Revenue.
11. Definitions
For the purpose of interpreting and construing this Plan (except where
the context otherwise requires), the following expressions shall have the
meaning ascribed to them as set out below:
"Adoption Date" - The date on which the U.K. Plan is approved by the
resolution of the shareholders of the Company;
"Auditors" - The Auditors for the time being of the Company;
"The Committee" - The Compensation Committee of the Board of Directors
of the Company as described in Section 3(a) of the Main Plan;
"Date of Grant" - The date on which the Committee resolves to grant an
Option;
"The Directors" - The Board of Directors of the Company or a duly
authorized committee thereof;
"Employee" - An employee (other than a director) of a company which is
a member of the Group whose hours of work for such member of the Group exceeds
20 hours per week or a full time director of a company which is a member of the
Group whose hours of work for such member of the Group exceed 25 hours per week
in both cases exclusive of meal breaks, and is not precluded by paragraph 8 of
Schedule 9 from participating in this Plan;
"Fair Market Value" - The Market Value of a share of Common Stock
subject to the Option Agreement on the dated Grant
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<PAGE> 46
or such earlier date or dates as may be agreed in writing with the Board of
Inland Revenue of the United Kingdom;
"The Group" - General Reinsurance Limited or any Affiliate for the time
being designated by the Committee as a member of the Group for the purposes of
this Plan or, where the context so permits, any one or more of them;
"ICTA 1988" - The Income and Corporation Taxes Act 1988 of the United
Kingdom;
"Market Value" - On any day the market value of a share of Common Stock
determined in accordance with the provisions of Part VIII of the Taxation of
Chargeable Gains Act 1992 of the United Kingdom and as agreed with the Board of
Inland Revenue on or before that day;
"Option" - A right to subscribe for Common Stock at the Option Price
granted to an Employee under the provisions of this Plan and for the time being
subsisting;
"Optionee" - Any person who holds an Option or (where the context
admits) his legal personal representatives;
"Option Certificate" - A certificate issued to an Optionee in
accordance with Section 4;
"Option Price" - The price per share of common stock of General Re
Corporation, par value $.50 per share which satisfies the conditions specified
in paragraphs 10-14 inclusive of Schedule 9;
"This Plan" - The Main Plan as varied by this Addendum;
"Relevant Emoluments" - Emoluments of an Employee of the office or
employment by virtue of which he is eligible to participate in the U.K. Plan as
are liable to be paid under deduction of tax pursuant to Section 203 of ICTA
1988 after deducting therefrom amounts included by virtue of Chapter ii of Part
V of the ICTA 1988;
"Schedule 9" - Schedule 9 to the ICTA 1988;
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<PAGE> 47
"Subscription Price" - The amount payable in relation to the exercise
of an Option, being the amount after any adjustment pursuant to Section 2 of the
relevant Option Price multiplied by the number of Shares of Common Stock in
respect of which the Option is exercised;
"Subsidiaries" - Any subsidiary corporation of General Re Europe
Limited or General Re Financial Securities, Limited, within the meaning of
Section 736 of the Companies Act of 1985 of the United Kingdom;
"Subsisting Option" - An Option which has neither lapsed nor been
exercised.
"UK Companies" means General Re Europe Limited and/or General Re
Financial Securities, Limited.
"Year of Assessment" - a fiscal year from April 6th to April 5th.
For the purposes of this Plan:
(a) where words denote the masculine gender they shall for
the purposes of interpretation include the feminine and neuter genders and
vice versa;
(b) where words denote the singular they shall for the
purposes of interpretation include the plural and vice versa;
(c) unless the context otherwise requires words have the same
meanings as in Schedule 9 of Sections 185 and 187 of ICTA 1988;
(d) when referring to any enactment be construed as a
reference to that enactment as for the tune being amended or re-enacted;
(e) when referring to Sections throughout this Plan be taken
to refer to the Sections of this Plan.
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<PAGE> 48
TABLE OF CONTENTS
Page
----
1. PURPOSE................................................ 1
2. DEFINITIONS............................................ 1
(a) "AWARD"............................................ 2
(b) "AWARD NOTICE"..................................... 2
(c) "AWARD PERIOD"..................................... 2
(d) "CHANGE IN CONTROL"................................ 2
(e) "CODE"............................................. 2
(f) "COMMITTEE"........................................ 2
(g) "COMMON STOCK"..................................... 2
(h) "DISABLED" or "DISABILITY"......................... 3
(i) "EXCHANGE ACT"..................................... 3
(j) "EXERCISE PRICE"................................... 3
(k) "FAIR MARKET VALUE"................................ 3
(l) "GRANT DATE"....................................... 3
(m) "GRANTEE".......................................... 3
(n) "INCENTIVE STOCK OPTION"........................... 3
(o) "NON-EMPLOYEE DIRECTOR"............................ 3
(p) "NON-QUALIFIED STOCK OPTION"....................... 3
(q) "PARENTAL LEAVE OF ABSENCE"........................ 3
(r) "RELATIVE TOTAL RETURN TO SHAREHOLDERS"............ 4
(s) "REPORTING PERSON"................................. 4
(t) "SHARE UNIT"....................................... 4
(u) "RESTRICTED STOCK OPTION".......................... 4
(v) "SUBSIDIARY"....................................... 4
(w) "TERMINATION OF EMPLOYMENT"........................ 4
(x) "UNITED KINGDOM SUB-PLAN".......................... 5
3. ADMINISTRATION.......................................... 6
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<PAGE> 49
(a) THE COMMITTEE........................................ 6
(b) AUTHORITY OF THE COMMITTEE........................... 6
4. ELIGIBILITY............................................... 7
5. PARTICIPATION............................................. 8
6. FORM OF AWARDS, AND TERMS AND CONDITIONS THEREOF.......... 8
(a) STOCK OPTIONS........................................ 8
(1) Amount of Award............................... 8
(2) Automatic Grants to Non-Employee Directors.... 8
(3) Exercise Price................................ 9
(4) Term of Stock Options and Timing of Exercise.. 10
(A) In General.................................... 10
(B) Termination of Employment, Termination of
Board Service or Death........................ 11
(5) Replacement Options........................... 12
(b) STOCK APPRECIATION RIGHTS............................ 13
(1) In General.................................... 13
(2) SARs Related to Incentive Stock Options....... 13
(3) Exercise of SARs.............................. 14
(4) Form and Time of Payment of Related SARs...... 14
(c) ANNUAL INCENTIVE BONUSES AND LONG-TERM PERFORMANCE
BONUSES.............................................. 15
(1) Performance Objective......................... 15
(2) Amount and Form of Bonus...................... 16
(A) Annual Incentive Bonus................. 16
(B) Long-Term Performance Bonuses.......... 17
(3) Crediting and Payment of Bonuses.............. 18
(4) Termination of Employment..................... 18
(d) RESTRICTED STOCK..................................... 19
(1) Transfer of Restricted Stock.................. 19
(2) Automatic Grants to Non-Employee Directors.... 20
(3) Specific Restrictions and Release of
Restrictions.................................. 21
(A) Committee Discretionary Release........ 21
(B) Disability or Retirement............... 21
(C) Death.................................. 21
(D) Other Termination of Employment........ 21
(e) SHARE UNITS......................................... 22
(1) Termination of Employment.................... 22
(2) Payment of Share Units....................... 23
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<PAGE> 50
7. STOCK SUBJECT TO THE PLAN................................... 23
(a) Additional Agreements.................................. 24
8. RECAPITALIZATION, MERGER, CONSOLIDATION AND SIMILAR
TRANSACTIONS................................................ 24
9. CHANGE IN CONTROL........................................... 26
10. TERM OF PLAN................................................ 27
11. NONTRANSFERABILITY OF AWARDS AND DESIGNATION OF
BENEFICIARIES............................................... 27
12. REPORTING PERSONS........................................... 28
13. WITHHOLDING OF TAXES........................................ 29
14. AMENDMENT OF THE PLAN....................................... 29
15. APPLICATION OF FUNDS........................................ 29
16. NO RIGHT TO CONTINUED EMPLOYMENT OR AWARDS.................. 30
17. NO OBLIGATION TO EXERCISE OPTIONS OR SARs................... 30
18. RIGHTS OF A STOCKHOLDER; STATUS AS A GENERAL CREDITOR....... 30
19. INDEMNIFICATION OF COMMITTEE................................ 30
20. COMPLIANCE WITH CERTAIN LAWS................................ 31
21. GOVERNING LAW............................................... 32
APPENDIX A SPECIAL ADDENDUM FOR THE UK STOCK OPTION PLAN.......... 34
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<PAGE> 1
EXHIBIT 10(c)
GENERAL REINSURANCE CORPORATION
SUPPLEMENTAL BENEFIT EQUALIZATION PLAN
EFFECTIVE NOVEMBER 7, 1995
<PAGE> 2
GENERAL REINSURANCE CORPORATION
SUPPLEMENTAL BENEFIT EQUALIZATION PLAN
General Reinsurance Corporation has heretofore established, effective
January 1, 1976, in accordance with a resolution adopted by its Board of
Directors on June 11, 1975, a Benefits Equalization Program to provide payments
to certain key employees to insure that they will receive the full retirement
benefits as provided by the Employee Retirement Plan of General Re Corporation
and Its Affiliates (the "Retirement Plan"), without regard to the limitation
provided by Section 5.7 thereof which is required by Section 415 of the Internal
Revenue Code, as amended (the "Code").
The Benefit Equalization Program was subsequently amended, effective
January 1, 1988 to provide benefit payments to certain key executives to insure
that they will receive the benefit of the full matching contributions provided
by the Employee Savings Plan of General Re Corporation and Its Domestic
Subsidiaries (the "Savings Plan"), without regard to the limitation provided by
Section 3.9 thereof which is required by Section 415 of the Internal Revenue
Code. The Benefit Equalization Program has been further amended from time to
time thereafter.
General Reinsurance Corporation has further heretofore established,
effective January 1, 1980 a Supplemental Executive Plan to provide deferred
payments to certain key employees to supplement payments under the Retirement
Plan. The Supplemental Executive Retirement Plan was subsequently amended,
effective January 1, 1989, to provide benefit payments to certain key employees
to insure that they will receive the full benefits provided under the Retirement
Plan and the Savings Plan without regard to the compensation limitations in such
Plans which are required by Section 401 (a) (17) of the code. The Supplemental
Executive Retirement Plan was further amended and restated, effective January 1,
1991, to reflect that a portion of the benefits previously provided by the Plan
will be provided through the Retirement Plan. The Supplemental Executive
Retirement Plan has been further amended from time to time thereafter.
The Benefit Equalization Program and the Supplemental Executive
Retirement Plan were further amended, effective November 7, 1995, in accordance
with a resolution adopted by the Compensation Committee of the Board of
Directors as of that same date, to consolidate both the Benefit Equalization
Program and the Supplemental Executive Retirement Plan for ease of
administration into one plan, hereinafter referred to as the Supplemental
Benefit Equalization Plan. The Supplemental Benefit Equalization Plan
as so amended and restated continues to provide benefits in accordance with the
terms hereinafter set forth; provided, however, that the rights and benefits of
any Former Participant on November 7, 1995 shall be governed by the terms and
conditions of the Benefit Equalization Program and the Supplemental Executive
Retirement Plan as each such plan was in effect on November 6, 1995.
<PAGE> 3
The Supplemental Executive Retirement Plan is intended to be an "excess
benefit plan" as that term is defined in Section 3 (36) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), with respect to
those Participants whose benefits under the Retirement Plan and/or Savings Plan
have been limited by Section 415 of the Code, and a "top hat" plan meeting the
requirements of Section 201 (2), 301 (a) (3), 401 (a) (1) and 402 (b) (6) of
ERISA with respect to those Participants whose benefits under the Retirement
Plan and/or the Savings Plan have been limited by Section 401 (a) (17) of the
Code.
ARTICLE I
DEFINITIONS
"Actuarial Equivalent" means an amount of approximately equal value
computed in accordance with the definition of Actuarial Equivalent in Section
2.2 of the Retirement Plan.
"Beneficiary" means a Retirement Beneficiary or Savings Beneficiary
entitled to benefits under the Plan.
"Benefit Equalization Program" means the Benefits Equalization Program
adopted by the Company, amended from time to time, and subsequently consolidated
into the Supplemental Benefit Equalization Program.
"Board" means the Board of Directors of General Re Corporation and its
Compensation Committee, amended from time to time thereafter, and subsequently
consolidated into the Supplemental Benefit Equalization Plan.
"Corporation Stock" means the Common Stock of General Re Corporation.
"Defined Contribution Dollar Limitation" means the Defined Contribution
Dollar Limitation as defined in Section 3.9 of the Savings Plan, or any
successor provision thereto.
"Dependent Child" means the Dependent Child of a Participant as defined
in Section 1.11 of the Retirement Plan.
"Disability" means a disability qualifying an Employee for payments
under the General Re Corporation Long Term Disability Plan, provided that such
disability shall not be considered a termination of employment for purposes of
this Plan.
"Early Retirement Age" means the earliest age at which an Employee
qualifies for early retirement under the Retirement Plan.
<PAGE> 4
"Earnings" means the Participant's earning as defined in the Retirement
Plan.
"Employer" means General Reinsurance Corporation and any parent,
subsidiary and affiliate which shall elect, with the approval of the Board, to
participate in the Plan.
"ESOP Account" means the ESOP Account as defined in Section 1.22 of the
Savings Plan.
"ESOP Forfeitures" means the forfeitures allocated under Section 16.8
of the Savings Plan.
"ESOP Matching Allocations" means the ESOP Matching Allocations made
pursuant to Section 16.2 of the Savings Plan.
"ESOP Supplemental Allocations" means the ESOP Supplemental allocations
made pursuant to Section 16.3 of the Savings Plan.
"ESOP Valuation Date": means the ESOP Valuation Date as established by
Section 1.25 of the Savings Plan.
"Final Average Earnings" means Final Average Earnings as determined in
accordance with Section 1.18 of the Retirement Plan.
"Former Participant" means a terminated employee entitled to benefits
under the Plan.
"Maximum Benefit Provision" means Section 5.7 of the Retirement Plan,
or any successor provision thereto.
"Maximum Compensation Limitation" means the maximum limitation on
compensation pursuant to Section 1.10 of the Savings Plan, or any successor
provision thereto.
"Maximum Earnings Limitation" means the maximum limitation on earnings
pursuant to Section 1.13 of the Retirement Plan, or any successor provision
thereto.
"Participant" means any Employee who satisfies the eligibility
requirements of Article II and commences participation hereunder.
"Plan" means the Supplemental Benefit Equalization Plan as adopted by
the Company and amended from time to time thereafter.
"Plan Account" means a bookkeeping account established and maintained
by the Plan Administrator in connection with the Plan to reflect the Retirement
and Savings Benefits provided under the Plan.
<PAGE> 5
"Plan Administrator" means General Re Corporation.
"Retirement" means a Participant's termination of employment by reason
of retirement in accordance with the Retirement Plan.
"Retirement Beneficiary" means the Spouse or Dependent Child of a
Participant or Former Participant entitled to a Retirement Benefit under the
Plan as a joint and survivor annuitant of the Former Participant, or as the
Surviving Spouse or Dependent Child of the Participant.
"Retirement Benefit" means the benefit described under Section 5.1.
"Retirement Plan" means the Employee Retirement Plan of General Re
Corporation and its Affiliates, amended and restated January 1, 1995, and as
from time to time amended.
"Savings Beneficiary" means any person(s) designated pursuant to
Section 2.5 of the Savings Plan who is entitled to receive Savings Benefits
hereunder upon the death of a Participant.
"Savings Credits" means the credits granted a Participant under this
Plan in accordance with Article VI hereof.
"Savings Plan" means the Employee Savings and Stock Ownership Plan of
General Re Corporation and its Domestic Subsidiaries, amended and restated June,
1994 and from time to time amended.
"Spouse" means the Spouse of a Participant as defined in Section 1.36
of the Retirement Plan.
"Supplemental Benefit Equalization Plan" means the Supplemental Benefit
Equalization Plan as adopted by the Company and amended from time to time
thereafter.
"Supplemental Executive Retirement Plan" means the Supplemental
Executive Retirement Plan as adopted by the Company and amended from time to
time thereafter and subsequently consolidated into the Plan.
"Termination for Cause" means any separation from service by the
Participant from his Employer which is effected by reason of fraud, deceit, or
other gross misconduct by the Participant performed within the scope of his
employment.
<PAGE> 6
"Termination for Good Reason" means any separation from service by the
Participant because of (a) the involuntary assignment of the Participant to
duties materially different from his position prior to such Change in Control,
(b) a reduction of the Participant's salary which is greater than ten percent of
the Participant's salary at the annual rate in effect at the time of the Change
in Control, or (c) the relocation of the Participant's regular assigned
workplace by more than 25 additional miles from the Participant's then current
residence.
ARTICLE II
ELIGIBILITY AND FORFEITURE
2.1 Each Employee, who has completed an hour of service on or after
November 7, 1995, shall become a Participant as of the first day of any calendar
year in which the Employee is appointed to the position of Assistant Secretary
or above and with respect to which calendar year:
(a) the Employee is a Participant in the Retirement Plan and the
calculation of Retirement Income on behalf of such Employee requires a
limitation in accordance with the application of the Maximum Earnings Limitation
and/or the Maximum Benefit Provision, or
(b) the Employee is a Participant in the Savings Plans and the ESOP
Matching Allocation, ESOP Supplemental Allocation and ESOP Forfeitures made on
behalf of such Employee under the Savings Plan are limited in accordance with
the Maximum Compensation Limitation and/or the Maximum Contribution Provision.
2.2 Except as provided in Article II and Article VIII, each
Participant, Former Participant or Beneficiary shall have a non-forfeitable
right to receive Benefits under the Plan.
2.3 Any Participant who, without prior written approval of the Plan
Administrator, enters into any employment or consultation arrangement (including
service as an agent or as a member of a board of directors or trustees) either
as a sole proprietor or in association with any person or entity where such
arrangement or entity is, in the sole judgment of the Plan Administrator,
competitive with the Company or any affiliate, shall forfeit all rights to
benefits under this Program to the extent that such benefits have not been paid
as of the commencement date of the competitive arrangement, and participation
hereunder shall terminate.
<PAGE> 7
2.4 Notwithstanding any provisions herein to the contrary, if a Change
in Control occurs, all persons who are Participants and Former Participants at
the time of a Change in Control shall have a non-forfeitable right to any
Retirement Benefits and/or Savings Benefits under the Plan. A "Change in
Control" shall occur if (i) any person, including a "group" as defined in
Section 13(d)(3) of the Securities Exchange Act of 1934, shall become the
beneficial owner of shares of the Company with respect to which 20% or more of
the total number of votes for the election of the Board of Directors of the
Company may be cast; (ii) as a result of, or in connection with, any cash tender
offer, exchange offer, merger or other business combination, sale of assets or
contested election or combination of the foregoing, the persons who were prior
to the institution thereof directors of the Company shall cease to constitute a
majority of the Board of Directors of the Company; or (iii) stockholders of the
Company shall approve an agreement pursuant to which the Company will cease to
be an independent publicly-owned corporation or for a sale or other disposition
of all or substantially all of the assets of the Company.
2.5 Notwithstanding the provision of Section 3.1, any Participant or
Former Participant employed by General Reassurance Corporation as of November
14, 1988 shall have the right, subject to the provisions of Section 3.2, to the
benefits accrued under the Plan as of such date; provided, however, that the
Award Period for such Participant or Former Participant shall include
employment for the 1988 calendar year, and further provided that in the event of
the death of the Participant or Former Participant prior to the commencement of
benefit payments in accordance with Article IV hereof, the Spouse of the
Participant or Former Participant, if any, will have the right to a
pre-retirement spouse's benefit (to be determined consistent with the provision
of Section 6.2 of the Retirement Plan) if a pre-retirement spouse's benefits is
payable under Section 6.2 of the Retirement Plan.
ARTICLE III
FUNDING
3.1 The Plan will not be funded. The benefits provided hereunder shall
be paid from the general assets of the Employer which employs the Participant on
the date active employment ceases; provided, however; the Employer may provide
such payments through a trust or trusts which are considered to be "rabbi
trusts" meeting the requirements of Section 671 et seq. of the Code.
<PAGE> 8
ARTICLE IV
RETIREMENT BENEFITS
4.1 The monthly Retirement Benefit payable to a Participant or
Retirement Beneficiary hereunder shall be the excess, if any, of
(A) the monthly benefit that would have been payable to such
Participant or Retirement Beneficiary under the Retirement Plan calculated
without regard to the Maximum Earnings Limitation and the Maximum Benefit
Provision thereof but taking into account all options and elections made by the
Participant under the Retirement Plan
over
(B) the monthly benefit that such Participant or Retirement
Beneficiary actually receives under the Retirement Plan.
For purposes of determining the monthly benefit that would have been
payable to such Participant or Retirement Beneficiary under the Retirement
Plan, Earnings under the Retirement Plan shall be deemed to include the entire
dollar amount of the Annual Incentive Bonus payable to a Participant, regardless
of the actual method of payment of such Bonus.
4.2 For purposes of this Article IV, if a Participant is married at the
time benefit payments are to commence, the Participant's monthly Retirement
Benefit shall be paid as a 50% joint and survivor annuity with the Spouse as the
joint annuitant. If, however, the Participant is not married at the time benefit
payments are to commence, the Participant's monthly Retirement Benefit will be
paid as a single life annuity. Notwithstanding the foregoing, if the Actuarial
Equivalent of the total Retirement Benefit is less than $14,000, the Actuarial
Equivalent of the total Retirement Benefit will be paid in one lump sum.
4.3 For purposes of the Article IV, payments shall commence upon the
earlier of the Participant's (a) termination of employment, (b) attainment of
age 70 1/2, (c) cessation of a disability, or (d) death while an active
employee. Payments shall terminate upon the death of the Participant if paid as
a single life annuity or, if paid as a 50% joint and survivor annuity, payments
shall terminate upon the later of the Participant's death or the death of the
Retirement Beneficiary. In the event of the Participant's death while an active
employee, the Surviving Spouse of the Participant, if any, or, in the absence of
a Surviving Spouse, the Dependent Child of the Participant, will have the right
to a pre-retirement spouse's benefit (to be determined consistent with the
provision of Article VI of the Retirement Plan), if a pre-retirement spouse's
benefit is payable under Article VI of the Retirement Plan.
<PAGE> 9
4.4 (a) In the event of a Change in Control (as defined in Section
2.3), the Actuarial Equivalent of the total Retirement Benefit shall be paid in
one lump sum payment to any Former Participant or Retirement Beneficiary to the
extent that such Retirement Benefits have not been paid as of the date of the
Change in Control.
(b) If a Change in Control (as defined in Section 2.4) occurs, and the
Participant's employment with the Company terminates (other than by reason of
death, disability, retirement on or after Normal Retirement Date under the
Retirement Plan, Termination for Cause, or voluntary termination by the
Participant except for Good Reason) within two years thereafter, the Actuarial
Equivalent of the total Retirement Benefit shall be paid in one lump sum payment
to any such Participant.
ARTICLE V
SAVINGS BENEFITS
5.1 The Savings Benefits under this Program shall be granted to a
Participant in the form of Savings Credits, which shall be allocated to the
Program Account(s) maintained for the Participant. Such Program Account(s) shall
be credited annually with the excess, if any, of
(a) the sum of the ESOP Matching Allocations, ESOP Supplemental
Allocations and ESOP Forfeitures that would have been allocated to such
Participant's ESOP Account calculated without regard to the Maximum Compensation
Limitation and the Defined Contribution Dollar Limitation but taking into
account all options and elections made by the Participant under the Savings
Plan,
over
(b) the sum of the ESOP Matching Allocations, ESOP Supplemental
Allocations and ESOP Forfeitures actually allocated to such Participant's ESOP
Account under the Savings Plan.
The Savings Credits allocated to a Participant's Program Account(s) shall be
deemed to be invested in Corporation Stock. Such Savings Credits and any
increase therein shall be deemed to vest in accordance with Article VI of the
Savings Plan.
5.2 When Savings Benefits under this Program are to be distributed, the
Participant shall be entitled to receive payment equal to the total of the
Savings Credits and any increase therein maintained in the Program Account(s)
for the Participant. Such total vested value shall be determined as of the
appropriate ESOP Valuation Date and shall be revalued annually thereafter as of
December 31 each year. Payments shall be made in a series of approximately equal
annual installments over a period of fifteen (15) years, or, if less, over a
period not exceeding the Participant's life expectancy.
<PAGE> 10
Notwithstanding the foregoing, if the total vested value of such Savings
Benefits is equal to or less than $3,500, such total vested value will be paid
to the Participant in a lump sum payment. In the event of the Participant's
death, a lump sum payment in cash shall be paid to the Savings Beneficiary.
5.3 For purposes of this Article V, payment shall commence upon the
earliest of the Participant's (a) termination of employment, (b) attainment of
age 70 1/2, or (c) cessation of disability or (d) death while an active
employee.
5.4 (a) If a Change in Control (as defined in Section 2.4) occurs, and
the Participant's employment with the Company terminates (other than by reason
of death, disability, retirement on or after Normal Retirement Date under the
Retirement Plan, Termination for Cause or voluntary termination by the
Participant except for Good Reason) within two years thereafter, the total
vested value of the Savings Benefits shall be paid in one lump sum payment to
any such Participant.
(b) In the event of a Change in Control (as defined in Section 2.4),
the total Savings Benefit shall be paid in one lump sum payment to any Former
Participant or Savings Beneficiary to the extent that such Savings Benefits have
not been paid as of the date of the Change in Control.
ARTICLE VI
PLAN ADMINISTRATION
6.1 The general administration of the Plan and the responsibility for
carrying out the provision thereof shall be placed with the Plan Administrator.
6.2 The Plan Administrator shall have the power to interpret and
construe the Plan, to determine all questions of eligibility and the status and
rights of Employees and Participants and others pursuant to the Plan and to
establish rules for the administration of the Plan and the transaction of its
business. The determination or action of the Plan Administrator with respect to
any question arising out of or in connection with the administration of the Plan
shall be final and conclusive and binding upon all persons having an interest in
the Plan.
6.3 In addition to any implied powers and duties which may be needed to
carry out the provisions of the Plan, the Plan Administrator shall have the
following specific powers and duties:
(a) to make and enforce such rules and regulations as it shall deem
necessary or proper for the efficient administration of the Plan.
(b) to interpret the Plan and to decide any and all matters arising
hereunder, including the right to remedy possible ambiguities, inconsistencies
or omissions, provided,
<PAGE> 11
however, that all such interpretations and decisions shall be applied in a
uniform manner to all Participants similarly situated;
(c) to decide all questions concerning the Plan, in accordance with the
provisions hereof;
(d) to compute the amount of benefits which shall be payable to any
Participant, Former Participant or Beneficiary pursuant to the Plan in
accordance with the provisions of the Plan; and
(e) to notify the Employer of the amount of benefits provided hereunder
for each Participant, Former Participant or Beneficiary; and
(f) to delegate its duties hereunder as the Plan Administrator
determines at its discretion.
(g) The Company shall indemnify the Plan Administrator and any agent or
employee thereof against any and all liability occasioned by any act or omission
in good faith. No bond or other security shall be required of the Plan
Administrator for faithful performance of its duties hereunder.
ARTICLE VII
AMENDMENT OR DISCONTINUANCE
8.1 The Company, with approval of the Board, reserves the right without
the consent of any person, at any time and from time to time, to amend, modify,
suspend or discontinue the Plan. No such action shall (a) adversely affect the
rights of any Participant who at the time of such action has a non-forfeitable
right to receive benefits as provided in Section 2.2, or (b) change the
forfeiture provisions of Article II except to the extent such change is
necessary to prevent any Participant from including as income for tax purposes
the value of unpaid Retirement Benefits and/or Savings Benefits hereunder.
ARTICLE VIII
NON-ASSIGNABILITY
9.1 No Participant may anticipate, encumber, alienate, pledge, sell or
assign any of his rights, claims or interests in the Plan, and no right arising
by reason of the Plan shall in any way be subject to the debts, contracts, or
engagement of any Participant or to legal process of any kind.
<PAGE> 12
ARTICLE IX
GOVERNING LAW
10.1 The Plan shall be construed, administered and regulated in
accordance with the laws of the State of Connecticut, without giving effect to
conflicts of law principles, except to the extent that such laws are preempted
by Federal law.
Dated: November 7, 1995
<PAGE> 1
EXHIBIT 10(d)
GENERAL RE CORPORATION
RETIREMENT PLAN FOR DIRECTORS
EFFECTIVE DATE: AUGUST 1, 1987
<PAGE> 2
GENERAL RE CORPORATION
RETIREMENT PLAN FOR DIRECTORS
1. Purpose.
There is hereby established the Retirement Plan for Directors (the
"Plan") of General Re Corporation (the "Corporation"). The Plan is
designed to enhance the Corporation's ability to attract and retain
competent and experienced Directors by providing retirement benefits
for Directors of the Corporation who retire after August 1, 1987.
2. Definitions - For purposes of this Plan,
Board means the board of directors of the Corporation;
Director means a member of the Board;
Final Retainer means an amount equal to the annual retainer in effect
at the time of any Director's Retirement, payable to such Director as
compensation for services as a non-employee Director; provided,
however, that Final Retainer shall not include any fees paid for being
chairman of any committee of the Board or for attendance at meetings of
the Board or any committee of the Board;
Retirement means the cessation of service as a Director after attaining
age 70, other than by reason of death or removal for cause. Removal for
cause shall be determined at the sole discretion of the Corporation.
3. Eligibility
Upon Retirement from the Board on or after August 1, 1987, any Director
who has completed five or more years of service as a non-employee
Director shall be eligible for retirement benefits provided hereunder.
4. Benefits
The retirement benefits payable to a Director hereunder shall be an
annual amount equal to 75% of the Final Retainer which shall be paid,
during such Director's lifetime, for the greater of (a) five years, or
(b) the number of complete years of service served by such Director as
a non-employee Director following the 1987 Annual Meeting of the
Stockholders of the Corporation. Payment of benefits shall commence as
of the first day of the calendar quarter next following the date of the
Director's Retirement, and shall be payable in quarterly installments.
If payments are being made under this Plan at the time of a Director's
death, payments shall cease with the payment due for the calendar
quarter in which the Director's death occurs. If a Director dies before
Retirement, no benefit shall be payable.
5. Forfeiture
Any Director who refuses to be available for consultation regarding the
affairs of the Corporation, either prior to or subsequent to
Retirement, shall forfeit all benefits otherwise provided under this
Plan.
<PAGE> 3
6. Provision of Benefits
This Plan shall be unfunded. All benefits payable hereunder shall be
provided from the general assets of the Corporation. No Director shall
acquire any interest in any specific assets of the Corporation by
reason of this Plan.
7. Amendment and Termination
The Corporation reserves the right to terminate this Plan or amend this
Plan in any respect at any time; provided, however, that no such
termination or amendment may reduce the benefits of any Director who
has retired hereunder prior to the time of the amendment or
termination. Any amendment of the Plan may be effected by the
compensation committee of the Board.
8. Successor Liability
The obligations of the Corporation under the Plan shall be binding upon
any successor corporation or organization resulting from the merger,
consolidation or other reorganization or from any reincorporation or
change of name of the Corporation, or upon any successor corporation or
organization succeeding to substantially all of the assets and business
of the Corporation.
9. Tax Withholding
The Corporation will deduct from all amounts paid under the Plan all
federal, state, local and other taxes required by law to be withheld
with respect to such payments.
10. Administration
This Plan shall be administered by the Compensation Committee of the
Board. Such committee's final decision, in making any determination or
construction under this Plan and in exercising any discretionary power,
shall in all instances be final and binding on all persons having or
claiming any rights under this Plan.
11. Miscellaneous
The adoption and maintenance of this Plan shall not constitute a
contract between the Corporation and any Director. Nothing herein
contained shall be deemed to give to any Director the right to be
retained as a Director, nor shall it interfere with the Director's
right to terminate his directorship at any time.
No benefit payable hereunder shall be subject to alienation or
assignment.
<PAGE> 1
EXHIBIT 10(e)
GENERAL RE CORPORATION
DEFERRED COMPENSATION PLAN FOR DIRECTORS
AS AMENDED AND RESTATED AT JUNE 8, 1994
EFFECTIVE JULY 1, 1994
<PAGE> 2
GENERAL RE CORPORATION
DEFERRED COMPENSATION PLAN FOR DIRECTORS
As Amended and Restated at June 8, 1994
effective July 1, 1994
1. Purpose and Eligibility
General Re Corporation (the "Corporation") hereby establishes the Deferred
Compensation Plan for Directors (the "Plan") the purpose of which is to provide
Directors of the Corporation who are not employees of the Corporation the
opportunity to defer to a future date the receipt of their annual retainer fees
and fees for attendance at Board and Committee meetings ("Compensation").
Nothing contained in this Plan shall be deemed to constitute an employment
contract or agreement between the Directors and the Corporation.
2. Election
A Director may at any time elect to defer receipt of all or a portion of
Compensation not yet earned. Such election shall be in writing, shall specify
the form of deferral and the method of payment of deferred amounts in accordance
with Paragraphs 3 and 4, and shall continue until amended or terminated by
written notice delivered to the Corporation. Such notice of amendment or
termination shall not affect previously deferred Compensation.
3. Maintenance of Deferred Accounts
(a) Compensation which is deferred shall be credited, in accordance
with each Director's election, to his or her account ("Account") as of the date
on which current payment otherwise would have been made (the "Payment Date") as
follows:
(i) As cash plus interest: Interest shall be credited quarterly,
calculated on the basis of the balance in the Account on the last day
of the preceding calendar quarter and a rate of interest equal to 120%
of the Mid-Term Applicable Federal Rate for a quarterly compounding
period as in effect on the last day of that preceding calendar quarter;
or
(ii) As Units based on the value of the shares of the Corporation's
common stock (the "Stock"); the number of Units credited from time to
time to each Account shall be:
With Respect to Compensation Deferred: The number obtained by dividing
the amount of Compensation otherwise payable on the Payment Date by 75%
of the closing price of the Stock on the New York Stock Exchange (such
closing price being the "Stock Price") on the immediately preceding
business day;
With Respect to Cash Dividends: The number obtained by multiplying the
number of Units in the Account by any cash dividends declared by the
Corporation on the Stock and dividing the product by 100% of the Stock
Price on the related dividend record date; and
With Respect to Stock Dividends: The number obtained by multiplying
the number of Units in the Account by the stock dividend declared.
(b) The number of Units credited to each Account shall be appropriately
adjusted to take into account any changes in the number of outstanding shares of
stock resulting from split-ups or combinations of shares or recapitalizations.
1
<PAGE> 3
(c) Except as provided in this Section 3(c) and Section 5(a), a
participant who has ceased being a Director may, at such time as his or her
transactions are no longer subject to reporting under Section 16(a) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), by written
notice to the Corporation, elect to change the allocation of amounts previously
deferred among the accounts described in Section 3(a); provided however, that
Units acquired in an acquisition under Section 3(a) or (c) in which the number
of Units acquired was determined by using 75% of the Stock Price (a "Discounted
Acquisition") may not be reallocated until at least five years after the time
such Units were acquired. Such notice shall specify the date on which the change
in allocation is to be effective, which date shall be not less than ten (10)
days after the date the notice is received by the Corporation, and not less than
twelve (12) months after the effective date of the most recent change in
allocation of previously deferred compensation. Upon receipt of a participant's
election to reallocate Units then credited to his or her Account into cash plus
interest, an amount equal to the value of such Units (other than Units acquired
in a Discounted Acquisition less than five years before the reallocation date),
valued at 100% of the Stock Price on the business date which immediately
precedes the date of reallocation, shall be credited as cash (and the number of
such Units debited) as of the date of reallocation, which cash amount shall
thereafter be credited with interest in accordance with Section 3(a)(i). Upon
receipt of a participant's election to reallocate cash then credited to his or
her Account into Units, the number of Units obtained by dividing the amount of
such cash by 100% of the Stock Price on the business date which immediately
precedes the date of reallocation, shall be credited to such Account (and such
cash amount debited) as of the date of reallocation.
(d) The Plan is intended to constitute an "unfunded" plan for deferred
compensation. The establishment of or allocation to Accounts shall not vest in
any participant any right, title or interest in or to any specific assets of the
Corporation nor shall the Corporation be required to purchase any Stock.
However, in the event the Corporation should purchase such Stock, it shall not
be required to exercise any option or right under such Stock, or if it wishes to
exercise any option or right under such Stock, it shall not be required to
exercise such option or right in any particular manner. With respect to the
Corporation's obligations under the Plan, the participant shall have no rights
that are greater than those of a general creditor of the Corporation.
4. Payment of Deferred Amounts
(a) Except as provided in Sections 4(d) and 5(a), all amounts credited
to an Account shall be paid to the Director in cash either:
(i) in a lump sum on a date specified by the Director on his election
form and in an amount equal to the value of the cash or Units then
credited to the Director's Account, or
(ii) in quarterly or annual installments over such period and
commencing at such time as the Director shall have elected, on his or
her election form, each installment being equal to the value of the
cash or Units then credited to the Account divided by the number of
installments remaining to be paid.
For purposes of payments under this Section 4, the value of each Unit shall be
equal to the Stock Price on the business date which immediately precedes the
date as of which the payment is made.
(b) In the event of a Director's death or Disability (as defined
below), all amounts credited to his or her Account as of his or her date of
death or Disability shall be paid promptly in a lump sum, in an amount equal to
the value of the cash or Units as of such date, to the Beneficiary designated on
the Director's election form or, if none, to his estate. "Disability" means the
inability, due to illness or injury, to engage in any gainful occupation for
which the individual is suited by education, training or experience, which
condition continues for at least six (6) months.
2
<PAGE> 4
(c) If a Change in Control occurs and the participant ceases to be a
Director (other than by reason of death, Disability, retirement or Termination
for Cause) within two years thereafter, then upon the date of any such
occurrence, all amounts credited to the participant's Account as of such date
shall be paid promptly in a lump sum, in an amount equal to the value of the
cash of Units as of such date, to the Director. A "Change in Control" shall
occur if (i) any person, including a "group" as defined in Section 13(d)(3) of
the Securities Exchange Act of 1934, shall become the beneficial owner of shares
of the Company with respect to which 20% or more of the total number of votes
for the election of the Board of Directors of the Company may be cast; (ii) as a
result of, or in connection with, any cash tender offer, exchange offer, merger
or other business combination, sale of assets or contested election or
combination of the foregoing, the persons who were prior to the institution
thereof directors of the Company shall cease to constitute a majority of the
Board of Directors of the Company; and (iii) stockholders of the Company shall
approve an agreement pursuant to which the Company will cease to be an
independent publicly owned corporation or for a sale or other disposition of all
or substantially all of the assets of the Company. "Termination for Cause" means
termination which is effected by reason of fraud, deceit, or other gross
misconduct by the Director performed within the scope of his duties as Director.
(d) Notwithstanding the provisions of Section 4(a), no payment may be
made with respect to Units acquired in a Discounted Acquisition under Section
3(a) or (c) until at least five years after the time such Units were acquired
unless the provisions of Section 4(b) or 4(c) are met, in which case payments
with respect to such Units shall be so paid pursuant to Section 4(b) or 4(c),
respectively.
5. Limitations on Reallocations and Payouts; Non-Assignment
(a) In the case of reallocations of Units under Section 3(c) and
payments of amounts credited to an Account in the form of Units under Section 4,
the Units shall be deemed to be reallocated or paid out in the order in which
they were acquired, so that any earlier-acquired Units then credited to such
Account shall be reallocated or paid out before reallocation or payment with
respect to later acquired Units. In addition, the provisions of Sections 3(c)
and 4(a) notwithstanding, if any reallocation or payment is to be made under
Section 3(c) or 4(a) with respect to a Unit acquired (i) less than six months
before the date of reallocation or payment and (ii) at a time that the
participant was subject to reporting under Section 16(a) of the Exchange Act,
such reallocation or payment shall be delayed until the first business day that
is more than six months after the date such Unit was acquired under the Plan.
This six-month holding requirement shall apply to acquisitions with respect to
cash dividends and stock dividends, as well as to acquisitions of Units upon
deferral of fees. For purposes of the Plan, Units will be deemed to be acquired
at the date they are credited to an Account.
(b) No right to receive payments under this Plan shall be transferable
or assignable by a Director except by will or in accordance with the laws of
descent and distribution. All amounts of Compensation deferred under this Plan,
all property and rights which may be purchased by the Corporation with such
amounts and all income attributable to such amounts, property and rights which
may be purchased by the Corporation with such amounts and all income
attributable to such amounts, property or rights shall remain the sole property
and rights of the Corporation (without being restricted to the provision of
benefits under this Plan) subject only to the claims of the Corporation's
general creditors.
(c) No participant then subject to reporting under Section 16(a) of the
Exchange Act may modify the time or manner of payment under the Plan with
respect to Units after Units have been credited to his or her Account. In
addition, no modification of the time or manner of payment under the Plan shall
be authorized if and to the extent that such authorization or the making of such
modification would constitute "constructive receipt" on the part of a
participant of amounts credited to his or her Account under the federal income
tax laws.
6. Effective Date and Termination
3
<PAGE> 5
This Plan shall be effective with respect to any compensation earned by a
Director after July 1, 1982, and may be amended or terminated at any time by
resolution of the Board, but no amendment or termination shall affect amounts
previously credited to Director's Accounts.
7. Exclusion of Units From Being Deemed Derivative Securities
It is the intent of the Corporation that Units and related rights under the Plan
credited to participants subject to Section 16 of the Exchange Act shall not
constitute "derivative securities" under Rule 16a-1(c) under the Exchange Act by
virtue of Rule 16a-1(c)(3)(ii), and that Directors participating in the Plan
shall not, for that reason, fail to qualify as "disinterested persons" under
Rule 16b-3(c)(2)(i). Accordingly, the Plan shall be construed in a manner
consistent with the requirements of Rule 16a-1(c)(3)(ii) and Rule
16b-3(c)(2)(i)(C), and, if any provision of this Plan does not comply with the
requirements of Rule 16a-1(c)(3)(ii) as then applicable to any transaction by
such a participant or the requirements of Rule 16b-3(c)(2)(i)(C) (permitting
disinterested persons to elect to receive fees in either cash or an equivalent
amount of securities), such provision will be construed or deemed amended to the
extent necessary to conform to the applicable requirements of such Rules so that
such participant shall avoid liability under Section 16(b) and, if then a
Director, shall continue to qualify as a "disinterested person" under Rule
16b-3.
8. Applicable Law
This Plan shall be construed under the laws of the State of Connecticut and
applicable Federal Law.
4
<PAGE> 1
EXHIBIT 11
GENERAL RE CORPORATION
COMPUTATION OF EARNINGS PER SHARE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
------------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
EARNINGS PER SHARE OF COMMON STOCK
Net income applicable to common stock (in millions)(a)..... $ 814 $ 654 $ 700
========= ========= =========
Average number of common shares outstanding(b)............. 82,085,315 82,071,651 84,542,686
========= ========= =========
Net income per share....................................... $ 9.92 $ 7.97 $ 8.28
========= ========= =========
</TABLE>
- ---------------
(a) After deduction of preferred stock dividends of $11 million for the years
ended December 31, 1995, 1994 and 1993.
(b) Fully diluted earnings per share are not reported because the effect of
potentially dilutive securities was not significant.
<PAGE> 1
EXHIBIT 21
Significant subsidiaries of the Corporation at December 31, 1995 were as
follows:
SUBSIDIARIES OF REGISTRANT
<TABLE>
<CAPTION>
JURISDICTION INCORPORATED/
OF PERCENT ACQUIRED BY
NAME NATURE OF BUSINESS INCORPORATION OWNED GROUP
- ------------------------------------------------------ ----------------------- --------------- ------- -------------
<S> <C> <C> <C> <C>
General Re Corporation Holding Company Delaware N/A 1980
General Reinsurance Corporation Reinsurer Delaware 100 1970
Elm Street Corporation Real Estate Delaware 100 1981
General Star Indemnity Company Insurer Connecticut 100 1967
General Star National Insurance Company Insurer Ohio 100 1864/1985
General Star Management Company Management Delaware 100 1979
Genesis Underwriting Management Company Management Delaware 100 1988
Broker Markets Agency, Inc. Agent Connecticut 100 1987
Genesis Insurance Company Insurer Connecticut 100 1976/1989
Genesis Indemnity Insurance Company Insurer North Dakota 100 1989
GRC Realty Corporation Real Estate Connecticut 100 1972
Gen Re Holdings, Inc. Holding Company Delaware 100 1981
Reinsurance Underwriting Services Limited Manager UK 100 1966
General Re Europe Limited Reinsurer UK 100 1981
General Re, Correduria de Reaseguros, S.A. Intermediary Spain 100(1) 1987
General and Cologne Re Management Limited Management Australia 50(4) 1995
General Reinsurance Australasia Limited Reinsurer Australia 100 1961
Recoa Investments Pty. Limited Investment Company Australia 100 1967
General Re Compania de Reaseguros, S.A. Reinsurer Uruguay 100 1990
Mandataria General Re, S.A. Agent Argentina 100(1) 1990
General Re Compania de Reaseguros, S.A. Reinsurer Argentina 100(1) 1991
North Star Reinsurance Corporation Reinsurer Delaware 100 1956/1996
General Re-New England Asset Management, Inc. Investment Adviser Delaware 100 1984/1995
North Star Syndicate, Ltd. Insurance Syndicate Delaware 100 1979
United States Aviation Underwriters, Inc. Manager New York 100 1928/1982
USAU Reinsurance Limited Reinsurer Bermuda 100 1978
Canadian Aviation Insurance Managers Ltd. Manager Montreal, Can. 100 1937
Airsurance Limitee Manager Montreal, Can. 100 1982
General Re Services Corporation General Business Corp. Delaware 100 1979
General Re Financial Products (Japan) Inc. Agent/Swap Dealer Delaware 100 1990
Herbert Clough Inc. Intermediary New York 100 1926/1928
Genplus Managers, Inc. Manager Delaware 100 1984
Cresset Capital Limited Partnership Venture Capital NY Partnership 50(2) 1989
GRD Corporation General Business Corp. Delaware 100 1987
General Re-CKAG Reinsurance and Investment S.a
r.l. Holding Company Luxembourg 50.1 1994
Kolnische Ruckversicherungs-Gesellschaft AG Reinsurer Germany 75(6) 1846/1994
Cologne Holding Company of America Holding Company Connecticut 100 1992/1994
Cologne Re Managers Corporation Management Delaware 100 1995
Cologne Reinsurance Company of America Reinsurer Connecticut 100 1975/1994
Cologne Life Reinsurance Company Reinsurer Connecticut 100 1967/1994
U.S. Health & Life Insurance Company Insurer Delaware 100 1982/1994
Idealife Insurance Company Insurer Connecticut 100 1981/1994
Europa Ruckversicherung AG Reinsurer Germany 84 1947/1994
Kolnische Versicherungs-Beratungs-und Service
GmbH General Business Corp. Germany 100 1988/1994
The Cologne Reinsurance Company Ltd. Reinsurer UK 100 1983/1994
Cologne Reinsurance Company Ltd. Reinsurer Ireland 99 1990/1994
LaKolnische Italia Servizi Riassicurativi SRL Agent Italy 100 1989/1994
Kolnische Nordiska Aktiebolag Insurer Sweden 100 1980/1994
Cologne Reinsurance Finance Holdings B.V. Holding Company Netherlands 100 1976/1994
Cologne Reinsurance Company Ltd. Reinsurer Bermuda 100 1980/1994
Cologne Reinsurance Ltd. Reinsurer Barbados 75(3) 1989/1994
LaKolnische Latina S.A. Agent Mexico 95 1976/1994
Kolnische Ruck Wien Reinsurer Austria 70(5) 1869/1994
</TABLE>
<PAGE> 2
<TABLE>
<CAPTION>
JURISDICTION INCORPORATED/
OF PERCENT ACQUIRED BY
NAME NATURE OF BUSINESS INCORPORATION OWNED GROUP
- ------------------------------------------------------ ----------------------- --------------- ------- -------------
<S> <C> <C> <C> <C>
Cologne Reinsurance Company of South Africa Ltd. Reinsurer South Africa 99 1966/1994
General and Cologne Re Management Limited Management Australia 50(4) 1995
Cologne Life Reinsurance Company of Australia
Ltd. Reinsurer Australia 99 1983/1994
Cologne Reinsurance Consultants Ltd. General Business Corp. Hong Kong 99 1987/1994
Die Kolnische Ruck Riga GmbH Agent Latvia 100 1990/1994
LaKolnische Iberica S.A. Agent Spain 100 1981/1994
Kolnische Ruck Buenos Aires S.A. Agent Argentina 100 1992/1994
General Re London Limited General Business Corp. UK 100 1992/1994
GRD Global, Inc. Management Delaware 100 1995
General Re Financial Products Corporation Swap Dealer Delaware 100 1990
General Re Financial Products (Canada) Limited Agent Ontario 100 1993
General Re Financial Products Limited Agent UK 100 1990
General Re Financial Securities Limited Swap Dealer UK 100 1992
General Re Securities Corporation Broker-Dealer Delaware 100 1991
General Re Underwriting Services Limited Underwriting Services Bermuda 100 1993
General Re Bermuda, Ltd. Reinsurer Bermuda 100 1993
General Re T K, Inc. General Business Corp. Delaware 100 1994
General Re Strategic Solutions, Inc. General Business Corp. Delaware 100 1995
</TABLE>
- ---------------
(1) Percentages exclude any director qualifying shares
(2) Partnership Percentage
(3) Cologne Reinsurance Company Ltd. (Bermuda) owns 75 percent and Cologne Life
Reinsurance Company (Connecticut) owns 25 percent of Cologne Reinsurance
Ltd. (Barbados)
(4) General Reinsurance Corporation and Kolnische Ruchversicherungs-Gesellschaft
AG each own 50 percent of General and Cologne Re Management Limited
(5) Kolnische Ruckversicherungs-Gesellschaft AG owns 70 percent and Wiener
Stadtische Allgemeine Versicherung Aktiengesellschaft and
Versicherungsanstalt der osterreichischen Bundeslander
Versicherungsaktiengesellschaft each own 15 percent of Kolnische Ruck Wien
(6) GRD Corporation owns an additional 6.9 percent of Kolnische
Ruckversicherungs-Gesellschaft AG directly Indentation Shows Ownership)
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statements of
General Re Corporation and Subsidiaries on Form S-8 (File Numbers 2-62106,
275489, 33-60867, 33-6483 and 33-33102) of our report, dated February 6, 1996,
on our audits of the consolidated financial statements and financial statement
schedules of General Re Corporation and Subsidiaries as of December 31, 1995 and
1994 and for each of the three years in the period ended December 31, 1995,
which is included in this Annual Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
New York, New York
March 15, 1996
<PAGE> 1
EXHIBIT 24
POWER OF ATTORNEY
The Undersigned, a Director of General Re Corporation, a Delaware Corporation
(the "Corporation"), Hereby Designates each of Charles F. Barr and Robert D.
Graham as his attorney in fact to execute on his behalf, as a Director of the
Corporation, The Corporation's Annual Report on Form 10-K under the Securities
Exchange Act of 1934, as amended.
--------------------------------------
Original powers of attorney
in this form signed by each
of the following:
LUCY WILSON BENSON
WALTER M. CABOT
WILLIAM C. FERGUSON
DONALD J. KIRK
KAY KOPLOVITZ
EDWARD H. MALONE
ANDREW W. MATHIESON
DAVID E. MCKINNEY
STEPHEN A. ROSS
WALTER F. WILLIAMS
Dated: February 14, 1996
<TABLE> <S> <C>
<ARTICLE> 7
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<DEBT-HELD-FOR-SALE> 17,304
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 3,944
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 23,494
<CASH> 258
<RECOVER-REINSURE> 2,794
<DEFERRED-ACQUISITION> 434
<TOTAL-ASSETS> 35,946
<POLICY-LOSSES> 14,252
<UNEARNED-PREMIUMS> 1,913
<POLICY-OTHER> 2,263
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 155
1
0
<COMMON> 51
<OTHER-SE> 6,536
<TOTAL-LIABILITY-AND-EQUITY> 35,946
5,837
<INVESTMENT-INCOME> 1,017
<INVESTMENT-GAINS> 64
<OTHER-INCOME> 292
<BENEFITS> 4,185
<UNDERWRITING-AMORTIZATION> 1,345
<UNDERWRITING-OTHER> 563
<INCOME-PRETAX> 1,117
<INCOME-TAX> 247
<INCOME-CONTINUING> 825
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 825
<EPS-PRIMARY> 9.92
<EPS-DILUTED> 0
<RESERVE-OPEN> 10,317
<PROVISION-CURRENT> 3,666
<PROVISION-PRIOR> 14
<PAYMENTS-CURRENT> 773
<PAYMENTS-PRIOR> 1,584
<RESERVE-CLOSE> 11,737
<CUMULATIVE-DEFICIENCY> 14
</TABLE>
