<PAGE>
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- -------------------------------------------------------------------------------
UNITED STATES
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, 1996 COMMISSION FILE NUMBER 1-
8026
[LOGO]
GENERAL RE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 06-1026471
(STATE OF OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
695 EAST MAIN STREET STAMFORD, CONNECTICUT
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) 06904-2351
(ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (203) 328-5000
SECURITIES REGISTERED PURSUANT TO SECTION 12 (B) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
Common Stock, $.50 par value New York Stock Exchange
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, 1997 of the voting stock held by
nonaffiliates of the registrant was $13,676 million.
Indicate the number of shares outstanding of each of the registrant's classes
of common stock, as of the latest practicable date.
CLASS OUTSTANDING AT MARCH 1, 1997
----- ----------------------------
Common Stock, $.50 par value 80,971,987
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, 1996.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
GENERAL RE CORPORATION
TABLE OF CONTENTS
PART I.
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
ITEM 1. Business...................................................... 2
ITEM 2. Properties.................................................... 6
ITEM 3. Legal Proceedings............................................. 6
ITEM 4. Submission of Matters to a Vote of Security Holders........... 7
PART II.
ITEM 5. Market for General Re Corporation's Common Equity and Related
Stockholder Matters.......................................... 7
ITEM 6. Selected Financial Data: Eleven-Year Summary.................. 8
ITEM 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................... 11
ITEM 8. Financial Statements and Supplementary Data................... 27
ITEM 9. Changes in and Disagreement with Accountants on Accounting and
Financial Disclosure......................................... 63
PART III.
ITEM 10. Directors and Executive Officers of General Re Corporation.... 63
ITEM 11. Executive Compensation........................................ 64
ITEM 12. Security Ownership of Certain Beneficial Owners and
Management................................................... 64
ITEM 13. Certain Relationships and Related Transactions................ 64
PART IV.
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K.......................................................... 65
</TABLE>
1
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
General Re Corporation was established in 1980 to serve as the holding company
of General Reinsurance Corporation ("GRC," formed in 1921) and its affiliates.
General Re Corporation and subsidiaries ("General Re") have global reinsurance
and financial services operations in 62 cities in 30 countries on 6 continents
and provide reinsurance coverage in approximately 150 countries. General Re
operates four principal businesses: North American property/casualty
reinsurance, international property/casualty reinsurance, life/health
reinsurance and financial services. General Re's principal reinsurance
operations are based in North America and Germany, with other major operations
in Asia, Australia, Europe and South America. General Re's principal financial
services operations are located in New York, London, Tokyo, Hong Kong, and
Toronto. GRC is the largest North American professional property/casualty
reinsurer, and General Re is among the three largest reinsurers in the world
based on net premiums written and capital. General Re employed 3,737 persons
at December 31, 1996, of which 2,525 employees were employed in North America
and 1,212 employees in operations outside of North America.
FINANCIAL HIGHLIGHTS
The following table provides financial highlights of General Re and its
business segments:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1996 1995 1994
---------- ---------- ----------
(IN MILLIONS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Total revenues
North American property/casualty............ $ 3,887 $ 3,641 $ 3,155
International property/casualty............. 3,004 2,573 456
Life/health................................. 1,134 742 --
Financial services.......................... 271 254 226
---------- ---------- ----------
Total...................................... $ 8,296 $ 7,210 $ 3,837
========== ========== ==========
Earnings per common share, excluding realized
gains and losses............................ $ 10.79 $ 9.47 $ 7.43
Net income per common share.................. 11.00 9.92 7.97
Operating cash flow.......................... 1,678 1,774 1,086
Invested assets--insurance operations........ 23,168 21,016 17,237
Common stockholders' equity.................. 7,326 6,587 4,859
</TABLE>
An eleven-year summary of additional significant financial information is
presented on pages 8-10. Pretax earnings discussed in each of the segment
sections in Item 1 exclude realized gains and are before minority interest
deductions and goodwill amortization.
REINSURANCE OPERATIONS
Reinsurance is the business in which a reinsurer agrees to indemnify a
"primary" or "ceding" insurer against all or part of the risks assumed by the
primary insurer under a policy or policies it has issued. Among its benefits,
reinsurance offers 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 and risk
management services.
Treaty reinsurance refers to automatic reinsurance coverage for all or a
portion of a specified class of risks ceded by the primary insurer, while for
facultative reinsurance the reinsurer underwrites individual risks. Pro rata
or proportional reinsurance describes all forms of reinsurance in which the
reinsurer shares in a proportional part of the original losses and premiums of
the business ceded by the primary company. Excess-of-loss or
2
<PAGE>
nonproportional reinsurance refers to reinsurance which indemnifies the
primary company for that portion of the loss that exceeds an agreed-upon
amount or "retention."
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 further diversify their risks. In addition, there has been a shift
in recent years in primary insurers' reinsurance purchases toward better
capitalized and more creditworthy reinsurers. During 1996, the
property/casualty pricing environment in both the primary insurance and
reinsurance markets became increasingly competitive.
There are virtually no barriers to entry to the reinsurance industry and
competitors may be domestic or foreign, licensed or unlicensed. The number of
General Re's competitors within the reinsurance industry is not known. Within
the United States, the Reinsurance Association of America identified for 1995
approximately 80 property/casualty reinsurers writing predominantly
unaffiliated business, with surplus exceeding $50 million or assumed
reinsurance premiums exceeding $10 million. Reinsurers compete on the basis of
reliability, financial strength and stability, ratings, underwriting
consistency, service, business ethics, price, performance, capacity, terms and
conditions. Purchasers of reinsurance are themselves insurers and, in some
cases, reinsurers.
NORTH AMERICAN PROPERTY/CASUALTY REINSURANCE
General Re's North American property/casualty operations produced 47 percent
of consolidated revenues in 1996 and 61 percent of pretax earnings. The
principal business of these operations is treaty and facultative reinsurance
underwritten on a direct basis throughout the United States and Canada.
General Re writes predominately excess-of-loss reinsurance. Casualty
reinsurance represented approximately 58 percent of General Re's North
American property/casualty net premiums written in 1996 and property
reinsurance business represented approximately 29 percent. General Re also
writes excess and surplus lines insurance and provides direct excess insurance
to companies with self-insured programs. These lines represented approximately
13 percent of the North American property/casualty net premiums written in
1996.
On October 3, 1996, General Re Corporation acquired all of the outstanding
shares of National Re Corporation and subsidiaries ("National Re"), a North
American property/casualty reinsurance group, in exchange for 4,023,901 shares
of General Re Corporation's common stock and $313 million in cash, including
expenses, for a total cost of $900 million. National Re, through its wholly
owned subsidiary, National Reinsurance Corporation ("NRC"), provides property
and casualty reinsurance to insurers written on a direct basis. See Item 7,
Management's Discussion and Analysis, and Note 3 to the consolidated financial
statements, "Acquisitions and Reinsurance Ventures," for additional discussion
of this transaction.
U.S. property/casualty insurers and reinsurers are subject to regulation by
their states of domicile and by those states in which they are licensed.
General Re's principal U.S. subsidiary, GRC, is domiciled in Delaware and
licensed in the District of Columbia and in all states but Hawaii, where it is
an accredited reinsurer. General Re's two excess and surplus lines insurers,
the General Star companies, are domiciled in Connecticut and Ohio. The Genesis
companies, which are General Re's excess insurance writers for self-insured
programs, are domiciled in Connecticut and North Dakota. General Re also
writes excess insurance for self insurers through GRC. NRC is domiciled in the
state of Delaware and licensed in all 50 states, the District of Columbia,
Puerto Rico, Canada, and the United Kingdom. Fairfield Insurance Company, a
subsidiary of NRC, is engaged in property and casualty insurance services, is
domiciled in Connecticut, and is licensed in 42 states.
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 ("NAIC"). The NAIC adopts
forms, instructions and accounting procedures for use by U.S. insurers,
including reinsurers, in preparing and filing annual statutory financial
statements. These forms, instructions and procedures are
3
<PAGE>
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 U.S. statutory
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
effective state regulatory oversight.
In 1990, the NAIC adopted a formal accreditation program to encourage states
to comply with its Financial Regulation Standards. Accredited states may
refuse to accept financial 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 1996, 48 state insurance departments, including
Delaware and the District of Columbia, have been accredited.
The NAIC adopted risk-based capital requirements which apply to statutory
annual statements of life insurers and property/casualty insurers (beginning
in 1994). The NAIC 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
and the model law have been made a part of the Financial Regulation Standards.
The model law subjects 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. General Re's U.S. insurance
subsidiaries have filed 1996 statutory annual statements which report risk-
based capital well above the threshold for regulatory action.
In 1995, the NAIC adopted a "defined standards" model law related to
investments which has not yet been made a part of the Financial Regulation
Standards. If ultimately enacted, the "defined standards" model law would
change the amount and kind of permitted investments by insurers. The NAIC has
considered 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 will eventually be made a part of the Financial Regulation
Standards, General Re does not currently anticipate that either of the model
laws would have a significant effect on the investment management practices of
its U.S. insurance subsidiaries.
General Re Corporation uses dividends, primarily from GRC, to satisfy its
liquidity needs. Ordinary dividends by GRC to General Re Corporation are not
subject to any restriction, other than ten days' advance notice. Extraordinary
dividends and other extraordinary distributions by GRC to General Re
Corporation are subject to prior regulatory approval under the Delaware
Insurance Holding Company System Registration Act. Under this Act,
extraordinary dividends or other distributions are those which, together with
others during the preceding twelve-month period, exceed 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.
For additional discussion of regulatory matters, see the section on Financial
Condition/Liabilities in Management's Discussion and Analysis (pages 21-23).
INTERNATIONAL PROPERTY/CASUALTY REINSURANCE
On December 28, 1994, General Re acquired a controlling interest in Kolnische
Ruckversicherungs-Gesellschaft AG ("Cologne Re"). See the international
property/casualty operating results section (page 14) of Management's
Discussion and Analysis for more information on the transaction. General Re
has consolidated Cologne Re in its financial statements and reflected the
ownership of other stockholders as minority interests.
In 1996, General Re's international property/casualty operations produced 36
percent of consolidated revenues and 27 percent of consolidated pretax
earnings. In total, General Re operates its international reinsurance
4
<PAGE>
business in 29 countries throughout the world. In 1996, the international
property/casualty operations principally wrote business in the form of
reinsurance treaties with a smaller amount composed of facultative
reinsurance. Approximately 80 percent of international premiums in 1996 were
written on a proportional basis and 20 percent were nonproportional or excess-
of-loss. Property premiums written in 1996 were approximately 59 percent of
total international property/casualty premiums and casualty premiums were
approximately 41 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 General Re 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
General Re'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
In 1996, General Re's life/health reinsurance operations produced 14 percent
of consolidated revenues and 4 percent of consolidated pretax earnings. These
operations include the North American and international life/health
reinsurance operations of Cologne Re. Life/health net premiums written in 1996
were $1,075 million. Approximately 43 percent of General Re's life/health net
premiums was written in Europe, another 42 percent was written in North
America and the remaining 15 percent was written throughout the rest of the
world. The life/health operations provide individual life, group life, group
health, long-term care, 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. General Re's life/health
business is marketed primarily on a direct basis with the exception of group
health, which is marketed primarily through brokers.
U.S. life insurers and reinsurers are subject to substantially similar
regulatory requirements as those discussed in the North American
property/casualty section above. Regulation of the life/health reinsurance
industry outside of the United States is subject to the differing laws and
regulations of each country in which General Re has operations or writes
premiums.
FINANCIAL SERVICES
In 1996, General Re's financial services operations produced 3 percent of
consolidated revenues and 8 percent of consolidated pretax earnings. General
Re's financial services operations include derivative products, insurance
brokerage and management, investment management, reinsurance brokerage and
real estate management operations.
General Re Financial Products Corporation ("GRFP"), a dealer in derivative
products, offers a full line of interest rate, currency and equity swaps and
options, as well as structured finance products through its offices or
affiliates in New York, London, Tokyo, Hong Kong and Toronto. GRFP's client
base consists principally of major corporations, insurance companies,
financial institutions and sovereigns who use derivative products as part of
their asset and liability risk management strategies. In 1996, General Re
established three new companies affiliated with GRFP. These companies are
General Re Investment Holdings Corporation and its wholly owned subsidiaries,
General Re Corporate Finance, Inc. and General Re Funding Corporation. This
group of companies specializes in structured credit investments and tax
products.
In 1995, General Re expanded its investment management services for insurance
companies. In August 1995, General Re acquired all of the outstanding stock of
New England Asset Management in exchange for stock of General Re. The
resulting company, General Re-New England Asset Management, Inc. ("GR-NEAM"),
provides investment management services primarily to insurance companies that
seek General Re's expertise in managing insurance company investment
portfolios. GR-NEAM has approximately 48 insurance company clients and
approximately $10 billion of client assets under management or advisement at
December 31, 1996.
5
<PAGE>
The number of General Re's competitors in the financial services industry is
not known. As a dealer in derivative products, GRFP competes predominantly on
the basis of pricing, financial strength, risk management capabilities,
service and product innovation. GRFP's principal competitors include
investment and commercial banks, and other specialty companies dealing in
derivatives. GR-NEAM's principal competitors include a limited number of other
investment managers specializing in insurance company asset management.
OTHER INFORMATION
For additional information on General Re's businesses, see Item 7,
Management's Discussion and Analysis, and Note 19 to the consolidated
financial statements, "Information About General Re's Operations," included in
this report. Also, reference is made to the caption, "Property/Casualty
Insurance Claim Disclosures," on pages 28-31 of this report.
ITEM 2. PROPERTIES
The main offices of General Re 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 financial services subsidiary of General Re. 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 General Re. Under the terms of the lease, General Re 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. General Re has guaranteed
the rental obligations of Elm Street Corporation in connection with this
transaction.
National Re leases approximately 107,500 square feet of office space in
Stamford, Connecticut which was previously used as their principal offices.
The lease is noncancellable and will expire in 2009. General Re has subleased
this space until 2003 to a third party on approximately the same terms as the
original lease.
GRC Realty Corporation, also a wholly owned financial services subsidiary of
General Re, has retained title to General Re'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 leased to nonaffiliates. The Greenwich site is subject to a mortgage
expiring December 31, 1998, which had a remaining balance of $4 million at
December 31, 1996.
The principal operations of Cologne Re, the largest subsidiary in the
international property/casualty segment, are based in an office building of
approximately 130,000 square feet in Cologne, Germany. The North American
life/health operations of Cologne Re are based in an office building in
Stamford, Connecticut. Cologne Re owns both of these office buildings.
In addition, General Re's North American property/casualty, financial
services, and international life/health operations have branch and affiliate
operations conducted from leased premises in various cities in the United
States and foreign countries. At this time, General Re believes its facilities
are suitable for its purpose and provide adequate capacity for General Re's
present and anticipated needs.
ITEM 3. LEGAL PROCEEDINGS
General Re has been named as defendant in litigation arising from the ordinary
course of conducting an insurance and reinsurance business. These lawsuits
generally seek to establish liability under insurance or reinsurance contracts
issued by the subsidiaries, and occasionally seek punitive or exemplary
damages. General Re'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
General Re's reinsurance subsidiaries. In the judgment of management, none of
these cases nor any other litigation, individually or collectively, is likely
to result in judgments for amounts which, net of claim and claim expense
liabilities previously established, would be material to the financial
position, results of operations or cash flow of General Re.
6
<PAGE>
On July 1, 1996, U.S. Aviation Underwriters, Inc. ("USAU"), a subsidiary of
General Re, and John V. Brennan, the former Chairman and Chief Executive
Officer of USAU, after a trial in the U.S. District Court for the Eastern
District of New York, were found guilty of mail fraud in connection with the
allocation of insurance claims between two companies, arising out of the
December 7, 1987 crash of a domestic United States flight. General Re does not
expect the amount of any liability to USAU to be material to the financial
position, results of operations or cash flows of General Re.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR GENERAL RE CORPORATION'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
(a) The common stock of General Re Corporation is traded on the New York Stock
Exchange. The following table sets forth information as to the high and low
closing prices of General Re Corporation's common stock on the New York Stock
Exchange during 1996 and 1995.
<TABLE>
<CAPTION>
1996 1995
--------------- ---------------
HIGH LOW HIGH LOW
------- ------- ------- -------
<S> <C> <C> <C> <C>
First Quarter................................ $156.00 $142.38 $134.13 $122.88
Second Quarter............................... 153.25 139.13 137.63 125.50
Third Quarter................................ 154.50 140.83 152.13 129.88
Fourth Quarter............................... 169.38 142.50 157.88 142.88
</TABLE>
(b) The number of registered holders of common stock at December 31, 1996 was
4,033.
(c) The following table sets forth information as to the cash dividends paid
by General Re Corporation on shares of its common stock during each of the
past two years.
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
First Quarter................................................... $.51 $.49
Second Quarter.................................................. .51 .49
Third Quarter................................................... .51 .49
Fourth Quarter.................................................. .51 .49
</TABLE>
It is the intention of General Re Corporation to declare quarterly dividends
to the extent deemed appropriate by its Board of Directors. Dividends are paid
principally from amounts received by General Re Corporation as dividends from
GRC and the other operating subsidiaries.
7
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA: ELEVEN-YEAR SUMMARY
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992 1991
-------- -------- -------- -------- -------- --------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS AND RATIOS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED INFORMATION
Total revenues......... $ 8,296 $ 7,210 $ 3,837 $ 3,560 $ 3,387 $ 3,207
Net premiums written... 6,661 6,102 3,001 2,524 2,349 2,249
After-tax income before
accounting
changes/2/,/3/........ 894 825 665 697 596 657
Per share............. 11.00 9.92 7.97 8.11 6.84 7.46
Net income............. 894 825 665 711 657 657
Per share............. 11.00 9.92 7.97 8.28 7.55 7.46
After-tax income,
excluding realized
gains/2/,/3/.......... 877 788 621 604 465 563
Per share............. 10.79 9.47 7.43 7.01 5.30 6.37
Investment income
before tax............ 1,205 1,017 749 755 755 752
Investment income after
tax................... 909 787 622 619 620 618
Investments............ 26,562 23,494 18,898 14,346 11,532 10,842
Total assets........... 40,161 34,263 28,116 19,419 14,700 12,416
Long-term debt......... 290 155 157 192 199 301
Common stockholders'
equity................ 7,326 6,587 4,859 4,761 4,227 3,911
Return on equity/4/.... 12.6% 13.8% 12.9% 13.4% 11.4% 15.6%
-----------------------------------------------------------
NORTH AMERICAN
PROPERTY/CASUALTY
OPERATIONS
Net premiums written... $ 3,081 $ 2,964 $ 2,581 $ 2,275 $ 2,177 $ 2,122
Investment income
before tax............ 727 711 686 705 703 703
Pretax income,
excluding realized
gains/2/,/5/.......... 741 716 599 644 489 647
Statutory surplus...... 5,326 4,607 3,770 3,836 3,452 3,363
Investments............ 14,879 13,481 11,177 11,601 10,477 10,003
Net claims and claim
expense
liabilities/6/........ 8,741 7,385 7,029 6,803 6,635 6,230
Loss ratio............. 69.0% 67.3% 71.4% 70.0% 78.8% 72.0%
Expense ratio.......... 30.1% 32.3% 30.5% 31.1% 29.9% 29.3%
Combined ratio......... 99.1% 99.6% 101.9% 101.1% 108.7% 101.3%
-----------------------------------------------------------
INTERNATIONAL
PROPERTY/CASUALTY
OPERATIONS
Net premiums written... $ 2,505 $ 2,429 $ 420 $ 249 $ 172 $ 127
Investment income
before tax............ 394 247 52 43 47 44
Pretax income,
excluding realized
gains/2/,/5/.......... 320 200 46 25 24 30
Investments/7/......... 8,290 7,535 6,060 589 509 469
Net claims and claim
expense
liabilities/6/........ 4,664 4,352 3,289 253 202 164
Loss ratio............. 73.2% 77.0% 69.2% 75.1% 80.2% 75.8%
Expense ratio.......... 28.9% 25.8% 29.4% 30.9% 32.8% 35.2%
Combined ratio......... 102.1% 102.8% 98.6% 106.0% 113.0% 111.0%
-----------------------------------------------------------
LIFE/HEALTH OPERATIONS
Net premiums written... $ 1,075 $ 709 -- -- -- --
Investment income
before tax............ 59 40 -- -- -- --
Pretax income,
excluding realized
gains/2/,/5/.......... 53 50 -- -- -- --
Net policy benefits for
life/health
contracts/6/.......... 523 379 $ 330 -- -- --
-----------------------------------------------------------
FINANCIAL SERVICES
Revenues, excluding net
realized gains........ $ 269 $ 250 $ 229 $ 211 $ 115 $ 100
Pretax income,
excluding realized
gains/2/,/5/.......... 100 100 85 58 10 1
-----------------------------------------------------------
COMMON STOCKHOLDERS'
INFORMATION
Average common shares
outstanding........... 80.3 82.1 82.1 84.5 85.7 87.1
Dividend per common
share................. $ 2.04 $ 1.96 $ 1.92 $ 1.88 $ 1.80 $ 1.68
Total common
dividends............. 163 161 157 159 153 146
Cost of common share
repurchases........... 735 35 207 134 179 59
Common stockholders'
equity per share...... 89.82 80.22 59.35 56.92 49.89 45.14
Common share
price:/8/High......... 169.38 157.88 128.50 132.75 123.13 101.88
Low.................... 139.13 122.88 102.50 105.38 78.63 84.88
Year end............... 157.75 155.00 123.50 107.00 115.75 101.88
</TABLE>
See page 10 and notes to consolidated financial statements.
8
<PAGE>
<TABLE>
<CAPTION>
1990 1989 1988 1987 1986 CAGR/1/
-------- -------- -------- -------- -------- ----------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS AND RATIOS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED INFORMATION
Total revenues......... $ 2,954 $ 2,742 $ 2,719 $ 3,115 $ 2,853 11.3%
Net premiums written... 2,150 1,898 1,903 2,365 2,561 10.0
After-tax income before
accounting
changes/2/,/3/........ 614 599 513 469 321 10.8
Per share............. 6.89 6.52 5.39 4.62 3.14 13.4
Net income............. 6.14 599 480 511 329 10.5
Per share............. 6.89 6.52 5.04 5.04 3.22 13.1
After-tax income,
excluding realized
gains/2/,/3/.......... 566 559 518 458 298 11.4
Per share............. 6.35 6.08 5.44 4.52 2.92 14.0
Investment income
before tax............ 706 673 570 506 413 11.3
Investment income after
tax................... 581 558 494 435 345 10.2
Investments............ 9,510 8,799 7,866 6,969 5,978 16.1
Total assets........... 11,033 10,390 9,394 8,902 8,078 17.4
Long-term debt......... 302 263 114 115 115 9.7
Common stockholders'
equity................ 3,270 3,084 2,695 2,563 2,413 11.7
Return on equity/4/.... 17.8% 19.3% 19.7% 18.4% 14.2% --
-----------------------------------------------------------
NORTH AMERICAN
PROPERTY/CASUALTY
OPERATIONS
Net premiums written... $ 2,040 $ 1,789 $ 1,780 $ 2,251 $ 2,485 2.2%
Investment income
before tax............ 662 638 539 479 386 6.5
Pretax income,
excluding realized
gains/2/,/5/.......... 649 612 511 449 271 10.6
Statutory surplus...... 2,902 2,684 2,319 2,009 1,840 11.2
Investments............ 8,848 8,417 7,532 6,666 5,725 10.0
Net claims and claim
expense
liabilities/6/........ 5,816 5,535 5,218 4,739 4,024 8.1
Loss ratio............. 67.5% 69.7% 70.7% 74.5% 79.0% --
Expense ratio.......... 31.5% 28.3% 28.8% 24.7% 24.7% --
Combined ratio......... 99.0% 98.0% 99.5% 99.2% 103.7% --
-----------------------------------------------------------
INTERNATIONAL
PROPERTY/CASUALTY
OPERATIONS
Net premiums written... $ 110 $ 109 $ 123 $ 114 $ 76 41.8%
Investment income
before tax............ 39 31 27 24 21 34.1
Pretax income,
excluding realized
gains/2/,/5/.......... 25 35 33 26 23 30.1
Investments/7/......... 442 342 299 279 221 43.7
Net claims and claim
expense
liabilities/6/........ 156 121 109 105 73 51.5
Loss ratio............. 71.5% 62.4% 64.4% 64.2% 61.0% --
Expense ratio.......... 37.5% 33.4% 31.3% 31.9% 31.5% --
Combined ratio......... 109.0% 95.8% 95.7% 96.1% 92.5% --
-----------------------------------------------------------
LIFE/HEALTH OPERATIONS
Net premiums written... -- -- -- -- -- --
Investment income
before tax............ -- -- -- -- -- --
Pretax income,
excluding realized
gains/2/,/5/.......... -- -- -- -- -- --
Net policy benefits for
life/health
contracts/6/.......... -- -- -- -- -- --
-----------------------------------------------------------
FINANCIAL SERVICES
Revenues, excluding net
realized gains........ $ 88 $ 90 $ 101 $ 106 $ 101 10.3%
Pretax income,
excluding realized
gains/2/,/5/.......... 6 14 27 30 28 13.6
-----------------------------------------------------------
COMMON STOCKHOLDERS'
INFORMATION
Average common shares
outstanding........... 88.0 91.3 95.3 101.4 102.0 --
Dividend per common
share................. $ 1.52 $ 1.36 $ 1.20 $ 1.00 $ 0.88 8.8%
Total common
dividends............. 133 124 114 101 90 6.1
Cost of common share
repurchases........... 236 206 268 274 -- --
Common stockholders'
equity per share...... 37.50 34.28 29.04 26.20 23.47 14.4
Common share
price:/8/High......... 93.00 95.75 59.25 68.38 68.88 9.4
Low.................... 69.00 55.00 45.88 48.75 49.44 10.9
Year end............... 93.00 87.13 55.25 55.88 55.50 11.0
</TABLE>
See page 10 and notes to consolidated financial statements.
9
<PAGE>
NOTES TO THE ELEVEN-YEAR SUMMARY OF SELECTED FINANCIAL DATA
Only continuing operations are presented. Balance sheet data are as of
December 31st. The 1996 North American property/casualty operations include
the balance sheet of National Re as of December 31, 1996 and income statement
amounts since the October 3, 1996 acquisition. 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 beginning at December 31, 1994 and income statement amounts
beginning in 1995. Only nine months of Cologne Re's 1995 results are included
in General Re's 1995 results due to the one-quarter reporting lag. Loss
ratios, expense ratios and combined ratios shown in the table are computed in
relation to net premiums earned (referred to as a "GAAP" combined ratio).
(1) Represents compound annual growth rate.
(2) Excludes cumulative effect of accounting changes. The balance sheet data
in the table on pages 8 and 9 reflect the adoption of Statement of
Financial Accounting Standards ("SFAS") No. 115, Accounting For Certain
Investments in Debt and Equity Securities in 1994 and the adoption of SFAS
No. 113, Accounting and Reporting for Reinsurance of Short-Duration and
Long-Duration Contracts in 1993, with reclassifications made for 1992.
Adoption of SFAS No. 113 did not affect results from operations or common
stockholders' equity. In 1993, General Re 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, General Re adopted SFAS 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.
(3) After deducting minority interest.
(4) Return on equity is computed based on 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.
(5) Excludes amortization of goodwill.
(6) Net of reinsurance.
(7) Also includes investments for life/health operations.
(8) The common share price information is based on General Re Corporation's
daily closing price on the New York Stock Exchange.
10
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
CONSOLIDATED OPERATING RESULTS
Comparison of 1996 with 1995
Net income of General Re Corporation and its subsidiaries ("General Re") was
$894 million or $11.00 per share in 1996, an increase of 10.9 percent over the
$9.92 per share earned in 1995. These results include after-tax realized gains
of $.21 per share in 1996 and $.45 per share in 1995. The increase in 1996
earnings was primarily attributable to improved property/casualty underwriting
results and growth in investment income in the North American and
international property/casualty operations. Due to General Re's reporting of
its international operations on a quarter lag, the 1996 results also benefited
from a full year of results for Kolnische Ruckversicherungs-Gesellschaft AG
("Cologne Re") and the related joint-venture company, General Re-CKAG
Reinsurance and Investment S.a r.l. ("GR-CK"), compared to only three quarters
in 1995. In addition, North American property/casualty operations include the
operating results of National Re Corporation and its subsidiaries ("National
Re") since its acquisition by General Re Corporation on October 3, 1996.
Consolidated net premiums written in 1996 were $6,661 million, an increase of
$559 million or 9.2 percent, from $6,102 million in 1995. North American
property/casualty premium volume was $3,081 million in 1996, compared with
$2,964 million in 1995, an increase of 3.9 percent. North American
property/casualty net premiums written in 1996 include approximately $89
million from National Re. Net premiums written in the international
property/casualty reinsurance operations were $2,505 million in 1996, compared
to $2,429 million in 1995. Net premiums written for the life/health segment,
which consist of Cologne Re's North American and international life/health
operations, were $1,075 million for 1996, as compared to $709 million in 1995.
Consolidated investment income was $1,205 million in 1996, compared with
$1,017 million in 1995. The consolidation of a full year of Cologne Re in 1996
accounts for approximately $90 million of the $188 million increase in
consolidated investment income in 1996. Investment income for the North
American property/casualty operations was $727 million in 1996, an increase of
2.3 percent over $711 million earned in 1995. The growth of pretax investment
income in the North American operations was adversely affected by (1) the
shift in assets from taxable to tax-advantaged securities over the last few
years in response to General Re's tax planning strategies; (2) the maturity
and calls of higher yielding fixed income securities; and (3) the use of North
American cash flow from operations for common dividends and share repurchases.
Investment income for the international property/casualty operations increased
59.5 percent to $394 million in 1996, compared with $247 million in 1995. The
life/health operations earned investment income of $59 million in 1996,
compared to $40 million in 1995. The financial services operations earned
investment income of $25 million in 1996, compared with $19 million in 1995.
Comparison of 1995 with 1994
Net income in 1995 was $825 million or $9.92 per share, an increase of 24.5
percent over $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 North American property/casualty operations, growth in
after-tax investment income and increased income from General Re's
international property/casualty operations. The 1995 results include three
quarters of the year's results for Cologne Re and GR-CK, which are not
reflected in the comparable 1994 amounts, since GR-CK was not formed 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. North American
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 most of the growth
attributable to the inclusion of Cologne Re's premiums during the year. In
addition, the underwriting results of General Re's wholly owned European
operations, which were predominantly reported on
11
<PAGE>
a full underwriting-year lag in prior years, are now reported on a one-quarter
lag, beginning in 1995. The international wholly owned 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
North American and international life/health operations, were $709 million for
1995.
Consolidated net 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. Investment income for the North American
property/casualty operations was $711 million in 1995, an increase of 3.7
percent over $686 million earned in 1994. The growth of pretax investment
income in the North American operations was adversely affected by the shift in
assets from taxable to tax-advantaged securities over the past few years in
response to General Re's tax planning strategies, the maturity or call of
higher yielding fixed income securities and the use of North American cash
flow from operations for common dividends and stock repurchases. 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 earned
investment income of $40 million in 1995. The financial services operations
earned investment income of $19 million in 1995, compared with $11 million in
1994.
Pretax income discussed in each of the segment sections that follow is before
minority interest deductions and goodwill amortization, both of which are
deemed corporate expenses that have not been allocated to the segments.
NORTH AMERICAN PROPERTY / CASUALTY OPERATING RESULTS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1996 1995 1994
-------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C>
Income before taxes and realized gains............ $ 741 $ 716 $ 599
Net premiums written.............................. 3,081 2,964 2,581
Net underwriting income (loss).................... 27 13 (46)
Combined ratio.................................... 99.1% 99.6% 101.9%
Investment income................................. $ 727 $ 711 $ 686
Net other loss.................................... (13) (8) (40)
</TABLE>
North American property/casualty pretax income in 1996, excluding realized
gains, increased 3.5 percent over 1995. This growth in pretax income was
primarily due to an improvement in the underwriting result of $14 million and
an increase in investment income of $16 million, partly offset by an increase
in net other loss of $5 million. The 1994 underwriting result was adversely
affected by the earthquake in Northridge, California on January 17th. The
growth in investment income of 2.3 percent in 1996 was due to an increase in
the portfolio as a result of operating cash flows in 1995 and 1996. The
increase in net other loss in 1996 was due to higher general corporate
expenses which are charged to this segment and non-recurring fee income in
1995.
The combined underwriting ratio is computed based on the relationship of
losses and underwriting expenses to premiums earned. This ratio is General
Re's principal indicator of underwriting performance, with less than 100.0
percent indicating an underwriting profit. In 1996, the combined ratio for the
North American property/casualty segment was 99.1 percent, compared to 99.6
percent in 1995 and 101.9 percent in 1994. The 1996 and 1995 underwriting
results were consistent with General Re's operating objective of achieving an
underwriting profit.
On October 3, 1996, General Re Corporation acquired all of the outstanding
shares of National Re, a North American property/casualty reinsurance group,
in exchange for 4,023,901 shares of General Re's common stock and $313 million
in cash, including expenses, for a total cost of $900 million. National Re
provides property and casualty reinsurance to insurers written on a direct
basis. In 1996, National Re's full-year gross premiums written
12
<PAGE>
were $364 million, of which approximately 70 percent was casualty business and
30 percent was property business. National Re's clients are predominantly
small- to medium-sized, regional and specialty property/casualty insurers.
Like General Re, National Re principally writes treaty and facultative
reinsurance on an excess-of-loss basis.
1996 NET PREMIUMS WRITTEN
[PIE CHART] Net premiums written in 1996 for the
North American property/casualty
GRC Treaty & Facultative 87.5% operations were $3,081 million, an
increase of 3.9 percent from $2,964
General Star 8.3% million in 1995. The pie chart to the
left depicts the relative share of
Genesis 4.2% property/casualty premium by operating
unit and the table below shows net
premiums for the past three years by
operating unit.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1996 1995 1994
-------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C>
General Reinsurance Corporation
(treaty/facultative).............................. $ 2,696 $ 2,643 $ 2,288
General Star Companies (excess and surplus)........ 256 210 191
Genesis Companies (direct excess and alternative
markets).......................................... 129 111 102
-------- -------- --------
Total............................................. $ 3,081 $ 2,964 $ 2,581
======== ======== ========
</TABLE>
General Reinsurance Corporation's ("GRC") treaty and facultative reinsurance
premiums grew by 2.0 percent in 1996. Included in this figure is $89 million
of net premiums written from National Re. GRC's premium growth was adversely
affected by the nonrenewal of a large quota share treaty contract. Excluding
the premiums associated with the nonrenewed contract and National Re, GRC's
property/casualty premiums written increased 8.7 percent over the 1995
amounts. The underlying growth in GRC's premiums has slowed from growth in the
prior few years due to the increasingly competitive primary insurance and
reinsurance environments, increased retentions by certain large primary
insurers, and the consolidation of companies in the primary insurance
industry. In 1996, GRC's premium growth was primarily in the regional and
specialty accounts, while individual risk facultative business was essentially
flat.
The wholesale nature of reinsurance transactions periodically results in
somewhat volatile premium trends between quarters and years. The addition or
loss of a large contract may significantly affect General Re's premium growth,
although large contracts generally have a smaller effect on earnings than on
premium trends. General Re's treaty contracts usually include short-term
cancellation provisions. General Re's largest treaty was 7.7 percent of total
North American net premiums written.
For the General Star operations, which primarily write excess, surplus and
specialty insurance, net premiums written grew 22.1 percent in 1996 due to
increases in direct writings and retention levels. The facilities department
within General Star grew by $12 million principally in the casualty errors and
omissions line of business. The property department increased premium by $15
million primarily in fire and allied lines. The primary casualty department
increased its net premiums by $9 million, while the net premiums of the excess
casualty department increased by $11 million. General Star has produced a
statutory underwriting profit for twelve 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 15.9 percent over 1995 levels, principally due to
growth in directors' and officers' coverage. Property premiums grew by $8
million due to increased emphasis on multiple line programs with existing
accounts.
13
<PAGE>
INTERNATIONAL PROPERTY / CASUALTY OPERATING RESULTS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1996 1995 1994
-------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C>
Income before taxes and realized gains.............. $ 320 $ 200 $ 46
Net premiums written................................ 2,505 2,429 420
Net underwriting income (loss)...................... (53) (63) 6
Combined ratio...................................... 102.1% 102.8% 98.6%
Investment income................................... $ 394 $ 247 $ 52
Net other income (loss)............................. (22) 16 (12)
</TABLE>
Income before taxes and realized gains for the international property/casualty
operations was $320 million in 1996, an increase of 59.2 percent from 1995.
The segment's results are affected by the inclusion of a full year of Cologne
Re's operating results in 1996 as compared to only three quarters in 1995 (see
below for a description of the Cologne Re transaction). Excluding the
additional quarter, the international property/casualty segments income before
taxes would have grown 41.1 percent.
[PIE CHART] International net premiums written were
$2,505 million in 1996, compared with
Germany 29.1% $2,429 million in 1995. The composition
of international property/casualty
US$ Foreign 17.2% premiums by currency presented in the
chart to the left displays the
Australia 5.4% geographic diversification of General
Re's international business. The
United Kingdom 10.5% category labelled "other" represents
more than 100 currencies.
France 6.1%
Japan 4.4%
Spain 3.1%
Other 24.2%
The reported growth in premiums was
affected by a number of factors,
including: a) the inclusion of a full
year of Cologne Re's property/casualty
premiums in 1996 compared to only three
quarters in 1995; b) the effect of
including current underwriting year
estimates of the wholly owned European
operations beginning in 1995;
c) the effect of a stronger U.S. dollar which lowered international premiums
when translated into U.S. dollars; and d) the placing of Cologne Re's U.S.
property/casualty subsidiary into runoff. Adjusting for these factors,
international property/casualty net premiums written decreased 2.9 percent in
1996. As in North America, international property/casualty insurance became
more competitive in 1996, and as a result, General Re has been cautious about
business expansion in this environment.
Income before taxes and realized gains for the international property/casualty
operations of $200 million in 1995 increased 334.4 percent over 1994 levels.
The segment's results in 1995 were significantly affected by the inclusion of
Cologne Re's results and, therefore, are not directly comparable to the
results in 1994.
On December 28, 1994, General Re 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, GR-CK. General Re 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 General Re 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.
14
<PAGE>
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. General Re also receives an annual Class B
cash dividend of 50.1 percent of GR-CK's distributable income, as defined in
the joint-venture agreement. The dividends related to the 1995 calendar
result, which were paid in 1996 with respect to the Class A and B shares were
$27 million and $26 million, respectively.
General Re has an option to purchase from January 1, 2002 to January 1, 2004
the Class A shares of GR-CK owned by 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 General Re does not exercise its option to purchase the Class A
shares of GR-CK from CKAG, CKAG has an option to purchase the Class B shares
of GR-CK from General Re 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 U.S. 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 of Cologne Re through GR-CK, General Re
purchased for its own account an additional 8.4 percent of the ordinary and
preference shares of Cologne Re through December 31, 1996 for aggregate
consideration of $85 million, which increased General Re's consolidated
economic interest in Cologne Re to 74.7 percent at December 31, 1996.
LIFE/HEALTH OPERATING RESULTS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1996 1995 1994
-------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C>
Income before taxes and realized gains............... $ 53 $ 50 --
Net premiums written
Life................................................ 812 542 --
Health.............................................. 263 167 --
Net underwriting income.............................. 2 10 --
Investment income.................................... 59 40 --
Net other income (loss).............................. (7) 0 --
</TABLE>
The life/health operations include a full year of results in 1996 as compared
to only three quarters of life/health operations in 1995, due to General Re's
reporting of its international operations on a quarter lag. This segment
includes the North American and international life/health operations of
Cologne Re. During 1996, the life/health operations' income before taxes and
realized gains increased by 6.4 percent. Excluding the effect of the quarter
lag, life/health income would have declined 17.4 percent in 1996 due to lower
underwriting margins.
Net premiums written in 1996 were $1,075 million, an increase of 51.7 percent
over 1995. Excluding the effect from the quarter lag, life/health premiums
increased 16.4 percent in 1996. Approximately 43 percent of General Re's
life/health net premiums was written in Europe, another 42 percent was written
in North America and the remaining 15 percent was written throughout the rest
of the world. The segment experienced strong premium growth in both North
America and internationally. The North American operation's growth was
primarily in the individual life, group life and individual health segments.
The international operation's growth was spread throughout Europe, the United
Kingdom and Australia. The 1996 underwriting income of $2 million decreased by
$8 million from 1995 due to increased frequency in mortality experience and
higher claims in the Medicare supplement and long-term care lines in the North
American operations. Investment income increased by $19 million in 1996 as
compared to 1995, in part due to the four quarters of investment income in
1996.
15
<PAGE>
FINANCIAL SERVICES OPERATING RESULTS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1996 1995 1994
-------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C>
Income before taxes, minority interest and realized
gains............................................. $ 100 $ 100 $ 85
Total revenues..................................... 269 250 229
Net investment income.............................. 25 19 11
</TABLE>
The financial services operations include General Re's derivative products,
insurance brokerage and management, investment management, reinsurance
brokerage and real estate management operations. Pretax income for the
financial services operations was $100 million in each of 1996 and 1995. The
overall unchanged result was due to lower 1996 income in General Re's
derivative products operations, General Re Financial Products Corporation and
affiliates ("GRFP"), and from U.S. Aviation Underwriters, Inc., an aviation
pool manager, partially offset by increased income from General Re
Underwriting Services Limited, which provided underwriting services for
Tempest Reinsurance Company Limited ("Tempest"), an affiliated Bermuda-based
company specializing in excess property catastrophe reinsurance. This
underwriting services agreement was terminated on July 1, 1996 when General Re
sold its 20.7 percent interest in Tempest; this termination eliminated a major
portion of General Re Underwriting Services Limited's operations.
GRFP is a dealer in derivative products and offers a full line of interest
rate, currency and equity swaps, options and other derivative products. GRFP's
gross trading revenue was $144 million in 1996, compared to $142 million in
1995 and $135 million in 1994. The overall growth of GRFP's business in the
U.S. derivatives market was slower than in international markets.
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, equity, 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 U.S. and foreign government
securities or entering into offsetting derivative transactions.
In August 1995, General Re acquired all of the outstanding stock of New
England Asset Management in exchange for stock of General Re and combined it
with General Re'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 General
Re's expertise in managing insurance company investment portfolios. GR-NEAM
has approximately 48 insurance company clients and approximately $10 billion
of client assets under management or advisement at December 31, 1996.
Pretax income for the financial services operations was $100 million in 1995,
an increase of 18.1 percent from $85 million earned in 1994. The increase in
1995 income was principally due to increased profitability of GRFP.
CONSOLIDATED FINANCIAL CONDITION
Assets/Investments
At December 31, 1996, total assets were $40,161 million, compared with $34,263
million at December 31, 1995. The $5,898 million growth in assets was
attributable to an increase of $2,249 million in the total assets of the North
American property/casualty operations, $1,022 million in the international
reinsurance operations, and $2,627 million in the financial services segment.
The growth in the assets of the North American property/casualty operations
was primarily due to the inclusion of National Re's assets of $2,237 million.
The increase in the assets of the international operations was due to the
investment of operating cash flows offset by the decline of the German mark
compared to the U.S. dollar which decreased assets by approximately
$734 million.
16
<PAGE>
General Re's invested assets increased from $23,494 million at December 31,
1995 to $26,562 million at December 31, 1996. The $3,068 million increase in
invested assets was the result of an increase of $1,398 million in the North
American property/casualty segment, an increase of $755 million in the
international reinsurance operations and an increase of $915 million in the
financial services operations. Unrealized appreciation after deferred income
taxes on General Re's investment portfolio was $1,625 million and $1,468
million at December 31, 1996 and December 31, 1995, respectively. The increase
was principally due to the appreciation of equities held in the North American
and the international operations and appreciation of bonds held in the London
and Australian operations, partially offset by a decline in the value of bonds
held in the United States.
NORTH AMERICAN PROPERTY/CASUALTY INVESTED ASSETS
General Re's North American property/casualty investment portfolios are
managed for both after-tax total return and after-tax current income. These
investment objectives take into consideration the duration of the operation's
liabilities and investment parameters requiring high credit quality across the
portfolios. At December 31, 1996, total invested assets of the North American
property/casualty operations were $14,879 million, a 10.4 percent increase
over 1995 invested assets.
The composition of the North American property/casualty invested assets as a
percent of the total portfolio at December 31, 1996 is shown in the pie chart
below.
[PIE CHART] During 1996, there was a minimal
amount of net new cash flow
Preferred equities 5.6% allocated to the North American
property/casualty portfolio, as
Other 2.8% almost all available cash flow was
used to purchase National Re, pay
U.S. Government bonds 5.0% dividends to stockholders and
repurchase General Re's common
Foreign bonds 2.5% stock. Within the portfolio, General
Re continued to shift assets from
Mortgage-backed bonds 6.5% taxable to tax-advantaged securities
as part of its tax planning
Corporate bonds 6.3% strategies. In addition, this shift
reflects management's belief that
Municipal bonds 51.7% for much of the year, municipal
securities were attractively priced
Common equities 19.6% relative to their taxable
equivalents. General Re anticipates
that the investment of future cash
flows will be weighted towards
municipal securities.
To minimize its exposure to shifts in interest rates, General Re balances
within a range 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 North
American taxable and tax-exempt portfolios in years:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
AVERAGE MATURITY
Taxable portfolio............................................... 6.8 9.4 7.7
Tax-exempt portfolio............................................ 11.7 10.9 9.1
EFFECTIVE DURATION
Taxable portfolio............................................... 4.0 5.2 4.6
Tax-exempt portfolio............................................ 7.3 6.6 5.7
</TABLE>
17
<PAGE>
At December 31, 1996, the effective average maturity of the fixed-maturity
portfolio was 10.3 years, compared to an estimated average life of 10.6 years
for General Re's property/casualty claim liabilities. The duration of
property/casualty assets was 5.1 years, compared with 4.5 years for the
property/casualty claim liabilities. This compares with 1995 durations of 5.1
years and 4.9 years, respectively. The decrease in the duration of General
Re's property/casualty claim liabilities at December 31, 1996 was principally
due to the mix of premiums written.
Included in fixed-maturity investments were mortgage-backed securities of $966
million (3.6 percent of consolidated invested assets) and other asset-backed
securities of $53 million (0.2 percent of consolidated invested assets) at
December 31, 1996. These securities have interest and principal repayment
patterns that differ from typical fixed maturities. Mortgage-backed securities
are generally issued by quasi-federal agencies or federally supported
institutions and, to a lesser extent, by corporations. They 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 mortgage-backed
securities portfolio comprises pass-through securities (49.9 percent) and CMOs
(50.1 percent) based on December 31, 1996 market values. The CMO portfolio is
composed of a range of security types but is primarily invested in sequential
and planned amortization class securities. Other asset-backed securities are
usually debt instruments which are collateralized by credit card or auto loan
receivables whose interest and principal payments will vary with the
underlying receivables. Most of the mortgage-backed and other asset-backed
securities are publicly traded and market values were obtained from an
external pricing service.
At December 31, 1996, common equity investments in the North American
portfolio totaled $2,925 million, representing 19.6 percent of the North
American property/casualty investment portfolio. The North American equity
portfolio is well diversified and primarily consists of holdings in companies
with large market capitalizations which collectively have a calculated
volatility approximating the Standard & Poor's 500 index. During 1996, General
Re purchased futures contracts to hedge a portion of the common equity
portfolio as a means to achieve target asset allocations within the North
American portfolio. To the extent that General Re's portfolio held the same
securities as the futures contracts, related gains and losses on the futures
contracts were treated as basis adjustments to those securities held.
Otherwise, gains and losses on the futures contracts were not deemed to
qualify for such hedge accounting treatment. In 1996, realized gains included
$72 million of losses from these futures contracts and $53 million of losses
were recorded as basis adjustments for hedged equities.
A small portion of the North American investment portfolio was dedicated to
nontraditional, private investments. These alternative investments, included
in the balance sheet caption, "Other invested assets," were $435 million (1.6
percent of consolidated invested assets) and $344 million (1.5 percent of
consolidated invested assets) at December 31, 1996 and 1995, respectively.
Most of these investments are interests in limited partnerships managed by
outside professional managers. Over time, these investments are expected to
provide a higher return than the overall North American property/casualty
investment 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 General Re's portfolio. General Re 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.
18
<PAGE>
Credit Quality
Tax-exempt Taxable Credit considerations are an
important part of General Re's
Nonrated .05 1.3 fixed-maturity investment
strategy. The overall fixed-
Below BBB .01 2.1 maturity portfolio continued
to have an average credit rating
BBB 2.1 3.8 of AA at December 31, 1996. The
distribution of General Re's North
A 22.1 17.0 American property/casualty fixed-
maturity portfolio by credit
AA 32.6 12.1 quality is presented in the chart
on the left.
AAA 42.6 63.7
Investment Returns
The overall pretax yield on the North American property/casualty invested
assets was 5.4 percent in 1996 and 5.9 percent in 1995. During 1996, the
segment had approximately $494 million of calls and maturities on
grandfathered tax-exempt bonds. These bonds had an average yield of
approximately 7.9 percent and the proceeds from the calls were reinvested at
an average yield of approximately 5.3 percent.
Based on its current investment portfolio and the current yield curve, General
Re presently anticipates additional calls and maturities through the end of
1997 of approximately $100 million of grandfathered tax-exempt bonds and $200
million of preferred equities, both with an average yield of approximately 7.6
percent. Reinvestment of these funds may adversely affect average portfolio
yields and investment income.
Pretax total return for North American investments was 7.1 percent in 1996,
compared with a return of 18.9 percent in 1995 and (2.2) percent in 1994.
Almost all investment sectors recorded lower returns in 1996 than in 1995,
primarily due to higher interest rates in 1996 and a difficult comparison
against the very favorable gains in U.S. equity markets during 1995. The total
pretax returns on the North American investment portfolio by major asset class
were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Short-term securities............................. 5.6% 6.0% 4.6%
Taxable bonds..................................... 3.6 17.5 (3.0)
Tax-exempt bonds.................................. 3.9 15.1 (2.4)
Foreign bonds..................................... 9.5 13.7 4.1
Common equities................................... 22.6 37.9 (2.6)
Foreign equities.................................. 18.5 9.2 12.7
Preferred equities................................ 9.1 17.6 (5.1)
</TABLE>
The total after-tax return for the North American investment portfolio was 6.0
percent in 1996.
19
<PAGE>
INTERNATIONAL INVESTED ASSETS
General Re's international [PIE CHART]
property/casualty and life/health
reinsurance operations held invested Real estate/other 3.1%
assets of $8,290 million at December 31,
1996, an increase of $755 million from Common equities 9.0%
December 31, 1995. These portfolios
include $6,545 million of Cologne Re's Short-term 9.4%
investments, $1,255 million in wholly
owned international operations' Government bonds 45.4%
investments and $490 million of GR-CK
investments. Most of the international Corporate & other bonds 33.1%
invested assets are managed internally.
The composition of the international
investment portfolio by major asset class
at December 31, 1996 is presented in the
chart to the right. During 1996, the
composition of the international
investment portfolio did not change
significantly, although there was a
reduction in the level of short-term
securities in favor of bonds.
General Re's international investment portfolios are managed for both after-
tax total return and after-tax investment income, taking into consideration
the duration and currency structure of the operations' reinsurance
liabilities. The investment objectives of each individual subsidiary company
within the segment are determined by specific investment guidelines which
consider the different legal and tax requirements in their respective
jurisdictions.
The fixed income portfolio of the
[GRAPH] international operations consists of high
credit quality securities. Substantially
Nonrated 0.3% all bonds were investment grade; the
average rating of the portfolio was above
Below BBB 0.8% AA. The table to the left presents the
credit ratings of fixed maturity
BBB 1.3% securities held in the international
investment portfolios. The common equity
A 6.0% portfolio was well diversified with
holdings principally from the major stock
AA 34.2% markets in Europe, the United States and
Japan. The real estate portfolio of $176
AAA 57.4% million was internationally diversified
with principal holdings in Germany. The
relatively high share of short-term
investments in the portfolio is due to
the need to hedge investment crediting
provisions in certain deposit contracts.
The portfolio is diversified by country of issuer and duration to match the
currency and duration structure of the related reinsurance liabilities.
20
<PAGE>
The currency structure of the international investment portfolio is globally
diversified according to the currency structure of the underlying reinsurance
business. General Re hedges its currency risk by seeking to match its assets
and liabilities by currency. The composition of the international operation's
invested assets by currency is presented in the chart below.
The overall pretax yield on the
[PIE CHART] international portfolio was 5.9
percent in 1996 and 5.5 percent
Australian Dollar 7.6% during 1995. The international
operations write a greater portion of
Sterling 16.2% their business in property lines of
business than General Re's North
French Franc 3.5% American operations and, accordingly,
invest in shorter duration securities
Japanese Yen 1.6% as part of their program to match
asset and liability durations. The
Other 12.9% sharing of investment income under
certain reinsurance agreements lowers
German Mark 32.0 the international investment yield.
US Dollar 26.2%
LIABILITIES
The gross liability for claims and claim expenses, which provides for
estimated future payments arising from current and prior property/casualty
reinsurance transactions, amounted to $15,977 million and $14,252 million at
December 31, 1996 and 1995, respectively. Growth in the liability of $1,725
million during 1996 was due to $1,410 million in the North American
property/casualty segment and $315 million in the international
property/casualty segment. Growth in the North American property/casualty
gross liability for claims and claim expenses is in part due to $1,037 million
of liabilities assumed with the acquisition of National Re. In addition to the
gross liability for property/casualty claim and claim expenses, General Re had
a gross liability for policy benefits for life/health contracts of $751
million and $580 million at December 31, 1996 and 1995, respectively. The
asset for reinsurance recoverable on paid and unpaid losses was $2,935 million
at December 31, 1996, compared to $2,794 million at December 31, 1995. Growth
of $141 million in the asset for reinsurance recoverable was due to $112
million associated with the North American property/casualty segment, $3
million for the international property/casualty operations and $26 million
related to the life/health operations. Approximately $89 million of the
increase in reinsurance recoverables was due to the acquisition of National
Re.
The gross liability and reinsurance recoverable for claims and claim expenses
were based on General Re's analysis of reports and individual case estimates
received from ceding companies. The liability and related recoverables, which
include an amount estimated by General Re for claims and claim expenses
incurred but not reported ("IBNR"), are evaluated continuously by management,
annually by General Re's independent accountants 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.
Consolidated net claims and claim expenses for 1995 and prior accident years
experienced favorable development of $39 million in 1996. Net claims and claim
expenses for 1995 and prior accident years for the North American operations
experienced favorable development of $48 million in 1996. The net favorable
loss development was due to favorable development on casualty lines of
business, partially offset by losses related to environmental, asbestos and
other mass tort claims. Net claims and claim expenses for 1995 and prior
accident years for the international operations, after the effect of foreign
exchange, had adverse development of $9 million in 1996. The net adverse loss
development for the international operations was primarily related to
strengthening of reserves for environmental, asbestos and other mass tort
claims in runoff operations.
Included in General Re'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 remediation costs associated
with
21
<PAGE>
hazardous waste sites and bodily injury claims relating to asbestos products
and environmental hazards. 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>
1996 1995 1994
------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
Gross liability, beginning of year........................ $1,756 $1,478 $1,332
Reinsurance recoverable................................... 498 382 444
------ ------ ------
Liability, net of reinsurance, beginning of year.......... 1,258 1,096 888
Amount incurred during year.............................. 179 298 239
Less: amount paid during year............................ 108 136 100
Acquired companies (National Re in 1996; Cologne Re in
1994)................................................... 25 -- 69
------ ------ ------
Liability, net of reinsurance, end of year................ 1,354 1,258 1,096
Reinsurance recoverable................................... 635 498 382
------ ------ ------
Gross liability, end of year.............................. $1,989 $1,756 $1,478
====== ====== ======
</TABLE>
General Re continually estimates its liabilities and related reinsurance
recoverable for environmental and latent injury claims and claim expenses.
While most of its liabilities for such claims arise from exposures in North
America, General Re 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. General Re's estimate for IBNR 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.
General Re 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 121 active
direct excess coverage cases involving environmental and latent injury claims
at December 31, 1996. Such coverage litigation expenses are estimated using an
actuarial estimate of actionable items and their projected costs. General Re
paid $7 million in such costs during 1996, and as of December 31, 1996, the
liability for future litigation costs related to coverage disputes for
environmental and latent injury claims was $132 million (included in the table
above). As coverage disputes are tried and verdicts rendered, General Re
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 the ceding company
and the reinsurer, General Re does not expect the future costs associated with
reinsurance disputes to be material.
Comprehensive environmental laws have been enacted in many foreign countries,
generally imposing sanctions in the form of cleanup costs, civil damage
awards, fines and/or imprisonment. Changes in environmental regulations and
environmental verdicts may affect future claim development.
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.
General Re 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 General Re 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 General Re'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.
22
<PAGE>
General Re 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, 1996, General Re recorded
$1,662 million in claim liability discount, of which $970 million relates to
tabular reserves and $692 million relates to nontabular reserves for medical
costs associated with tabular reserve claims. The Delaware Insurance
Department confirmed that General Re may discount both its tabular reserves
and the medical expenses associated with such tabular reserves at 4.5 percent
per year.
Major catastrophe losses in recent years have had a significant effect on the
insurance and reinsurance industry. General Re has exposure to windstorm,
hail, earthquake and other catastrophic events, all of which are managed
through several measures, including strong underwriting controls, occurrence
caps on certain property treaties, modeling and monitoring its accumulations
and imposing zonal limits. In addition, General Re uses its retrocessional
programs to provide catastrophe protection.
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 U.S. 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 "short" sale of U.S. 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 1996, invested assets of these operations
increased $915 million to $3,393 million. Securities purchased under
agreements to resell (an asset) declined $66 million in 1996. Securities sold
under agreements to repurchase (a liability) increased $722 million in 1996 to
$1,985 million. Securities sold but not yet purchased represent obligations of
General Re to deliver the specified security at the contracted price, thereby
creating a liability to repurchase the security in the market at prevailing
prices. Accordingly, General Re'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
increased $255 million in 1996 to $869 million at December 31, 1996.
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, equity, swap spread, volatility, correlation 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 1996 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.
23
<PAGE>
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,
---------------
1996 1995
------ ------
(IN MILLIONS)
<S> <C> <C>
RISK LIMIT USAGE
Average.................................................. $ 9 $ 8
PROFIT AND LOSS
Highest.................................................. 4 4
Lowest................................................... (3) (4)
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 $77 million and $67 million at December 31, 1996 and
1995, respectively. GRFP has not experienced any credit losses as a result of
counterparty defaults.
STOCKHOLDERS' EQUITY
Common stockholders' equity at December 31, 1996 was $7,326 million, or $89.82
per share, an increase of 12.0 percent over $80.22 per share at December 31,
1995. The increase was primarily due to net income of $894 million, the
reissuance of treasury stock for the acquisition of National Re of $587
million, after-tax unrealized appreciation of $157 million, less stock
repurchases of $735 million and dividends paid of $174 million. Common
stockholders' equity at December 31, 1995 increased 35.6 percent over the
$4,859 million at year end 1994.
24
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
A summary of General Re's cash flow by business segment was as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1996 1995 1994
-------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
North American property/casualty.................. $ 930 $ 985 $ 968
International property/casualty and life/health... 740 740 215
Financial services................................ 8 49 (97)
-------- -------- -------
Consolidated operating cash flow................... 1,678 1,774 1,086
-------- -------- -------
INVESTING ACTIVITIES:
North American property/casualty.................. 93 (848) (16)
International property/casualty and life/health... (826) (936) (189)
Financial services................................ (13) 21 189
Cash used for acquisitions........................ (313) -- (582)
Cash obtained in acquisitions..................... 3 -- 153
-------- -------- -------
Consolidated investing cash flow................... (1,056) (1,763) (445)
-------- -------- -------
FINANCING ACTIVITIES:
North American property/casualty.................. (733) (149) (350)
International property/casualty................... 88 162 (22)
Financial services................................ 130 (8) (87)
-------- -------- -------
Consolidated financing cash flow................... (515) 5 (459)
-------- -------- -------
Consolidated change in cash........................ $ 107 $ 16 $ 182
======== ======== =======
</TABLE>
General Re's cash flow from operations was $1,678 million in 1996, compared
with $1,774 million in 1995, and $1,086 million in 1994. North American
property/casualty financing cash flows include General Re's stock repurchases
and dividends to stockholders. During 1996, General Re utilized $313 million
in cash for the acquisition of National Re. As discussed earlier, General Re
made a net cash investment in 1994 of $582 million in GR-CK, the holding
company which owns approximately 66.3 percent of Cologne Re. The funds
invested in GR-CK are subject to certain restrictions according to the joint-
venture agreement.
Dividends paid to General Re common and preferred stockholders were $174
million, $172 million and $168 million in 1996, 1995 and 1994, respectively.
General Re used $735 million, $35 million and $207 million to repurchase
4,989,000 shares, 235,200 shares and 1,912,500 shares of its common stock in
the years ended December 31, 1996, 1995 and 1994, respectively. Through
December 31, 1996, General Re has purchased $2,333 million (27,133,500 shares)
of its common stock since the inception of the repurchase program in 1987. On
June 12, 1996, General Re's Board of Directors authorized $500 million of
stock repurchases, in addition to the standing authority to repurchase shares
in anticipation of shares to be issued under various compensation plans. The
1996 repurchase authorization had $226 million of remaining capacity as of
December 31, 1996. On February 12, 1997, the Board of Directors declared a
regular quarterly dividend of $.55 per share on the common stock of General
Re. This represents an increase of 7.8 percent over the $.51 per share
dividend paid in prior quarters during 1996 and the 21st consecutive year in
which General Re has increased its dividend.
CREDIT RATINGS
At December 31, 1996, General Re Corporation had $275 million of senior debt
outstanding of which $150 million was issued by General Re Corporation and is
rated AAA by Standard & Poor's and Aa1 by Moody's, and $125 million was issued
by National Re and is rated AA by Standard and Poor's and Aa2 by Moody's.
General Re Corporation issues commercial paper to provide additional financial
flexibility for its operations. Commercial paper offered by General Re
Corporation has been rated A1+ by Standard & Poor's and Prime 1 by Moody's. At
December 31, 1996, $140 million of commercial paper was outstanding. General
Re Corporation
25
<PAGE>
has $1.2 billion of available lines of credit which provide financial
flexibility to support General Re Corporation's commercial paper program. The
credit lines consist of a 364-day facility of $400 million and a five-year
credit facility of the remaining $800 million. The credit agreements with the
banks require General Re to maintain a minimum consolidated tangible net
worth, as defined, of $2.7 billion. All $1.2 billion of available lines of
credit were unused at December 31, 1996 and 1995.
GRC and the General Star and Genesis insurers have a claims-paying ability
rating of AAA by Standard & Poor's and are also rated A++ by A.M. Best
Company, a leading insurance industry rating agency. GRC has a financial
strength rating of Aaa by Moody's. Each of these ratings represents the
highest category for the respective rating agency. Cologne Re has a claims-
paying ability rating of AAA by Standard & Poor's and an A rating from A.M.
Best Company.
NEW ACCOUNTING STANDARDS
See Note 2 to the consolidated financial statements on page 40 for a
discussion of new accounting standards.
SAFE HARBOR DISCLOSURE
In connection with the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995 (the "Act"), General Re sets forth below
cautionary statements identifying important factors that could cause General
Re's actual results to differ materially from those which might be projected,
forecasted, or estimated in General Re's forward-looking statements, as
defined in the Act, made by or on behalf of General Re in press releases,
written statements or documents filed with the Securities and Exchange
Commission, or in its communications and discussions with investors and
analysts in the normal course of business through meetings, phone calls and
conference calls. Such statements may include, but are not limited to,
projections of premium revenue, investment income, other revenue, losses,
expenses, earnings (including earnings per share), cash flows, plans for
future operations, common stockholders' equity, financing needs, capital
plans, dividends, plans relating to products or services of General Re, and
estimates concerning the effects of litigation or other disputes, as well as
assumptions for any of the foregoing and are generally expressed with words
such as "believes," "estimates," "expects," "anticipates," "could have," "may
have" and similar expressions.
Forward-looking statements are inherently subject to risks and uncertainties.
General Re cautions that factors which may cause General Re's results to
differ materially from such forward-looking statements include, but are not
limited to, the following:
1) Changes in the level of competition in the North American and international
reinsurance or primary insurance markets that adversely affect the volume
or profitability of General Re's property/casualty or life/health
businesses. These changes include, but are not limited to, the
intensification of price competition, the entry of new competitors,
existing competitors exiting the market, and the development of new
products by new and existing competitors;
2) Changes in the demand for reinsurance, including changes in ceding
companies' retentions, and changes in the demand for excess and surplus
lines insurance coverages in North America;
3) The ability of General Re to execute its growth strategies in its
property/casualty, life/health and financial services operations;
4) The ability of General Re to retain a significant portion of National Re's
book of business and realize certain synergies in connection with its
acquisition of National Re;
5) Catastrophe losses in General Re's North American or international
property/casualty businesses;
6) Adverse development on property/casualty claim and claim expense
liabilities related to business written in prior years, including, but not
limited to, evolving case law and its effect on environmental and other
latent injury claims, changing government regulations, newly identified
toxins, newly reported claims, new theories of liability, or new insurance
and reinsurance contract interpretations;
26
<PAGE>
7) Changes in inflation that affect the profitability of General Re's current
property/casualty and life/health businesses or the adequacy of its
property/casualty claim and claim expense liabilities and life/health
policy benefit liabilities related to prior years' business;
8) Changes in General Re's property/casualty and life/health businesses
retrocessional arrangements;
9) Lower than estimated retrocessional or reinsurance recoveries on unpaid
losses, including, but not limited to, losses due to a decline in the
creditworthiness of General Re's retrocessionaires or reinsurers;
10) Increases in interest rates, which cause a reduction in the market value
of General Re's interest rate sensitive investments, including, but not
limited to, its fixed income investment portfolio, and its common
stockholders' equity;
11) Decreases in interest rates causing a reduction of income earned on new
cash flow from operations and the reinvestment of the proceeds from sales,
calls or maturities of existing investments;
12) Declines in the value of General Re's common equity investments;
13) Changes in mortality or morbidity levels that affect General Re's
life/health business;
14) Changes in the demand for financial services operations' products,
including derivatives offered by GRFP;
15) Credit losses on General Re's investment portfolio; credit and market
losses on GRFP's portfolio of derivatives and other transactions;
16) Adverse results in litigation matters, including, but not limited to,
litigation related to environmental, asbestos and other potential mass
tort claims; and
17) Gains or losses related to foreign currency exchange rate fluctuations.
In addition to the factors outlined above that are directly related to General
Re's businesses, General Re is also subject to general business risks,
including, but not limited to, adverse state, federal or foreign legislation
and regulation, adverse publicity or news coverage, changes in general
economic factors, and the loss of key employees.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
GENERAL RE CORPORATION
INDEX TO RESERVE DISCLOSURES, FINANCIAL STATEMENTS AND SCHEDULES
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
RESERVE DISCLOSURES
Property/Casualty Insurance Claim Disclosures (Unaudited).................. 28
FINANCIAL STATEMENTS
Report of Independent Accountants.......................................... 32
Consolidated Statements of Income.......................................... 33
Consolidated Balance Sheets................................................ 34
Consolidated Statements of Common Stockholders' Equity..................... 35
Consolidated Statements of Cash Flows...................................... 36
Notes to Consolidated Financial Statements................................. 37
FINANCIAL STATEMENT SCHEDULES
I.Condensed Financial Information of General Re Corporation................ 67
V.Supplementary Insurance Information...................................... 70
</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.
27
<PAGE>
PROPERTY/CASUALTY INSURANCE CLAIM DISCLOSURES
The consolidated financial statements include estimated liabilities for unpaid
claims and claim expenses of General Re's North American 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. General
Re strives for accuracy in its reserving structure and closely monitors its
estimates 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. General Re'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.
LOSS RESERVE TABLES
Table 1 presents the development of net balance sheet liabilities for General
Re's North American property/casualty operations from 1986 through 1996. Table
2 presents the development of the gross balance sheet liability for General
Re's North American property/casualty operations from 1992 through 1996.
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, 1996. 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.
General Re's liabilities for claims and claim expenses displayed in Tables 1
and 2 have been significantly affected by the emergence of environmental and
latent injury claims. Starting in 1979, General Re 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 General Re'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
28
<PAGE>
for these exposures. In recent years, reserve strengthening on environmental
and mass tort claims has been offset by favorable development on reinsurance
of liability business.
Social and economic inflation have 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 General Re's clients have increased the amount of their
retained risk, which partially offsets the effect of social and economic
inflation.
General Re purchases reinsurance, in both the North American and international
markets, which provides protection from large property, liability or workers'
compensation claims and allows General Re to offer greater capacity to clients
for certain lines of business. General Re increased its capacity over time by
retaining more risk and by purchasing additional reinsurance protection above
its retentions. General Re believes it has selected financially sound
reinsurers and anticipates receiving the full amounts recoverable, net of
allowances provided for uncollectible reinsurance recoverables.
Table 3 and Table 4 present the development of net and gross balance sheet
liabilities for General Re's international property/casualty operations
beginning in 1994. The accident-year information required to complete Table 3
and Table 4 for General Re's wholly owned international subsidiaries was not
available in prior years. These liabilities, however, were not significant to
the consolidated total liabilities in prior periods. Due to lags in receiving
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.
In evaluating the information included in Tables 1-4, 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, 1996, net and gross of reinsurance, are adequate.
General Re discounts certain North American 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 shown in
Table 5.
29
<PAGE>
TABLE 1
ANALYSIS OF NORTH AMERICAN NET CLAIMS AND CLAIM EXPENSE DEVELOPMENT
(IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
------------ ------- ------- ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net liability for unpaid
claims and claim
expenses............... $ 4,043 $ 4,738 $5,217 $5,549 $5,842 $6,230 $6,635 $6,803 $7,029 $7,385 $8,741
Net liability
reestimated as of:
1 year later.......... 4,348 4,903 5,185 5,537 5,856 6,286 6,775 6,767 7,042 7,337
2 years later......... 4,691 4,927 5,247 5,481 5,778 6,352 6,850 6,845 6,868
3 years later......... 4,757 4,991 5,166 5,502 5,906 6,475 6,994 6,739
4 years later......... 4,874 4,983 5,236 5,683 6,091 6,638 6,935
5 years later......... 4,910 5,044 5,420 5,900 6,319 6,635
6 years later......... 5,022 5,284 5,642 6,173 6,326
7 years later......... 5,225 5,528 5,958 6,190
8 years later......... 5,467 5,855 5,979
9 years later......... 5,830 5,882
10 years later......... 5,876
Cumulative (deficiency)
redundancy*........... $(1,833) $(1,144) $ (762) $ (641) $ (484) $ (405) $ (300) $ 64 $ 161 $ 48 XXX
Cumulative amount of net
liability paid through:
1 year later.......... $ 890 $ 747 $ 812 $ 927 $ 905 $1,044 $1,291 $1,207 $1,176 $1,253
2 years later......... 1,385 1,354 1,436 1,584 1,613 1,955 2,195 2,063 1,959
3 years later......... 1,877 1,846 1,903 2,115 2,332 2,570 2,850 2,617
4 years later......... 2,267 2,209 2,320 2,689 2,769 3,072 3,300
5 years later......... 2,565 2,546 2,814 3,025 3,184 3,437
6 years later......... 2,842 2,965 3,085 3,362 3,481
7 years later......... 3,207 3,203 3,375 3,618
8 years later......... 3,413 3,472 3,611
9 years later......... 3,659 3,695
10 years later......... 3,876
</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.
TABLE 2
ANALYSIS OF NORTH AMERICAN GROSS CLAIMS AND CLAIM EXPENSE DEVELOPMENT
(IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1992 1993 1994 1995 1996
------------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C>
Gross liability for unpaid claims and
claim expenses......................... $7,968 $8,122 $8,578 $9,356 $10,767
Gross liability reestimated as of:
1 year later........................... 8,087 8,180 8,865 9,326
2 years later.......................... 8,149 8,438 8,781
3 years later.......................... 8,570 8,502
4 years later.......................... 8,723
Cumulative (deficiency) redundancy...... $ (755) $ (380) $ (203) $ 30 xxx
Cumulative amount of gross liability
paid through:
1 year later........................... $1,620 $1,351 $1,502 $1,575
2 years later.......................... 2,641 2,419 2,416
3 years later.......................... 3,432 3,090
4 years later.......................... 3,964
</TABLE>
30
<PAGE>
TABLE 3
ANALYSIS OF INTERNATIONAL NET CLAIMS AND CLAIM EXPENSE DEVELOPMENT
(IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------------
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
Net liability for unpaid claims and claim expenses...... $3,289 $4,352 $4,664
Net liability reestimated as of:
1 year later........................................... 3,545 4,134
2 years later.......................................... 3,316
Cumulative (increase) decrease in net liability......... (27) 218
Less: (increase) decrease due to foreign exchange....... (57) 227
------ ------
Cumulative (deficiency) redundancy...................... $ 30 $ (9)
------ ------
Cumulative amount of net liability paid through:
1 year later........................................... $ 408 $ 800
2 years later.......................................... 704
</TABLE>
TABLE 4
ANALYSIS OF INTERNATIONAL GROSS CLAIMS AND CLAIM EXPENSE DEVELOPMENT
(IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------------
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
Gross liability for unpaid claims and claim expenses.... $3,580 $4,896 $5,210
Gross liability reestimated as of:
1 year later........................................... 3,858 4,667
2 years later.......................................... 3,625
Cumulative (increase) decrease in gross liability....... (45) 229
Less: (increase) decrease due to foreign exchange....... (62) 260
------ ------
Cumulative (deficiency) redundancy...................... $ 17 $ (31)
------ ------
Cumulative amount of gross liability paid through:
1 year later........................................... $ 474 $ 842
2 years later.......................................... 760
</TABLE>
TABLE 5
RECONCILIATION OF DISCOUNTING NET LIABILITY FOR CLAIMS AND CLAIM EXPENSES
(IN MILLIONS)
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Cumulative discount, beginning of the year.............. $1,406 $1,328 $1,319
Acquisition of National Re.............................. 150 -- --
Additional discount..................................... 162 131 64
Amortization of discount................................ (56) (53) (55)
------ ------ ------
Cumulative discount, end of the year.................... $1,662 $1,406 $1,328
====== ====== ======
</TABLE>
31
<PAGE>
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 27 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, 1996 and 1995,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended December 31, 1996, 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
January 30, 1997
32
<PAGE>
GENERAL RE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN MILLIONS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
PREMIUMS AND OTHER REVENUES
Net premiums written
Property/casualty......................... $ 5,586 $ 5,393 $ 3,001
Life/health............................... 1,075 709 --
---------- ---------- ----------
Total net premiums written................. $ 6,661 $ 6,102 $ 3,001
========== ========== ==========
Net premiums earned
Property/casualty......................... $ 5,618 $ 5,141 $ 2,788
Life/health............................... 1,060 696 --
---------- ---------- ----------
Total net premiums earned.................. 6,678 5,837 2,788
Investment income.......................... 1,205 1,017 749
Other revenues............................. 309 292 234
Net realized gains on investments.......... 104 64 66
---------- ---------- ----------
Total revenues......................... 8,296 7,210 3,837
---------- ---------- ----------
EXPENSES
Claims and claim expenses.................. 3,984 3,680 1,981
Life/health benefits....................... 789 505 --
Acquisition costs.......................... 1,478 1,345 614
Other operating costs and expenses......... 727 550 446
Goodwill amortization...................... 21 13 2
---------- ---------- ----------
Total expenses......................... 6,999 6,093 3,043
---------- ---------- ----------
Income before income taxes and minority
interest.............................. 1,297 1,117 794
Income tax expense (benefit):
Current................................... 327 288 152
Deferred.................................. (4) (41) (23)
---------- ---------- ----------
Income tax expense......................... 323 247 129
---------- ---------- ----------
Income before minority interest........ 974 870 665
Minority interest.......................... 80 45 --
---------- ---------- ----------
Net income............................. $ 894 $ 825 $ 665
========== ========== ==========
SHARE DATA:
Net income per common share................ $ 11.00 $ 9.92 $ 7.97
========== ========== ==========
Dividends per share to common
stockholders.............................. $ 2.04 $ 1.96 $ 1.92
Average common shares outstanding.......... 80,251,342 82,085,315 82,071,651
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
33
<PAGE>
GENERAL RE CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
(IN MILLIONS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
ASSETS
INVESTMENTS:
Fixed maturities:
Available-for-sale (cost: $16,473 in 1996; $14,342 in
1995)..................................................... $17,168 $15,225
Trading (cost: $2,994 in 1996; $2,316 in 1995)............. 2,967 2,317
Preferred equities, at fair value (cost: $771 in 1996; $453
in 1995)................................................... 789 472
Common equities, at fair value (cost: $1,941 in 1996; $1,910
in 1995)................................................... 3,675 3,234
Short-term investments, at amortized cost which approximates
fair value................................................. 1,267 1,449
Other invested assets....................................... 696 797
------- -------
Total investments........................................... 26,562 23,494
Cash......................................................... 365 258
Accrued investment income.................................... 405 390
Accounts receivable.......................................... 2,832 2,368
Funds held by reinsured companies............................ 474 497
Reinsurance recoverable...................................... 2,935 2,794
Deferred acquisition costs................................... 457 434
Goodwill..................................................... 1,052 494
Trading account assets....................................... 4,085 2,434
Other assets................................................. 994 1,100
------- -------
Total assets............................................. $40,161 $34,263
======= =======
LIABILITIES
Claims and claim expenses.................................... $15,977 $14,252
Policy benefits for life/health contracts.................... 751 580
Unearned premiums............................................ 1,957 1,913
Other reinsurance balances................................... 3,388 3,056
Notes payable and commercial paper........................... 430 155
Income taxes................................................. 728 634
Securities sold under agreements to repurchase............... 1,985 1,263
Securities sold but not yet purchased........................ 869 614
Trading account liabilities.................................. 3,907 2,627
Other liabilities............................................ 1,675 1,357
Minority interest............................................ 1,166 1,224
------- -------
Total liabilities........................................ 32,833 27,675
------- -------
Cumulative convertible preferred stock (shares issued
1,711,907 in 1996 and 1,724,037 in 1995; no par value)...... 146 147
Loan to employee savings and stock ownership plan............ (144) (146)
------- -------
2 1
------- -------
COMMON STOCKHOLDERS' EQUITY
Common stock (102,827,344 shares issued in 1996 and 1995; par
value $.50)................................................. 51 51
Paid-in capital.............................................. 1,041 635
Unrealized appreciation of investments, net of deferred
income taxes................................................ 1,625 1,468
Currency translation adjustments, net of deferred income
taxes....................................................... (53) (11)
Retained earnings............................................ 6,708 5,986
Less common stock in treasury, at cost (shares held:
21,262,113 in 1996 and 20,714,069 in 1995).................. (2,046) (1,542)
------- -------
Total common stockholders' equity........................ 7,326 6,587
------- -------
Total liabilities, cumulative convertible preferred stock
and common stockholders' equity......................... $40,161 $34,263
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
34
<PAGE>
GENERAL RE CORPORATION
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
(IN MILLIONS)
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<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.................................. 635 604 596
Stock issued under stock option and other incentive
arrangements...................................... 30 24 6
Stock issued for acquisition of National Re........ 369 -- --
Other.............................................. 7 7 2
------- ------- -------
End of year....................................... 1,041 635 604
------- ------- -------
UNREALIZED APPRECIATION OF INVESTMENTS, NET OF
DEFERRED INCOME TAXES:
Beginning of year.................................. 1,468 421 651
Cumulative effect of accounting change (FAS 115),
net of deferred income taxes of $201 million...... -- -- 373
Change for the year................................ 242 1,641 (942)
Deferred income taxes.............................. (85) (594) 339
------- ------- -------
End of year....................................... 1,625 1,468 421
------- ------- -------
CURRENCY TRANSLATION ADJUSTMENTS, NET OF DEFERRED
INCOME TAXES:
Beginning of year.................................. (11) (20) (42)
Change for the year................................ (42) 9 22
------- ------- -------
End of year....................................... (53) (11) (20)
------- ------- -------
RETAINED EARNINGS:
Beginning of year.................................. 5,986 5,330 4,830
Net income......................................... 894 825 665
Dividends paid on common stock..................... (163) (161) (157)
Dividends paid on preferred stock, net of income
taxes............................................. (9) (8) (8)
------- ------- -------
End of year....................................... 6,708 5,986 5,330
------- ------- -------
COMMON STOCK IN TREASURY:
Beginning of year.................................. (1,542) (1,527) (1,325)
Cost of shares acquired during year................ (735) (35) (207)
Stock issued for acquisition of National Re........ 218 -- --
Issued under stock option and other incentive
arrangements...................................... 13 20 5
------- ------- -------
End of year....................................... (2,046) (1,542) (1,527)
------- ------- -------
Total common stockholders' equity............... $ 7,326 $ 6,587 $ 4,859
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
35
<PAGE>
GENERAL RE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN MILLIONS)
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................................... $ 894 $ 825 $ 665
Adjustments to reconcile net income to net cash
provided by operating activities:
Change in claim and claim expense liabilities..... 689 1,671 571
Change in policy benefits for life/health
contracts........................................ 171 96 --
Change in reinsurance recoverable................. (49) (305) (220)
Change in unearned premiums....................... 39 262 261
Amortization of acquisition costs................. 1,478 1,345 614
Acquisition costs deferred........................ (1,478) (1,455) (672)
Trading account activities
Change in trading account securities............. (660) (1,602) 1,232
Securities purchased under agreements to resell.. 66 747 (681)
Securities sold under agreements to repurchase... 722 325 (628)
Change in other trading balances................. (135) 586 26
Other changes in assets and liabilities........... 45 (657) (16)
Realized gains on investments..................... (104) (64) (66)
------- ------- -------
Net cash from operating activities.............. 1,678 1,774 1,086
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Fixed maturities: available-for-sale
Purchases......................................... (8,612) (5,837) (4,415)
Calls and maturities.............................. 857 811 563
Sales............................................. 6,531 3,900 4,042
Equity securities
Purchases......................................... (1,166) (900) (999)
Sales............................................. 1,337 723 978
Net sales (purchases) of other invested assets..... 12 (101) (61)
Net sales (purchases) of short-term investments.... 295 (359) (124)
Cash used for acquisitions......................... (313) -- (582)
Cash obtained in acquisitions...................... 3 -- 153
------- ------- -------
Net cash used in investing activities........... (1,056) (1,763) (445)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of notes payable........................ (86) -- (21)
Commercial paper borrowing (repayment), net........ 140 (31) (230)
Change in contract deposits........................ 290 64 171
Cash dividends paid to stockholders:Common......... (163) (161) (157)
Preferred.......................................... (11) (11) (11)
Acquisition of treasury stock...................... (729) (30) (222)
Other.............................................. 44 174 11
------- ------- -------
Net cash (used in) from financing activities.... (515) 5 (459)
------- ------- -------
Change in cash...................................... 107 16 182
Cash, beginning of year............................. 258 242 60
------- ------- -------
Cash, end of year................................... $ 365 $ 258 $ 242
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
36
<PAGE>
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
General Re Corporation and subsidiaries ("General Re") have global reinsurance
and financial services operations in 62 cities in 30 countries on 6 continents
and provide reinsurance coverage in approximately 150 countries. General Re
operates four principal businesses: North American property/casualty
reinsurance, international property/casualty reinsurance, life/health
reinsurance and financial services. General Re's principal reinsurance
operations are based in North America and Germany, with other major operations
in Asia, Australia, Europe and South America. General Re's financial services
operations are located in New York, London, Tokyo, Hong Kong, and Toronto. GRC
is the largest North American professional property/casualty reinsurer, and
General Re is among the three largest reinsurers in the world based on net
premiums written and capital.
General Re's North American property/casualty operations produced revenues of
$3,887 million, or 47 percent, of consolidated revenues in 1996. The principal
business of these subsidiaries is treaty and facultative reinsurance
underwritten on a direct basis throughout North America. General Re
predominately writes excess-of-loss reinsurance across various lines of
business.
General Re's international property/casualty operations produced revenues of
$3,004 million, or 36 percent, of consolidated revenues in 1996. With the
consolidation of the results of Kolnische Ruckversicherungs-Gesellschaft AG
("Cologne Re") in 1995, international property/casualty premiums now account
for a significantly greater portion of General Re's revenues.
General Re's life/health reinsurance operations produced revenues of $1,134
million, or 14 percent, of the consolidated total in 1996. These operations
include the North American and international life/health reinsurance
operations of Cologne Re.
General Re's financial services operations include derivative products,
insurance brokerage and management, investment management, reinsurance
brokerage and real estate management operations. Through General Re Financial
Products Corporation and affiliates ("GRFP"), General Re offers a full line of
interest rate, currency and equity swaps and options, as well as structured
finance products. The financial services operations produced $271 million, or
3 percent, of General Re's 1996 revenues.
ACCOUNTING POLICIES
BASIS OF PRESENTATION: General Re's consolidated financial statements have
been prepared on the basis of generally accepted accounting principles in the
United States. The consolidated financial statements include General Re
Corporation and its subsidiaries. All significant intercompany transactions
have been eliminated. The North American property/casualty results include the
results of National Re Corporation and its subsidiaries ("National Re") since
the date of acquisition on October 3, 1996. International property/casualty
and life/health subsidiaries report their results on a quarter lag. Certain
other reclassifications have been made to 1995 and 1994 balances to conform to
the 1996 presentation.
INVESTMENTS: Fixed maturity securities that General Re 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.
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
37
<PAGE>
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
than temporary. Realized gains or losses include gains and losses arising from
the translation into U.S. dollars of investments held by the North American
operations and denominated in foreign currencies. General Re periodically uses
derivatives to reduce the price risk associated with its investment portfolio.
Derivatives used to manage these risks must be designated as a hedge at their
inception and must remain a hedge throughout the hedge period. To the extent
these derivatives are considered hedges, related gains or losses are treated
as basis adjustments of the hedged securities. Investment income is recognized
as earned and includes the accretion of bond discount and amortization 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 General Re's proportionate share of the venture's earnings.
The amount of the adjustment is included in "Other revenues." 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 reported 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
General Re's method for establishing the related liability. Workers'
compensation liabilities, after deduction of reinsurance recoverable for
unpaid losses, were $1,490 million and $1,244 million at December 31, 1996
and 1995, 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.
38
<PAGE>
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 $112 million and $125 million at
December 31, 1996 and 1995, respectively, 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. General Re generally earns investment income on these
balances during the period funds are held.
GOODWILL: General Re amortizes on a straight-line basis goodwill recorded in
connection with its business combinations. Included in 1996 goodwill is
approximately $595 million related to the acquisition of National Re. The 1995
goodwill amount is principally related to the Cologne Re joint venture.
General Re's goodwill is amortized predominantly over 40 years. The amount of
goodwill reported for the Cologne Re transaction fluctuates based on changes
in the value of the German mark relative to the U.S. dollar 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 General Re'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 denominated 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. General Re's international operations have
exposures to the major currencies in Europe, principally the German mark and
British pound. A deterioration in the value of these currencies could have an
adverse effect on General Re's financial position and operating results. 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.
39
<PAGE>
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
ALLOWANCE FOR DOUBTFUL ACCOUNTS: Allowances are provided for uncollectible
reinsurance recoverables and other doubtful receivables. Write-offs of
receivables reduce the allowance. At December 31, 1996 and 1995, the allowance
was $126 million and $135 million, respectively.
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 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. General Re's principal estimates include
property/casualty claims and claim expenses, policy benefits for life/health
contracts, estimated premium when General Re has not received ceding company
reports and valuation of nonexchange traded financial instruments. General Re
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 General Re'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. Fully diluted earnings per share, assuming the conversion of
all outstanding convertible preferred stock and the maximum dilutive effect of
common stock equivalents, have not been presented because the effects are not
material.
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. General Re elected to continue
its current method of accounting for stock-based compensation and disclosed in
Note 11 pro forma net income and earnings per share as if the Statement's
fair-value based method of accounting were applied. Adoption of the Statement
had no effect on General Re'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. Adoption of the Statement had no material effect on the
results from operations, financial position or cash flows of General Re.
40
<PAGE>
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. ACQUISITIONS AND REINSURANCE VENTURES
National Re
On October 3, 1996, General Re acquired all of the outstanding shares of
National Re, a North American property/casualty reinsurance group, in exchange
for 4,023,901 shares of General Re Corporation's common stock and $313 million
in cash, including expenses, for a total cost of $900 million. The acquisition
of the shares of National Re has been accounted for as a purchase. The results
of operations subsequent to the date of acquisition are included in General
Re's consolidated operating results. At December 31, 1996, National Re's
assets and liabilities at acquisition were included in General Re's
consolidated balance sheet. Pro forma figures showing the effect of this
acquisition on General Re's 1995 and 1996 net income and stockholders' equity
have not been presented due to immateriality.
Cologne Re
On December 28, 1994, General Re 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"). General Re 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 General Re 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. General Re also receives an annual Class B
cash dividend of 50.1 percent of GR-CK's distributable income, as defined in
the joint-venture agreement. The dividends related to the 1995 calendar
result, which were paid in 1996 with respect to the Class A and B shares were
$27 million and $26 million, respectively.
General Re has an option to purchase from January 1, 2002 to January 1, 2004
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 General Re does not exercise its option to purchase the
Class A shares of GR-CK from CKAG, CKAG has an option to purchase the Class B
shares of GR-CK from General Re under a similar exercise price formula.
The acquisition of the shares of Cologne Re through GR-CK has been accounted
for as a purchase. General Re 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.
During the second quarter of 1995, Cologne Re completed a rights offering that
raised DM 437 million ($317 million at the June 30, 1995 exchange rate), which
increased its capital under U.S. generally accepted accounting principles by
62.9 percent over the amount 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, General Re
purchased for its own account an additional 8.4 percent of the ordinary and
preference shares of Cologne Re through December 31, 1996 for aggregate
consideration of $85 million, which increased General Re's
41
<PAGE>
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
consolidated economic interest in Cologne Re to 74.7 percent. The purchases of
additional Cologne Re shares are 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.
Tempest Reinsurance Company Limited
In September 1993, General Re acted as sponsor in the formation of Tempest
Reinsurance Company Limited ("Tempest"), a Bermuda-based reinsurance company
specializing in excess property catastrophe reinsurance. On July 1, 1996,
General Re sold its 20.7 percent interest in Tempest and its stock options,
and terminated its underwriting services agreement with Tempest for $216
million in total consideration.
4. STATUTORY FINANCIAL INFORMATION
General Re's North American 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, fixed assets, deferred income taxes and certain other
items. Combined statutory surplus at December 31, 1996 and 1995 was $5,326
million and $4,607 million, respectively, and combined statutory net income
for the years ended December 31, 1996, 1995 and 1994 was $777 million, $621
million and $511 million, respectively.
General Re prepares 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, General Re discounts
certain workers' compensation liabilities at an annual rate of 4.5 percent.
Included in the discount recognized for statutory purposes at December 31,
1996 was $692 million resulting from discounting permitted by the domiciliary
insurance department.
General Re'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 General Re 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.
42
<PAGE>
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>
GROSS GROSS
UNREALIZED UNREALIZED FAIR
DECEMBER 31, 1996 COST/1/ APPRECIATION DEPRECIATION VALUE
----------------- ------- ------------ ------------ -------
(IN MILLIONS)
<S> <C> <C> <C> <C>
SHORT-TERM INVESTMENTS............... $ 1,267 -- -- $ 1,267
FIXED MATURITIES -- AVAILABLE-FOR-
SALE
U.S. Government..................... 1,580 $ 45 $ 9 1,616
German federal and state
governments........................ 868 56 -- 924
Tax-exempt.......................... 8,728 438 8 9,158
Corporate........................... 2,940 114 6 3,048
Mortgage-backed..................... 1,106 21 2 1,125
Asset-backed........................ 51 2 -- 53
Non-U.S............................. 1,200 46 2 1,244
------- ------ ---- -------
Total fixed maturities --
available-for-sale................ 16,473 722 27 17,168
------- ------ ---- -------
FIXED MATURITIES -- TRADING
U.S. Government..................... 1,267 2 -- 1,269
Corporate........................... 35 -- -- 35
Non-U.S............................. 1,692 39 68 1,663
------- ------ ---- -------
Total fixed maturities -- trading.. 2,994 41 68 2,967
------- ------ ---- -------
PREFERRED EQUITIES................... 771 23 5 789
COMMON EQUITIES...................... 1,941 1,747 13 3,675
OTHER INVESTED ASSETS................ 612 104 20 696
------- ------ ---- -------
Total............................ $24,058 $2,637 $133 $26,562
======= ====== ==== =======
<CAPTION>
DECEMBER 31, 1995
-----------------
<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........................... 2,790 137 5 2,922
Mortgage-backed..................... 598 28 -- 626
Asset-backed........................ 108 5 -- 113
Non U.S............................. 1,970 74 7 2,037
------- ------ ---- -------
Total fixed maturities --
available-for-sale................ 14,342 900 17 15,225
------- ------ ---- -------
FIXED MATURITIES -- TRADING
U.S. Government..................... 730 8 -- 738
Non U.S............................. 1,586 35 42 1,579
------- ------ ---- -------
Total fixed maturities -- trading.. 2,316 43 42 2,317
------- ------ ---- -------
PREFERRED EQUITIES................... 453 22 3 472
COMMON EQUITIES...................... 1,910 1,339 15 3,234
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.
43
<PAGE>
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Gross gains of $148 million, $117 million and $57 million and gross losses of
$93 million, $73 million and $120 million were realized on sales of available-
for-sale fixed maturities in 1996, 1995 and 1994, respectively. The
contractual maturities of fixed maturity investments--available-for-sale 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.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------
AMORTIZED FAIR
COST VALUE
--------- -------
(IN MILLIONS)
<S> <C> <C>
Due in one year or less...................................... $ 834 $ 851
Due after one year through five years........................ 4,137 4,268
Due after five years through ten years....................... 5,363 5,612
Due after ten years.......................................... 4,982 5,259
Mortgage and asset-backed.................................... 1,157 1,178
------- -------
Total........................................................ $16,473 $17,168
======= =======
</TABLE>
Realized gains or losses recognized in income for fixed maturities and equity
securities were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1996 1995 1994
-------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C>
Fixed maturities.................................... $ 55 $ 44 $ (63)
Equity securities................................... 49 20 129
-------- ------- --------
Total realized gains................................ $ 104 $ 64 $ 66
======== ======= ========
</TABLE>
Dividend, interest and other investment income was as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1996 1995 1994
-------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C>
Fixed maturities.................................... $ 1,041 $ 850 $ 648
Equity securities................................... 134 111 75
Short-term investments.............................. 52 62 35
Miscellaneous, net.................................. 24 26 8
-------- -------- ------
Total investment income............................ 1,251 1,049 766
Investment expenses................................. (46) (32) (17)
-------- -------- ------
Investment income.................................. $ 1,205 $ 1,017 $ 749
======== ======== ======
</TABLE>
Securities with a market value of approximately $924 million at December 31,
1996 were on deposit with various state or governmental departments to comply
with insurance laws.
44
<PAGE>
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>
1996 1995 1994
------- ------- -------
(IN MILLIONS)
<S> <C> <C> <C>
Balance at January 1................................ $14,252 $12,158 $ 8,452
Reinsurance recoverables on unpaid claims and claim
expenses.......................................... (2,515) (1,840) (1,396)
------- ------- -------
Net balance at January 1............................ 11,737 10,318 7,056
Incurred claims and claim expenses related to:
Current year....................................... 4,023 3,666 2,017
Prior years........................................ (39) 14 (36)
------- ------- -------
Total incurred claims and claim expenses............ 3,984 3,680 1,981
------- ------- -------
Claim and claim expense payments related to:
Current year....................................... 1,061 773 423
Prior years........................................ 2,052 1,584 1,206
------- ------- -------
Total payments...................................... 3,113 2,357 1,629
------- ------- -------
Effect of foreign exchange.......................... (150) 96 --
Net unpaid claims and claim expenses from
acquisitions....................................... 947 -- 2,910
------- ------- -------
Net balance at December 31.......................... 13,405 11,737 10,318
Reinsurance recoverables on unpaid claims and claim
expenses.......................................... 2,572 2,515 1,840
------- ------- -------
Balance at December 31.............................. $15,977 $14,252 $12,158
======= ======= =======
</TABLE>
Consolidated net claims and claim expenses for 1995 and prior accident years
experienced favorable development of $39 million in 1996. Net claims and claim
expenses for 1995 and prior accident years for the North American operations
experienced favorable development of $48 million in 1996. The net favorable
loss development was due to favorable development on casualty lines of
business, partially offset by losses related to environmental, asbestos and
other mass tort claims. Net claims and claim expenses for 1995 and prior
accident years for the international operations, after the effect of foreign
exchange, had adverse development of $9 million in 1996. The net adverse loss
development for the international operations was primarily related to
strengthening of reserves for environmental, asbestos and other mass tort
claims in runoff operations.
General Re continually estimates its liabilities and related reinsurance
recoverable for environmental and latent injury claims and claim expenses.
While most of its liabilities for such claims arise from exposures in North
America, General Re 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, incurred but not reported ("IBNR") and
direct excess coverage litigation expenses. General Re's estimate for IBNR 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.
General Re 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.
45
<PAGE>
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 $1,989 million and $635
million, respectively, at December 31, 1996. 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. General Re 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 General Re
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 General Re'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,
-------------------------------------------------------------------------------------
1996 1995 1994
--------------------------- --------------------------- ---------------------------
UNITED STATES FOREIGN TOTAL UNITED STATES FOREIGN TOTAL UNITED STATES FOREIGN TOTAL
------------- ------- ----- ------------- ------- ----- ------------- ------- -----
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Current................. $179 $148 $327 $169 $119 $288 $ 99 $53 $152
Deferred................ (64) 60 (4) (90) 49 (41) (21) (2) (23)
---- ---- ---- ---- ---- ---- ---- --- ----
Total.................. $115 $208 $323 $ 79 $168 $247 $ 78 $51 $129
==== ==== ==== ==== ==== ==== ==== === ====
</TABLE>
Income taxes were established on a consolidated basis for all United States
and international operations of General Re. No provisions have been made for
U.S. income taxes relating to $146 million of cumulative undistributed income
of wholly owned international subsidiaries as of December 31, 1996, which is
considered permanently reinvested. Applicable U.S. income taxes have been
recorded for Cologne Re's income since it distributes dividends to its
shareholders on an annual basis. Income taxes paid were $219 million, $216
million and $138 million in 1996, 1995 and 1994, respectively.
General Re's effective income tax rate is less than the U.S. statutory rate
due to permanent differences between financial statement income and taxable
income. An analysis of General Re's effective tax rate as a percentage of
pretax income follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
U.S. statutory tax rate............................ 35.0% 35.0% 35.0%
Reduction in taxes resulting from:
Tax-exempt bond interest.......................... (9.6) (10.3) (14.6)
Dividends received deduction...................... (1.4) (1.5) (1.9)
Foreign tax rate differential/credits............. 1.1 0.4 0.2
Miscellaneous..................................... (0.2) (1.5) (2.4)
------- -------- --------
Effective tax rate................................. 24.9% 22.1% 16.3%
======= ======== ========
</TABLE>
46
<PAGE>
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,
--------------
1996 1995
------- ------
(IN MILLIONS)
<S> <C> <C>
DEFERRED INCOME TAX ASSETS:
Claim and claim expense liabilities............................. $ 131 $ 69
Unearned premiums............................................... 82 77
Accruals not currently deductible............................... 78 57
U.S. temporary differences from foreign operations.............. 94 72
Other........................................................... 71 48
------- -----
Total deferred tax assets...................................... 456 323
------- -----
DEFERRED INCOME TAX LIABILITIES:
Unrealized appreciation of investments.......................... 798 710
Deferred acquisition costs...................................... 86 61
Deferred charges................................................ 12 13
Discount on fixed maturity investments.......................... 32 40
Derivative financial instruments................................ 4 11
Other........................................................... 130 43
------- -----
Total deferred tax liabilities................................. 1,062 878
------- -----
Net deferred income tax liability................................ $ 606 $ 555
======= =====
</TABLE>
8. NOTES PAYABLE AND COMMERCIAL PAPER
The carrying amounts of General Re's notes payable and commercial paper were
as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1996 1995
------ ------
(IN MILLIONS)
<S> <C> <C>
9.00% Note due in 2009........................................... $ 150 $ 150
8.85% Note due in 2005........................................... 110 --
7.50% Note due in 2005........................................... 26 --
7.70% Mortgage payable through 1998.............................. 4 5
------ ------
Total notes payable............................................. 290 155
Commercial paper................................................. 140 --
------ ------
Total notes payable and commercial paper........................ $ 430 $ 155
====== ======
</TABLE>
The 9.00 percent note issued by General Re Corporation in conjunction with the
Employee Savings and Stock Ownership Plan has a covenant requiring General Re
not to encumber its common stock holding in GRC, the largest subsidiary of
General Re. The 8.85 percent and 7.50 percent notes were issued by National Re
on January 19, 1995 and July 31, 1995, respectively. These notes have a par
value of $100 million and $25 million, respectively, and have been recorded on
the balance sheet at their fair value at the acquisition date of National Re.
The difference between their fair value and par value is recognized as an
adjustment to interest expense over the life of the notes. The 7.70 percent
mortgage payable is collateralized by General Re's prior home office.
47
<PAGE>
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
General Re Corporation issues commercial paper for short-term funding needs.
Information on the commercial paper program is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
Year end balance.............................................. $140 -- $ 31
Average interest rate at year end............................. 5.30% -- 5.96%
Average maturity at year end (in days)........................ 76.8 -- 29.8
Average outstanding balance during the year................... $226 $ 21 $209
Average interest rate for the year............................ 5.34% 5.78% 4.13%
</TABLE>
General Re Corporation has $1.2 billion of available lines of credit which
provide financial flexibility and support General Re Corporation's commercial
paper program. The credit lines consist of a 364-day facility of $400 million
and a five-year credit facility of the remaining $800 million. The credit
agreements with the banks require General Re to maintain a minimum
consolidated tangible net worth, as defined, of $2.7 billion. All $1.2 billion
of available lines of credit were unused at December 31, 1996 and 1995.
Interest expense and interest paid for all loans payable and commercial paper
were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1996 1995 1994
-------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C>
Interest expense.................................... $ 30 $ 15 $ 25
Interest paid....................................... 28 15 25
</TABLE>
9. RETIREMENT PLANS
General Re has noncontributory pension plans covering substantially all
employees. Plans for U.S. 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. General
Re'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,
----------------------------
1996 1995 1994
-------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C>
Service cost for benefits earned during the
year........................................... $ 17 $ 13 $ 10
Interest cost on projected benefit obligation... 19 16 12
Actual (return) loss on plan assets............. (22) (29) 4
Net amortization and deferral................... 11 22 (12)
-------- -------- --------
Pension expense................................. $ 25 $ 22 $ 14
======== ======== ========
</TABLE>
The projected benefit obligation for U.S. employees was determined using an
assumed discount rate of 7.50 percent in 1996, 7.00 percent in 1995 and 8.25
percent for 1994, and an assumed long-term compensation increase of 6.00
percent in 1996, 5.75 percent for 1995 and 6.00 percent for 1994. An assumed
long-term rate of return on plan assets of 8.50 percent was used in
determining pension expense in 1996, 1995 and 1994. The projected benefit
obligation for most Cologne Re employees was determined using an assumed
discount rate of
48
<PAGE>
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7.00 percent in 1996 and 1995 and an assumed long-term compensation increase
of 3.50 percent in 1996 and 1995.
Through unfunded plans, General Re provides pension benefits for certain
employees above amounts allowed under tax qualified plans. General Re also
provides postretirement retainers through unfunded plans for members of the
Board of Directors.
The following table sets forth the plans' funded status and amount recognized
in General Re's consolidated balance sheet:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1996 1995
--------------- ---------------
FUNDED UNFUNDED FUNDED UNFUNDED
------ -------- ------ --------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Accumulated benefit obligation:
Vested....................................... $100 $ 72 $107 $ 62
Nonvested.................................... 16 10 13 10
---- ----- ---- -----
Accumulated benefit obligation................ 116 82 120 72
Effect of projected salary increases.......... 64 42 60 34
---- ----- ---- -----
Projected benefit obligation................. 180 124 180 106
Plan assets at fair value..................... 161 -- 143 --
---- ----- ---- -----
Projected benefit obligation in excess of plan
assets....................................... (19) (124) (37) (106)
Unrecognized net (gain) loss.................. (20) 22 12 13
Unrecognized prior service cost............... (4) 6 (6) 6
Unrecognized net (asset) obligation at
transition................................... (5) 1 (6) 5
---- ----- ---- -----
Accrued pension liability.................... $(48) $ (95) $(37) $ (82)
==== ===== ==== =====
</TABLE>
Substantially all of General Re's employees in the United States will become
eligible for certain health care and group life insurance benefits upon
retirement from General Re. General Re 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 General Re upon retirement. General Re funded $3 million for
postretirement health care benefits for current retirees in both 1996 and 1995
and had an accrued liability of $30 million and $27 million, respectively, for
current employees.
10. EMPLOYEE SAVINGS AND STOCK OWNERSHIP PLAN
General Re has a leveraged Employee Savings and Stock Ownership Plan ("ESSOP")
in which substantially all U.S. employees may participate. This is a defined
contribution plan which allows employees to make regular contributions that
the ESSOP matches up to a maximum of 6 percent of the employee's salary. In
1989, the ESSOP borrowed $150 million from General Re 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 General Re. 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 General Re. General Re 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 General Re. As interest and principal are repaid, a portion of the
preferred stock is released for allocation to participating employees. General
Re recognizes compensation expense for the ESSOP based on the shares-allocated
method.
49
<PAGE>
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following summarizes ESSOP activity:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
(IN MILLIONS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
YEARS ENDED DECEMBER 31
Dividends paid on preferred stock:
Allocated shares............................ $ 2 $ 2 $ 2
Unallocated shares.......................... 9 9 9
Compensation expense......................... 4 4 5
Contribution to ESSOP........................ 4 4 4
Interest income from ESSOP................... 14 14 14
ESSOP SHARE INFORMATION AT DECEMBER 31
Fair value per share......................... $ 159.50 $ 157.00 $ 125.60
Shares allocated to employees during the
year........................................ 62,826 59,672 72,051
Committed to be released..................... 40 2,602 2,881
</TABLE>
11. INCENTIVE PLANS
General Re 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 and officers. The Plan provides that the exercise price of
the options granted may not be less than the fair market value of General Re'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.
In celebration of its 75th Anniversary during 1996, General Re issued 75
option shares or stock appreciation rights ("SARs") to most of its employees.
These options are exercisable cumulatively 33 percent each year commencing one
year from March 21, 1996. As part of the acquisition of National Re, holders
of National Re stock options had the opportunity to roll over their options
into options to purchase General Re's common stock. These rollover options are
fully vested and have exercise prices that maintain the holder's intrinsic
value in the options held.
The Plan also permits the granting of 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.
50
<PAGE>
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following summarizes the activity for options and SARs:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
STOCK OPTIONS
Outstanding, beginning of year............... 3,647,929 3,107,851 2,501,412
Granted: ($140.13 to $168.25 per share)...... 1,092,738 944,987 814,532
Granted in National Re acquisition ($50.65 to
$300.00 per share).......................... 262,269 -- --
Exercised ($55.25 to $151.31 per share)...... (341,765) (360,074) (171,093)
Canceled..................................... (100,460) (43,635) (34,030)
Voided due to SARs exercise.................. (1,300) (1,200) (2,970)
--------- --------- ---------
Outstanding, end of year..................... 4,559,411 3,647,929 3,107,851
========= ========= =========
Options exercisable ($50.65 to $157.19 per
share)...................................... 2,150,751 1,628,404 1,479,718
========= ========= =========
Shares available for future options.......... 2,938,838 3,881,185 1,807,096
========= ========= =========
STOCK APPRECIATION RIGHTS
Outstanding, beginning of year............... 8,000 9,200 12,170
Granted...................................... 5,825 -- --
Exercised.................................... (1,300) (1,200) (2,970)
--------- --------- ---------
Outstanding, end of year..................... 12,525 8,000 9,200
========= ========= =========
</TABLE>
General Re has elected to continue accounting for stock-based compensation in
accordance with Accounting Principles Board Opinion No. 25 for all of its
compensatory plans. Accordingly, no compensation expense has been recognized
for its nonqualified stock option plan. Had compensation expense for General
Re's nonqualified stock option plan been recognized in accordance with FASB
Statement No. 123, General Re's net income and earnings per share would have
been $882 million, or $10.86 per share, in 1996 and $823 million, or $9.90 per
share in 1995.
The Plan also permits the granting of restricted stock awards as compensation
to officers of General Re. 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 1996, 1995 and
1994, General Re made aggregate compensatory restricted stock awards of
96,153, 31,900 and 17,250 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 $7 million in 1996, $4 million in 1995 and $2 million
in 1994.
51
<PAGE>
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. LEASES
General Re 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 $32 million in 1996, $31 million in 1995 and $32 million in 1994. At
December 31, 1996, the future minimum annual rental commitments under
noncancelable leases were as follows:
<TABLE>
<CAPTION>
(IN MILLIONS)
<S> <C>
1997........................... $ 34
1998........................... 33
1999........................... 28
2000........................... 27
2001........................... 25
Subsequent to 2001............. 137
----
Total.......................... $284
====
</TABLE>
Future minimum rental payments above have not been reduced by $48 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 General Re'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>
1996
Direct.......... $ 525 $ 477 -- -- $ 382 --
Assumed......... 5,887 5,987 $1,180 $1,165 4,237 $ 915
Ceded........... (826) (846) (105) (105) (635) (126)
-------- -------- ------ ------ ------ -----
Net............ $ 5,586 $ 5,618 $1,075 $1,060 $3,984 $ 789
======== ======== ====== ====== ====== =====
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 --
======== ======== ====== ====== ====== =====
</TABLE>
General Re 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, General Re would be liable for such
defaulted amounts. General Re holds partial collateral under these agreements
and has never suffered a significant loss because of defaults. General Re
utilizes various North American and international reinsurers as part of its
retrocessional program. Prior to
52
<PAGE>
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
being included in General Re's retrocessional program, reinsurers are reviewed
for their anticipated long-term creditworthiness by General Re's
Retrocessional Market Committee. At December 31, 1996, the largest reinsurance
recoverable on unpaid claims and claim expenses from any single reinsurer was
$382 million. The reinsurer is rated A++ by A.M. Best and has a Standard &
Poor's claims-paying ability rating of AAA.
As part of its retrocessional program, General Re 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 1996 Lloyd's finalized a plan
of "Reconstruction and Renewal," which is intended to end litigation
associated with losses from prior syndicate years, especially those years
exposed to North American environmental and other mass tort exposures. The
plan allows Names to reinsure their pre-1992 underwriting years to a newly
formed corporate reinsurer "Equitas," which will reinsure and manage the
runoff of these claims. The intent is to close out Names' potential exposures
for these prior underwriting years. Names, however, still have potential
exposure for these losses if Equitas is unable to meet its obligations. At
December 31, 1996, General Re's reinsurance recoverables on paid and unpaid
claims and claim expenses from all Lloyd's syndicates aggregated approximately
$260 million.
14. DIVIDENDS
General Re Corporation is the ultimate controlling entity in its insurance
holding company system, which includes North American insurance companies that
are subject to the insurance holding company acts of Delaware and various
other states. General Re 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.
During the fourth quarter of 1996, GRC paid a $940 million dividend to General
Re Corporation in connection with the acquisition of National Re.
Subsequently, General Re Corporation made a cash contribution to GRC of $210
million and contributed the common stock of National Re. As a result of the
extraordinary dividend, any additional dividend payments by GRC to General Re
Corporation prior to October 1, 1997 will be extraordinary and will require
regulatory approval. The statutory standard for such approval requires that
GRC's statutory surplus must be reasonable in relation to its outstanding
liabilities and adequate relative to its financial needs following payment of
the dividend.
15. GENERAL RE FINANCIAL PRODUCTS
GENERAL
GRFP's products include interest rate, currency and equity swaps and options,
as well as structured finance products. 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 these factors 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.
53
<PAGE>
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
TRADING REVENUES
The results of GRFP's trading activities are summarized by profit centers in
the following table. Trading revenues include any associated gains and losses
on hedging instruments. Trading revenue is included in "Other revenues" in the
income statement.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1996 1995 1994
-------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C>
Interest rate and foreign currency swaps............ $ 109 $ 110 $ 105
Interest rate and foreign currency options.......... 35 32 30
-------- -------- --------
Gross trading revenues.............................. $ 144 $ 142 $ 135
======== ======== ========
</TABLE>
NATURE AND TERMS
GRFP is engaged as a dealer in various types of derivative instruments, which
are described below:
Interest rate, currency and equity swaps are agreements between two parties to
exchange, at particular intervals, payment streams calculated on a specified
notional amount. The parties to a currency swap typically exchange a principal
amount in two currencies at inception of the contract, agreeing to re-exchange
the currencies at a future date and agreed exchange rate.
Interest rate, currency and equity 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 generally settled in
cash. Forward-rate agreements are financial instruments that settle in cash at
a specified future date based on the differential between agreed interest
rates applied to a notional amount. Foreign exchange contracts generally
involve the exchange of two currencies at agreed rates on a specified date;
spot contracts usually require the exchange to occur within two business days
of the contract date.
A summary of notional amounts of derivative contracts at December 31, 1996 and
1995 is included in the table below. For these transactions, the notional
amount represents the 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 69 percent of the notional
volume outstanding for derivative contracts at December 31, 1996 has a term of
five years or less and approximately 94 percent of the contracts has a term of
less than ten years.
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1996 1995
-------- --------
(IN MILLIONS)
<S> <C> <C>
Interest rate and currency swap agreements................... $322,836 $260,200
Options written.............................................. 51,547 43,574
Options purchased............................................ 54,871 44,134
Financial futures contracts:
Commitments to purchase..................................... 12,057 14,572
Commitments to sell......................................... 17,427 15,105
Forward rate agreements...................................... 9,565 15,700
Foreign exchange spot and forward contracts.................. 15,615 10,228
</TABLE>
54
<PAGE>
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FAIR VALUE OF TRADING INSTRUMENTS
The table below discloses the net fair value or carrying amount at the
reporting date for each class of derivative financial contract held or issued
by GRFP for trading purposes, as well as the average fair value during the
year, based on monthly observations. The net fair values reflect rights of
setoff and qualifying master netting arrangements with various counterparties
in accordance with Financial Accounting Standards Board Interpretation 39,
Offsetting Amounts Related to Certain Contracts. 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,
---------------------------------------
1996 1995
------------------- ------------------
ASSET LIABILITY ASSET LIABILITY
-------- --------- ------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Interest rate and foreign currency
swaps................................ $ 14,803 $ 14,815 $ 9,562 $ 9,833
Interest rate and foreign currency
options.............................. 1,101 935 759 709
-------- -------- ------- -------
Gross fair value...................... 15,904 15,750 10,321 10,542
Adjustment for counterparty netting... (12,445) (12,445) (8,085) (8,085)
-------- -------- ------- -------
Net fair value........................ 3,459 3,305 2,236 2,457
Security receivables/payables......... 626 602 198 170
-------- -------- ------- -------
Trading account assets/liabilities.... $ 4,085 $ 3,907 $ 2,434 $ 2,627
======== ======== ======= =======
<CAPTION>
AVERAGE 1996 AVERAGE 1995
------------------- ------------------
ASSET LIABILITY ASSET LIABILITY
-------- --------- ------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Interest rate and foreign currency
swaps................................ $ 11,294 $ 11,618 $ 8,244 $ 8,680
Interest rate and foreign currency
options.............................. 815 724 679 568
-------- -------- ------- -------
Gross fair value...................... 12,109 12,342 8,923 9,248
Adjustment for counterparty netting... (9,650) (9,650) (6,560) (6,560)
-------- -------- ------- -------
Net fair value........................ 2,459 2,692 2,363 2,688
Security receivables/payables......... 197 213 191 152
-------- -------- ------- -------
Trading account assets/liabilities.... $ 2,656 $ 2,905 $ 2,554 $ 2,840
======== ======== ======= =======
</TABLE>
RISK MANAGEMENT
Market Risk
Market risk is the potential change in value of the portfolio caused by
movements in foreign exchange, interest rate and equity markets. The level of
market risk is influenced by factors such as volatility and market liquidity
in which the financial instruments are traded. GRFP controls market risk
exposures by taking offsetting positions in either cash instruments or other
derivatives to reduce its overall exposure due to movements in these
variables. For securities sold, but not yet purchased, GRFP may incur a loss
if the market value of the security increases prior to the purchase of the
instruments. 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 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 holding period. GRFP also monitors its consolidated market risk across
all trading books on a weekly basis and has established limits assuming
simultaneous losses of two market risk components, each at the 95
55
<PAGE>
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
percent confidence level. When a risk limit is exceeded, appropriate action is
taken, dependent upon the amount and duration of the excess, to monitor,
control, and reduce the excess within approved levels. The weekly market risk
limit across all trading books was $10 million.
Since inception, GRFP has not experienced a weekly position change in excess
of the aggregate weekly market risk limit. In addition to these daily and
weekly assessments of risk, GRFP prepares periodic stress tests to assess its
exposure to movements in various market risk factors such as volatilities,
shifts in yield curves, and foreign currency exchange rates.
Credit Risk
Credit risk arises from the possible inability of counterparties to meet the
terms of their contracts. 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 the fair value adjustment is adjusted to reflect the changes in
the credit quality of the counterparty, changes in interest and currency rates
or changes in other factors affecting credit exposures. The fair value
allowance for counterparty credit exposures and future administrative costs on
existing contracts was $77 million at December 31, 1996. GRFP has not
experienced any write-offs on such 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 domestic commercial banks, U.S. government-chartered
organizations, sovereigns and corporations. 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
which allow the unwinding of these transactions in the event of a downgrade in
credit rating or other indications of decline in creditworthiness of either
the counterparty or GRFP.
GRFP assesses credit risk by counterparty across all transactions with each
respective 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, net of collateral held, at market rates prevailing at
December 31, 1996, approximated $2,852 million. This value represents
unrealized gains on financial instrument contracts in gain positions, net of
any unrealized losses with these counterparties from offsetting positions. The
maximum potential loss will increase or decrease during the life of the
transaction as a function of contract terms and market conditions such as
interest and currency rates. In the judgment of GRFP's 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.
56
<PAGE>
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table presents GRFP's derivatives portfolio by counterparty
credit quality and maturity at December 31, 1996. The amounts shown under
gross exposure in the table are before consideration of netting arrangements
and collateral held by GRFP. Net fair value shown on the table represents
unrealized gains on financial instrument contracts in gain positions, net of
any unrealized loss owed to these counterparties on offsetting positions. 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.................... $1,140 $1,115 $ 795 $ 3,050 $ 379 $ 379
AA..................... 3,465 1,979 1,479 6,923 1,650 1,650
A...................... 2,583 1,842 584 5,009 1,084 674
BBB.................... 305 181 175 661 247 147
Below BBB.............. 172 88 1 261 99 2
------ ------ ------ ------- ------ ------
Total................. $7,665 $5,205 $3,034 $15,904 $3,459 $2,852
====== ====== ====== ======= ====== ======
</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. All of these transactions
are collateralized by U.S. and foreign government securities. In addition to
interest amounts shown in Note 8, GRFP had $96 million, $90 million and $83
million of interest expense in 1996, 1995 and 1994, respectively, on related
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 affect 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.
GRFP enters into exchange traded 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 futures
exchange to meet the terms of the contracts and from counterparties' inability
to meet their margin requirements.
Legal Risk
Legal risk arises from the uncertainty of the enforceability, through legal or
judicial processes, of the obligations of GRFP's counterparties, including
contractual provisions intended to reduce credit exposure by providing for the
offsetting or netting of mutual obligations. GRFP seeks to reduce legal risk
by consulting with internal and external legal counsel (in relevant
jurisdictions) to determine legality and enforceability of various
transactions with different types of counterparties.
Liquidity Risk
GRFP is subject to liquidity risk in funding its portfolio of open
transactions. Movements in underlying market variables affect both future cash
flows intrinsic in the transactions, and collateral required to cover the
value of open positions. Management believes GRFP has sufficient resources to
cover its potential liquidity needs through its access to General Re's
commercial paper program and lines of credit.
57
<PAGE>
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
16. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following are the estimated fair values of General Re's financial
instruments:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------
1996 1995
----------------- -----------------
STATEMENT FAIR STATEMENT FAIR
VALUE VALUE VALUE VALUE
--------- ------- --------- -------
(IN MILLIONS)
<S> <C> <C> <C> <C>
FINANCIAL ASSETS
Invested assets (see Note 5).............. $26,562 $26,562 $23,494 $23,494
Cash...................................... 365 365 258 258
Securities purchased under agreements to
resell................................... -- -- 66 66
Mortgage receivable (included in other
assets).................................. 84 116 86 123
Loan to ESSOP............................. 144 175 146 181
Contract deposit assets................... 198 198 193 193
Trading account assets.................... 4,085 4,085 2,434 2,434
FINANCIAL LIABILITIES
9.00% Note due in 2009.................... 150 172 150 186
8.85% Note due in 2005.................... 110 111 -- --
7.50% Note due in 2005.................... 26 26 -- --
7.70% Mortgage payable through 1998....... 4 4 5 5
Commercial paper.......................... 140 140 -- --
Securities sold under agreements to
repurchase............................... 1,985 1,985 1,263 1,263
Securities sold but not yet purchased..... 869 869 614 614
Contract deposit liabilities.............. 1,962 1,962 1,668 1,668
Trading account liabilities............... 3,907 3,907 2,627 2,627
</TABLE>
General Re uses various methods and assumptions in estimating the fair value
of financial instruments. The following valuation methods and assumptions were
utilized by General Re 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 General Re'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 General Re's
mortgage and notes receivable/payable was estimated using discounted cash
flow analyses, based on General Re's current incremental borrowing rates
for similar types of arrangements. The fair value of General Re's debt was
based on market price quotations.
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.
58
<PAGE>
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
General Re has been named as defendant 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. General Re'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 General Re'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 General Re.
On July 1, 1996, U.S. Aviation Underwriters, Inc. ("USAU"), a subsidiary of
General Re, and John V. Brennan, the former Chairman and Chief Executive
Officer of USAU, after a trial in the U.S. District Court for the Eastern
District of New York, were found guilty of mail fraud in connection with the
allocation of insurance claims between two companies, arising out of the
December 7, 1987 crash of a domestic United States flight. General Re does not
expect the amount of any liability to USAU to be material to the financial
position, results of operations or cash flows of General Re.
18. COMMON AND PREFERRED STOCK
General Re 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 General Re is held by any subsidiary.
The number of shares included in treasury stock were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Balance, beginning of year.................... 20,714,069 20,955,202 19,195,866
Net purchases (reissuances)................... 548,044 (241,133) 1,759,336
---------- ---------- ----------
Balance, end of year.......................... 21,262,113 20,714,069 20,955,202
========== ========== ==========
</TABLE>
General Re also has the authority to issue 20 million shares of preferred
stock, of which 1,711,907 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 General Re'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 rights exercise price.
59
<PAGE>
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
19. INFORMATION ABOUT GENERAL RE'S OPERATIONS
General Re conducts its operations principally through the following business
segments: the property/casualty reinsurance operations, which include both
North American and international subsidiaries, life/health operations and
financial services.
The following is a summary of industry segment activity for 1996, 1995 and
1994:
<TABLE>
<CAPTION>
1996
-------------------------------------------------------------
PROPERTY/CASUALTY LIFE/HEALTH FINANCIAL SERVICES CONSOLIDATED
----------------- ----------- ------------------ ------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Net premiums written
Property/casualty...... $5,586 -- -- $5,586
Life/health............ -- $1,075 -- 1,075
------ ------ ----- ------
Total net premiums
written.............. $5,586 $1,075 -- $6,661
====== ====== ===== ======
Total revenues.......... $6,891 $1,134 $ 271 $8,296
Income before taxes,
minority interest and
realized gains......... 1,061 53 100 1,214
Income before taxes and
minority interest...... 1,152 63 103 1,318
Total assets --
December 31........... 32,123 -- 8,038 40,161
<CAPTION>
1995
-------------------------------------------------------------
<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
====== ====== ===== ======
Total revenues.......... $6,214 $ 742 $ 254 $7,210
Income before taxes,
minority interest and
realized gains......... 916 50 100 1,066
Income before taxes and
minority interest...... 976 51 103 1,130
Total assets --
December 31........... 28,852 -- 5,411 34,263
<CAPTION>
1994
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Net premiums written.... $3,001 -- -- $3,001
Total revenues.......... 3,611 -- $ 226 3,837
Income before taxes and
realized gains......... 645 -- 85 730
Income before taxes..... 715 -- 81 796
Total assets -- December
31..................... 23,231 -- 4,885 28,116
</TABLE>
60
<PAGE>
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table is a summary of General Re's business by geographic area.
Allocations to geographic area have been made on the basis of subsidiary
location.
<TABLE>
<CAPTION>
GEOGRAPHIC AREA
----------------------------------------
NORTH AMERICA INTERNATIONAL CONSOLIDATED
------------- ------------- ------------
(IN MILLIONS)
<S> <C> <C> <C>
1996
Revenues............................. $ 4,593 $ 3,703 $ 8,296
Income before income taxes and
minority interest................... 841 456 1,297
Identifiable assets at December 31... 29,041 11,120 40,161
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 10,424 34,263
1994
Revenues............................. $ 3,317 $ 520 $ 3,837
Income before income taxes........... 663 131 794
Identifiable assets at December 31... 20,184 7,932 28,116
</TABLE>
61
<PAGE>
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
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>
1996
Net premiums written
Property/casualty...................... $ 1,210 $ 1,579 $ 1,390 $ 1,407
Life/health............................ 251 259 275 290
Net premiums earned
Property/casualty...................... 1,294 1,424 1,378 1,522
Life/health............................ 245 254 276 285
Investment income....................... 285 288 302 330
Expenses................................ 1,595 1,754 1,744 1,906
Net income.............................. 237 224 184 249
Per common share:
Net income............................. 2.87 2.80 2.31 3.00
Common dividends....................... .51 .51 .51 .51
<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>
62
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF GENERAL RE CORPORATION
Reference is made to the captions "Board of Directors" and "Election of
Directors" in the Proxy Statement.
The Executive Officers of General Re as of March 1, 1997 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Charles F. Barr......... 47 Vice President, General Counsel and Secretary of
General Re 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 General Re
since 1989.
Joseph P. Brandon....... 38 Vice President and Chief Financial Officer of General
Re Corporation since 1991. With General Re since 1989.
I. John Cholnoky........ 39 Vice President of General Re Corporation since 1996;
Senior Vice President of General Reinsurance
Corporation since 1993; previously Vice President of
General Reinsurance Corporation 1992-1993; Second Vice
President of General Reinsurance Corporation 1987-1992;
Assistant Vice President of General Reinsurance
Corporation 1985-1987. With General Re since 1981.
Ronald E. Ferguson...... 55 Chairman and Chief Executive Officer of General Re
Corporation since 1987. With General Re since 1969.
Ernest C. Frohboese..... 56 Vice President, Investments of General Re Corporation
since 1990 and Senior Vice President and Chief
Investment Officer of General Reinsurance Corporation
since 1990. With General Re since 1990.
Christopher P. Garand... 49 Vice President, Enterprise Risk Manager of General Re
Corporation since March 1995 and Senior Vice President
of General Reinsurance Corporation since December 1994;
previously Vice President and Manager, Financial
Products and Services of General Reinsurance
Corporation 1988-1994. With General Re since 1985.
Hans Peter Gerhardt..... 42 Vice President of General Re Corporation since 1996;
Senior Vice President of Cologne Re since 1993; Member
of the Board of Executive Directors of Cologne Re since
1993. With General Re since 1994; joined Cologne Re in
1983.
James E. Gustafson...... 50 President and Chief Operating Officer of General Re
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 since 1987. With General Re since 1969.
</TABLE>
63
<PAGE>
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Theron S. Hoffman....... 49 Vice President, Human Resources of General Re
Corporation since March 1995 and Senior Vice President
of General Re Services Corporation since 1990. With
General Re since 1990.
Tom N. Kellogg.......... 60 Executive Vice President of General Re 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 General Re since 1968.
Dr. Peter Lutke- 50 Executive Vice President of General Re Corporation
Bornefeld............... since March 1995 and Chief Executive Officer of Cologne
Re since 1993; Member of the Board of Directors of
Cologne Re since 1990. With General Re since 1994;
joined Cologne Re in 1979.
Elizabeth A. Monrad..... 42 Vice President and Treasurer of General Re Corporation
since March 1995; previously Corporate Controller of
General Re Corporation 1992-1995; Senior Vice President
and Treasurer of General Reinsurance Corporation since
1996. Previously a partner with Coopers & Lybrand,
1989-1992. With General Re since 1992.
Franklin Montross, IV... 41 Vice President of General Re Corporation since 1996;
Member, Vorstand of Cologne Re since 1995; Chief
Underwriting Officer and Senior Vice President of
General Reinsurance since 1992; previously, Vice
President of General Reinsurance Corporation 1987-1991.
With General Re since 1978.
Stephen P. Raye......... 53 Vice President, Technology of General Re 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 General Re since 1977.
Lee R. Steeneck......... 49 Vice President and Actuary of General Re Corporation
since March 1995 and Senior Vice President of General
Reinsurance Corporation since 1996. With General Re
since 1975.
William E. Thiele....... 54 Vice President, Global Casualty of General Re
Corporation since 1996. Previously, Chief Executive
Officer and President of Swiss Re America Corporation
1993-1996; President, Chief Operating Officer and
Director of Continental Insurance Companies 1990-1992;
Executive Vice President of Continental Insurance
Companies 1983-1990. With General Re 1968-1983, and
since 1996.
</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.
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.
64
<PAGE>
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.
2. Exhibits
<TABLE>
<C> <S>
3.1 The Restated Certificate of Incorporation of General Re Corporation,
as amended, is incorporated by reference herein from General Re's
Annual Report on Form 10-K for the fiscal year ended December 31,
1987.
.2 The By-Laws of General Re Corporation, as amended and restated.
4.1 Rights Agreement, dated as of September 11, 1991 between General Re
Corporation and The Bank of New York, as Rights Agent, is incorporated
by reference from General Re's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994.
10.2 Form of Indemnity Agreement among General Re Corporation and directors
and executive officers is incorporated by reference from General Re's
Annual Report on Form 10-K for the fiscal year ended December 31,
1994.(/1/)
.3 The General Reinsurance Supplemental Benefit Equalization Plan, is
incorporated by reference from General Re's Annual Report on Form 10-K
for the fiscal year ended December 31, 1995.(/1/)
.4 The General Re Corporation Retirement Plan for Directors, is
incorporated by reference from General Re's Annual Report on Form 10-K
for the fiscal year ended December 31, 1995.(/1/)
.5 The General Re Corporation Deferred Compensation Plan for Directors,
is incorporated by reference from General Re's Annual Report on Form
10-K for the fiscal year ended December 31, 1995.(/1/)
.6 Form of Severance Agreement among General Re Corporation and certain
executive officers.
.7 Employment Agreement between Cologne Re and Peter Lutke-Bornefeld.
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.
</TABLE>
- --------
(/1/) Management contracts or compensatory plans filed pursuant to Item 14(c).
(B) REPORTS ON FORM 8-K
A report on Form 8-K dated October 3, 1996 reporting that General Re
Corporation and National Re Corporation had consummated the merger.
A report on Form 8-K dated November 6, 1996 filed in connection with the
"safe harbor" provisions of the Private Securities Litigation Reform Act of
1995. The report contains risk factors which may cause General Re's results
to differ materially from forward-looking statements made by General Re.
65
<PAGE>
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 10, 1997
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
--------- ----- ----
<S> <C> <C>
Ronald E. Ferguson Chairman and Chief Executive February 25, 1997
(Ronald E. Ferguson) Officer and Director
Joseph P. Brandon Vice President and Chief Financial Officer February 25, 1997
(Joseph P. Brandon) (Principal Financial Officer)
Elizabeth A. Monrad Vice President and Treasurer February 25, 1997
(Elizabeth A. Monrad) (Principal Accounting Officer)
*Lucy Wilson Benson Director February 25, 1997
(Lucy Wilson Benson)
*Walter M. Cabot Director February 25, 1997
(Walter M. Cabot)
*William C. Ferguson Director February 25, 1997
(William C. Ferguson)
*Donald J. Kirk Director February 25, 1997
(Donald J. Kirk)
*Kay Koplovitz Director February 25, 1997
(Kay Koplovitz)
*Edward H. Malone Director February 25, 1997
(Edward H. Malone)
*Andrew W. Mathieson Director February 25, 1997
(Andrew W. Mathieson)
*Martin G. McGuinn Director February 25, 1997
(Martin G. McGuinn)
*David E. McKinney Director February 25, 1997
(David E. McKinney)
*Stephen A. Ross Director February 25, 1997
(Stephen A. Ross)
*Walter F. Williams Director February 25, 1997
(Walter F. Williams)
</TABLE>
- --------
*By either Charles F. Barr or Robert D. Graham pursuant to a power of
attorney.
66
<PAGE>
GENERAL RE CORPORATION
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF GENERAL RE CORPORATION
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
GENERAL RE CORPORATION
CONDENSED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
(PARENT COMPANY)
(IN MILLIONS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
ASSETS
Fixed maturities, available-for-sale.......................... $ 85 $ 212
Equity securities, at fair value.............................. -- 70
Short-term investments, at amortized cost which approximates
fair value................................................... 159 21
Investment in subsidiaries, at equity......................... 7,361 6,559
Other invested assets......................................... 39 39
Other assets.................................................. 31 32
Due from subsidiaries......................................... 178 32
------ ------
Total assets................................................ $7,853 $6,965
====== ======
LIABILITIES
Commercial paper.............................................. $ 140 --
Notes payable due 2009........................................ 150 $ 150
Income taxes.................................................. 135 125
Other liabilities............................................. 100 102
------ ------
Total liabilities........................................... 525 377
------ ------
Cumulative convertible preferred stock (shares issued:
1,711,907 in 1996
and 1,724,037 in 1995; no par value)......................... 146 147
Loan to employee savings and stock ownership plan............. (144) (146)
------ ------
2 1
------ ------
COMMON STOCKHOLDERS' EQUITY
Common stock (102,827,344 shares issued in 1996 and 1995; par
value $.50).................................................. 51 51
Paid-in capital............................................... 1,041 635
Unrealized appreciation of investments, net of deferred income
taxes........................................................ 1,625 1,468
Currency translation adjustments, net of deferred income tax-
es........................................................... (53) (11)
Retained earnings............................................. 6,708 5,986
Less common stock in treasury, at cost (shares held:
21,262,113 in 1996
and 20,714,069 in 1995)...................................... (2,046) (1,542)
------ ------
Total common stockholders' equity........................... 7,326 6,587
------ ------
Total liabilities, cumulative convertible preferred stock
and
common stockholders' equity................................ $7,853 $6,965
====== ======
</TABLE>
67
<PAGE>
GENERAL RE CORPORATION
CONDENSED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(PARENT COMPANY)
(IN MILLIONS)
<TABLE>
<CAPTION>
1996 1995 1994
------ ---- ----
<S> <C> <C> <C>
REVENUES
Distributions from subsidiaries
Insurance subsidiaries................................. $1,038 $420 $441
Other subsidiaries..................................... 75 8 394
------ ---- ----
Total distributions from subsidiaries................ 1,113 428 835
Investment income........................................ 9 11 26
Other revenues........................................... 15 22 37
Net realized gains (losses) on investments............... 1 (6) 6
------ ---- ----
Total revenues....................................... 1,138 455 904
------ ---- ----
EXPENSES
Other operating costs and expenses....................... 36 29 29
Income tax expense (benefit)............................. (4) 4 (4)
------ ---- ----
Total expenses....................................... 32 33 25
------ ---- ----
Income before equity income.......................... 1,106 422 879
------ ---- ----
Equity in net income of subsidiaries less dividends
received of
$1,113 in 1996, $428 in 1995 and $835 in 1994............. (212) 403 (214)
------ ---- ----
Net income........................................... $ 894 $825 $665
====== ==== ====
</TABLE>
68
<PAGE>
GENERAL RE CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(PARENT COMPANY)
(IN MILLIONS)
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- -----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................................ $894 $825 $ 665
Equity in net income of subsidiaries less dividends re-
ceived................................................... 212 (403) 214
Other..................................................... (107) 8 351
---- ---- -----
Net cash from operating activities.................... 999 430 1,230
---- ---- -----
CASH FLOWS FROM INVESTING ACTIVITIES
Fixed maturities:
Purchases............................................... (172) (344) (132)
Sales................................................... 326 146 276
Maturities.............................................. -- 74 40
Equity securities:
Purchases............................................... (60) -- --
Sales................................................... 111 -- 1
Other invested assets....................................... -- -- 105
Net sales (purchases) of short-term investments............. (138) 3 (20)
Cash used in acquisitions................................... (313) -- (884)
Capital contribution to subsidiaries........................ (28) (125) (6)
---- ---- -----
Net cash used in investing activities................. (274) (246) (620)
---- ---- -----
CASH FLOWS FROM FINANCING ACTIVITIES
Commercial paper borrowing (repayment), net............... 140 (31) (230)
Cash dividends paid to stockholders
Common.................................................. (163) (161) (157)
Preferred............................................... (11) (11) (11)
Acquisition of treasury stock............................. (729) (30) (222)
Other..................................................... 44 45 11
---- ---- -----
Net cash used in financing activities................. (719) (188) (609)
---- ---- -----
Change in cash.............................................. (6) (4) 1
Cash, beginning of year..................................... -- 4 3
---- ---- -----
Cash, end of year........................................... $ 6 $ -- $ 4
==== ==== =====
</TABLE>
69
<PAGE>
GENERAL RE CORPORATION
SCHEDULE V--SUPPLEMENTARY INSURANCE INFORMATION
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN MILLIONS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F COLUMN G COLUMN H COLUMN I COLUMN J COLUMN K
- ------------------- ----------- -------- -------- ----------- -------- ---------- ---------- ------------ --------- --------
BENEFITS,
GROSS POLICY CLAIMS, AMORTIZATION
DEFERRED CLAIMS BENEFITS LOSSES OF DEFERRED
YEAR POLICY AND 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>
1996
Property/Casualty
North America..... $232 $10,767 $1,151 -- $3,104 $ 727 $2,143 $ 682 $303 $3,081
International..... 158 5,210 639 -- 2,514 394 1,841 576 195 2,505
Life/health........ 67 -- 167 $751 1,060 59 789 220 60 1,075
---- ------- ------ ---- ------ ------ ------ ------ ---- ------
Total........... $457 $15,977 $1,957 $751 $6,678 $1,180 $4,773 $1,478 $558 $6,661
==== ======= ====== ==== ====== ====== ====== ====== ==== ======
1995
Property/Casualty
North America..... $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 $580 696 40 505 149 36 709
---- ------- ------ ---- ------ ------ ------ ------ ---- ------
Total........... $434 $14,252 $1,913 $580 $5,837 $ 998 $4,185 $1,345 $413 $6,102
==== ======= ====== ==== ====== ====== ====== ====== ==== ======
1994
Property/Casualty
North America..... $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 $479 -- -- -- -- -- --
---- ------- ------ ---- ------ ------ ------ ------ ---- ------
Total........... $324 $12,158 $1,642 $479 $2,788 $ 738 $1,981 $ 614 $303 $3,001
==== ======= ====== ==== ====== ====== ====== ====== ==== ======
</TABLE>
- ----
Note: The totals shown in the Schedule include only the property/casualty and
life/health operations of General Re and may not correspond with
consolidated amounts.
70
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE
------- ----------- ------------
<C> <S> <C>
10.6 Form of Severance Agreement among General Re
Corporation and certain executive officers............. 72
.7 Employment Agreement between Kolnische
Ruckversicherungs-Gesellschaft AG and Peter Lutke-
Bornefeld.............................................. 80
11 Computation of Earnings Per Share...................... 91
21 Subsidiaries of General Re Corporation................. 93
23 Consent of Independent Accountants..................... 97
24 Powers of Attorney of Directors........................ 99
27 Financial Data Schedule................................ 101
</TABLE>
71
<PAGE>
EXHIBIT 10.6
FORM OF SEVERANCE AGREEMENT
AMONG GENERAL RE CORPORATION AND
CERTAIN EXECUTIVE OFFICERS
72
<PAGE>
EXHIBIT 10.6
SEVERANCE AGREEMENT
Agreement made this 15th day of May, 1996, between General Re Corporation
(the "Company"), and (the "Executive").
WHEREAS, the Company desires to provide the Executive with severance pay
under the circumstances and pursuant to the terms and conditions hereinafter set
forth.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter set forth, the Company and the Executive hereby agree as follows:
1. This Agreement shall be effective for the period beginning May 1, 1996
and expiring on January 16, 2007.
2. Definitions: For purposes of this Agreement, the terms set forth
below shall have the meanings set forth below:
(a) "Annual Compensation" means the Base Salary of the Employee plus
the greater of:
(i) fifty (50%) percent of the Employee's Base Salary or
(ii) the Target Annual Incentive Bonus Award in effect for the
calendar year, but excluding other special compensation or
bonuses.
(b) "Base Salary" means the regular annual basic salary paid by the
Company for services performed by the Executive before any payroll deductions
for taxes or any other purposes, plus any amounts reduced from such salary or
wages and contributed on the Executive's behalf under the Employee Savings and
Stock Ownership Plan ("ESOP") or any amounts contributed on behalf of such
Executive under the Company's Cafeteria Plan for such period. Base salary shall
not include overtime,
73
<PAGE>
bonuses, commissions, fees, pension, severance pay or any other extraordinary
compensation, nor Matching Contributions or ESOP Contributions under the ESOP or
Company contributions to the Employee Retirement Plan of General Re Corporation
and its Affiliates ("Retirement Plan") or any other deferred compensation or
employee benefit plan or program of the Company.
(c) "Change in Control" of the Company 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 twenty (20%) percent 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.
(d) "Person" shall have the meaning given in Section 3(a)(9) of the
Securities and Exchange Act of 1934 (as amended), as modified and used in
Sections 13(d) and 14(d) thereof; however, a Person shall not include (a) the
Company or any of its subsidiaries, (b) a trustee or other fiduciary holding
securities under an employee benefit plan of the Company or any of its
subsidiaries, (c) an underwriter temporarily holding securities pursuant to an
offering of such securities, or (d) a corporation owned, directly or indirectly,
by the stockholders of the Company in substantially the same proportion as their
ownership of stock of the Company.
(e) "Target Annual Incentive Bonus Award" means the target formula
amount of the Annual Incentive Bonus Award applicable for the calendar year an
Employee pursuant to Section 6(c)(2)(A) of the General Re Corporation Long Term
Incentive Plan.
(f) "Termination for Cause" means any separation from service by the
Executive from the Company which is effected by reason of fraud, deceit, or
other gross misconduct by the Executive performed within the scope of the
Executive's employment.
74
<PAGE>
(g) "Termination for Good Reason" means any separation from service
by the Executive because of (a) the involuntary assignment of the Executive to
duties materially different from the Executive's position prior to such Change
in Control; (b) a reduction of the Executive's salary which is greater than 10
percent of the Executive's salary at the annual rate in effect at the time of
the Change in Control; or (c) the relocation of the Executive's regular assigned
workplace by more than 50 additional miles from residence.
3. In the event that there is a Change in Control of the Company
during the term of this Agreement, the Executive shall be entitled to a
severance payment if the Executive's employment with the Company terminates
(other than by reason of death, disability, retirement on or after Normal
Retirement Date under the Retirement Plan of General Re Corporation and its
Affiliates, Termination for Cause, or voluntary termination by the Executive
except for Termination for Good Reason) during the term of this Agreement and
within two years after the Change in Control. The amount of severance payment
shall be an amount equal to the Executive's Annual Compensation multiplied by
three (3). Notwithstanding anything contained herein to the contrary, the
Executive's entitlement to severance pay pursuant to this Agreement shall be in
lieu of, and not in addition to, any entitlement under the Company's Severance
Pay Plan, and the Executives entitlement to severance pay pursuant to this
Agreement shall be contingent upon the Executive delivering to the Company in a
form acceptable to the Company a signed release of any and all claims that the
Executive may have against the Company and any affiliated entities and their
respective officers, directors, employees, agents and employee welfare benefit
plans, relating in any way to the Executive's employment with the Company and
any affiliated entities and to the termination of such employment.
4. In the event that any payments or benefits received or to be
received by the Executive in connection with a Change in Control or termination
of employment, whether pursuant to the terms of this Plan or any other plan,
arrangement or agreement with the Company, any affiliated entity, or with any
Person whose actions result in a Change in Control or with any Person affiliated
with the Company or such Person, (all such payments and benefits, including the
Severance Payments payable hereunder, being hereinafter called "Total
Payments"), are subject (in whole or part) to the excise tax (the "Excise Tax")
imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the
"Code"), the Company shall pay to the Executive an additional amount (the
"Gross-Up Payment") such that the net amount retained by the Executive, after
deduction of any Excise Tax on the Total Payments and deduction of any
75
<PAGE>
federal, state and local income tax and Excise Tax on the Gross-Up Payment,
shall be equal to the Total Payments. For purposes of determining whether any of
the Total Payments will be subject to the Excise Tax and the amount of such
Excise Tax, (i) any such total payments shall be treated as "parachute payments"
within the meaning of Section 280G(b)(2) of the Code, and all "excess parachute
payments" within the meaning of Section 280G(b)(1) of the Code shall be treated
as subject to the Excise Tax, unless in the opinion of tax counsel selected by
the Company's independent auditors such payments or benefits (in whole or in
part) do not constitute parachute payments, including by reason of Section
280G(b)(4)(A) of the Code, or such excess parachute payments (in whole or in
part) represent reasonable compensation for services actually rendered, within
the meaning of Section 280G(b)(4)(B) of the Code, in excess of the "base amount"
(as defined in Section 280G(b)(3) of the Code) allocable to such reasonable
compensation, or are otherwise not subject to the Excise Tax, and (ii) the value
of any non-cash benefits or any deferred payment or benefit shall be determined
by the Company's independent auditors in accordance with the principles of
Sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount
of the Gross-Up Payment, the Executive shall be deemed to pay federal income
taxes at the highest marginal rate of federal income taxation in the calendar
year in which the Gross-Up Payment is to be made and state and local income
taxes at the highest marginal rate of taxation in the state and locality of the
Executive's residence on the date of termination of the Executive's employment,
net of the maximum reduction in federal income taxes which could be obtained
from deduction of such state and local taxes. In the event that the Excise Tax
is subsequently determined to be less than the amount taken into account
hereunder at the time of a Change in Control or termination of the Executive's
employment, the Executive shall repay to the Company, at the time that the
amount of such reduction in Excise Tax is finally determined, the portion of the
Gross-Up Payment attributable to such reduction (plus that portion of the Gross-
Up Payment attributable to the Excise Tax and federal, state and local income
tax imposed on the Gross-Up Payment being repaid by the Executive to the extent
that such repayment results in a reduction in Excise Tax and/or a federal, state
or local income tax deduction) plus interest on the amount of such repayment at
the rate provided in Section 1174(b)(2)(b) of the Code. In the event that the
Excise Tax is determined to exceed the amount taken into account hereunder at
the time of the Change of Control or termination of the Executive's employment
(including by reason of any payment the existence or amount of which cannot be
determined at the time of the Gross-Up Payment), the Company shall make an
additional Gross-Up Payment in respect of such excess (plus any interest,
penalties or additions payable to the Executive with respect to such excess) at
the time that the amount of such excess is finally determined. The Executive and
the Company shall
76
<PAGE>
each reasonably cooperate with the other in connection with any administrative
or judicial proceedings concerning the existence or amount of liability for the
Excise Tax with respect to the Total Payments.
5. Severance payments shall be made in a lump sum within two weeks
(14 days) after the date of the Executive's termination. Notwithstanding the
foregoing, at the Executive's written request, Severance Payments may be made at
a later date or in an alternative method of payment period.
6. Notwithstanding anything in this Agreement to the contrary, the
severance payment received under this Agreement shall be reduced by any payments
earned after the Executive's termination of employment pursuant to employment,
consulting and/or service agreements or arrangements between the Executive and
the Company or any affiliated entity.
7. In the event that the Executive becomes entitled to receive a
severance payment pursuant to the terms of this Agreement, the Executive will
also be entitled, for a period of 36 months from the date of the Executive's
termination, to participate in each medical, dental, vision, life and personal
accident plan or benefit in which the Executive participated immediately prior
to the Executive's termination of employment, upon the same terms available to
active employees. If the terms of any benefit plan do not permit continued
participation by the Executive, then the Company will make a lump sum payment to
the Executive in an amount equal to the Company's cost to provide the benefit
that the Executive would have been entitled to receive under this Agreement if
the coverage under that plan immediately prior to the Executive's termination of
employment had remained in effect. The benefit to be provided or payments to be
made under this paragraph shall be reduced to the extent that the Executive
receives benefits or payments for the same occurrence under another employer
sponsored plan to which the Executive is entitled because of employment
subsequent to the termination of employment with the Company. The benefit to be
provided or payment to be made under this paragraph shall terminate in the event
the Executive fails to make any required employee contributions, provided that
such required contributions do not exceed the contribution amount required or an
active employee participating in the benefit plan.
8. In the event of any dispute between the parties hereto arising
out of or relating to this Agreement or the employment between the Company and
the Executive, such dispute shall be settled by arbitration in Stamford,
Connecticut in accordance with the commercial arbitration rules then obtaining
of the American Arbitration Association, except that there shall be one
arbitrator selected with respect to any
77
<PAGE>
such arbitration proceeding. Judgment upon the award rendered may be entered in
any court having jurisdiction thereof.
9. Any notice of other communication required or permitted under
this Agreement shall be effective only if it is in writing and delivered
personally or sent by registered or certified mail, postage prepaid, addressed
as follows:
If to the Company:
Charles F. Barr
Vice President and General Counsel
General Reinsurance Corporation
695 East Main Street
P.O. Box 10350
Stamford, CT 06904-2350
If to the Executive:
or to such other address as either party may designate by notice to the other,
and shall be deemed to have been given upon receipt.
10. Nothing contained herein shall be deemed to give the Executive
the right to be retained in the employment of the Company or to limit the rights
of the Company to discharge any Executive at any time.
11. This Agreement constitutes the entire agreement between the
parties hereto with respect to the Executive's entitlement to severance pay from
the Company, and supersedes and is in full substitution for any and all prior
understandings or agreements with respect to the Executive's severance pay
entitlement. The invalidity or unenforceability of any term or provision, or any
clause, or portion thereof, of this Agreement, shall in no way impair or affect
the validity or enforceability or any other provision of this Agreement which
shall remain in full force and effect.
78
<PAGE>
12. This Agreement may be amended only by an instrument in writing
signed by the parties hereto, and any provision hereof may be waived only by an
instrument in writing signed by the party or parties against whom or which
enforcement of such waiver is sought. The failure of either party hereto at any
time to require the performance by the other party hereto of any provision
hereof shall in no way affect the full right to require such performance at any
time thereafter, nor shall the waiver be either party hereto of a breach of any
provision hereof be taken or held to be a waiver of any succeeding breach of
such provision or a waiver of the provision itself or a waiver of any other
provision of this Agreement.
13. This Agreement is binding on and is for the benefit of the
parties hereto and their respective successors, heirs, executors, administrators
and other legal representatives. Neither this Agreement nor any right or
obligation hereunder may be assigned by the Company (except to an affiliated
entity) or by the Executive.
14. This Agreement shall be governed by and construed in accordance
with the laws of the State of Connecticut.
15. This Agreement may be executed in several counterparts, each of
which shall be deemed an original, but all of which shall constitute one and the
same instrument.
IN WITNESS WHEREOF, the Company and the Executive have executed this
Agreement as of the date first written above.
------------------------------
GENERAL RE CORPORATION
Dated: By:
------------------ ---------------------------
79
<PAGE>
EXHIBIT 10.7
EMPLOYMENT AGREEMENT
BETWEEN
KOELNISCHE RUECKVERSICHERUNGS-GESELLSCHAFT AG
AND
DR. PETER LUETKE-BORNEFELD
80
<PAGE>
EXHIBIT 10.7
DIE KOELNISCHE RUECK.
- --------------------------------------------------------------------------------
Seite 1
VORSTANDSVERTRAG
zwischen der
Koelnische Rueckversicherungs-Gesellschaft AG, Koeln
- nachstehend "Gesellschaft" -
und
Herrn Dr. Peter Luetke-Bornefeld, Koeln
(S) 1
AUFGABEN UND VERTRAGSDAUER
Herr Dr. Luetke-Bornefeld ist seit 1. Januar 1990 Mitglied und seit 1. Januar
1993 Vorsitzender des Vorstands der Gesellschaft. Die letzte Bestellung erfolgte
durch Beschluss des Aufsichtsrats vom 18. Januar 1994 fuer die Zeit vom 1.
Januar 1995 bis 31. Dezember 1999.
Dieser Vertrag gilt bis zum Ablauf der Amtszeit von Herrn Dr. Luetke-Bornefeld.
Im Fall einer Wiederbestellung oder Verlaengerung der Amtszeit verlaengert er
sich entsprechend. Eine Kuendigung ist beiderseits nur zum Ende einer
Bestellungsperiode mit einer Frist von elf Monaten moeglich. Die Gesellschaft
verpflichtet sich, Herrn Dr. Luetke-Bornefeld jeweils elf Monate vor Ablauf der
Bestellungsperiode eine Mitteilung zu machen, falls sie den Vertrag nicht
verlaengern will.
Herr Dr. Luetke-Bornefeld fuehrt die Geschaefte der Gesellschaft nach Massgabe
der Gesetze, der Satzung, der Geschaeftsordnung fuer den Vorstand, der
Geschaeftsordnung fuer den Aufsichtsrat (soweit darin Pflichten des Vorstands
und seiner Mitglieder geregelt sind) und dieses Vorstandsvertrages.
Herrn Dr. Luetke-Bornefeld obliegen insbesondere die Aufgaben, die ihm nach dem
jeweils gueltigen Geschaeftsverteilungsplan zugewiesen sind.
81
<PAGE>
DIE KOELNISCHE RUECK.
- --------------------------------------------------------------------------------
Seite 2
(S) 2
PFLICHTEN, NEBENTAETIGKEITEN
Herr Dr. Luetke-Bornefeld hat seine gesamte Arbeitskraft der Gesellschaft zur
Verfuegung zu stellen. Die Ausuebung von Taetigkeiten ausserhalb der General Re
und Cologne Re Gruppe bedarf der Einwilligung des Aufsichtsrats.
(S) 3
GEHALT
Herr Dr. Luetke-Bornefeld erhaelt mit Wirkung vom 1. Januar 1996 folgende
Verguetung:
3.1 Grundeinkommen
Das jaehrliche Grundeinkommen betraegt DM 750.000,--. Dieses wird in
12 monatlichen Raten gezahlt.
3.2 Bonus
Herr Dr. Luetke-Bornefeld erhaelt bei Erreichung der mit ihm
vereinbarten Ziele einen Bonus, der grundsaetzlich komplett variabel
ist. Die Hoehe dieses Bonus orientiert sich am Erfuellungsgrad der
fuer seinen Verantwortungsbereich und fuer das Gesamtunternehmen
(Koelnische Rueck) vereinbarten Ziele und seiner persoenlichen
Performance. Darueberhinaus sollen besondere Markt- und
Umweltbedingungen beruecksichtigt werden. Die als relevant geltenden
Kriterien werden jeweils jaehrlich festgelegt. Den jeweiligen
Zielerreichungsgrad wird der Vorsitzende des Aufsichtsrats, Ron
Ferguson, festlegen. Da fuer das Jahr 1996 eine solche Festlegung
nicht vorliegt, wird der Erfuellungsgrad von Ron Ferguson qualitativ
festgestellt.
Herr Dr. Luetke-Bornefeldt erhaelt die Moeglichkeit, einen
Gesamtbonus von DM 650.000,-- zu erlangen. Hiervon sind DM 350.000,--
fuer die Jahre 1996 und 1997 garantiert.
Das Grundeinkommen und der Bonusrahmen werden regelmaessig
(mindestens alle 2 Jahre) entsprechend der Marktentwicklung
ueberprueft und gegebenenfalls neu festgesetzt.
3.3 Stock Options
Herr Dr. Luetke-Bornefeld nimmt am Stock Option Programm der General
Re teil.
82
<PAGE>
DIE KOELNISCHE RUECK.
- --------------------------------------------------------------------------------
Seite 3
(S) 4
URLAUB
Herrn Dr. Luetke-Bornefeld steht ein Jahresurlaub von fuenf Wochen zu.
(S) 5
BETRIEBLICHE ALTERSVERSORGUNG
Herr Dr. Luetke-Bornefeld erhaelt Leistungen der betrieblichen Altersversorgung
nach Massgabe der Ruhegeldzusage fuer Vorstandsmitglieder der Koelnischen Rueck.
Die Ruhegeldzusage ist Bestandteil dieses Dienstvertrages und wird Herrn Dr.
Luetke-Bornefeld ausgehaendigt.
Aufgrund der besonderen Aufgabe und Stellung im Vorstand wird (S) 4, Saetze
1-3, der Ruhegeldzusage fuer Herrn Dr. Luetke-Bornefeld verbessert und erhaelt
folgende Fassung:
Die Hoehe des Altersruhegeldes betraegt 50% des letzten jaehrlichen
Grundeinkommens nach Massgabe dieses Dienstvertrages. Die massgebliche
Bemessungsbasis (Grundeinkommen) ist auf das 7fache der im Jahr des
Versorgungsfalles gueltigen Beitragsbemessungsgrenze in der gesetzlichen
Rentenversicherung begrenzt.
Wird der Dienstvertrag bei Ablauf nicht verlaengert, vorzeitig beendet oder aus
wichtigem Grund beendet, bevor die Voraussetzungen fuer eine Ruhegeldzahlung
gegeben sind, so richten sich unverfallbar erhalten bleibende
Versorgungsansprueche nach dem Gesetz ueber die Verbesserung der betrieblichen
Altersversorgung. Beginn der Betriebszugehoerigkeit im Sinne des Gesetzes ist
fuer Herrn Dr. Luetke-Bornefeld der 1. Januar 1985.
(S) 6
UEBERGANGSGELD
Wird der Dienstvertrag zum Ablauf von der Gesellschaft nicht erneuert, ohne dass
ein wichtiger Grund vorliegt, so steht Herrn Dr. Luetke-Bornefeld ein Anspruch
auf Uebergangsgeld zu.
Das Uebergangsgeld betraegt 50% des zuletzt gezahlten festen Jahresgehalts
gemaess (S) 3.1 dieses Vertrages, gekuerzt um 1% des massgeblichen festen
Jahresgehalts fuer jedes an der Vollendung des 65. Lebensjahres fehlende
Lebensjahr. Es wird in monatlich nachtraeglich faelligen Teilen gezahlt. Der
Anspruch auf Uebergangsgeld erlischt mit der Zahlung von Altersruhegeld bzw. von
Witwen- und Waisengeld durch die Gesellschaft. Gleichzeitig entsteht ein
Anspruch auf ein Altersruhegeld in gleicher Hoehe wie das Uebergangsgeld. Fuer
das Altersruhegeld gelten die Regelungen der Ruhegeldzusage mit Ausnahme des (S)
4 ueber die Hoehe des Altersruhegeldes.
83
<PAGE>
DIE KOELNISCHE RUECK.
- --------------------------------------------------------------------------------
Seite 4
Herr Dr. Luetke-Bornefeld muss sich das aus einer anderen Taetigkeit erzielte
Einkommen auf das zu zahlende Uebergangsgeld bis zu dessen Haelfte anrechnen
lassen. Herr Dr. Luetke-Bornefeld ist verpflichtet, der Gesellschaft
unaufgefordert jaehrlich die Hoehe der entsprechenden Einkuenfte zu belegen.
(S) 7
ENTGELT-FORTZAHLUNG
Stirbt Herr Dr. Luetke-Bornefeld waehrend der Dauer des Vorstandsvertrages, so
haben seine Witwe und seine waisengeldberechtigten Kinder fuer den Sterbemonat
und die drei folgenden Monate Anspruch auf Fortzahlung des monatlichen
Grundeinkommens.
Stirbt Herr Dr. Luetke-Bornefeld, waehrend er Uebergangs- oder Ruhegeld bezieht,
so gilt diese Regelung entsprechend fuer diese Bezuege.
(S) 8
DIENSTFAHRZEUG
Die Gesellschaft stellt Herrn Dr. Luetke-Bornefeld im Rahmen dieses Vertrages
einen seiner Position angemessenen PKW zur Verfuegung. Saemtliche Kosten, die
durch die Benutzung des Fahrzeugs entstehen, traegt die Gesellschaft. Herr Dr.
Luetke-Bornefeld darf den PKW auch privat nutzen. Die Einkommensteuer auf den
Geldwertvorteil der Privatnutzung traegt er selbst.
(S) 9
AUFWENDUNGSERSATZ UND NEBENLEISTUNGEN
Herr Dr. Luetke-Bornefeld erhaelt Ersatz der im Gesellschaftsinteresse
getaetigten Aufwendungen.
Darueber hinaus schliesst die Gesellschaft fuer Herrn Dr. Luetke-Bornefeld
Versicherungen ab, die insbesondere die mit der erforderlichen Reisetaetigkeit
verbundenen Risiken abdecken.
(S) 10
GEHEIMHALTUNG
Herr Dr. Luetke-Bornefeld wird ueber vertrauliche Angaben und Geheimnisse der
Gesellschaft, namentlich Betriebs- oder Geschaeftsgeheimnisse, die ihm durch
seine Taetigkeit im Vorstand der Gesellschaft bekannt geworden sind,
Stillschweigen bewahren. Diese Geheimhaltungspflicht besteht und bleibt auch
nach dem Ausscheiden von Herrn Dr. Luetke-Bornefeld aus den Diensten der
Gesellschaft bestehen.
84
<PAGE>
DIE KOELNISCHE RUECK.
- --------------------------------------------------------------------------------
Seite 5
(S) 11
RUCKGABE VON UNTERLAGEN UND GEGENSTAENDEN
Herr Dr. Luetke-Bornefeld hat bei seinem Ausscheiden alle Unterlagen und
Aufzeichnungen, die die Angelegenheiten der Gesellschaft betreffen, sowie
hiervon gefertigte Durchschriften oder Kopien unaufgefordert an die Gesellschaft
zurueckzugeben. Darueber hinaus sind auch alle anderen Gegenstaende, die im
Eigentum der Gesellschaft stehen, an diese herauszugeben. An den genannten
Unterlagen, Daten und Gegenstaenden steht Herrn Dr. Luetke-Bornefeld ein
Zurueckbehaltungsrecht gegenueber der Gesellschaft nicht zu.
(S) 12
SCHLUSSBESTIMMUNGEN
Sollte eine Bestimmung dieses Vorstandsvertrags ganz oder teilweise unwirksam
oder undurchfuehrbar sein oder werden oder sollte sich in dem Vorstandsvertrag
eine Luecke herausstellen, so wird hierdurch die Gueltigkeit der uebrigen
Bestimmungen des Vorstandsvertrags nicht beruehrt. Anstelle der unwirksamen
oder undurchfuehrbaren Regelung oder zur Ausfuellung der Luecke werden die
Gesellschaft und Herr Dr. Luetke-Bornefeld eine angemessene Regelung treffen,
die, soweit rechtlich moeglich, dem am naechsten kommt, was die Gesellschaft
und Herr Dr. Luetke-Bornefeld gewollt haben oder nach dem Sinn und Zweck des
Vorstandsvertrags gewollt haben wuerden, falls sie diesen Punkt bedacht
haetten.
(S) 13
ABLOESUNG
Dieser Vertrag ersetzt mit Wirkung 15.10.96 den Dienstvertrag vom
22.12.1989/12.1.1990 mit allen Nachtraegen und Ergaenzungen.
Koeln, den 15.10.96
/s/ Ronald E. Ferguson /s/ Dr. Peter Luetke-Bornefeld
- ------------------------------ ------------------------------
Vorsitzender des Aufsichtsrats Dr. Peter Luetke-Bornefeld
85
<PAGE>
Stand: 1.10.1996
Anlage l
--------
RUHEGELDZUSAGE FUER VORSTANDSMITGLIEDER DER KOELNISCHEN RUECK
- --------------------------------------------------------------------------------
Die Koelnische Rueckversicherungs-Gesellschaft Aktiengesellschaft - im
nachstehenden "Gesellschaft" genannt gewaehrt ihren Vorstandsmitgliedern sowie
deren versorgungsberechtigten Angehoerigen Leistungen der betrieblichen
Altersversorgung nach Massgabe der folgenden Bestimmungen. Sofern die
jeweiligen Voraussetzungen erfuellt sind, besteht auf die Leistungen ein
unmittelbarer Rechtsanspruch.
(S) 1
LEISTUNGSARTEN
Die Gesellschaft gewaehrt
- Altersruhegeld
- Ruhegeld wegen Dienstunfaehigkeit
- Witwengeld
- Waisengeld
(S) 2
WARTEZEIT
Das Vorstandsmitglied muss bei Eintritt des Versorgungsfalles eine
ununterbrochene Dienstzeit von 5 Jahren zurueckgelegt haben. Als Dienstzeit
gelten alle in der Gesellschaft zurueckgelegten Dienstjahre (auch vor der
Bestellung zum Vorstand).
(S) 3
ALTERSRUHEGELD
Altersruhegeld wird gewaehrt, wenn das Vorstandsmitglied nach Vollendung des 65.
Lebensjahres aus den Diensten der Gesellschaft ausscheidet. Eine vorzeitige
Inanspruchnahme ist moeglich, sofern das Vorstandsmitglied im Zeitpunkt des
Ausscheidens das 60. Lebensjahr vollendet hat.
86
<PAGE>
(S) 4
HOEHE DES ALTERSRUHEGELDES
Die Hoehe des Altersruhegeldes betraegt 50% des letzten jaehrlichen
Grundeinkommens nach Massgabe des Dienstvertrages des Vorstandsmitgliedes.
Dieser Prozentsatz gilt auch bei vorzeitiger Inanspruchnahme gemaess (S) 3, Satz
9. Das massgebliche Grundeinkommen als Bemessungsbasis ist auf das 4fache
(Vierfache) der im Jahr des Versorgungsfalles gueltigen Beitragsbemessungsgrenze
in der gesetzlichen Rentenversicherung begrenzt. Sollte diese Grenze nach
wesentlich anderen Masstaeben festgelegt werden, als dies bei Erteilung dieser
Ruhegeldzusage der Fall war, wird die Hoechstgrenze fuer das massgebliche
Grundeinkommen gegebenenfalls neu definiert.
(S) 5
RUHEGELD WEGEN DIENSTUNFAEHIGKEIT
Ruhegeld wird gewaehrt, wenn das Vorstandsmitglied wegen dauernder
Dienstunfaehigkeit aus den Diensten der Gesellschaft ausscheidet. Dauernde
Dienstunfaehigkeit liegt vor, wenn das Vorstandsmitglied wegen Krankheit, Unfall
oder aus einem sonstigen von ihm nicht zu vertretenden Grund nicht mehr in der
Lage ist, seine Aufgaben zu erfuellen. Die dauernde Dienstunfaehigkeit ist auf
Verlangen der Gesellschaft durch das Zeugnis eines von der Gesellschaft zu
benennenden Arztes nachzuweisen.
(S) 6
HOEHE DES RUHEGELDES WEGEN DIENSTUNFAEHIGKEIT
Die Hoehe des Ruhegeldes wegen Dienstunfaehigkeit betraegt 40% des fuer das
Altersruhegeld massgeblichen Grundeinkommens. Die Begrenzung des massgeblichen
Grundeinkommens als Bemessungsbasis gemaess (S) 4 Satz 2 gilt entsprechend.
Tritt die dauernde Dienstunfaehigkeit nach Vollendung des 55. Lebensjahres ein,
erhoeht sich der Prozentsatz des Ruhegeldes um 1% fuer jedes weitere bis zum
Eintritt des Versorgungsfalles vollendete Lebensjahr bis zum Hoechstanspruch von
50%.
(S) 7
WITWENGELD
l. Beim Ableben des Vorstandsmitglieds erhaelt die im Zeitpunkt der Erteilung
dieser Ruhegeldzusage mit dem Vorstandsmitglied verheiratete Ehefrau
Witwengeld. Voraussetzung ist, dass die Ehe bis zum Ableben des
Vorstandsmitglieds bestanden hat.
87
<PAGE>
2. Die Hoehe des Witwengeldes betraegt 60% der Leistung, die das
Vorstandsmitglied zum Zeitpunkt seines Todes bezog oder haette beziehen
koennen, wenn es zu diesem Zeitpunkt dauernd dienstunfaehig geworden waere.
3. Heiratet das Vorstandsmitglied nach einer Scheidung oder nach dem Tod der
beguenstigten Ehefrau ein weiteres Mal, so wird die Gesellschaft auf Antrag
des Vorstandsmitgliedes eine erneute Witwengeldzusage erteilen unter
angemessener Beruecksichtigung der Altersdifferenz der Ehegatten sowie
etwaiger Ansprueche der geschiedenen Ehefrau auf Unterhalt und/oder
Versorgungsausgleich.
(S) 8
WAISENGELD
1. Hinterlaesst das Vorstandsmitglied bei seinem Ableben eheliche oder diesen
gleichgestellte Kinder, so erhalten diese ein Waisengeld bis zur Vollendung
ihres 21. Lebensjahres, darueber hinaus bis zum Abschluss ihrer Schul- oder
Berufsausbildung, laengstens jedoch bis zur Vollendung des 25. Lebensjahres.
2. Die Hoehe des Waisengeldes betraegt:
fuer jede Halbwaise 10%
fuer jede Vollwaise 20%
der Leistung, die das Vorstandsmitglied zum Zeitpunkt seines Todes bezog
oder haette beziehen koennen, wenn es zu diesem Zeitpunkt dauernd
dienstunfaehig geworden waere.
3. Witwen- und Waisengeld werden insgesamt begrenzt auf den Betrag der
Leistung, die das Vorstandsmitglied im Zeitpunkt seines Todes bezog oder bei
dauernder Dienstunfaehigkeit haette beziehen koennen.
(S) 9
ZAHLUNGSWEISE UND -DAUER
l. Die Leistungen werden in monatlichen Teilbetraegen nachtraeglich gezahlt.
Die erste Zahlung erfolgt fuer den Monat, der auf den Eintritt des
Versorgungsfalls folgt. Der Beginn der Zahlungen wird hinausgeschoben,
solange das Vorstandsmitglied oder seine Hinterbliebenen ueber den Zeitpunkt
der Beendigung des Dienstverhaeltnisses hinaus laufende Aktivenbezuege
erhalten.
88
<PAGE>
Entsprechendes gilt, wenn nach Beendigung des Dienstverhaeltnisses ein
Uebergangsgeld gezahlt wurde.
2. Die Leistungen werden - mit Ausnahme des Waisengeldes - lebenslaenglich
gezahlt, es sei denn, die Voraussetzungen der Leistungen entfallen. Das
Witwengeld endet vorzeitig, wenn die Witwe wieder heiratet.
(S) 10
ABTRETUNGSVERBOT
Ansprueche oder Anwartschaften auf Leistungen duerfen vom
Versorgungsberechtigten weder verpfaendet noch abgetreten werden; dennoch
erfolgte Abtretungen und Verpfaendungen sind der Gesellschaft gegenueber
unwirksam.
(S) 11
ANRECHNUNG
Auf die Leistungen der Gesellschaft im Versorgungsfall werden die Betraege
angerechnet, die das Vorstandsmitglied auf Basis unverfallbarer vertraglicher
Versorgungsansprueche aus seiner frueheren Dienstzeit bei der Gesellschaft bei
Beginn des Dienstvertrages erhaelt. Leistungen aus unverfallbar
aufrechterhaltenen Anwartschaften anderer Arbeitgeber koennen auf die
Leistungen der Gesellschaft im Versorgungsfall angerechnet werden, sofern eine
Anrechnung mit dem Vorstandsmitglied bei Beginn des Dienstvertrages vereinbart
wurde.
(S) 12
ANPASSUNGSKLAUSEL
Die laufenden Leistungen nach (S) 1 dieser Ruhegeldzusage werden wie folgt
angepasst: Erhoeht oder ermaessigt sich der Preisindex fuer die Lebenshaltung
von 4-Personen-Haushalten von Arbeitern und Angestellten mit mittlerem
Einkommen. Basisjahr 1991, um mindestens 10% gegenueber dem Stand im
Versorgungsfall bzw. seit der letzten Festsetzung, so wird die laufende Leistung
ab dem Folgemonat im gleichen prozentualen Verhaeltnis erhoeht oder ermaessigt.
89
<PAGE>
(S) 13
UNVERFALLBARKEIT
Scheidet das Vorstandsmitglied vor Eintritt eines Versorgungsfalles aus den
Diensten der Gesellschaft aus, so behaelt es seine Anwartschaft auf Leistungen,
sofern zu diesem Zeitpunkt die gesetzlichen Voraussetzungen fuer die
Unverfallbarkeit gemaess (S) 1 des Gesetzes zur Verbesserung der betrieblichen
Altersversorgung vom 19.12.1974 (BetrAVG) erfuellt sind. Die Hoehe der
unverfallbaren Anwartschaft richtet sich nach (S) 2 BetrAVG. Als
Betriebszugehoerigkeit gelten alle in der Gesellschaft zurueckgelegten
Dienstjahre (auch vor Bestellung zum Vorstand).
(S) 14
SCHLUSSBESTIMMUNG
1. Diese Ruhegeldzusage ist Bestandteil des Dienstvertrages. Aenderungen und
Ergaenzungen beduerfen der Schriftform.
2. Sollten einzelne Bestimmungen dieser Ruhegeldzusage unwirksam sein oder
werden, so beruehrt dies nicht die Gueltigkeit der uebrigen Bestimmungen.
Anstelle der unwirksamen Bestimmung oder zur Auffuellung eventueller Luecken
des Vertrages soll eine angemessene Regelung treten, die dem am naechsten
kommt, was die Parteien nach ihrer wirtschaftlichen Zwecksetzung gewollt
haben.
3. Bestehende Ruhegeldzusagen werden mit Zustimmung des Vorstandsmitgliedes
durch diese Bestimmungen abgeloest.
Koeln, den 1.10.1996 Koelnische Rueckversicherungs-Gesellschaft
AKTIENGESELLSCHAFT
Der Aufsichtsrat
90
<PAGE>
EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
91
<PAGE>
EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
________________________________________________________________________________
________________________________________________________________________________
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
EARNINGS PER SHARE OF COMMON STOCK
Net income applicable to common stock $883 $814 $654
(in millions)(a)....................... =========== =========== ===========
Average number of common shares 80,251,342 82,085,315 82,071,651
outstanding(b)......................... =========== =========== ===========
Net income per share.................... $11.00 $9.92 $7.97
=========== =========== ===========
- ----------
</TABLE>
(a) After deduction of preferred stock dividends of $11 million for the years
ended December 31, 1996, 1995 and 1994.
(b) Fully diluted earnings per share are not reported because the effect of
potentially dilutive securities was not significant.
92
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF REGISTRANT
93
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF REGISTRANT
Significant subsidiaries of General Re Corporation at December 31, 1996 were as
follows:
<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 Insurer Ohio 100 1864/1985
Company
General Star Management Company Management Delaware 100 1979
Genesis Underwriting Management Management Delaware 100 1988
Company
Genesis D&O Liability Insurance Agency Ohio 100 1988/1996
Program, Inc
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 Manager UK 100 1966
Limited
General Re Europe Limited Reinsurer UK 100 1981
General Re, Correduria de Intermediary Spain 100(1) 1987
Reaseguros, S.A.
General and Cologne Re Management Management Australia 50(4) 1995
Limited
General and Cologne Reinsurance Reinsurer Australia 100 1961
Australasia Limited
Recoa Investments Pty. Limited Investment Company Australia 100 1967
General Re Compania de Reaseguros, Reinsurer Uruguay 100 1990
S.A.
Mandataria General Re, S.A. Agent Argentina 100(1) 1990
Die Koelnische Rueck Compania de Reinsurer Argentina 100(1) 1991
Reaseguros, S.A.
National Re Group Corporation Holding Company Delaware 100 1989/1996
National Reinsurance Corporation Reinsurer Delaware 100 1806/1996
Fairfield Insurance Company Insurer Connecticut 100 1991/1996
National Intermediaries, Inc. Intermediary New York 100 1976/1996
Global Resolution, Inc. Manager New Jersey 100 1995/1996
National Risk Services, Inc. Broker Connecticut 100 1995/1996
North Star Reinsurance Corporation Reinsurer Delaware 100 1956/1995
General Re-New England Asset Investment Adviser Delaware 100 1984/1995
Management, Inc.
North Star Syndicate, Ltd. Insurance Syndicate Delaware 100 1979
United States Aviation Underwriters, Manager New York 100 1928/1982
Inc.
USAU Reinsurance Limited Reinsurer Bermuda 100 1978
Canadian Aviation Insurance Managers Manager Montreal, Can. 100 1937
Ltd.
Airsurance Limitee Manager Montreal, Can. 100 1982
General Re Services Corporation General Business Corp. Delaware 100 1979
General Re Financial Products Agent/Swap Dealer Delaware 100 1990
(Japan) Inc.
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 Holding Company Luxembourg 50.1(7) 1994
Investment S.a r.1.
Koelnische Reinsurer Germany 75(6) 1846/1994
Rueckversicherungs-Gesellschaft AG
Cologne Holding Company of America Holding Company Connecticut 100 1992/1994
Cologne Re Managers Corporation Management Delaware 100 1995
Cologne Reinsurance Company of Reinsurer Connecticut 100 1975/1994
America
Cologne Life Reinsurance Company Reinsurer Connecticut 100 1967/1994
Cologne Life Underwriting Management Connecticut 100 1996/1994
Management Company
Health Reinsurance Management Partnership Massachusetts 51 (8) 1993/1994
Partnership
John Hewitt and Associates Management Maine 92.63 (11) 1986/1995
Insurance Management Services, Management Connecticut 100 1996/1996
Corporation
Idealife Insurance Company Insurer Connecticut 100 1981/1994
Europa Rueckversicherung AG Reinsurer Germany 75 (9) 1947/1994
Koelnische General Business Corp. Germany 100 1988/1994
Versicherungs-Beratungs-und
Service GmbH
The Cologne Reinsurance Company Ltd. Reinsurer UK 100 1983/1994
Cologne Reinsurance Company Ltd. Reinsurer Ireland 100 (1) 1990/1994
La Koelnische Italia Servizi Agent Italy 100 1989/1994
Riassicurativi SRL
Koelnische Nordiska Aktiebolag Insurer Sweden 100 1980/1994
Cologne Reinsurance Finance Holdings Holding Company Netherlands 100 1976/1994
B.V.
</TABLE>
94
<PAGE>
<TABLE>
<CAPTION>
JURISDICTION INCORPORATED/
OF PERCENT ACQUIRED BY
NAME NATURE OF BUSINESS INCORPORATION OWNED GROUP
- ---------------------------------------- ---------------------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
Cologne Reinsurance Company Ltd. Reinsurer Bermuda 100 1980/1994
Cologne Reinsurance Ltd. Reinsurer Barbados 75(3) 1989/1994
La Koelnische Latina S.A. Agent Mexico 100(1) 1976/1994
Koelnische Rueck Wien Reinsurer Austria 70(5) 1869/1994
Cologne Reinsurance Company of Reinsurer South Africa 99 1966/1994
South Africa Ltd.
General and Cologne Re Management Management Australia 50(4) 1995
Limited
Cologne Life Reinsurance Company Reinsurer Australia 99 1983/1994
of Australia Ltd.
Die Koelnische Rueck Riga GmbH Agent Latvia 100 1990/1994
La Koelnische Iberica S.A. Agent Spain 100 1981/1994
Koelnische Rueck Buenos Aires S.A. Agent Argentina 100 1992/1994
Cologne Life Reinsurance Company Limited Reinsurer UK 100 1996
Koelnische Gestion Immobiliere Real Estate France 100 1994
Cologne Re Consultants Consultants Hong Kong 100 1986/1994
Insiders GmbH General Business Corp. Germany 85 (10) 1993/1994
Koelnische Norden Reinsurer Denmark 100 1995
La Koelnische de Venezuela Reinsurer Venezuela 100 1988/1994
Universal Risk Partners Broker Luxembourg 100 1994
General Re London Limited General Business Corp. UK 100 1992/1994
GRD Global, Inc. Management Delaware 100 1995
General Re Financial Products Swap Dealer Delaware 100 1990
Corporation
General Re Financial Products Agent Ontario 100 1993
(Canada) Limited
General Re Financial Products Limited Agent UK 100 1990
General Re Financial Securities Swap Dealer UK 100 1992
Limited
General Re Securities Corporation Broker-Dealer Delaware 100 1991
General Re Underwriting Services Underwriting Services Bermuda 100 1993
Limited
General Re (Bermuda) Limited Reinsurer Bermuda 100 1993
GRD Corporation (continuation of direct
subsidiaries)
General Re Investment Holdings Holding Company Delaware 100 1996
Corporation
General Re Funding Corporation General Business Corp. Delaware 100 1996
General Re Corporate Finance, Inc. General Business Corp. Delaware 100 1996
General Re Strategic Solutions, Inc. General Business Corp. Delaware 100 1995
</TABLE>
__________
Legend:
(1) Percentages include any director qualifying shares
(2) Partnership Percentage
(3) Cologne Reinsurance Company Ltd. (Bermuda) owns 75% and Cologne Life
Reinsurance Company (Connecticut) owns 25% of Cologne Reinsurance Ltd.
(Barbados)
(4) General Reinsurance Corporation and Koelnische Rueckversicherungs-
Gesellschaft AG each own 50% of General and Cologne Re Management Limited
(5) Koelnische Rueckversicherungs-Gesellschaft AG owns 70% and
non affiliates - Wiener Staedtische Allgemeine Versicherung
Aktiengesellschaft and Versicherungsanstalt der oesterreichischen each own
15%
(6) GRD Corporation owns an additional 7.8% Koelnische Rueckversicherungs-
Gesellschaft AG directly
(7) 50.1% controlling interest held by GRD Corporation and a 49.9% non-
controlling minority interest held by Colonia Konzern, AG of Germany
(37.8%) and Nordstern Allgemeine Versicherungs, AG of Germany (12.1%)
(8) Cologne Life Underwriting Management Company owns 51% and Health
Reinsurance Management, Inc. (a nonaffiliate) owns 49% of Health
Reinsurance Management Partnership
(9) Koelnische Rueckversicherungs-Gesellschaft AG owns 75% and non-affiliates -
ProFin Beteiligungsgesellschaft GmbH owns 16%, Iron Trades Insurance Ltd.
owns 8% and Mutuell Assurance Artisande de France owns 1% of Europa
Rueckversicherung AG
(10) Koelnische Rueckversicherungs-Gesellschaft AG owns 85% and two Managers own
the remaining 15% of Insiders GmbH
(11) Cologne Life Underwriting Management Company owns 92.63% and Robert Taylor
owns 7.37% of John Hewitt and Associates
(Indentation Shows Ownership)
95
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
96
<PAGE>
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, 33-33102 and 333-13341) of our report, dated January
30, 1997, on our audits of the consolidated financial statements and financial
statement schedules of General Re Corporation and Subsidiaries as of December
31, 1996 and 1995 and for each of the three years in the period ended December
31, 1996, which is included in this Annual Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
New York, New York
March 11, 1997
97
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
98
<PAGE>
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
General Re, General Re'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
MARTIN G. MCGUINN
DAVID E. MCKINNEY
STEPHEN A. ROSS
WALTER F. WILLIAMS
Dated as of February 25, 1997.
99
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<DEBT-HELD-FOR-SALE> 20135
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 4464
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 26562
<CASH> 365
<RECOVER-REINSURE> 135
<DEFERRED-ACQUISITION> 457
<TOTAL-ASSETS> 40161
<POLICY-LOSSES> 13405
<UNEARNED-PREMIUMS> 1957
<POLICY-OTHER> 523
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 430
2
0
<COMMON> 51
<OTHER-SE> 7275
<TOTAL-LIABILITY-AND-EQUITY> 40161
6678
<INVESTMENT-INCOME> 1205
<INVESTMENT-GAINS> 104
<OTHER-INCOME> 309
<BENEFITS> 4773
<UNDERWRITING-AMORTIZATION> 1478
<UNDERWRITING-OTHER> 748
<INCOME-PRETAX> 1297
<INCOME-TAX> 323
<INCOME-CONTINUING> 894
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 894
<EPS-PRIMARY> 11.00
<EPS-DILUTED> 0
<RESERVE-OPEN> 11737
<PROVISION-CURRENT> 4023
<PROVISION-PRIOR> (39)
<PAYMENTS-CURRENT> 1061
<PAYMENTS-PRIOR> 2052
<RESERVE-CLOSE> 13405
<CUMULATIVE-DEFICIENCY> (39)
</TABLE>
