<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended June 30, 1998 Commission File Number 0-10071
NOBEL INSURANCE
LIMITED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
ISLANDS OF BERMUDA 98-0076395
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER IDENTIFICATION NO.)
OF INCORPORATION OR ORGANIZATION)
SUITE 409 INTERNATIONAL CENTRE NONE
26 BERMUDIANA ROAD (Zip Code)
HAMILTON, BERMUDA HM AX
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (441) 292-7104.
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
the filing requirements for the past 90 days.
YES /x/ NO //
Number of Common Shares, $.05 Par Value, outstanding at August 10, 1998
4,630,542
---------
1
<PAGE>
NOBEL INSURANCE LIMITED
CONSOLIDATED BALANCE SHEETS
(EXPRESSED IN UNITED STATES DOLLARS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
- ---------------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Investments:
Trading portfolio, at fair value:
Fixed maturity securities (amortized cost: $69
December 31, 1997)............................................................ $ --- $ 75
Equity securities (cost: $2,830 at December 31, 1997)........................... --- 2,858
Other investments (cost: $37 at December 31, 1997)............................. --- 27
Securities available for sale, at fair value:
Fixed maturity securities (amortized cost: $9,486 at June 30, 1998 and
$94,519 at December 31,1997).................................................. 9,554 95,725
Equity securities (cost: $1,000 at December 31, 1997) .......................... --- 1,806
Short-term investments, at cost, which approximates fair
value.......................................................................... 59,983 18,892
--------- ----------
Total investments............................................................... 69,537 119,383
Funds held by reinsurance companies................................................. --- 1,640
Premiums and other receivables less allowance for doubtful accounts ($0 at June 30,
1998 and $249 at December 31, 1997).............................................. 5,037 23,003
Accrued interest income............................................................. 82 1,228
Reinsurance recoverable on paid and unpaid claims................................... --- 42,962
Prepaid reinsurance premiums ....................................................... --- 15,141
Property and equipment less accumulated depreciation ($2,174 at December 31,
1997)............................................................................... --- 3,309
Deferred policy acquisition costs .................................................. --- 4,445
Net deferred tax asset ............................................................. --- 3,702
Other assets........................................................................ 69 1,945
---------- --------
Total assets................................................................ $ 74,725 $216,758
---------- --------
---------- --------
</TABLE>
(See Accompanying Notes to Consolidated Financial Statements)
2
<PAGE>
NOBEL INSURANCE LIMITED
CONSOLIDATED BALANCE SHEETS
(EXPRESSED IN UNITED STATES DOLLARS)
(CONTINUED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
- -------------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C>
LIABILITIES
Reserve for claims and claims expenses.................................................... $ --- $ 82,948
Unearned premiums......................................................................... --- 34,834
Reinsurance premiums payable.............................................................. --- 24,997
Accounts payable and accrued liabilities ................................................. 775 12,558
Cash overdraft............................................................................ 473 1,034
Other liabilities......................................................................... 8,894 4,770
------ --------
Total liabilities.................................................................. 10,142 161,141
------ --------
SHAREHOLDERS' EQUITY
Capital shares (Authorized 20,000,000 shares; $.05 par value; issued 4,630,542
shares at June 30, 1998; 7,808,928 shares at December 31, 1997; outstanding
4,630,542 shares at June 30, 1998 and 4,506,156 shares at December 31,
1997).............................................................................. 232 7,809
Contributed surplus.................................................................. 23,535 44,841
Unrealized gain on investments....................................................... 68 1,379
Retained earnings.................................................................... 40,748 31,551
Treasury stock, at cost (3,302,772 shares at December 31, 1997)...................... --- (29,963)
------ --------
Total shareholders' equity........................................................... 64,583 55,617
------ --------
Total liabilities and shareholders' equity........................................... $ 74,725 $216,758
------ --------
------ --------
</TABLE>
(See Accompanying Notes to Consolidated Financial Statements)
3
<PAGE>
NOBEL INSURANCE LIMITED
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(EXPRESSED IN UNITED STATES DOLLARS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1998 1997 1998 1997
<S> <C> <C> <C> <C>
REVENUES:
Premiums written............................................. $ 19,173 $19,542 $ 36,974 $39,275
Reinsurance purchased........................................ (1,934) (9,994) (10,526) (18,440)
------ ------ ------- -------
Net premiums written......................................... $ 17,239 $ 9,548 $ 26,448 $20,835
------ ------ ------- -------
------ ------ ------- -------
Premiums earned.............................................. $ 17,988 $20,347 $ 39,480 $41,764
Premiums ceded............................................... (5,177) (11,901) (18,541) (24,680)
------ ------- -------- -------
Net premiums earned.......................................... 12,811 8,446 20,939 17,084
Interest income, net of investment expenses of $ 622 at June 30, 1998
and $681 at June 30, 1997, respectively.................... 1,111 1,588 2,378 2,917
Net investment gains......................................... 1,522 412 2,169 543
Claim adjusting fees earned.................................. 1,995 1,596 3,480 2,956
------- ------ ------- ------
Total revenues................................................ 17,439 12,042 28,966 23,500
------- ------ ------- ------
EXPENSES:
Claims and claims expenses................................... 23,593 14,599 40,024 25,757
Reinsurance recoveries....................................... (1,147) (8,563) (11,334) (15,559)
-------- -------- ------- --------
Net claim and claim expenses................................. 22,446 6,036 28,690 10,198
Service fees and commissions................................. 3,089 1,595 5,555 2,831
General and administrative expenses.......................... 5,910 3,919 9,857 8,121
-------- ------- -------- -------
Total expenses............................................... 31,445 11,550 44,102 21,150
-------- ------- -------- -------
Net income before disposal of operations and
income taxes................................................ (14,006) 492 (15,136) 2,350
Gain on disposal of United States operations................. 29,012 ---- 29,012 ----
------- ------- -------- ---------
Net income before income taxes............................... 15,006 492 13,876 2,350
Income tax expense (benefit):
Current................................................... 344 (203) 344 45
Deferred.................................................. 4,875 298 4,335 698
--------- --------- --------- --------
Income tax expense........................................ 5,219 95 4,679 743
----------- ---------- --------- --------
Net income................................................... 9,787 397 9,197 1,607
Retained earnings at beginning of period..................... 30,961 31,206 31,551 29,996
Dividends paid on capital shares............................. ---- (450) ---- (450)
----------- -------- ---------- --------
Retained earnings at end of period........................... $ 40,748 $31,153 $ 40,748 $31,153
----------- -------- ----------- --------
----------- -------- ----------- --------
PER SHARE DATA
Earnings per share:
Basic .................................................... $2.14 $.09 $2.02 $.36
---------- -------- -------- --------
---------- -------- -------- --------
Diluted .................................................. $2.14 $.08 $2.02 $.35
---------- -------- -------- --------
---------- -------- -------- --------
</TABLE>
(See Accompanying Notes to Consolidated Financial Statements)
4
<PAGE>
NOBEL INSURANCE LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(EXPRESSED IN UNITED STATES DOLLARS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
1998 1997
- ------------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................................. $ 9,197 $1,607
Adjustments to reconcile net income to net cash from operations
activity:
Depreciation and amortization.......................................... 2,098 788
Change in deferred acquisition costs................................... (1,105) (1,584)
Deferred tax expense................................................... 4,335 698
Increase (decrease) in reserve for claims and claims expenses.......... 5,618 (5,472)
Decrease in unearned premiums.......................................... (2,507) (2,489)
Increase (decrease) in accounts payable and accrued liabilities........ 416 (2,314)
(Decrease) in deferred service fee income.............................. (277) (161)
(Increase) decrease in net premiums receivable......................... (31,971) 7,196
Decrease in accrued interest income.................................... 368 160
(Increase) in reinsurance recoverables................................. (3,951) (7,437)
Decrease in prepaid reinsurance premiums............................... 8,016 6,240
Decrease in other assets............................................... 2,128 114
Decrease in funds held by reinsurance companies........................ 936 73
Net (additions to) dispositions from trading portfolio investments..... (1,188) (139)
Proceeds from sale of United States operations,
net of cash sold................................................... 47,129 ---
(Gains) from sale of United States operations.......................... (29,012) ---
Net realized investment (gains)........................................ (859) (543)
(Gains) on disposal of other assets.................................... (36) (7)
----------- ----------
Net cash provided from (used by) operating activities 9,335 (3,270)
------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from Investments sold or matured:
Fixed maturities, available for sale................................... 42,751 53,749
Equity securities, available for sale.................................. --- 573
Purchase of investments:
Fixed maturities, available for sale................................... (15,869) (53,599)
Equity securities, available for sale.................................. --- (3,021)
Payments on acquisitions................................................... (1) (6)
(Purchase) disposal of software, property and equipment.................... 55 (497)
------- -----
Net cash provided from (used by) investing activities.................. 26,936 (2,801)
-------- -----------
</TABLE>
(See Accompanying Notes to Consolidated Financial Statements)
5
<PAGE>
NOBEL INSURANCE LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(EXPRESSED IN UNITED STATES DOLLARS)
(CONTINUED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
1998 1997
- -------------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable................................................. 8,894 ---
Proceeds from issuance of capital shares.................................... 980 366
Repayment of notes payable and capital lease obligation..................... (4,493) (73)
Purchase of treasury stock.................................................. --- (361)
Dividends paid shareholders................................................. --- (450)
-------- --------
Net cash provided from (used by) financing activities.................... 5,381 (518)
------- --------
Net increase (decrease) in cash and cash equivalents........................ 41,652 (6,589)
Cash and cash equivalents at beginning of year.............................. 17,858 14,785
------ ------
Cash and cash equivalents at end of year.................................... $ 59,510 $ 8,196
---------- --------
---------- --------
</TABLE>
(See Accompanying Notes to Consolidated Financial Statements)
6
<PAGE>
NOBEL INSURANCE LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Consolidated Balance Sheets at June 30, 1998, and Consolidated
Statements of Income and Retained Earnings for the Six months ended June 30,
1998 and Consolidated Statements of Cash Flows for the Six months ended June
30, 1998, have not been examined by independent accountants, but, in the
opinion of Nobel Insurance Limited ("Company"), all adjustments necessary for
a fair presentation of the financial position and results of operations for
the periods indicated have been included. June 25, 1998 the Company completed
the sale of the net assets of its U.S. operating subsidiaries to Renaissance
Re Holdings Ltd.. The consolidated balance sheet as of June 30, 1998 includes
the assets and liabilities of the company and its U.S. holding company, Nobel
Holdings, Inc. The consolidated statements of income and retained earnings
and the consolidated statement of cash flows for the six months ended June
30, 1998 include the results of operations for the parent and all the
subsidiaries for the periods indicated. Nobel Holdings, Inc. recognized a
gain on the disposal of U.S. operations in the second quarter of $29,012,000.
On July 3, 1998 Nobel Insurance Limited paid an initial liquidating
distribution of approximately $60,197,000 or $13.00 per share to shareholders
of record on June 29, 1998.
At the special shareholders general meeting held June 18, 1998, the
shareholders approved and adopted the stock purchase agreement and the plan
of liquidation. Effective with this approval the company reduced the par
value of its capital shares from $1.00 to $.05 per share and the amount of the
reduction was transferred to its contributed surplus account. Also the
3,302,772 shares of treasury stock were retired and the cost of such shares
reduced the capital share account by $3,303,000 and the contributed surplus
account by $26,660,000.
The special meeting of shareholders, which commenced on June 18, 1998
and was temporarily adjourned pursuant to the plan of liquidation adopted by
the shareholders on June 18, 1998, was reconvened on July 10, 1998 to approve
the voluntary winding up of Nobel Insurance Limited under Bermuda law and to
appoint the statutory liquidator to conduct the liquidation under the Bermuda
Companies Act.
Statement of Financial Accounting Standards ("FAS") 115 "Disclosures
About Fair Value of Financial Instruments" was adopted in 1994 and impacted
the Company's financial statements as follows:
1) Net unrealized gains (losses) of $1,505,000 and $1,369,000 from trading
portfolio investments were included in 1998 six month and second quarter
earnings, respectively, compared to $361,000 and $569,000 in the six months
and second quarter of 1997.
2) Net unrealized gains of $68,000 and $1,379,000 from portfolio investments
classified as available for sale were included in shareholders' equity at
June 30, 1998 and December 31, 1997 respectively.
The Company is a foreign corporation not, in management's opinion,
engaged in a trade or business in any jurisdiction requiring the payment of
taxes on income except for its United States subsidiaries (the "U.S. Group")
who may ultimately pay United States taxes on their income.
The U.S. Group is domiciled in the United States and is subject to
United States taxes on income. At December 31, 1997, the U.S. Group had
consolidated net operating losses of approximately $8,160,000 which may be
carried forward for U.S. Federal income tax purposes. All of these net
operating losses were fully utilized in the calculation of income taxes for
the U.S. Group at June 30, 1998. The U.S. Group will file a final U.S.
Consolidated Tax return for the period ended June 30, 1998.
7
<PAGE>
FAS 109, "Accounting for Income Taxes", was adopted by the Company in
1993 on a prospective basis. The effect of income taxes on operations is
presented below:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1998 1997 1998 1997
- -------------------------------------------------- ------------------ ---------------- ----------------- ---------------
(DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net income before income taxes - consolidated.... $ 15,006 $ 492 $13,876 $2,350
Foreign - not subject to tax..................... 772 (326) 1,013 1
---------- ---------- ---------- ----------
U.S. - subject to tax............................ $ 14,234 $ 166 $12,863 $2,349
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Computed "expected" tax expense @ 34%............ $ 4,839 $ 57 $ 4,373 $ 799
Unutilized alternative minimum tax............... 689 --- 689 ---
Reduction for tax-exempt interest................ (196) 30 (286) (54)
Non-allowed meals and entertainment.............. 9 9 9 9
Other items, net................................. (122) (1) (106) (11)
---------- ---------- ---------- ----------
Income tax expense....................... $ 5,219 $ 95 $ 4,679 $ 743
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax liabilities
at December 31, 1997 were no longer available to Nobel Holdings, Inc. at June
30, 1998 because of the sale of the net assets of its subsidiaries to
Renaissance U.S. Holdings, Inc.. There is no net deferred tax asset at June
30, 1998 . The tax effects of temporary differences that gave rise to
significant portions of the deferred tax asset and deferred tax liabilities
at December 31, 1997 are presented below.
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
- ---------------------------------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Accounts receivable, principally due to
allowance for doubtful accounts.......................................... $ --- $ 34
Claims reserves, principally due to discounting
for tax.................................................................. --- 1,839
Unearned premium adjustment.................................................. --- 1,339
Net operating loss carryforwards............................................. --- 2,774
Other........................................................................ --- 754
---------- --------
Total gross deferred tax assets.......................................... --- 6,740
---------- --------
Deferred tax liabilities:
Deferred policy acquisition costs............................................ --- (1,511)
Unrealized gains bonds available for sale.................................... --- (634)
Other........................................................................ --- (893)
---------- --------
Total gross deferred tax liabilities..................................... --- (3,038)
---------- --------
Net deferred tax balance............................................. $ --- $3,702
---------- --------
---------- --------
</TABLE>
8
<PAGE>
Basic earnings per capital share were determined by dividing net
income by the average capital shares outstanding. Diluted earnings per
capital share was determined by dividing net income by diluted shares
outstanding which, included capital and capital equivalent shares outstanding
attributable to outstanding stock options at June 30, 1997 as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1998 1997 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C>
Basic average capital shares outstanding ........... 4,577 4,496 4,554 4,489
Shares applicable to common
stock equivalents............................... --- 201 --- 114
------ ------ ------ ------
Diluted Capital shares outstanding.................. 4,577 4,697 4,554 4,603
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
Insurance companies are required to provide reserves for the settlement
and expense of investigation of all reported and unreported claims. Such
provisions are necessarily based on estimates. The estimates, and the methods
used to arrive at them, are periodically reviewed by the Company in
consultation with professional actuaries and changes are reflected in current
operations for the period in which they are determined.
The Company estimates claims and claims expenses based on historical
experience and payment and reporting patterns for the type of risk involved.
The anticipated effect of inflation is implicitly considered when estimating
claims and claims expenses. The difference between the U.S. insurance
subsidiary's reserves on a statutory basis and on the basis of generally
accepted accounting principles is not material.
Inherent in the estimates of ultimate claims are expected trends in
claim severity, frequency and other factors that may vary as claims are
settled. The amount of uncertainty in the estimates is affected by such
factors as the amount of historical claims experience relative to the
development period for the type of risk, knowledge of the actual facts and
circumstances, and the amount of insurance risk retained.
At June 30, 1998 and December 31, 1997, the Company recorded reserves
for incurred but not reported and development of known claims ("IBNR") which
represented the Company's best estimate of the reserve for claims and claims
expense.
The outstanding balances for casualty and other coverages reserves for
incurred but not reported and development of known claims, net of
reinsurance recoverable, which were sold to Renaissance U.S. Holdings,
Inc. on June 30, 1998 were as follows (in thousands):
<TABLE>
<CAPTION>
RESERVE BALANCE (INCOME) EXPENSE EFFECT
--------------- -----------------------
PERIOD ENDING GROSS NET GROSS NET
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
At June 30, 1998......................................$34,362 $19,171
Six months ended June 30, 1998........................................................$ 3,049 $ 4,893
At December 31, 1997..................................$31,313 $14,278
At June 30, 1997......................................$26,901 $13,193
Six months ended June 30, 1997........................................................$(8,965) $(7,482)
</TABLE>
An allowance for doubtful receivables is established when it becomes
evident collection is doubtful. An allowance of $278,000 and $298,000 was
established in June 1998 and December 31, 1997, respectively and included as
part of the net assets sold to Renaissance in June 1998.
9
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The principal cash requirements of the Company as of June 30, 1998 are
payments of an initial liquidating distribution of $13.00 per share to
shareholders, payment of liquidating and winding up of company expenses, payment
of a final distribution of $1.00 per share to the shareholders and repayment of
the Renaissance Re limited recourse note and interest in accordance with the
approved plan of liquidation.
The company had a net increase in cash and cash equivalents in the six
months ended June 30, 1998 of $41,652,000 because of proceeds received from sale
of United States operations.
Net cash provided by operating activities for the first six months of
1998 was $9,335,000 compared to net cash used of $(3,270,000) for the first six
months of 1997. Net cash provided by investing activities was $26,936,000 for
the first six months of 1998, as compared to $(2,801,000) used for the same
period of 1997. Cash provided by financing activities included the Renaissance
Re Limited recourse note of $8,894,000 less repayment of $4,493,000 in notes
payable, plus $980,000 received from exercise of stock options to produce net
financing cash provided of $5,381,000, compared to net financing cash (used) of
$(518,000) for the first six months of 1997.
RESULTS OF OPERATION
SIX MONTHS ENDED JUNE 30, 1998 VERSUS
SIX MONTHS JUNE 30, 1997
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
1998 1997 CHANGE
---- ---- ------
(Dollars in thousands)
<S> <C> <C> <C>
UNDERWRITING OPERATIONS
Premiums written........................................................ $36,974 $39,275 $(2,301)
Reinsurance purchased................................................... (10,526) (18,440) 7,914
------- ------- -------
Net premiums written................................................. $26,448 $20,835 $ 5,613
------- ------- -------
------- ------- -------
Net premiums earned..................................................... $20,939 $17,084 $ 3,855
Net claims and claims expenses.......................................... (28,690) (10,198) (18,492)
Service fees and commissions............................................ (3,752) (1,314) (2,438)
General and administrative expenses..................................... (8,268) (6,354) (1,914)
------- ------- -------
Net income (loss) on underwriting operations..................... (19,771) (782) (18,989)
------- ------- -------
CLAIMS ADJUSTING OPERATIONS
Claims adjusting fees earned............................................ 3,480 2,956 524
Claims adjusting expenses
Service fees and commissions........................................ (1,803) (1,517) (286)
General and administrative expenses................................. (1,589) (1,767) 178
------- ------- -------
(3,392) (3,284) (108)
------- ------- -------
Net income (loss) on claims adjusting operations 88 (328) 416
------- ------- -------
Net investment income and gains......................................... 4,547 3,460 1,087
Gain on Sale of Operations.............................................. 29,012 --- 29,012
Federal income tax (expense)............................................ (4,679) (743) (3,936)
------- ------- -------
Net income........................................................... $ 9,197 $1,607 $7,590
------- ------- -------
------- ------- -------
</TABLE>
10
<PAGE>
PREMIUMS WRITTEN - Premiums written decreased by $2,301,000 due to the
following: Commercial casualty experienced decreases in the explosives and
propane lines of $4,225,000 and $145,000, respectively, due to marketing
conditions, while the haulers premium increased by $4,790,000 due to improved
evaluation procedures. The specialty lines premiums decreased by $3,931,000 due
to the discontinuance of writing of surety business while bail bonds increased
written premiums by $536,000 due to increased agency penetration in all four of
the national regions. Personal lines had an increase in premiums written of
$674,000, from program growth in North and South Carolina and continued rate
increases in all available areas.
REINSURANCE PURCHASED - The Company purchases reinsurance to reduce risks, limit
maximum loss exposure and minimize large loss exposure. During the first six
months of 1998 the Company decreased the purchase of reinsurance by $7,914,000
or 43%. One primary cause was the commutation of the outstanding reserves
amounting to an increase of $3,558,000 for the run-off of the workers'
compensation and certain general liability lines of business. Personal lines
decreased reinsurance purchased by $2,930,000, as a result of increasing the
quota share retention rate by 25% effective January 1, 1998. Such increase in
the retention resulted in the recapture of the related unearned premium reserve.
Commercial casualty lines decreased the amount of reinsurance purchased by
$8,408,000 due to the reduction in direct written premiums and non-renewal of
two quota share reinsurance agreements. The specialty lines decreased
reinsurance purchased for the contract surety line of business by $134,000.
NET PREMIUMS EARNED - Premiums are earned on a pro rata basis over the policy
period, usually one year. For the first six months of 1998, premiums earned
increased by $3,855,000. The acquisition of reinsurance for the commutation of
the workers' compensation and certain general liability lines resulted in a
reduction in earned premiums of $3,573,000. Earned premium in the commercial
casualty lines increased by $6,002,000 in the first six months of 1998 due
primarily to the non-renewal of the 80% quota share reinsurance. The specialty
lines experienced a reduction in earnings of $1,072,000 due to lower written
premiums because of discontinuance of writing surety business. Personal lines
increased by $2,498,000 due to the 25% increase in the quota share retention.
NET CLAIMS AND CLAIMS EXPENSES - The Company recorded a net increase in claims
and claims expense of $18,492,000. The increase is the result of (i) prior
accident year reserve increases and, (ii) an increase in current accident year
development. The claims and claims expense changed as follows: Commercial
casualty increased $8,113,000, due to an increase in earned premium volume,
resulting in increased loss exposure, along with a strengthening of prior
accident year reserves, offset by a decrease from an improvement in the current
accident year loss ratio. The specialty lines had an incurred loss increase of
$7,539,000 due to prior accident year reserve strengthening and an increase in
the current accident year loss experience, and a volume decrease due to
discontinuance of writings. Personal lines experienced an increase in incurred
losses of $2,840,000, due to increased volume, prior accident year reserve
strengthening and an increase from a deterioration in the current accident year
loss ratio. The commutation of the outstanding reserves for workers'
compensation and certain general liability lines resulted in a net decrease of
$3,475,000 and is included in the Commercial casualty change.
ACQUISITION COST, NET OF AMORTIZATION (UNDERWRITING OPERATIONS) - Acquisition
cost, net of amortization, attributable to underwriting operations (which is
included in service fees and commissions on the statement of income) consisted
of service fees and commissions expense of $6,391,000 (a decrease of
$2,375,000), ceding commissions income of $1,536,000 (a decrease of $4,334,000)
and deferred policy acquisition cost income of $1,105,000 (a decrease of
$479,000) for a net expense increase of $2,438,000. Commercial casualty net
expense increased by $1,148,000, due primarily to the decrease in written
premiums, resulting in a reduction of deferred policy acquisition costs, and a
decrease in ceding commissions, offset by a decrease in direct commissions. The
specialty lines had a net expense decrease of $59,000, due to the decrease of
direct commissions from reduced written premiums, offset by a smaller decrease
in deferred policy acquisition costs and a decrease in ceding commissions.
Personal lines produced an increase in expense of $1,349,000, due to the
increased retention of 25% and resulting recapture of a portion of the unearned
premium reserve producing less ceding commissions, offset by the related
increase in deferred acquisition costs. The commutation of the workers'
compensation and
11
<PAGE>
certain general liability reserves resulted in an increase in ceding
commissions, a reduction in expense, of $345,000 and is included in the
Commercial Casualty increase.
GENERAL AND ADMINISTRATIVE EXPENSES (UNDERWRITING OPERATIONS) - General and
administrative expenses attributable to underwriting operations increased by
$1,914,000 in the first six months of 1998 due to increased personal lines
expenses of $1,414,000 in connection with the growth of the line and costs
associated with developing systems. The specialty lines increased by $64,000,
due to salary and related expense increases in direct expenses, along with a
slight increase in allocated overhead. Commercial casualty expenses increased by
$287,000. The corporate overhead expenses increased by $149,000 due to expenses
associated with the sale of the U.S. Operations net of credits associated with
the reconciliation of Nobel Insurance Limited expense accounts.
CLAIM ADJUSTING OPERATIONS - Fee income increased by $524,000 as a result of
increased storm activity in the first six months of 1998. Service fees and
commissions increased by $286,000 in connection with the higher revenue. The
general and administrative expenses decreased by $178,000 as a result of planned
head count reductions, and branch closings.
NET INVESTMENT INCOME AND GAINS - Net investment income and gains increased by
$1,087,000 for the first six months of 1998 due to a $1,626,000 increase in
capital gains, and a decrease in investment income of $539,000. The reduction in
income is due to declining interest rates and negative cash flow from operations
resulting from claims and claims expense payments.
GAIN ON DISPOSAL OF UNITED STATES OPERATIONS - The six months includes the
gain on disposal of the surety underwriting and agency activities of
$1,865,000 as well as the gain from the sale of the U.S. operating
subsidiaries to Renaissance U.S. Holdings, Inc. of $27,147,000.
FEDERAL INCOME TAXES - Federal income tax increased by $3,936,000 due to the
sale of the U. S. Operating subsidiaries which generated current tax of $344,000
as well as the release of the deferred tax asset of $4,335,000.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1998
VERSUS THREE MONTHS ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------
JUNE 30,
1998 1997 CHANGE
---- ---- ------
(Dollars in thousands)
<S> <C> <C> <C>
UNDERWRITING OPERATIONS
Premiums written...................................................... $19,173 $19,542 $ (369)
Reinsurance purchased................................................. (1,934) (9,994) 8,060
------- ------- -------
Net premiums written............................................... $17,239 $ 9,548 $ 7,691
------- ------- -------
------- ------- -------
Net premiums earned................................................... $12,811 $ 8,446 $ 4,365
Net claims and claims expenses........................................ (22,446) (6,036) (16,410)
Service fees and commissions.......................................... (2,038) (760) (1,278)
General and administrative expenses................................... (5,076) (3,116) (1,960)
------- ------- -------
Net income (loss) on underwriting operations................... (16,749) (1,466) (15,283)
------- ------- -------
CLAIMS ADJUSTING OPERATIONS
</TABLE>
12
<PAGE>
<TABLE>
<S> <C> <C> <C>
Claims adjusting fees earned.......................................... 1,995 1,596 399
Claims adjusting expenses
Service fees and commissions...................................... (1,051) (835) (216)
General and administrative expenses............................... (834) (803) (31)
------- ------- -------
(1,885) (1,638) (247)
------- ------- -------
Net income on claims adjusting operations 110 (42) 152
------- ------- -------
Net investment income and gains....................................... 2,633 2,000 633
Gain on Sale of Operations............................................ 29,012 --- 29,012
Federal income tax (expense).......................................... (5,219) (95) (5,124)
------- ------- -------
Net income......................................................... $ 9,787 $ 397 $9,390
------- ------- -------
------- ------- -------
</TABLE>
PREMIUMS WRITTEN - Premiums written decreased by $369,000 in the second quarter
of 1998 compared to the second quarter of 1997. Commercial casualty increased
$1,244,000 due to increased writing in haulers and propane of $2,829,000 and
$204,000 respectively and a decrease in writings of $1,789,000 in explosives.
Specialty lines decreased $2,160,000 due to the discontinuance of writings in
this line of business. Personal lines increased $547,000 due to planned
expansion.
REINSURANCE PURCHASED - The Company purchases reinsurance to reduce risks, limit
maximum loss exposure and minimize large loss exposure. During the second
quarter of 1998 the Company purchased $8,060,000 less reinsurance compared to
the second quarter of 1997. Commercial casualty decreased reinsurance purchased
by $6,993,000 due to non-renewal of several contracts. Personal lines reduced
reinsurance by $752,000 due to increasing retention by 25% on its quota share
agreement. Surety decreased $315,000 because of the discontinuance of writing
this type coverage.
NET PREMIUMS EARNED - Earned premiums increased $4,365,000 in the second
quarter of 1998 compared to the second quarter of 1997. Commercial casualty
increased $3,736,000 due to non-renewal of reinsurance contracts. Personal lines
increased $1,260,000 due to the 25% increase in the quota share retention.
Surety decreased $631,000 due to the discontinuance of this program.
NET CLAIMS AND CLAIMS EXPENSES - The Company recorded a net increase in claims
and claims expense of $16,410,000. Commercial casualty increased by $8,658,000,
due to an increase in earned premium volume, resulting in increased loss
exposure and a strengthening of prior accident year reserves. Personal lines
increased $2,188,000, due to increased volume through expansion, prior accident
year reserve strengthening, and a higher than expected current year loss ratio.
Specialty lines increased $5,564,000 due to prior accident year reserve
strengthening, an increase in current year experience and a volume decrease due
to discontinuance of this line of business.
ACQUISITION COST, NET OF AMORTIZATION (UNDERWRITING OPERATIONS) - Acquisition
cost, net of amortization, attributable to underwriting operations reinsurance
consisted of service fees and commissions expense which decreased $1,029,000,
ceding commissions income which decreased $2,380,000 and deferred policy
acquisition cost income which increased $73,000 for a net expense increase of
$1,278,000. Commercial casualty net expense increased by $436,000, due primarily
to the decrease in written premiums, resulting in a reduction of deferred policy
acquisition costs, and a decrease in ceding commissions, offset by a decrease in
direct commissions. The specialty lines had a net expense decrease of $24,000,
due to the decrease of direct commissions from reduced written premiums, offset
by a smaller decrease in deferred policy acquisition costs and a decrease in
ceding commissions. Personal lines produced an increase in expense of $866,000,
due to the increased retention of 25% and resulting recapture of a portion of
the unearned premium reserve producing less ceding commissions, somewhat offset
by the related increase in deferred acquisition costs.
GENERAL AND ADMINISTRATIVE EXPENSES (UNDERWRITING OPERATIONS) - General and
administrative expenses attributable to underwriting operations increased by
$1,960,000 in the second quarter of 1998 due to increased personal lines
expenses of $1,130,000 in connection with the growth of the line and costs
associated with
13
<PAGE>
developing systems. The specialty lines decreased by $2,000 due
to salary and related expense decreases in direct expenses, along with a slight
increase in allocated overhead. Commercial casualty expenses increased by
$562,000. The corporate overhead expenses increased by $270,000 due to expenses
associated with the sale of U.S. Operations net of credits associated with
reconciliation of Nobel Insurance Limited expense accounts.
CLAIM ADJUSTING OPERATIONS - Fee income increased by $399,000 as a result of
increased storm activity in the second quarter of 1998. Service fees and
commissions increased by $216,000 in connection with the higher revenue. The
general and administrative expenses increased by $31,000 as a result of
additional overhead charges from reallocation of cost.
NET INVESTMENT INCOME AND GAINS - Net investment income and gains increased by
$633,000 for the second three months of 1998 due to a $1,110,000 increase in
capital gains, and a decrease in investment income of $477,000. The reduction in
income is due to declining interest rates and negative cash flow from operations
resulting from claims and claims expense payments.
GAIN ON DISPOSAL OF UNITED STATES OPERATIONS - The six months includes the
gain on disposal of the surety underwriting and agency activities of
$1,865,000 as well as the gain from the sale of the U.S. operating
subsidiaries to Renaissance U.S. Holdings, Inc. of $27,147,000.
FEDERAL INCOME TAXES - Federal income tax increased by $5,124,000 due to the
sale of the U.S. subsidiaries which generated current tax of $344,000 as well
as the release of the deferred tax asset of $4,875,000.
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
-----------------
Not applicable.
Item 2. CHANGES IN SECURITIES
---------------------
Not applicable.
Item 3. DEFAULTS UPON SENIOR SECURITIES
-------------------------------
Not applicable.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
At the special meeting of Shareholders June 18, 1998, the
following matters were voted upon:
<TABLE>
<CAPTION>
VOTED FOR VOTED AGAINST VOTES WITHHELD
--------- ------------- --------------
<S> <C> <C> <C>
1. Approval and adoption of the Stock Purchase Agreement 3,451,906 13,815 7,353
by and among the Company, Nobel Holdings, Inc.
Renaissance Holdings, Ltd. and Renaissance United States
Holdings, Inc.
2. Approval and adoption of the Plan of Liquidation dated 3,451,906 13,815 7,353
January 30, 1998 as described in the proxy statement.
3. Approval of the following: 3,454,283 14,315 4,476
a) Voluntarily wind up the Company in accordance with laws
of Bermuda.
b) Appoint Malcolm Butterfield of KPMG Bermuda liquidator of the
Company.
c) Compensate liquidator with fee of not more than $325 per hour.
Minimum fee of $5,000 plus out of pocket expenses.
d) Continue the authority of Board of Directors and Officers as may
be necessary to facilitate the liquidation.
</TABLE>
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto
NOBEL INSURANCE LIMITED
/S/ Jeffry K. Amsbaugh /S/ Thomas D. Nimmo
- --------------------------- -----------------------------------
Jeffry K. Amsbaugh Thomas D. Nimmo
Chief Executive Officer Senior Vice President and Treasurer
August 12, 1998
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<DEBT-HELD-FOR-SALE> 9,554
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 69,537
<CASH> 59,510
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 0
<TOTAL-ASSETS> 74,725
<POLICY-LOSSES> 0
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 8,894
0
0
<COMMON> 7,933
<OTHER-SE> 56,650
<TOTAL-LIABILITY-AND-EQUITY> 74,725
20,939
<INVESTMENT-INCOME> 2,378
<INVESTMENT-GAINS> 2,169
<OTHER-INCOME> 3,480
<BENEFITS> 28,690
<UNDERWRITING-AMORTIZATION> 5,555
<UNDERWRITING-OTHER> 9,857
<INCOME-PRETAX> (15,136)
<INCOME-TAX> 4,679
<INCOME-CONTINUING> (19,815)
<DISCONTINUED> 29,012
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,197
<EPS-PRIMARY> 2.02
<EPS-DILUTED> 2.02
<RESERVE-OPEN> 82,948
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
