<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number: 000-10071
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
of incorporation or organization) Identification No.)
VALLIS BUILDING
58 PAR-LA-VILLE ROAD
HAMILTON, BERMUDA HM 11 N/A
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (441) 295-5063
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
CAPITAL SHARES, $0.05 PAR VALUE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes No X
--------- ---------
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K 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 of the voting stock held by non-affiliates
of the registrant on March 31, 1999 was $2,801,487. As of that date, 4,630,542
shares of the Company's Common Stock were outstanding.
<PAGE>
PART I
ITEM 1. BUSINESS
Nobel Insurance Limited (the "Company" or "Nobel") was incorporated on
December 15, 1978 under the Laws of the Islands of Bermuda and commenced
operations on January 1, 1979.
The Company's principal business previously included the service and
underwriting of commercial property, casualty and surety risks for specialized
industries, and personal lines property coverages for low-value dwellings. The
Company's principal commercial markets previously consisted of distributors,
manufacturers, and users of explosives; transporters of hazardous materials and
general commodities; marketers of propane; and small to medium-size businesses
requiring all forms of surety bonding. These customers were principally located
in the United States. The Company has previously conducted underwriting
operations as a Bermuda-based reinsurer.
On June 18, 1998, the Company's shareholders approved the sale of its
United States operating assets to a wholly owned subsidiary of RenaissanceRe
Holdings Ltd., an Islands of Bermuda company ("RenaissanceRe"), and approved and
adopted the Plan of Liquidation of the Company. On June 25, 1998, the Company
completed the sale of its operating assets.
On July 10, 1998, pursuant to the Plan of Liquidation, the shareholders
of the Company approved the voluntarily winding up of the Company (the
"Liquidation") in accordance with the laws of Bermuda and the appointment of
Malcolm Butterfield of the Bermuda office of KPMG Peat Marwick ("KPMG"),
Chartered Accountants, as the liquidator of the Company (in such capacity, the
"Liquidator") to act as Liquidator to oversee the Liquidation under The
Companies Act 1981 of Bermuda. The Liquidation is currently in progress.
ITEM 2. PROPERTIES
None. See "Business."
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
1
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Prior to November 11, 1998, Nobel's capital shares were listed on the
National Market of The Nasdaq Stock Market ("Nasdaq"). On November 11, 1998,
Nobel's capital shares were delisted pursuant to Nasdaq Marketplace Rule
4450(f), which allows Nasdaq to terminate a listing if a liquidation has been
authorized and the issuer is committed to proceed.
Following its delisting from Nasdaq, Nobel's capital shares were traded
over the counter on the OTC Bulletin Board, under the trading symbol "NBLIF,"
which was changed to "NBLIE" as of April 20, 1999, as a result of Nobel's
failure to file this Annual Report on a timely basis. Because Nobel remains
delinquent in its SEC filings, effective May 20, 1999, its capital shares have
been removed from the list of OTC Bulletin Board Securities. Nobel's capital
shares may continue to be traded, at the discretion of the Liquidator, until the
completion of the Liquidation.
The following table represents the high and low closing sales prices of
the capital shares as reported by Nasdaq and the OTC Bulletin Board for the
periods indicated.
<TABLE>
<CAPTION>
1998
--------------------
HIGH LOW
------- -------
<S> <C> <C>
1st Quarter $13.313 $12.813
2nd Quarter $13.375 $13.063
3rd Quarter $13.438 $ 0.563
4th Quarter $ 0.813 $ 0.688
</TABLE>
On March 31, 1999, the last reported sale price of Nobel's capital
shares was $0.75 per share. On that date, Nobel had approximately 190 holders
of record of its capital shares.
There are no limitations under Nobel's Memorandum of Association on the
right of non-Bermudian citizens or residents to hold or vote Nobel's securities.
However, under the Exchange Control Act 1972 of Bermuda and regulations made
thereunder, Bermuda residents may not acquire shares in Nobel without having
first obtained the permission of the Bermuda Monetary Authority (the
"Authority"). The Authority has imposed restrictions on persons seeking to
acquire beneficial ownership of 10% or more of Nobel's outstanding shares, or to
increase their beneficial ownership above 10%. Such persons must first obtain
the approval of the Board of Directors of Nobel and the approval of the
Authority.
On July 3, 1998, Nobel paid an initial liquidation distribution of
approximately $60,197,000, or $13.00 per share, to shareholders of record on
June 29, 1998. Nobel intends to make a final distribution to its shareholders,
which is estimated to be $1.00 per share, upon completion of the Liquidation.
Nobel did not pay ordinary cash dividends on its Common Stock during the year
ended December 31, 1998.
2
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented below for, and as of
the end of, each of the years ended December 31, 1994 through 1997, has been
derived from the consolidated financial statements of the Company which have
been audited by KPMG Peat Marwick, independent certified public accountants. The
consolidated balance sheet as of December 31, 1997, and the consolidated
statements of operations, shareholders' equity and cash flows for each of the
years in the two-year period ended December 31, 1997, and the report thereon are
included elsewhere in this Annual Report. The selected consolidated financial
data presented below for the periods January 1, 1998, through July 10, 1998, and
July 11, 1998, through December 31, 1998, and as of December 31, 1998, is
derived from consolidated financial statements of the Company, which have been
audited by Deloitte & Touche. The consolidated statement of net assets in
liquidation as at December 31, 1998, and the related consolidated statement of
changes in net assets in liquidation for the period July 11, 1998, through
December 31, 1998, the consolidated statements of operations for the periods
from January 1, 1998, through July 10, 1998, and from July 11, 1998, through
December 31, 1998, and the consolidated statement of cash flows for the periods
from January 1, 1998, through July 10, 1998, and from July 11, 1998, through
December 31, 1998, and the report thereon are included elsewhere in this Annual
Report. The information presented below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," the consolidated financial statements and the notes thereto, and
the other financial information included herein. The Company's records are
maintained in United States dollars, and all amounts set forth in this Annual
Report are expressed in United States dollars except as otherwise indicated.
<TABLE>
<CAPTION>
GOING CONCERN BASIS LIQUIDATION BASIS
------------------------------------------------ -----------------
YEAR ENDED DECEMBER 31, JULY 11 -
----------------------- JANUARY 1 - DECEMBER 31,
1994 1995 1996 1997 JULY 10 1998(1) 1998(1)
------ ------ ------ ------ ---------------- ----------------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
INCOME DATA:
Premiums written $ 59,527 $ 70,515 $ 83,703 $ 76,675 $ 36,974 $ --
Reinsurance purchased (19,025) (22,921) (40,508) (34,190) (10,526) --
-------- -------- -------- -------- -------- --------
Net premiums written $ 40,502 $ 47,594 $ 43,195 $ 42,485 $ 26,448 $ --
======== ======== ======== ======== ======== ========
Net premiums earned $ 34,821 $ 43,198 $ 55,401 $ 35,865 $ 20,939 $ --
Net investment income 5,543 7,302 6,272 5,637 2,373 364
Net investment gains 489 1,412 762 2,611 2,169 95
Claim adjusting fees earned 9,400 9,357 10,423 5,593 3,480 --
-------- -------- -------- -------- -------- --------
Total revenues 50,253 61,269 72,858 49,706 28,961 459
-------- -------- -------- -------- -------- --------
Net claims and claims expenses 13,628 31,702 42,197 24,605 28,690 --
Acquisition cost, net of amortization (2) 6,881 6,992 13,383 4,860 5,555 --
General and administrative expenses 14,369 18,843 15,060 17,021 9,852 259
-------- -------- -------- -------- ------- -------
Total expenses 34,878 57,537 70,640 46,486 44,097 259
-------- -------- -------- -------- ------- --------
Net income (loss) before disposal of operations
and income taxes 15,375 3,732 2,218 3,220 (15,136) 200
Gain on disposal of U.S. Operations -- -- -- -- 29,012 --
-------- -------- -------- -------- ------- --------
Net income before income taxes 15,375 3,732 2,218 3,220 13,876 200
Income tax expense (benefit) -- (2,500) (2,069) 765 4,462 --
-------- -------- -------- -------- ------- --------
Net income before adjustment to liquidation basis 15,375 6,232 4,287 2,455 9,414 200
Adjustment to liquidation basis of accounting -- -- -- -- -- 25
-------- -------- -------- -------- -------- --------
NET INCOME $ 15,375 $ 6,232 $ 4,287 $ 2,455 $ 9,414 $ 225
======== ======== ======== ======== ======== ========
PER SHARE DATA:
Earnings per share
Basic $ 2.42 $ 1.08 $ 0.94 $ 0.55 $ 2.03 $ 0.05
======== ======== ======== ======== ======== ========
Diluted $ 2.37 $ 1.06 $ 0.92 $ 0.53 $ 2.03 $ 0.05
======== ======== ======== ======== ======== ========
Average number capital shares
Basic 6,341 5,764 4,555 4,496 4,593 4,593
Diluted 6,478 5,901 4,659 4,615 4,593 4,593
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
GOING CONCERN BASIS LIQUIDATION BASIS
------------------------------------------------------- -----------------
YEAR ENDED DECEMBER 31, JULY 11 -
----------------------- JANUARY 1 - DECEMBER 31,
1994 1995 1996 1997 JULY 10 1998(1) 1998(1)
------ ------ ------ ------ ---------------- ----------------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
GAAP OPERATING RATIOS:
Claims ratio 39.1 73.4 76.2 68.6 N/A N/A
Expense ratio 28.0 27.2 29.2 37.4 N/A N/A
------ ------- ------ -----
Combined ratio 67.3 100.6 105.4 106.0 N/A N/A
</TABLE>
<TABLE>
<CAPTION>
GOING CONCERN BASIS
DECEMBER 31,
-------------------------------------------------------------- LIQUIDATION BASIS
BALANCE SHEET DATA: 1994 1995 1996 1997 DECEMBER 31, 1998
- ------------------ -------------- -------------- -------------- -------------- ------------------
<S> <C> <C> <C> <C> <C>
Cash & investments $ 107,643 $ 128,866 $ 123,442 $ 119,383 $ 13,550
Total assets $ 168,173 $ 203,388 $ 222,778 $ 216,758 $ 14,221
Total shareholders' equity $ 56,548 $ 64,908 $ 53,187 $ 55,167 $ 4,760
</TABLE>
---------------------------------
(1) On June 25, 1998, the Company sold its U.S. operating
subsidiaries. On July 10, 1998, the Company was placed in
members' voluntary liquidation by a vote of its shareholders.
Since that time, the Company has been engaged in the voluntary
liquidation and winding up of its affairs and no longer has any
active business.
(2) "Acquisition cost, net of amortization" is comprised of service
fees and commissions, reinsurance ceding commissions, and
deferred policy acquisition cost amortization.
4
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
1998 COMPARED TO 1997
<TABLE>
<CAPTION>
LIQUIDATION GOING CONCERN
BASIS BASIS
----------- --------------------------
JULY 11 - JANUARY 1 -
DECEMBER 31, JULY 10,
1998 1998 1997
------------ ------------ -----------
(In thousands)
<S> <C> <C> <C>
UNDERWRITING OPERATIONS
Premiums written.................................. $ -- $ 36,974 $ 76,675
Reinsurance purchased............................. -- (10,526) (34,190)
------------ ------------ -----------
Net premiums written.............................. $ -- $ 26,448 $ 42,485
------------ ------------ -----------
------------ ------------ -----------
Net premiums earned............................... $ -- $ 20,939 $ 35,865
Net claims and claims expenses.................... -- 28,690 24,605
Service fees and commissions...................... -- 3,752 2,003
General and administrative expenses............... -- 8,522 13,673
------------ ------------ -----------
Net (loss) on underwriting operations............. -- (20,025) (4,416)
------------ ------------ -----------
CLAIMS ADJUSTING OPERATIONS
Claims adjusting fees earned...................... -- 3,480 5,593
Service fees and commissions...................... -- 1,803 2,857
General and administrative expenses............... 259 1,330 3,348
------------ ------------ -----------
Net income (loss) on claims adjusting operations.. (259) 347 (612)
------------ ------------ -----------
Net investment income and gains................... 459 4,542 8,248
Gain on disposal of U.S. operations............... -- 29,012 --
Federal income tax expense (benefit).............. -- 4,462 765
Adjustment to liquidation basis of accounting..... 25 -- --
------------ ------------ -----------
Net income........................................$ 225 $ 9,414 2,455
------------ ------------ -----------
------------ ------------ -----------
</TABLE>
Premiums written, reinsurance purchased, net premiums earned, net
claims and claims expenses and acquisition cost all show decreases in
comparison to the year ended December 31, 1997 due to the disposal of the
insurance operations in the second quarter of 1998. During the third and
fourth quarters the Company was engaged in the voluntary liquidation and
winding up of its business and no longer had the insurance and claims
adjusting operations.
The only revenues during this period were from investments being held,
pending final distributions to creditors and shareholders. The only expenses
during the period were for the payment of items relating to the winding up of
the Company's business.
Given the sale of all operations and the voluntary liquidation
proceedings, additional comparisons between the periods would not be
meaningful.
5
<PAGE>
1997 COMPARED TO 1996
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
1997 1996 CHANGE
---------------- --------------- ----------------
(In thousands)
<S> <C> <C> <C>
UNDERWRITING OPERATIONS
Premiums written.......................................... $ 76,675 $ 83,703 $ (7,028)
Reinsurance purchased..................................... 34,190 40,508 6,318
---------------- --------------- ----------------
Net premiums written...................................... $ 42,485 $ 43,195 $ (710)
---------------- --------------- ----------------
---------------- --------------- ----------------
Net premiums earned....................................... $ 35,865 $ 55,401 $ (19,536)
Net claims and claims expenses............................ 24,605 42,197 17,592
Service fees and commissions.............................. 4,623 10,401 5,778
Reinsurance ceding commissions............................ 9,874 11,551 (1,677)
Deferred policy acquisition cost amortization............. 7,254 8,909 1,655
General and administrative expenses....................... 13,673 10,449 (3,224)
---------------- --------------- ----------------
Net (loss) on underwriting operations..................... (4,416) (5,004) 588
---------------- --------------- ----------------
CLAIMS ADJUSTING OPERATIONS
Claims adjusting fees earned.............................. 5,593 10,423 (4,830)
Service fees and commissions.............................. 2,857 5,624 2,767
General and administrative expenses....................... 3,348 4,611 1,263
---------------- --------------- ----------------
(6,205) (10,235) 4,030
Net income (loss) on claims adjusting operations....... (612) 188 (800)
---------------- --------------- ----------------
Net investment income and gains........................... 8,248 7,034 1,214
Federal income tax expense (benefit)...................... 765 (2,069) (2,834)
---------------- --------------- ----------------
Net income................................................ $ 2,455 $ 4,287 $ (1,832)
---------------- --------------- ----------------
---------------- --------------- ----------------
</TABLE>
PREMIUMS WRITTEN. Premiums written decreased by $7,028,000, or 8%, due
to the following. Commercial casualty lines experienced reductions of $489,000
and $11,517,000 in its explosives and haulers lines, respectively, due to
competitive market conditions, along with new more restrictive underwriting
criteria in the haulers line. These competitive market conditions included both
pricing competition from existing carriers as well as additional insurance
company competitors that entered this marketplace. The Company expects this
competition to continue in future periods. The restrictive additional
underwriting criteria imposed in the haulers line was a result of experience
gained in the marketplace as well as an analysis of claim trends and further
refinement of the Company's actuarial pricing models. In the haulers line, and
to a lesser extent the explosives and propane lines, the Company chose not to
lower its pricing to match competition, which resulted in less business written.
The propane line increased by $1,344,000 due to increased marketing emphasis and
strategic planning. It should be noted that the propane line written premiums
are significantly affected from year to year based on the marketing success with
certain large accounts, which often are written for policy periods of greater or
less than the standard 12 months. Specialty lines increased by $2,330,000 due to
management direction and planned growth of the Atlanta surety lines as well as
the continued development of the bail bond program commenced in 1996. The
specialty line written premium increase in 1997 was approximately 50% growth in
the Atlanta surety program and the remainder in the bail bond program.
Management attention on the specialty lines in 1997 was a result of positive
results in 1996 as well as perceived market opportunities. Personal lines
increased by $1,304,000 through planned growth in North Carolina and expansion
into other strategically targeted states during the year. The planned growth
strategy included both steady and moderate price increases and/or marketing
emphasis on products and areas with significant growth potential. The Company
expects to continue a planned growth strategy.
6
<PAGE>
REINSURANCE PURCHASED. The Company purchases reinsurance to limit
maximum loss, diversify risk and to minimize exposure on large or hazardous
risks. In 1997 the Company experienced a reduction of $6,318,000, or 16%, in
reinsurance ceded, as a result of changes to certain of the Company's
reinsurance programs. The Company's purchase of 80% quota share coverage (AmRe
80% quota share reinsurance), that amounted to $15,343,000 at December 31, 1996,
was not renewed during 1997. The AmRe quota share purchased in 1996 reflected
the desire to employ surplus utilization strategies. Due to the significant
decline in commercial casualty business expected in 1997 as a result of the new
restrictive underwriting criteria, it was determined that this additional
surplus capacity was not needed in 1997. In addition, premiums associated with
the primary casualty excess reinsurance treaty decreased by $2,544,000 due to
changes in the structure of the agreement. These decreases were partially offset
by the purchase of additional facultative reinsurance amounting to $6,419,000 on
business written by four of the commercial auto agents and on twelve of the
largest commercial auto risks. As part of the strategy to write less business
and to minimize disruption to the Company's agency force during the transition,
the Company arranged facultative reinsurance on a quota share basis to support
renewal of business produced by certain key agents. With respect to the
reinsurance placed for twelve of the Company's largest in-force auto accounts,
the Company purchased this facultative reinsurance on an excess of loss basis to
secure a favorable fixed reinsurance cost. In addition, specialty lines incurred
a reinstatement premium of $2.2 million, as a result of large reinsured losses
experienced by the line, plus an increase of $473,000 due to increase written
premiums. The personal lines increased $2,476,000 due to a new reinsurance
contract and increased direct writings.
NET PREMIUMS EARNED. Premiums are earned on a pro rata basis over the
policy period, usually one year, and decreased $19,536,000 or 35% during 1997.
Commercial casualty lines decreased by $21,409,000 due primarily to the earnings
of $13,248,000 on the AmRe quota share premium, along with the reduction in
direct written premiums. Specialty lines increased by $930,000 or 8% due to
direct premium growth offset by the reinstatement premium. Personal lines
increased $943,000 or 13% due to the direct premium growth.
NET CLAIMS AND CLAIMS EXPENSES. The net financial year claims ratio of
69% for 1997 compares to 76% for 1996 and is analyzed as follows:
<TABLE>
<CAPTION>
Years ended December 31,
----------------------------------------------------------------
1997 1996
------------------------------ ----------------------------
Financial Accident Financial Accident
Year Year Year Year
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Reported claims and allocated expense 88% 40% 73% 55%
IBNR provision (21)% 21% 0% 21%
Unallocated claims adjusting expense 2% 2% 3% 2%
-- -- -- --
Total claims expense 69% 63% 76% 78%
-- -- -- --
-- -- -- --
</TABLE>
"Financial Year" is the total claims and claims expense incurred for
the period under review, and includes the current accident year estimate of the
incurred claims and claims expense, as well as the current period change in the
estimate for all prior accident years claims and claims expense. The "Accident
Year" is the estimate of incurred claims and claims expense for the current
accident year only.
For the "Financial Year" ended December 31, 1997, the Company
experienced a net increase in reserves for prior accident years of $2,176,000.
When such deficiency of $2,176,000 is divided by earned premiums for 1997 of
$35,865,000 it produces a 6% claims deficiency. This percentage is subtracted
from the "Financial Year" current claims expense ratio of 69% ($24,605,000
divided by $35,865,000) to produce the 1997 "Accident Year" total claims expense
ratio of 63% (($24,605,000 less $2,176,000) divided by $35,865,000).
7
<PAGE>
For the "Financial Year" ended December 31, 1996, the Company
experienced a net decrease in reserves for prior accident years of
$1,089,000. When this redundancy is divided by the earned premiums for 1996
of $55,401,000 it produces a 2% redundancy. This is the percentage added to
the "Financial Year" current claims expense ratio of 76% ($42,197,000 divided
by $55,401,000) to produce the "Accident Year" total claims expense ratio of
78% (($42,197,000 plus 1,089) divided by $55,401,000).
On an aggregate basis, net claims and claims adjusting expenses
decreased by $17,592,000 in 1997 as follows: (i) a decrease in earned premium of
$12,169,000; (ii) a deficiency in reserves for prior years of $2,176,000 for
1997 versus a redundancy of $1,089,000 for 1996, and (iii) a decrease in the
current year loss ratio of $2,158,000.
The decrease in net claims and claims adjusting expenses may also be
analyzed by line. Commercial casualty decreased by $14,476,000 as follows: (i) a
decrease in earned premium of $13,058,000; (ii) a deficiency in reserves for
prior years of $652,000 for 1997 versus a deficiency of $4,193,000 for 1996; and
(iii) a decrease in the current year loss ratio of $4,959,000. The timing and
reporting of large commercial casualty losses impacts reserves when the IBNR
reserve for these types of losses is found to be deficient. If there is an
increase in the ultimate loss projection for the Accident Year and the Financial
Year, the incurred loss ratios would also increase. The decrease in the 1997
loss ratio is primarily attributed to the implementation of the more restrictive
underwriting criteria in the haulers line.
Specialty lines increased by $1,249,000 as follows: (i) an increase in
earned premium $418,000; (ii) a deficiency in reserves for prior years of
$2,639,000 for 1997 versus a redundancy of $498,000 for 1996; and (iii) an
increase in the current year loss ratio $3,968,000. The increase in the loss
ratio for specialty lines was primarily a result of poor claims experience and
severity of loss with certain large claims. Personal lines decreased by $579,000
as follows: (i) an increase in earned premium of $471,000; (ii) a redundancy in
reserves for prior years of $140,000 for 1997 versus a redundancy of $23,000 for
1996; and (iii) a decrease in the current year loss ratio $1,167,000. The
decrease in the loss ratio for the personal lines division reflected more
favorable weather conditions in 1997 versus 1996, which included the claims
associated with Hurricane Fran. Runoff lines decreased by $3,786,000 as a result
of a redundancy in reserves for prior years of $975,000 in 1997 versus a
redundancy of $4,761,000 in 1996.
All of the lines of business the Company currently writes are subject
to market competition. The actions the Company has taken in each of its business
lines to improve underwriting profitability are expected to produce better
results in the future, but there can be no guarantee of the ultimate success of
these strategies. The Company continues to try and identify business
opportunities in its core business lines and to implement underwriting
strategies which are designed to have a positive impact on the Company's
financial results. Given the level of competition and uncertainties inherent in
the insurance underwriting process, it is difficult to predict the ultimate
result of such strategies.
ACQUISITION COST, NET AMORTIZATION (UNDERWRITING OPERATIONS).
Acquisition cost, net of amortization attributable to underwriting operations
consisted of service fees and commissions (which decreased $5,778,000),
reinsurance ceding commissions (which decreased $1,677,000) and deferred policy
acquisition cost amortization (which decreased $1,655,000) for a net expense
decrease of $5,756,000. Commercial casualty net expense decreased $3,733,000 due
primarily to the earnings of ceding commissions of $3,836,000 associated with
the AmRe 80% quota share premiums. Other changes associated with reduced premium
writings, increased deferral rates and increased reinsurance purchased accounted
for the balance.
Specialty lines net expense decreased by $219,000. Increased commission
expense associated with increased premium writings were offset by increased
reinsurance ceding commissions. Personal lines net expense decreased by
$1,804,000 due primarily to increases in contingent ceding commissions as a
result of lower loss ratios.
GENERAL AND ADMINISTRATIVE EXPENSES (UNDERWRITING OPERATIONS). General
and administrative expenses attributable to underwriting operations increased by
$3,224,000 in 1997. During 1997, the Company incurred costs of $680,000
associated with the sale of its operating subsidiaries. The Company wrote off
premium and deductible receivables amounting to $343,000 when it was determined
that they were uncollectible. In addition, the Company recorded nonrecurring
costs of $406,000 associated with the implementation of its premiums and claims
system. The remaining increase is primarily due to the absence of offsetting,
nonrecurring other income items amounting to $1,795,000, which were recorded in
1996.
8
<PAGE>
CLAIMS ADJUSTING OPERATIONS. Adjusting fees earned decreased by
$4,830,000, and service fees and commissions expenses decreased by $2,767,000
due to the decline in storm activity. General and administrative expenses
decreased by $1,263,000 due primarily to expense reduction strategies
implemented to improve profitability.
NET INVESTMENT INCOME AND GAINS. Investment gains increased by
$1,849,000, offset by a decrease in investment income of $635,000. During 1997,
as a result of its transition to a taxable status, the Company changed the
composition of its investment portfolio to include a higher proportion of
tax-advantaged bonds. In order to effect this change, the Company sold a portion
of its securities classified as available for sale. Additional sales of
investments were made in order to fund negative cash flow. An increase in
realized gains amounting to $2,762,000 resulted primarily from the sale of these
investments. This increase was offset by an increase in unrealized losses of
$913,000 in the Company's trading portfolio. The decrease in investment income
resulted principally from the decrease in invested assets.
FEDERAL INCOME TAXES. Federal income tax expense of $765,000 was
recognized during 1997, primarily related to the income not taxed in the United
States and tax exempt interest income. During 1996, the Company recognized a
Federal income tax benefit of $2,069,000 in connection with the elimination of
the deferred tax asset valuation allowance and the Nobel U.S. Group incurring a
taxable loss.
LIQUIDITY AND CAPITAL RESOURCES
The principal cash requirements of the Company as of December 31, 1998
were payments of accounts payable and payment of liquidating and winding up of
Company expenses, payment of a final distribution of up to $1.00 per share to
the shareholders, and repayment of the RenaissanceRe limited recourse note and
interest in accordance with the approved plan of liquidation.
The Company had a net decrease in cash and cash equivalents in the year
ended December 31, 1998 of $4,308,000 because of the payment of the initial
liquidating distribution of $13.00 per share, or $60,197,000, to shareholders in
July 1998.
Net cash provided by operating activities was $13,691,000 for the
period January 1, 1998, through July 10, 1998, and $200,000 for the period July
11, 1998, through December 31, 1998, as compared to net cash provided of $84,000
for 1997. Net cash provided by investing activities was $36,517,000 for the
period January 1, 1998, through July 10, 1998, and zero for the period July 11,
1998, through December 31, 1998, as compared to net cash provided of $3,954,000
for 1997. Net cash provided by financing activities was $5,481,000 for the
period January 1, 1998, through July 10, 1998, and net cash used by financing
activities was $60,197,000 for the period July 11, 1998, through December 31,
1998, as compared to net cash used of $965,000 for 1997. The net financing cash
used for the 1998 periods was comprised of the RenaissanceRe limited recourse
note of $8,894,000, plus $1,080,000 received from exercise of stock options,
less repayment of $4,493,000 in notes payable, and less $60,197,000 partial
liquidating distribution.
YEAR 2000
Certain computer programs and/or software may recognize a date using
"00" as the year 1900 rather than the year 2000, which could result in
miscalculations or system failures. The Company has completed an assessment of
its business applications and computer systems, and believes that all critical
business applications and systems will function properly with respect to dates
in the year 2000 and thereafter.
During 1995 and 1996 the Company replaced its old systems with modern,
Windows-based, client server systems. The financial systems, policy and claims
systems, and the desktop systems are all prepared to handle the year 2000 and
beyond.
There can be no assurance that the systems of our vendors, or other
third parties the Company deals with, will be timely converted and would not
have an effect on the Company. The Company has no operations other than the
Liquidation. Accordingly, the Company believes that the potential for a loss due
to this exposure would be minimal, if any.
9
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Part IV, Item 14(a)1 for information required for this item.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
As a result of the appointment of Malcolm Butterfield of the Bermuda
office of KPMG, Chartered Accountants, as the Liquidator and the possible
conflict of interest that such appointment represents, KPMG resigned as the
Company's certifying accountant on August 10, 1998. The change in accountant is
as a result of KPMG's resignation and was not recommended or approved by the
Audit Committee of the Board of Directors or the Board of Directors, nor was any
such approval required in order to give effect to the resignation. Because of
the uncertainty of the time period for the Liquidation, the Company did not
determine the need to appoint a new certifying accountant until March of 1999
and on April 1, 1999, appointed Deloitte & Touche.
The accountant's reports on the consolidated financial statements of
the Company and its subsidiaries as of and for the years ended December 31, 1996
and 1997, were unqualified. There were no disagreements between the Company and
KPMG on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure or reportable events during such
periods or through the interim period ended August 10, 1998 (the date of the
resignation) or the interim period ended September 25, 1998 (the date of the
filing of the Company's Current Report on Form 8-K reporting KPMG's
resignation).
10
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
A brief description of each director and each executive officer of the
Company is provided below as of December 31, 1998. Generally, directors hold
office until the next annual meeting of shareholders or until their successors
are elected and qualified and executive officers are elected by the Board of
Directors at its annual meeting and hold office at the pleasure of the Board or
until its next annual meeting or until their successors are elected and
qualified. Pursuant to the Company's Plan of Liquidation, the directors and
officers of the Company continued serving in their respective capacities for the
purpose of facilitating the Liquidation. Nevertheless, under Bermuda law the
Liquidator has ultimate authority to act on behalf of the Company.
Effective as of June 25, 1998, the listed executive officers of the
Company were no longer employees of Nobel or any of its subsidiaries. The
severance agreements, dated as of May 9, 1997, among the Company, Nobel Service
Corporation, and the executive officers were assumed by RenaissanceRe from and
after the closing on June 25, 1998.
Effective March 31, 1999, each of the directors and executive officers
resigned from their respective positions. Accordingly, as of March 31, 1999, the
Company had no directors and officers.
JEFFRY K. AMSBAUGH. Mr. Amsbaugh, age 58, was the President and Chief
Executive Officer of the Company. He served in such capacity and as a director
of the Company since April 1989. From 1984 until April 1989, he was a Vice
President of various subsidiaries of the Progressive Corporation, an insurance
holding company specializing primarily in automobile coverages. In his last
position with Progressive, Mr. Amsbaugh was in charge of corporate development
and partnership investing. For five years prior to joining Progressive, Mr.
Amsbaugh was President of Ocean Mining Associates, an ocean mining venture owned
by USX Corporation, Sun Company, Inc., and two major European companies.
ROBERT C. DUVALL. Mr. Duvall, age 56, was a director of the Company
since February 1982 and was Vice Chairman of the Board from April 1989 through
May 1991. Mr. Duvall served as Chairman of the Board since May 1991. Mr. Duvall
is Vice President of Finance of Wampum Hardware Co., a Pennsylvania and Ohio
explosives distributor, a position he has held for more than five years. In
October 1987, IRECO Midwest acquired Wampum Hardware Co. In connection with such
acquisition, Mr. Duvall became a shareholder, officer and director of IRECO
Midwest. Mr. Duvall became a director of First Western Bancorp, Inc. in April
1995 and serves on the Compensation Committee of First Western.
GREGORY E. LEONARD. Mr. Leonard, age 51, was a director of the Company
since May 1994. Mr. Leonard is a specialist reinsurance broker/consulting
actuary and has been President and Chief Executive Officer of Pegasus Advisors
from 1989 to the present. Mr. Leonard was previously a principal and director of
Tillinghast, a Towers Perrin Company. Mr. Leonard is a Fellow of the Casualty
Actuarial Society and a member of the American Academy of Actuaries.
THOMAS J. O'SHANE. Mr. O'Shane, age 51, was a director of the Company
since May 1994. Mr. O'Shane has served as Chief Executive Officer of First
Western Bancorp, Inc. since January of 1991 and previously served as President
since February of 1990. Prior to that time Mr. O'Shane served in various
executive positions with First Western Bancorp, Inc. and First National for more
than five years. Mr. O'Shane is a director of First Western Bancorp, Inc.
ROGER T. RANKIN. Mr. Rankin, age 37, was a director of the Company
since May 1995. Mr. Rankin is affiliated with Cardinal Investment Company, Inc.
and assists in managing $75 million in public company investment portfolios. Mr.
Rankin has served as a director of Arcadia Exploration Production Company, Inc.,
from 1993 to present.
11
<PAGE>
ROBERT B. SANBORN. Mr. Sanborn, age 70, was a director of the
Company since May 1995. Mr. Sanborn currently serves as a Senior Executive
Consultant of Orion Capital Corporation and previously served as Vice
Chairman of the Board of Directors of Orion Capital Corporation from March
1994 to March 1995, director since 1987, and President and Chief Operating
Officer from 1987 to 1994. Mr. Sanborn has also served as Chairman of the
American Insurance Association from January 1993 to January 1994. He also
serves currently as a director of Intercargo Corporation.
THOMAS D. NIMMO. Mr. Nimmo, age 59, was Senior Vice President,
Treasurer and Chief Financial Officer of the Company since November 1995. Prior
to joining the Company, Mr. Nimmo was Vice President and Chief Financial Officer
of Ranger Insurance Company from June 1989 through November 1995. Prior to
Ranger, Mr. Nimmo was Chief Financial Officer of Gulf Insurance Company.
BRYAN L. MARTIN. Mr. Martin, age 48, was Senior Vice President of the
Company's Commercial Casualty Division since November 1995. Prior to that time,
Mr. Martin was Senior Vice President and Treasurer of the Company and the Chief
Financial Officer of the U.S. Group. In Mr. Martin's role as Senior Vice
President of the Commercial Casualty Division, he directs the business
operations of the Commercial Casualty Division.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's directors and officers, and persons who own more than 10%
of a registered class of the Company's Common Stock to file initial reports of
ownership and reports of changes in ownership with the Securities and Exchange
Commission. Based on review of such reports with respect to 1998, the Company
believes that all filing requirements applicable to such persons have been
observed during 1998.
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following Summary Compensation Table shows compensation paid or
awarded by the Company for services rendered during years 1998, 1997, and 1996
for the Chief Executive Officer. As a result of the sale of its U.S. operating
assets completed on June 25, 1998, the Company's executive officers were no
longer employees and no longer received compensation from the Company or any of
its subsidiaries. No other executive officer received compensation from the
Company in excess of $100,000 for services rendered during 1998.
<TABLE>
<CAPTION>
ANNUAL LONG-TERM
COMPENSATION COMPENSATION
------------ ---------------------
FISCAL SECURITIES UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) OPTIONS/SARS(#) COMPENSATION($)(1)
- ------------------------------ ------ ------------ -------------------- ------------------
<S> <C> <C> <C> <C>
Jeffry K. Amsbaugh 1998 142,925 -- 5,735
Chief Executive Officer 1997 309,831 10,000 12,411
1996 298,400 20,000 11,609
</TABLE>
- --------------------------------------
(1) Consists of the Company's matching contribution under its 401(k)
Plan (adopted June 1, 1992).
12
<PAGE>
OPTION EXERCISES DURING 1998 FISCAL YEAR AND FISCAL YEAR END OPTION VALUES
The following table provides information related to options exercised
by the named executive officer during the 1998 fiscal year and the number and
value of options held at fiscal year-end.
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
-------------------------------------------------------------
NUMBER OF SECURITIES VALUE OF UNEXERCISED IN-
UNDERLYING UNEXERCISED THE-MONEY OPTIONS AT
SHARES ACQUIRED ON VALUE REALIZED OPTIONS AT12/31/98 (#)(1) 12/31/98
NAME EXERCISE (#) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---- ------------------- -------------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Jeffrey K. Amsbaugh 16,536 $127,136(2) -- --
</TABLE>
- -----------------------
(1) As part of the June 1998 sale of RenaissanceRe, Mr. Amsbaugh's
unexercised options were converted to RenaissanceRe options.
(2) Includes Stock Appreciation value paid on 1,000 shares.
COMPENSATION OF DIRECTORS
Directors who are (or were prior to June 25, 1998) employees of the
Company received no compensation for their services as directors or as members
of committees. Other directors were paid $750 per day and were reimbursed for
expenses incurred in attending directors meetings or when otherwise acting on
behalf of the Company in their capacities as directors, and $250 for
participation in meetings of directors or committees via telephone conference
calls. Chairpersons of director committees received $1,000 per day for attending
meetings. In addition, these non-employee directors of the Company received a
quarterly cash retainer of $2,500. An additional annual retainer of $12,000 was
paid to the Chairman of the Board. An additional annual retainer of $8,000 was
paid to the Chairpersons of the Audit and Compensation Committees. No
compensation has been paid to directors for any period after March 31, 1999.
EMPLOYMENT CONTRACTS
Mr. Amsbaugh, the Company's Chief Executive Officer, was employed
pursuant to a three year employment contract for the period January 1, 1993
through December 31, 1995 with a former subsidiary of the Company. Mr.
Amsbaugh's employment contract was renewed effective January 1, 1996. This
employment agreement contained a clause which automatically extended the
agreement on each December 31 for an additional one year period unless
terminated earlier per the terms of the agreement. This agreement was, in fact,
automatically extended for the one year periods commencing January 1, 1997 and
1998. Effective January 1, 1998, Mr. Amsbaugh's employment agreement was renewed
with a base salary of $310,473 subject to an annual adjustment for inflation.
Pursuant to the employment agreement, Mr. Amsbaugh was entitled to receive a
bonus of up to 100% of base salary dependent on attaining corporate and
individual goals agreed to annually with the Board of Directors. Under certain
conditions Mr. Amsbaugh was entitled to severance payments equal to one year's
compensation if the employment agreement is terminated. Mr. Amsbaugh continued
service under this employment agreement, which was assumed by RenaissanceRe in
connection with the purchase of the Company's U.S. operating assets effective
June 25, 1998.
The Company and Messrs. Amsbaugh, Martin and Nimmo entered into Change
of Control Agreements with a former subsidiary of the Company pursuant to which
such executive officers would receive payments in the event of their termination
or constructive discharge within two years after a change of control. Mr.
Amsbaugh's agreement provided for a severance payment of three times base salary
and Messrs. Martin and Nimmo's severance agreements provided for a payment of
two times salary. The severance amounts payable would be reduced to the extent
of continued employment of such executive officer during the two year protection
period. In connection with the purchase of Nobel's U.S. operating assets,
RenaissanceRe agreed to assume and perform these severance agreements from and
after the closing on June 25, 1998.
13
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of March 31, 1999 (the "Ownership
Date") (unless otherwise indicated) the amount and percentage of shares of the
Company's capital shares that are deemed under the rules of the Commission to be
"beneficially owned" by (i) each person or "group" (as such term is used in
Section 13(d)(3) of the Exchange Act) known by the Company to be the beneficial
owner of more than 5% of the outstanding Common Shares, (ii) each director of
the Company, (iii) the named executive officer, and (iv) all directors and
executive officers of the Company as a group:
<TABLE>
<CAPTION>
AMOUNT AND
NATURE
OF BENEFICIAL
NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP (1) PERCENTAGE
------------------------------------- ------------- ----------
<S> <C> <C>
Khimji Family Partnership II, Ltd. (2)................................. 447,647 9.7%
545 E. John Carpenter Freeway, Suite 1400
Irving, Texas 75062
Munn, Bernhard & Associates(3).......................................... 357,160 7.7%
6 East 43rd Street
New York, NY 10017
Royce & Associates, Inc. (4)............................................ 347,450 7.5%
1414 Avenue of the Americas
New York, NY 10019
TSI Management, Inc.(5)................................................. 252,642 5.5%
1801 16th Avenue, S.W.
Seattle, WA 98134
Robert C. Duvall(6)..................................................... 436,143 9.4%
Wampum Hardware Company
New Galilee, PA 16141
Jeffry K. Amsbaugh (7)(8).............................................. 379,687 8.2%
8001 LBJ Freeway, Suite 300
Dallas, TX 75251-1301
Thomas J. O'Shane (7)................................................... 14,800 *
Gregory E. Leonard (7).................................................. 14,500 *
Robert B. Sanborn (7)................................................... 11,500 *
Roger T. Rankin (7)..................................................... 10,500 *
All directors and officers as a group
(8 persons)(6)(7)(8).................................................... 895,226 19.3%
</TABLE>
- ---------------------------
* Less than 1% of the outstanding capital shares.
14
<PAGE>
(1) Under the rules of the Commission, a person is deemed to be the
beneficial owner of a security if such person, directly or indirectly,
has or shares the power to vote or direct the voting of such security
or the power to dispose or direct the disposition of such security. A
person is also deemed to be a beneficial owner of any securities if
that person has the right to acquire beneficial ownership within 60
days of the Ownership Date. Accordingly, more than one person may be
deemed to be a beneficial owner of the same securities. Unless
otherwise indicated by footnote, the named individuals have sole voting
and investment power with respect to the Common Shares beneficially
owned.
(2) Mahmood Khimji, Mehdi Khmiji, and Jaffer Khimji (all Canadian
citizens), as managers of Grosvenor, L.C., the general partner of
Khimji Family Partnership II, Ltd., may be deemed the beneficial
owners of 447,647 Common Shares as reflected in the Statement of
Beneficial Ownership on Schedule 13D filed by such partnership on
April 15, 1997. The Company does not have more current information.
(3) Includes 317,260 shares with respect to Munn, Bernhard & Associates
acts as an investment advisor, without voting control. In addition to
such shares, the following shares are owned individually and subject to
a common Schedule 13G filing: 5,000 shares held by Mr. Bernhard,
individually; 30,400 shares held by Orson D. Munn, individually; 2,000
shares held by Christine Munn, individually; and 2,500 shares held by
Henry S. Langworthy, individually, as reflected in the Statement of
Beneficial Ownership on Schedule 132G filed by such investment advisor
on February 7, 1997. The Company does not have more current
information.
(4) Charles M. Royce, as the controlling person of Royce & Associates,
Inc., may be deemed the beneficial owner of 347,450 Common Shares as
reflected in the amended Statement of Beneficial Ownership on Schedule
13G filed by such corporation on February 20, 1999. The Company does
not have more current information.
(5) Includes 245,642 shares held in the name of TSI Management, Inc., 5,000
shares held by a trust for the benefit of Brent Baird (a Director of
TSI) and 2,000 shares held by Cinnamon Investments, Ltd., a corporation
controlled by Patrick Hodgson, Chairman and CEO of TSI, as reflected in
the Statement of Beneficial Ownership on Schedule 13D filed by such
company on December 13, 1996. The Company does not have more current
information.
(6) Includes 160,364 shares held by Mr. Duvall and 275,779 shares held by
Wampum Hardware Company. Mr. Duvall shares the power to vote and
dispose of these latter shares.
(7) Effective March 31, 1999, each of the Company's directors and executive
officers resigned from their respective positions.
(8) Includes 344,681 shares held by Mr. Amsbaugh, 28,000 shares held
jointly with his wife, and 7,006 shares beneficially owned by other
family members of Mr. Amsbaugh which he has the sole or shared power to
dispose of or vote.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 1998 (prior to the sale of the Company's U.S. operating assets
on June 25, 1998), certain officers and directors of the Company and companies
of which they are officers, directors or principal shareholders purchased from
the Company's former operating subsidiaries insurance on their respective
explosives manufacturing or distributing businesses on terms that management at
such time believed to be no more favorable to the insureds than could have been
obtained from nonaffiliated sources.
15
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1. Financial Statements:
The financial statements listed in the accompanying index to
consolidated financial statements and financial statement
schedules are filed as part of this Annual Report.
2. Financial Statement Schedules:
There are no financial statement schedules.
3. Exhibits:
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
NO.
<S> <C>
3.1 Certificates of Incorporation and Memorandum of Association of the Company (1).
3.2 Bylaws of the Company (2).
4 Specimen Capital Share Certificate (3).
10.1 The Company's 1984 Incentive Stock Option Plan (3).
10.2 Form of the Company's Incentive Stock Option Agreement (4).
10.3 Amendment No. 1 to the Company's 1984 Incentive Stock Option Plan (1).
10.4 Amendment No. 2 to the Company's 1984 Incentive Stock Option Plan (4).
10.5 Amendment No. 3 to the Company's 1984 Incentive Stock Option Plan (6).
10.6 The Company's 1990 Non-Employee Director's Stock Option Plan (6).
10.7 Amendment No. 1 to the Company's Non-Employee Directors' Stock Option Plan (7).
10.8 Employment Agreement, dated January 1, 1993, by and between the Company and Jeffry K.
Amsbaugh (8).
10.9 401(K) Profit Sharing Plan (8).
10.1 Amendment No. 4 to the Company's 1984 Incentive Stock Option Plan (9).
10.11 Amendment No. 2 to the Company's Non-Employee Directors' Stock Option Plan (9).
10.12 Employment Agreement, dated January 1, 1995, by and between the Company and Jeffry K.
Amsbaugh(9).
10.13 Stock Purchase Agreement dated December 19, 1997 between the Company, Nobel Holdings,
Inc., RenaissanceRe, and Renaissance U.S. Holdings, Inc. (10).
</TABLE>
16
<PAGE>
<TABLE>
<S> <C>
10.14 Severance Agreement dated as of May 9, 1997 among the Company,
Nobel Service Corporation, and Jeffry K. Amsbaugh (11).
10.15 Severance Agreement dated as of May 9, 1997 among the Company,
Nobel Service Corporation, and Bryan L. Martin (11).
10.16 Severance Agreement dated as of May 9, 1997 among the Company,
Nobel Service Corporation, and Thomas D. Nimmo (11).
27 Financial Data Schedule (12).
--------------------------------
(1) Filed as an exhibit to registration statement No. 33-4331 on Form S-1 and incorporated by reference.
(2) Filed as an exhibit to the Company's Annual Report on Form 10-K for the year ended December 31, 1985
and incorporated by reference.
(3) Filed as an exhibit to registration statement No. 2-73328 on Form S-1 and incorporated by reference.
(4) Filed as an exhibit to the Company's Annual Report on Form 10-K for the year ended December 31, 1986
and incorporated by reference.
(5) Filed as an exhibit to the Company's Annual Report on Form 10-K for the year ended December 31, 1988
and incorporated by reference.
(6) Filed as an exhibit to the Company's Annual Report on Form 10-K for the year ended December 31, 1990
and incorporated by reference.
(7) Filed as an exhibit to registration statement No. 33-51342 on Form S-8 and incorporated by reference.
(8) Filed as an exhibit to the Company's Annual Report on Form 10-K for the year ended December 31,
1992 and incorporated by reference.
(9) Filed as an exhibit to the Company's Annual Report on Form 10-K for the year ended December 31, 1994
and incorporated by reference.
(10) Filed as an exhibit to the Current Report on Form 8-K filed on January 6, 1998, by RenaissanceRe
(Commission File No. 34-0-26512) and incorporated by reference.
(11) Filed as an exhibit to the Company's Annual Report on Form 10-K for the year ended December 31, 1997
and incorporated by reference.
(12) Filed herewith.
</TABLE>
Copies of the foregoing exhibits filed with this Annual Report are
available from the Company upon written request and payment of a $.20 per page
charge.
(b) Reports on Form 8-K:
(i) The Company's Current Report on Form 8-K, dated June 25,
1998, and filed with the Commission on July 10, 1998, with
respect to the consummation of the sale of its U.S.
operating assets to RenaissanceRe and the Company's
Liquidation.
(ii) The Company's Current Report on Form 8-K, dated August 10,
1998, and filed with the Commission on August 17, 1998,
with respect to the change in certifying accountant, as
amended by Current Report on Form 8-K/A filed with the
Commission on September 25, 1998.
(iii) The Company's Current Report on Form 8-K, dated November
11, 1998, and filed with the Commission on November 12,
1998, with respect to the delisting of the Company's
capital shares from The Nasdaq Stock Market.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the 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, as of
November 9, 1999.
NOBEL INSURANCE LIMITED
By: /s/ Malcolm Butterfield
-----------------------------
Malcolm Butterfield,
Liquidator
18
<PAGE>
<TABLE>
<CAPTION>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<S> <C>
Independent Auditors' Report.......................................................................................F-2
Report of Chartered Accountants....................................................................................F-3
Consolidated Statement of Net Assets in Liquidation (Liquidation Basis) as at December 31, 1998....................F-4
Consolidated Statement of Changes in Net Assets in Liquidation (Liquidation Basis) for the period
from July 11, 1998 through December 31, 1998..................................................................F-5
Consolidated Balance Sheet (Going Concern Basis) as at December 31, 1997...........................................F-6
Consolidated Statements of Shareholders' Equity as at December 31, 1998, 1997 and 1996.............................F-8
Consolidated Statement of Operations for periods from January 1, 1998 through July 10, 1998
and from July 11, 1998 through December 31, 1998 and the years ended December 31, 1997 and 1996 .............F-10
Consolidated Statement of Cash Flows for periods from January 1, 1998 through July 10, 1998
and from July 11, 1998 through December 31, 1998 and the years ended December 31, 1997 and 1996 .............F-11
Notes to the Consolidated Financial Statements....................................................................F-13
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders
of Nobel Insurance Limited - In Members Voluntary Liquidation
We have audited the accompanying consolidated statement of net assets in
liquidation of Nobel Insurance Limited - In Members Voluntary Liquidation (the
"Company") as at December 31, 1998, and the related consolidated statement of
changes in net assets in liquidation for the period from July 11, 1998 through
December 31, 1998, the consolidated statements of operations for the periods
from January 1, 1998 through July 10, 1998 and from July 11, 1998 through
December 31, 1998, and the consolidated statement of cash flows for the periods
from January 1, 1998 through July 10, 1998 and from July 11, 1998 through
December 31, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. 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 audit provides a
reasonable basis for our opinion.
As described in Note 1 to the consolidated financial statements, the Company's
shareholders approved the voluntary winding up of the Company on July 10, 1998,
and the Company commenced liquidation procedures shortly thereafter. As a
result, the Company has changed its basis of accounting from the going concern
basis to the liquidation basis effective July 11, 1998.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated net assets in liquidation of the Company
at December 31, 1998, the changes in its consolidated net assets in liquidation
from July 11, 1998 through December 31, 1998, the results of its consolidated
operations for the periods from January 1, 1998 to July 10, 1998 and from July
11, 1998 through December 31, 1998 and its consolidated cash flows for the
periods from January 1, 1998, through December 31, 1998, in conformity with
accounting principles generally accepted in the United States of America applied
on the basis described in the preceding paragraph.
/s/ DELOITTE & TOUCHE
Hamilton, Bermuda
May 30, 1999
F-2
<PAGE>
REPORT OF CHARTERED ACCOUNTANTS
The Board of Directors and Shareholders
Nobel Insurance Limited:
We have audited the accompanying consolidated balance sheet (going concern
basis) of Nobel Insurance Limited (the "Company") and subsidiaries as of
December 31, 1997, and the related consolidated statements of operations,
shareholders' equity, and cash flows for each of the years in the two-year
period ended December 31, 1997. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits. We conducted our audits in accordance with auditing standards
generally accepted in the United States of America. 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 financial position of Nobel
Insurance Limited and subsidiaries as of December 31, 1997, and the results
of their operations and cash flows for each of the years in the two-year
period ended December 31, 1997, in conformity with accounting principles
generally accepted in the United States of America.
Hamilton, Bermuda
March 25, 1998 /s/ KPMG Peat Marwick
---------------------
KPMG Peat Marwick
F-3
<PAGE>
NOBEL INSURANCE LIMITED
IN MEMBERS VOLUNTARY LIQUIDATION
CONSOLIDATED STATEMENT OF NET ASSETS IN LIQUIDATION
(LIQUIDATION BASIS)
as at December 31, 1998
(EXPRESSED IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<S> <C>
ASSETS
Cash and cash equivalents $ 13,550
Income taxes receivable 217
Accrued interest income (Note 9) 454
---------
14,221
---------
LIABILITIES
Accounts payable and accrued liabilities 169
Note payable (Note 7) 8,894
Interest on note payable (Notes 7 and 9) 248
Estimated costs to complete liquidation (Note 9) 150
---------
9,461
---------
NET ASSETS IN LIQUIDATION AS OF DECEMBER 31, 1998 (Note 1) $ 4,760
---------
---------
</TABLE>
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
F-4
<PAGE>
NOBEL INSURANCE LIMITED
IN MEMBERS VOLUNTARY LIQUIDATION
CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS IN LIQUIDATION
(LIQUIDATION BASIS)
period from July 11, 1998 through December 31, 1998
(EXPRESSED IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<S> <C>
NET ASSETS IN LIQUIDATION, BEGINNING OF PERIOD $ 64,732
Partial liquidating distributions to shareholders (60,197)
Net income 225
-------------
NET ASSETS IN LIQUIDATION, END OF PERIOD $ 4,760
-------------
-------------
</TABLE>
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
F-5
<PAGE>
NOBEL INSURANCE LIMITED
IN MEMBERS VOLUNTARY LIQUIDATION
CONSOLIDATED BALANCE SHEET
(GOING CONCERN BASIS)
as at December 31, 1997
(EXPRESSED IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Investments (Note 3)
Trading portfolio, at fair value:
Fixed maturity securities (amortized cost: $69) $ 75
Equity securities (cost: $2,830) 2,858
Other investments (cost: $37) 27
Securities available for sale, at fair value:
Fixed maturity securities (amortized cost: $94,519) 95,725
Equity securities (cost: $1,000) 1,806
Short-term investments, at cost, which approximates fair value 18,892
----------
Total investments 119,383
Funds held by reinsurance companies 1,640
Premiums and other receivables (less allowance for doubtful accounts of $249) 23,003
Accrued interest income 1,228
Reinsurance recoverable on paid and unpaid claims (Notes 5 and 6) 42,962
Prepaid reinsurance premiums (Note 6) 15,141
Property and equipment (less accumulated depreciation of $2,174) 3,309
Deferred policy acquisition costs (Note 4) 4,445
Net deferred tax asset (Note 8) 3,702
Other assets 1,945
----------
Total assets $ 216,758
----------
----------
</TABLE>
F-6
<PAGE>
NOBEL INSURANCE LIMITED
IN MEMBERS VOLUNTARY LIQUIDATION
CONSOLIDATED BALANCE SHEET (CONTINUED)
(GOING CONCERN BASIS)
as at December 31, 1997
(EXPRESSED IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
<S> <C>
LIABILITIES
Reserve for claims and claims expenses (Note 5) $ 82,948
Unearned premiums 34,834
Reinsurance premiums payable 24,997
Accounts payable and accrued liabilities 12,558
Cash overdraft 1,034
Other liabilities (Note 7) 4,770
-------------
Total Liabilities 161,141
-------------
SHAREHOLDERS' EQUITY
Capital shares
Authorized 20,000,000 shares of $1 par value
Issued 7,808,928 shares, outstanding 4,506,156 shares 7,809
Contributed surplus 44,841
Unrealized gain on investments 1,379
Retained earnings 31,551
Treasury stock, 3,302,772 shares at cost (29,963)
-------------
Total shareholders' equity (Note 10) 55,617
-------------
Commitments and contingencies (Notes 3, 5, 6 and 11)
Total liabilities and shareholders' equity $ 216,758
-------------
-------------
</TABLE>
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
F-7
<PAGE>
NOBEL INSURANCE LIMITED
IN MEMBERS VOLUNTARY LIQUIDATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
as at December 31, 1998, 1997 and 1996
(EXPRESSED IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
Unrealized
Gain Total
Capital Shares Contributed (Loss) on Retained Treasury Shareholders'
Outstanding Amount Surplus Investments Earnings Stock Equity
<S> <C> <C> <C> <C> <C> <C> <C>
Year ended December 31, 1996:
Balances, beginning of year 5,542,363 $ 7,627 $ 44,081 $ 2,093 $ 26,612 $ (15,505) $ 64,908
Net income - - - - 4,287 - 4,287
Treasury stock purchases (1,187,990) - - - - (14,097) (14,097)
Shares issued - exercise of stock options 116,733 116 418 - - - 534
Change in unrealized gain (loss) - - - (1,542) - - (1,542)
Dividends paid stockholders - - - - (903) - (903)
---------- -------- --------- ---------- ---------- --------- ---------
Balances, end of year 4,471,106 $ 7,743 $ 44,499 $ 551 29,996 $ (29,602) $ 53,187
Year ending December 31, 1997:
Net income - - - - 2,455 - 2,455
Treasury stock purchases (30,420) - - - - (361) (361)
Shares issued - exercise of stock options 65,470 66 342 - - - 408
Change in unrealized gain (loss) - - - 828 - - 828
Dividends paid stockholders - - - - (900) - (900)
---------- -------- --------- ---------- ---------- --------- ---------
Balances, end of year 4,506,156 $ 7,809 $ 44,841 $ 1,379 $ 31,551 $ (29,963) $ 55,617
</TABLE>
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
F-8
<PAGE>
NOBEL INSURANCE LIMITED
IN MEMBERS VOLUNTARY LIQUIDATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY(CONTINUED)
AS AT DECEMBER 31, 1998, 1997 AND 1996
(EXPRESSED IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
Unrealized
Gain Total
Capital Shares Contributed (Loss) on Retained Treasury Shareholders'
Outstanding Amount Surplus Investments Earnings Stock Equity
<S> <C> <C> <C> <C> <C> <C> <C>
Year ended December 31, 1998:
Balances, beginning of year 4,506,156 $ 7,809 $ 44,841 $ 1,379 $ 31,551 $ (29,963) $ 55,617
Net income - period from January 1, 1998
through July 10, 1998 - - - - 9,414 - 9,414
Net income - period from July 11, 1998
through December 31, 1998 - - - - 225 - 225
Shares issued - exercise of stock options 124,386 124 956 - - - 1,080
Change in unrealized loss - - - (1,379) - - (1,379)
Change in par value of stock - (4,399) 4,399 - - - -
Partial liquidating distributions to
stockholders - - (19,007) - (41,190) - (60,197)
Retirement of treasury stock - (3,302) (26,661) - - 29,963 -
--------- ---------- --------- --------- -------- --------- -----------
4,630,542 $ 232 $ 4,528 $ - $ - $ - $ 4,760
--------- ---------- --------- --------- -------- --------- -----------
--------- ---------- --------- --------- -------- --------- -----------
</TABLE>
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
F-9
<PAGE>
NOBEL INSURANCE LIMITED
IN MEMBERS VOLUNTARY LIQUIDATION
CONSOLIDATED STATEMENT OF OPERATIONS
periods from January 1, 1998 through July 10, 1998 and from July 11, 1998
through December 31, 1998 and years ended December 31, 1997 and 1996
(EXPRESSED IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
(Liquidation
Basis) (Going Concern Basis)
1998 1998 1997 1996
<S> <C> <C> <C> <C>
REVENUES:
Premiums written $ - $ 36,974 $ 76,675 $ 83,703
Reinsurance purchased - (10,526) (34,190) (40,508)
---------- --------- --------- -----------
Net premiums written $ - $ 26,448 $ 42,485 $ 43,195
---------- --------- --------- -----------
Premiums earned $ - $ 39,480 $ 81,861 $ 81,420
Premiums ceded - (18,541) (45,996) (26,019)
---------- --------- --------- -----------
Net premiums earned (Note 6) - 20,939 35,865 55,401
Net investment income (Note 3) 364 2,373 5,637 6,272
Net investment gains (Note 3) 95 2,169 2,611 762
Claim adjusting fees earned - 3,480 5,593 10,423
---------- --------- --------- -----------
Total revenues 459 28,961 49,706 72,858
---------- --------- --------- -----------
EXPENSES:
Claims and claims expenses (Note 5) - 40,024 60,194 54,183
Reinsurance recoveries - (11,334) (35,589) (11,986)
---------- --------- --------- -----------
Net claims and claims expenses - 28,690 24,605 42,197
Net service fees and commissions - 5,555 4,860 13,383
General and administrative expenses 259 9,852 17,021 15,060
---------- --------- --------- -----------
Total expenses 259 44,097 46,486 70,640
---------- --------- --------- -----------
Net income (loss) before disposal of operations and income 200 (15,136) 3,220 2,218
taxes
Gain on disposal of United States operations (Note 2) - 29,012 - -
---------- --------- --------- -----------
Net income before income taxes 200 13,876 3,220 2,218
---------- --------- --------- -----------
Income tax expenses
Current - 127 - -
Deferred - 4,335 765 (2,069)
---------- --------- --------- -----------
Income tax expense (benefit) (Note 8) - 4,462 765 (2,069)
---------- --------- --------- -----------
Net income before adjustment to liquidation basis 200 9,414 2,455 4,287
Adjustment to liquidation basis of accounting (Note 9) 25 - - -
---------- --------- --------- -----------
NET INCOME $ 225 $ 9,414 $ 2,455 $ 4,287
---------- --------- --------- -----------
PER SHARE DATA: (Note 1)
Earnings per share:
Basic $ 0.05 $ 2.03 $ 0.55 $ 0.94
---------- --------- --------- -----------
---------- --------- --------- -----------
Diluted $ 0.05 $ 2.03 $ 0.53 $ 0.92
---------- --------- --------- -----------
---------- --------- --------- -----------
</TABLE>
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
F-10
<PAGE>
NOBEL INSURANCE LIMITED
IN MEMBERS VOLUNTARY LIQUIDATION
CONSOLIDATED STATEMENT OF CASH FLOWS
periods from January 1, 1998 through July 10, 1998 and from
July 11, 1998 through December 31, 1998 and years
ended December 31, 1997 and 1996
(EXPRESSED IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
(Liquidation
Basis) (Going Concern Basis)
1998 1998 1997 1996
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 225 $ 9,197 $ 2,455 $ 4,287
Adjustments to reconcile net income to net cash
from operating activities:
Depreciation and amortization - 2,098 1,666 1,296
Net realized investment gains - (945) (2,611) (762)
Losses (gains) on disposal of other assets - (36) (6) 8
Gain on disposal of United States operations - (29,012) - -
Decrease (increase) in deferred policy acquisition
costs - (1,105) (3,745) 2,429
Deferred tax expense (benefit) - 4,335 765 (2,069)
Increase (decrease) in reserve for claims and claims
expenses - 5,618 (5,449) 6,722
Increase (decrease) in unearned premiums - (2,507) (5,555) 2,283
Increase (decrease) in accounts payable and accrued
liabilities 150 (205) (622) 3,277
Decrease (increase) in net premiums receivable - (26,934) 9,984 8,832
Decrease (increase) in accrued interest income (206) 450 256 (66)
Increase in reinsurance recoverable - (3,951) (16,601) (3,733)
Decrease (increase) in prepaid reinsurance premiums - 8,016 12,175 (14,490)
Decrease (increase) in other assets 31 1,789 (7) 40
Decrease in funds held by reinsurance companies - 936 62 1,639
Net (additions) dispositions from trading portfolio
investments - (1,188) 7,317 3,098
Proceeds from sale of United States operations, net
of cash sold - 47,135 - -
------- ------ ------ ------
Net cash provided from operating activities 200 13,691 84 12,751
------- ------ ------ ------
</TABLE>
F-11
<PAGE>
NOBEL INSURANCE LIMITED
IN MEMBERS VOLUNTARY LIQUIDATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(CONTINUED) periods from January 1, 1998 through July 10, 1998
and from July 11, 1998 through
December 31, 1998 and year ended December 31, 1997 and 1996
(EXPRESSED IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
(Liquidation
Basis) (Going Concern Basis)
1998 1998 1997 1996
<S> <C> <C> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from investments sold or matured:
Fixed maturities, available for sale - 52,332 105,973 40,664
Equity securities, available for sale - - 573 -
Purchase of investments:
Fixed maturities, available for sale - (15,869) (98,977) (38,365)
Equity securities, available for sale - - (3,021) (2,045)
Payments on acquisitions - (1) (6) (3)
Purchase of software, property and equipment - 55 (588) (2,293)
--------- ------ ------ ------
Net cash provided from investing activities - 36,517 3,954 (2,042)
--------- ------ ------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of capital shares - 1,080 408 534
Proceeds from notes payable - 8,894 - 3,642
Repayment of notes payable and capital lease
obligation - (4,493) (112) (405)
Purchase of treasury stock - - (361) (14,097)
Dividends paid shareholders - - (900) (903)
Partial liquidating distribution paid to shareholders (60,197) - - -
--------- ------ ------ ------
Net cash (used by) from provided financing activities (60,197) 5,481 (965) (11,229)
--------- ------ ------ ------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (59,997) 55,689 3,073 (520)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 73,547 17,858 14,785 15,305
--------- ------ ------ ------
CASH AND CASH EQUIVALENTS, END OF
PERIOD $13,550 $73,547 $17,858 $14,875
</TABLE>
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
F-12
<PAGE>
NOBEL INSURANCE LIMITED
IN MEMBERS VOLUNTARY LIQUIDATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
years ended December 31, 1998, 1997 and 1996
1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
Nobel Insurance Limited (the "Parent Company") was incorporated on December 15,
1978 under the Laws of the Islands of Bermuda and commenced operations on
January 1, 1979. Prior to entering into Voluntary Liquidation as discussed
below, the Parent Company and its subsidiaries' operations consisted of
reinsuring and insuring certain property, fidelity, surety, general and
automobile liability and automobile physical damage risks and providing services
in connection therewith, which constituted one industry segment (property and
casualty insurance).
In March 1986, the Parent Company formed a holding company, Nobel Holdings, Inc.
("NHI"), a Delaware corporation, and subsequently restructured its U.S.
Subsidiaries under NHI (collectively the "U.S. Group"). The holding company
consisted of:
Nobel Insurance Company, a Texas corporation admitted in 50 states and
the District of Columbia to write all insurance lines except life
insurance; and provided commercial property, casualty and surety
coverages for specialized industries and personal property coverages for
low-value dwellings.
Nobel Managing Agents, Inc., a Texas corporation that provided insurance
brokerage and risk management services.
Nobel Insurance Agency, Inc., a Texas corporation that was the U.S.
Group's commercial and personal lines recording agency.
Nobel Service Corporation, a Delaware corporation formed in 1993 to
provide paymaster and disbursement services for the U.S. Group.
IAS Claim Services, Inc., a Delaware corporation formed in 1994 to
conduct the claim adjusting service business.
On June 18, 1998, the Parent Company's shareholders approved the sale of its
United States operating assets to a wholly owned subsidiary of Renaissance Re
Holdings Ltd., an Islands of Bermuda company ("RenaissanceRe"), and approved and
adopted the Plan of Liquidation of the Company. On June 25, 1998, the Parent
Company completed the sale of its operating assets.
On July 10, 1998, pursuant to the Plan of Liquidation, the shareholders of the
Parent Company approved the voluntary winding up of the Parent Company (the
"Liquidation") in accordance with the laws of Bermuda and the appointment of
Malcolm Butterfield of the Bermuda office of KPMG Peat Marwick ("KPMG"),
Chartered Accountants, as the liquidator of the Parent Company (in such
capacity, the "Liquidator") to act as Liquidator to oversee the Liquidation
under the Bermuda Companies Act. The Liquidation is currently in progress.
F-13
<PAGE>
NOBEL INSURANCE LIMITED
IN MEMBERS VOLUNTARY LIQUIDATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
years ended December 31, 1998, 1997 and 1996
1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (Cont'd)
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Parent Company
and the U.S. Group of wholly-owned subsidiaries. All intercompany transactions
and balances have been eliminated. The term "Company" in the notes to the
consolidated financial statements includes the Parent Company and the U.S.
Group.
These consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America. The
consolidated financial statements for fiscal 1997 and 1996 were prepared on a
going concern basis of accounting which contemplates realization of assets and
satisfaction of liabilities in the normal course of business. Effective July 11,
1998 the Company has adopted the liquidation basis of accounting for presenting
its consolidated financial statements. Under this basis of accounting, assets
and liabilities are stated at their net realizable value and estimated costs
through the liquidation date are provided to the extent reasonably determinable
(See Note 9).
NET ASSETS IN LIQUIDATION
The consolidated financial statements present the Net Assets in Liquidation of
the Parent Company as at December 31,1998. The Net Assets in Liquidation
represents the estimated funds that may be remitted to the shareholders upon the
completion of the liquidation. These amounts are summarized as follows:
<TABLE>
<S> <C>
Final Liquidating distribution of $1.00 cash per Common Share $ 4,631
Dividend Accrual to Stockholders (Note 7) 129
--------
$ 4,760
--------
--------
</TABLE>
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of all financial instruments approximated the carrying value at
December 31, 1998 and 1997. The fair value of the Company's investments in
securities are disclosed in Note 3 and are based upon dealer quotes or published
market rates. Cash and cash equivalents approximate fair value due to their
short-term nature. The carrying value of loans and notes payable approximate
fair value due to their variable rates, or short terms to maturity.
F-14
<PAGE>
NOBEL INSURANCE LIMITED
IN MEMBERS VOLUNTARY LIQUIDATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
years ended December 31, 1998, 1997 and 1996
1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (Cont'd)
INVESTMENTS
The Company carried its investments designated as trading portfolio investments
at fair value and unrealized gains and losses were included in earnings. The
Company carried its remaining fixed maturity investments designated as available
for sale, at fair value. Unrealized gains and losses were excluded from earnings
and reported as a separate component of shareholders' equity, net of tax effect.
Short-term investments include investments with an original maturity of one year
or less and are carried at cost, which approximates fair value. Realized gains
and losses on disposal of investments, determined by the specific identification
method, are included in income.
PREMIUMS AND RELATED EXPENSES
Insurance operations were conducted primarily by the U.S. Subsidiaries that were
sold. Prior obligations of the Parent Company under reinsurance and insurance
contracts were either commuted with the ceding insurance companies or assumed by
Nobel Insurance Company prior to the sale. The following disclosures relate to
operations prior to the sale of the U.S. operating assets.
Premiums earned are included in earnings evenly over the terms of the policies.
Premiums are reviewed annually for each customer when renewal quotations are
prepared based on that customer's experience. The Company does not have policies
that provide for retroactive premium adjustments.
Acquisition costs, consisting of commissions, premium taxes and other costs that
vary with and are directly related to the production of business, net of ceding
commissions are deferred and amortized over the terms of the policies, but only
to the extent that unearned premiums are sufficient to cover all related costs
and expenses.
An allowance for uncollectable premiums receivable is established when it
becomes evident collection is doubtful.
CLAIMS
Insurance operations were conducted primarily by the U.S. Subsidiaries that were
sold. Prior obligations of the Parent Company under reinsurance and insurance
contracts were either commuted with the ceding insurance company or assumed by
Nobel Insurance Company prior to the sale. The following disclosures relate to
operations prior to the sale of the U.S. operating assets.
F-15
<PAGE>
NOBEL INSURANCE LIMITED
IN MEMBERS VOLUNTARY LIQUIDATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
years ended December 31, 1998, 1997 and 1996
1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (Cont'd)
Claims and claim adjustment expenses, less related reinsurance, are provided for
as claims are incurred. The provision for unpaid claims and claims adjustment
expenses includes: (1) the accumulation of individual case estimates for claims
and claims adjustment expenses reported prior to the close of the accounting
period; (2) estimates for unreported claims based on past experience modified
for current trends; and (3) estimates of expenses for investigating and
adjusting claims based on past experience.
Liabilities for unpaid claims and claim adjustment expenses are based on
estimates of ultimate cost of settlement. Changes in claim estimates resulting
from the continuous review process and differences between estimates and
ultimate payments are reflected in expense for the year in which the revision of
these estimates first became known.
INCOME TAXES
Deferred tax assets and liabilities were established for the U.S. Group at the
balance sheet date in amounts that were expected to be recoverable or payable
when the differences in the tax basis and financial reporting basis of assets
and liabilities ("temporary differences") reversed. As a result of the sale of
the U.S. operating assets and the subsequent dissolution of Nobel Holdings Inc.,
all deferred tax assets and liabilities were reversed.
The Parent Company is, in management's opinion, a foreign corporation not
engaged in a trade or a business within the United States and accordingly does
not presently file a United States income tax return. The Parent Company has
filed protective United States income tax returns, which report no gross income,
which is effectively connected with a U.S. trade or business. The U.S. Group was
domiciled in the United States and was subject to United States taxes on income.
PER SHARE AMOUNTS
The Company adopted the requirements of Statement of Financial Accounting
Standards No. 128 "Earnings Per Share" ("FAS 128") in 1997. In accordance with
FAS 128, prior year per share amounts have been adjusted to reflect earnings per
share as defined in the statement.
F-16
<PAGE>
NOBEL INSURANCE LIMITED
IN MEMBERS VOLUNTARY LIQUIDATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
years ended December 31, 1998, 1997 and 1996
1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (Cont'd)
Basic earnings per capital share were determined by dividing net income by the
weighted average capital shares outstanding. Diluted earnings per capital share
was determined by dividing net income by diluted shares outstanding which, in
1997 and 1996, included capital and capital equivalent shares outstanding
attributable to outstanding stock options prior to January 1, 1998 as follows
(in thousands):
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1998 1997 1996
----- ----- -----
Basic Capital Shares Outstanding....................... 4,593 4,496 4,555
Shares Applicable to Capital
Stock Equivalents................................... - 119 104
----- ----- -----
Diluted Capital Shares Outstanding..................... 4,593 4,615 4,659
----- ----- -----
----- ----- -----
</TABLE>
DEPRECIATION AND AMORTIZATION
Depreciation of property and equipment related to assets owned by the U.S.
Subsidiaries was provided over the estimated useful lives of the respective
assets by the straight-line method. Depreciation expense was $328,000,
$806,000, and $720,000 for the years ended December 31, 1998, 1997 and 1996,
respectively.
Goodwill (excess of total acquisition cost over the fair value of net assets
acquired) and other intangible assets related to assets owned by the U.S.
Subsidiaries and was being amortized on a straight-line basis over the estimated
years to be benefited ranging from six months to seven years. Amortization
expense was $1,644,000, $837,000 and $435,000 for the years ended December 31,
1998, 1997 and 1996 respectively.
CASH AND CASH EQUIVALENTS
In presentation of the consolidated statements of cash flows, the Company
considers all short-term investments with a maturity date at the time of
purchase of three months or less to be cash equivalents.
THE USE OF 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 and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported upon period. Actual results could differ from those estimates.
F-17
<PAGE>
NOBEL INSURANCE LIMITED
IN MEMBERS VOLUNTARY LIQUIDATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
years ended December 31, 1998, 1997 and 1996
1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (Cont'd)
RECLASSIFICATION
Certain prior period amounts presented for comparison have been reclassified to
conform to the presentation adopted in 1998.
2. SALE OF UNITED STATES OPERATING ASSETS
On December 19, 1997, the Parent Company entered into a Stock Purchase Agreement
to sell its United States assets, consisting of the stock of its indirect
wholly-owned subsidiaries (including Nobel Insurance Company), which were held
by NHI, to a wholly owned subsidiary of Renaissance Re Holdings Ltd., for
$54,106,000 in cash.
On June 18, 1998, the Parent Company's shareholders approved the sale of its
United States operating assets and approved and adopted the Plan of Liquidation
of the Parent Company. On June 25, 1998, the Parent Company completed the sale.
NHI applied the proceeds to settle known liabilities and debts, made provision
for contingent liabilities and was dissolved in accordance with Delaware law
after making a final distribution to the Parent Company. NHI recognized a gain
on the disposal of its subsidiaries of $27,147,000.
Effective April 20, 1998, the Nobel Insurance Company sold the Atlanta Surety
Assets consisting of the right to receive future premiums paid on renewal of
existing policies and certain office equipment. The purchase price of the
unbooked intangible right to future renewal premiums was 50% of the premiums
written during the 12-month period commencing on the effective date of the
transaction, subject to a minimum up-front payment of $3,500,000 and a total
maximum of $7,000,000. In addition, the office equipment was sold for $50,000
which approximated the book value of such equipment. Because of a reduction in
premiums written due to implementation of more restrictive underwriting
guidelines following the sale, the Company will not receive any contingent
purchase payment. Nobel Insurance Company recognized a gain on the disposal of
its Atlanta Surety Assets of $1,865,000, after making provision for run-off
costs.
F-18
<PAGE>
NOBEL INSURANCE LIMITED
IN MEMBERS VOLUNTARY LIQUIDATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
years ended December 31, 1998, 1997 and 1996
3. INVESTMENTS
The Company's investments at December 31, 1998 consist entirely of short-term
investments. The following is the amortized cost and estimated fair values of
the Company's trading and available for sale portfolios at December 31, 1997 (in
thousands):
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
1997 COST GAINS LOSSES VALUE
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investments, Trading Portfolio:
Redeemable Preferred Stock..................... $ 69 $ 6 $ - $ 75
Equity Securities.............................. 2,830 157 129 2,858
Other Investments.............................. 37 - 10 27
-------- -------- -------- -------
Total Investments, Trading Portfolio....... $ 2,936 $ 163 $ 139 $ 2,960
-------- -------- -------- -------
-------- -------- -------- -------
Investments, Available for Sale:
U.S. Treasury Securities and Obligations
of U.S. Government Agencies.................. $ 8,627 $ 350 $ 169 $ 8,808
U.S. Government Agencies--
Mortgage-Backed Securities................... 29,121 503 52 29,572
Corporate Securities......................... 56,771 593 19 57,345
Equity Securities............................ 1,000 806 - 1,806
-------- -------- -------- -------
Total Investments, Available for Sale...... $ 95,519 $ 2,252 $ 240 $ 97,531
-------- -------- -------- -------
-------- -------- -------- -------
</TABLE>
Net investment gains and losses are summarized as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1998 1997 1996
---- ---- ----
Realized, Fixed Maturities...................................... $ 621 $ 1,246 $ 274
Realized, Equity Securities..................................... 137 2,809 1,085
Realized, Other Investments..................................... - 106 40
Unrealized, Trading Portfolio 1,506 (1,550) (637)
------- ------- --------
Net Gains....................................................... $ 2,264 $ 2,611 $ 762
------- ------- --------
------- ------- --------
</TABLE>
Proceeds from sales of investments classified as available for sale during 1998,
1997 and 1996 were $52,332,000, $106,546,000 and $40,664,000, respectively.
Gross gains of $760,000, $1,765,000, and $546,000, and gross losses of $139,000,
$474,000, and $272,000 were realized on those sales in 1998, 1997 and 1996,
respectively, and are included in the net investment gains in the income
statement.
The following schedule summarizes the components of net investment income (in
thousands):
<TABLE>
<CAPTION>
<S> <C> <C> <C>
YEARS ENDED DECEMBER 31, 1998 1997 1996
- -----------------------------------------------------------------------------------------------------
Investment Income On:
Fixed Maturities $ 2,320 $ 6,385 $ 6,509
Equity Securities........................................... 50 71 223
Short Term Investments...................................... 955 629 399
Other....................................................... 39 118 205
------- ------ ---------
3,364 7,203 7,336
Investment Expenses.............................................. (627) (1,566) (1,064)
------- ------- -------
Net Investment Income.................................... $ 2,737 $ 5,637 $ 6,272
------- ------- -------
------- ------- -------
</TABLE>
F-19
<PAGE>
NOBEL INSURANCE LIMITED
IN MEMBERS VOLUNTARY LIQUIDATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
years ended December 31, 1998, 1997 and 1996
3. INVESTMENTS (Cont'd)
Insurance operations were conducted primarily by the U.S. Subsidiaries that were
sold. Prior obligations of the Parent company under reinsurance and insurance
contracts were either commuted with the ceding insurance company or assumed by
Nobel Insurance Company prior to the sale. The following disclosures relate to
operations prior to the sale of the U .S. operating assets.
In accordance with provisions of various assumed reinsurance agreements, the
Company collateralized reinsurance liabilities with letters of credit or trust
arrangements. The letters of credit were, in turn, secured by investments.
Further, the U.S. Group insurance companies were required to maintain security
deposits with various state insurance departments.
The following table presents the investments collateralized and pledged (in
thousands):
<TABLE>
<CAPTION>
INVESTMENTS
AMORTIZED COST FAIR VALUE
-------------- ----------
December 31, 1997
<S> <C> <C>
Letters of Credit--Issued $200 ......................... $ 200 $ 200
Reinsurance Trust Account................................ 9,455 9,606
U.S. State Insurance Deposits............................ 5,568 5,973
------- -------
$15,223 $ 15,779
------- -------
------- -------
</TABLE>
4. POLICY ACQUISITION COSTS
Insurance operations were conducted primarily by the U.S. Subsidiaries that were
sold. Prior obligations of the Parent company under reinsurance and insurance
contracts were either commuted with the ceding insurance company or assumed by
Nobel Insurance Company prior to the sale. The following disclosures relate to
operations prior to the sale of the U .S. operating assets.
Policy acquisition costs deferred, net of ceding commission allowance
recoveries, and the related amortization charged to income for insurance written
and retained by the U.S. Group insurers and the reinsurance assumed by the
foreign insurance companies were as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Balance, beginning of year................ $ 700 $ 3,129
Costs deferred during year:
Commissions and insurance taxes....... 16,047 14,066
Reinsurance ceding commissions........ (9,874) (11,551)
Salaries and other costs............. 4,826 3,965
Amortization and charge-off during year... (7,254) (8,909)
------- ------
Balance, end of year...................... $ 4,445 $ 700
------- ------
------- ------
</TABLE>
F-20
<PAGE>
NOBEL INSURANCE LIMITED
IN MEMBERS VOLUNTARY LIQUIDATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
years ended December 31, 1998, 1997 and 1996
5. CLAIMS AND CLAIMS EXPENSES
Insurance operations were conducted primarily by the U.S. Subsidiaries that were
sold. Prior obligations of the Parent company under reinsurance and insurance
contracts were either commuted with the ceding insurance company or assumed by
Nobel Insurance Company prior to the sale. The following disclosures relate to
operations prior to the sale of the U .S. operating assets.
The Company estimated claims and claims expenses based on historical experience
and payment and reporting patterns for the type of risk involved. These
estimates were reviewed quarterly by the Company's professional actuary and any
resulting adjustments were reflected in operations for the period in which they
were determined.
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 for casualty coverage is significantly
affected by such factors as the amount of historical claims experience relative
to the development period, knowledge of the actual facts and circumstances, and
the amount of insurance risk retained.
For the years 1992 through 1994, the Company established a general IBNR reserve
to provide for possible adverse development in any of its lines of business due
to unavailability of adequate historical data and the changing legal and
legislative climate relating to tort liability. This general IBNR reserve was
released (including releases of $1,000,000 in each of 1995 and 1996) based upon
refined actuarial data and analysis and increased claims experience. Since 1989,
the Company implemented strategies to reduce the amount of underwriting risk and
refine the claims data available for actuarial analysis for its casualty
coverages, and maintained a conservative reserving philosophy to avoid
recurrence of the adverse reserve development experienced prior to 1989. The
Company experienced favorable reserve development from 1989 through 1994. In
1995, the Company strengthened its reserves because of loss development in the
current writings of its haulers program. This strengthening was in excess of
redundancies experienced on the runoff business. In 1996, the Company again
experienced favorable development. In 1997 the Company experienced adverse
reserve development.
F-21
<PAGE>
NOBEL INSURANCE LIMITED
IN MEMBERS VOLUNTARY LIQUIDATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
years ended December 31, 1998, 1997 and 1996
5. CLAIMS AND CLAIMS EXPENSES (Cont'd)
The following table reconciles claims and claims expenses to year-end reserves
by adding claims recorded in the current year to the balance at the beginning of
the year and deducting payments made during the year (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Balance at January 1.................................. $ 82,948 $ 88,397 $ 81,675
Less reinsurance recoverables......................... 33,986 22,262 19,205
------ ------ ------
Net balance at January 1.............................. 48,962 66,135 62,470
------ ------ ------
Incurred related to:
Current year...................................... 20,684 22,429 43,286
Prior years...................................... 8,006 2,176 (1,089)
------ ------- -------
28,690 24,605 42,197
------ ------ ------
Paid related to:
Current year...................................... 5,649 8,405 15,635
Prior years....................................... 16,686 33,373 22,897
------ ------ ------
22,335 41,778 38,532
------ ------ ------
Sale of U.S. Subsidiaries and commutations............ (55,317) - -
Net balance at December 31............................ - 48,962 66,135
------
Plus reinsurance recoverables......................... - 33,986 22,262
------ ------ ------
Balance at December 31................................ $ - $ 82,948 $ 88,397
====== ====== ======
</TABLE>
The reserve deficiency in 1997 of $2,176,000 included a deficiency of $2,404,000
for commercial casualty, and additional deficiencies of $2,639,000 for specialty
surety offset by redundancy for unallocated loss adjustment expense of $787,000,
and assumed explosives business of $1,918,000. The remaining slight deficiency
for LPG runoff and personal auto, offset by slight redundancies for personal
lines and other business comprise the remaining redundancy of $162,000.
The reserve redundancy in 1996 of $1,089,000 included a deficiency of $4,193,000
for commercial casualty, which was offset by redundancies of $498,000 for
specialty surety, $23,000 for personal lines, $1,405,000 for propane runoff, and
$2,356,000 for the assumed explosives business. In addition, a $1,000,000 bulk
IBNR reserve was released in 1996.
6. REINSURANCE
Insurance operations were conducted primarily by the U.S. Subsidiaries that were
sold. Prior obligations of the Parent company under reinsurance and insurance
contracts were either commuted with the ceding insurance company or assumed by
Nobel Insurance Company prior to the sale. The following disclosures relate to
operations prior to the sale of the U .S. operating assets.
F-22
<PAGE>
NOBEL INSURANCE LIMITED
IN MEMBERS VOLUNTARY LIQUIDATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
years ended December 31, 1998, 1997 and 1996
6. REINSURANCE (Cont'd)
Reinsurance arrangements are utilized to limit maximum loss, provide greater
diversification of risk and minimize exposures on large or hazardous risks. A
large portion of the reinsurance is effected under reinsurance contracts known
as treaties and in some instances by negotiation on individual risks.
The impact of reinsurance assumed and purchased on premiums earned was as
follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Direct premiums earned...................... $37,158 $ 81,711 $ 81,099
Assumed from other companies................ 2,322 150 321
Reinsurance purchased from
other companies........................... (18,541) (45,996) (26,019)
-------- --------- --------
Net premiums earned......................... $20,939 $ 35,865 $ 55,401
Percent of amount assumed to net............ 11.0% 0.4% 0.6%
</TABLE>
The reserve for claims and claim expenses at December 31, 1997 is shown gross of
estimated amounts recoverable from other insurers of $33,986,000; unearned
premiums at December 31, 1997 are shown gross of amounts ceded of $15,141,000.
The reinsurance balances have been reported as assets in accordance with the
gross reporting provisions of Statement of Financial Accounting Standards
No.113. To the extent that reinsuring companies are later unable to meet
obligations under reinsuring agreements, the Company would remain liable. To
minimize its exposure to significant losses from reinsurer insolvencies, the
Company evaluated the financial condition of its reinsurers. At December 31,
1997, reinsurance recoverables with a carrying value of approximately
$24,900,000, were associated with these reinsurers. At December 31, 1997,
reinsurance recoverable and prepaid reinsurance balances of $1,412,000 were
collateralized by funds held, trust assets or letters of credit. During 1997
approximately $617,000 of interest was paid to the reinsurers on the funds held
by the company and not distributed to the reinsurers under the reinsurance
agreement.
7. MORTGAGE, NOTE AND LOANS PAYABLE
Note payable at December 31, 1998 consists of the principal balance due to
Renaissance Re Holdings Limited for a Limited Recourse Loan to the Parent
Company that was made at the Closing of the Sale of the U.S. operating assets to
facilitate the Liquidation of the Parent Company.
F-23
<PAGE>
NOBEL INSURANCE LIMITED
IN MEMBERS VOLUNTARY LIQUIDATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
years ended December 31, 1998, 1997 and 1996
7. MORTGAGE NOTE AND LOANS PAYABLE (Cont'd)
The Limited Recourse Loan is evidenced by a participating promissory note of the
Parent Company which bears interest at the rate of 6.0% per annum and matures on
the date of, and immediately after, the payment of the final distribution or, in
any event, not later than December 31, 1999. The proceeds of the Limited
Recourse Loan are available to the Parent Company, together with its other
assets, to pay the actual expenses incurred by the Parent Company in connection
with the Sale, the Plan of Liquidation, and the Liquidation as well as to pay
other obligations and indebtedness of the Parent Company, except for any U.S.
federal taxes or any costs associated with any tender offer by the Parent
Company for the Common Shares. Subject to this exception, such obligations and
indebtedness include those existing upon the making of the Limited Recourse Loan
and those that may arise in the course of the Liquidation, including unforseen
events. The Limited Recourse Loan is expressly subordinate, first to the policy
claims of insurance or reinsurance policyholders of the Parent Company; second,
to all other obligations and indebtedness of the Parent Company (except for
obligations and indebtedness of the Parent Company in respect of any U.S.
federal taxes); and, third, to the payment of the Final Distribution and other
distributions to shareholders or repurchases of Common Shares at a price not in
excess of an aggregate amount of $14.00 in cash per Common Share. The holder of
the Limited Recourse Loan will make no claim to the assets comprising the Final
Distribution.
During 1998, a partial liquidating distribution to shareholders of $13.00 in
cash per Common Share was made. There can be no assurance when the final
distribution will be paid or what the amount of the Final Distribution will be.
On the Consolidated Statement of Net Assets in Liquidation as at December 31,
1998, the Net Assets in Liquidation represents the estimated funds that may be
remitted to the shareholders upon the completion of the liquidation.
If the Limited Recourse Loan matures on the date of payment of the Final
Distribution, the total amount due and payable under the Limited Recourse Loan
will be equal to all remaining assets of the Parent Company after payment of all
permitted expenses and liabilities of the Parent Company and the Final
Distribution (the "Remaining Amount"). The Remaining amount will be applied:
first, to the payment of the principal amount of the Limited Recourse Loan;
second, to accrued interest on the Limited Recourse Loan; and third, as
additional interest. If, however, the maturity date of the Limited Recourse Loan
is after June 30, 1998, but before December 31, 1999, the Remaining amount will
be applied: first, to the payment of the principal amount; second, to the extent
of available funds, on a pari passu basis, to accrued interest on the Limited
Recourse Loan and a distribution in addition to the Total Distribution, in the
form of a Dividend Accrual; and third, as additional interest to the noteholder.
The distribution in addition to the Total Distribution will be calculated as
interest accruing each day during the period beginning July 1, 1998, through the
maturity date at a rate equal to 6.0% per annum on the difference between $14.00
and the portion of the Total Distribution previously paid or distributed to
shareholders of the Parent Company prior to the Final Distribution, multiplied
by the number of outstanding Common Shares on the day the calculation is made.
If the balance of the Remaining Amount is insufficient to satisfy both accrued
interest and the additional distribution, the remaining balance will be paid on
a pro rata basis with respect to such amounts.
F-24
<PAGE>
NOBEL INSURANCE LIMITED
IN MEMBERS VOLUNTARY LIQUIDATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
years ended December 31, 1998, 1997 and 1996
7. MORTGAGE NOTE AND LOANS PAYABLE (Cont'd)
If the Limited Recourse Loan matures on December 31, 1999, prior to payment of
the Final Distribution, the total amount due and payable under the Limited
Recourse Loan will be equal to all of the assets of the Parent Company in excess
of (i) necessary reserves determined by the Liquidator for the payment of all
remaining liabilities of the Parent Company, other than the Limited Recourse
Loan and any U.S. federal taxes, and expenses of the Company to be incurred to
complete the Liquidation plus (ii) the aggregate amount of the Total
Distribution then remaining unpaid with respect to all then outstanding Common
Shares. The Parent Company will apply payment: first, to payment of the
principal amount of the Limited Recourse Loan; second, to accrued interest on
the Limited Recourse Loan; and third as additional interest.
Included in other liabilities at December 31, 1997 are mortgage loans and other
bank loans payable. During 1996, the Company executed a credit agreement for a
five (5) year term loan facility commitment in the amount of $15,000,000. Term
loans were evidenced by a Term Note with interest payable with respect to the
unpaid principal amount of each Term Note at a base rate (Prime) or at the
adjusted London Interbank Eurodollars rate (LIBOR) depending on what interest
basis the loan is made. The uses of the term loan facility commitment were to
repay existing bank indebtedness at the time of closing, to make contributions
to the equity of Nobel Insurance Company, and to meet other business expansion
opportunities. The credit agreement was secured by all the outstanding stock of
NHI and its subsidiaries. The term loan was repaid in 1998 out of the proceeds
of sale of the U.S. Subsidiaries.
The credit agreement imposed certain financial covenants including consolidated
net worth amount, capitalization ratio, earnings coverage ratio, capital
expenditures amounts, statutory surplus amount, operating leverage ratios, fixed
change coverage ratios and risk based capital amount. As of December 31, 1997,
the Company had not met the earnings coverage ratio. The Company received from
the lender a waiver of the event of default for the year ended December 31,
1997.
The Company entered into an interest rate swap agreement with the lender,
which terminated originally on October 1, 2001. Under this agreement, the
Company paid a fixed rate of 6.8% on $5,000,000 of the credit agreement. If
the current rates were less than 6.8% the lender received the difference
between the fixed rate and the current rate. If the rate went above the 6.8%
the lender paid the company the difference. During 1997 and 1996, the Company
paid the lender approximately $59,000 and $29,000 respectively, under the
swap arrangements. During 1998, the Company terminated the swap arrangements
by paying the lender the fair market value thereof.
F-25
<PAGE>
NOBEL INSURANCE LIMITED
IN MEMBERS VOLUNTARY LIQUIDATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
years ended December 31, 1998, 1997 and 1996
7. MORTGAGE NOTE AND LOANS PAYABLE (Cont'd)
Mortgages, notes payable and obligations under capital leases included in other
liabilities are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1997
------------------------------------------------------------
<S> <C>
Real Estate........................................ $ 954
Credit Agreement Term Loan Facility................ 3,538
-----
$4,492
=====
</TABLE>
Interest expense of $370,000, $336,000 and $362,000 in 1998, 1997 and 1996,
respectively, approximated interest paid.
8. INCOME TAXES
The effect of income taxes on operations is presented below (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1998 1997 1996
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income before income taxes................... $14,076 $ 3,220 $ 2,218
Non U.S. source - not subject to tax............. 1,213 800 4,449
------ -------- ------
U.S. source - subject to tax..................... $12,863 $ 2,420 $ (2,231)
====== ======== =====
Computed "expected" tax expense (benefit) @ 34%.. $ 4,373 $ 823 $ (758)
Reduction for tax exempt interest................ (286) (196) (417)
Change in deferred tax
valuation allowance......................... - - (907)
Unutilized alternative minimum tax.............. 472 - -
Non-allowed meals and entertainment............. 9 - -
Others.......................................... (106) 138 13
----- -------- ------
Income Tax Expense (Benefit)..................... $ 4,462 $ 765 $ (2,069)
===== ======== ======
</TABLE>
F-26
<PAGE>
NOBEL INSURANCE LIMITED
IN MEMBERS VOLUNTARY LIQUIDATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
years ended December 31, 1998, 1997 and 1996
8. INCOME TAXES (Cont'd)
As a result of the sale of the U.S. operating assets and the subsequent
dissolution of NHI, all deferred tax assets and liabilities were reversed. 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 are
presented below:
<TABLE>
<CAPTION>
DECEMBER 31, 1997
- ---------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <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 on investments available for sale........ (634)
Other..................................................... (893)
---------
Total gross deferred tax liabilities.................. (3,038)
--------
Net deferred tax asset......................... $ 3,702
========
</TABLE>
The Company made tax payments of $346,000, $4,000, and $50,000 in 1998, 1997 and
1996, respectively.
Under current Bermuda law the Company is not obligated to pay any taxes on
income or gains, as such taxes in Bermuda do not exist. Further in 1987 the
Company received an exemption from the Ministry of Finance in Bermuda, that in
the event of there being enacted legislation imposing tax computed on profits,
income, or capital asset gain or appreciation, or any tax in the nature of
estate duty or inheritance tax, then the imposition of such tax shall not be
applicable to the Company. This exemption shall be in effect until March 28,
2016. There is no effect of this exemption on the financial statements since
Bermuda does not presently impose such taxes.
F-27
<PAGE>
NOBEL INSURANCE LIMITED
IN MEMBERS VOLUNTARY LIQUIDATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
years ended December 31, 1998, 1997 and 1996
9. NET ADJUSTMENT TO LIQUIDATION BASIS OF ACCOUNTING
The net adjustment at December 31, 1998 to convert from the going concern basis
of accounting to the liquidation basis of accounting consisted of the following
(in thousands):
<TABLE>
<CAPTION>
Income
(Expense)
<S> <C>
Write off of prepaid insurance $ (31)
Estimated costs associated with carrying out plan of liquidation (150)
Additional interest income to be received on short-term investments 454
Interest on note payable (248)
--------
$ 25
========
</TABLE>
10. SHAREHOLDERS' EQUITY AND RESTRICTIONS
Under the Bermuda Insurance Act of 1978 and related regulations, the Parent
Company is required to maintain minimum levels of solvency and liquidity.
Accordingly, the distribution of earnings by declaration of dividends is limited
to the lower of the amount of retained earnings or the excess of shareholders'
equity over the statutory minimum requirements.
At the special shareholders general meeting held June 18, 1998, the shareholders
approved and adopted the Stock Purchase Agreement and the Plan of Liquidation.
In order to comply with Bermuda company law regulating dividend payments,
effective with this approval the Parent 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 costs of such shares reduced the capital
share account by $3,303,000 and the contributed surplus account by $26,660,000.
On July 3, 1998, the Parent Company paid an initial liquidating distribution of
approximately $60,197,000 or $13.00 per share to shareholders of record on June
29, 1998.
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 the Parent Company under Bermuda law and to appoint the
statutory liquidator to conduct the liquidation under the Bermuda Companies Act.
The liquidator is presently in the process of liquidating the Parent Company.
F-28
<PAGE>
NOBEL INSURANCE LIMITED
IN MEMBERS VOLUNTARY LIQUIDATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
years ended December 31, 1998, 1997 and 1996
10. SHAREHOLDERS' EQUITY AND RESTRICTIONS (Cont'd)
Retained earnings of the property and casualty subsidiaries available for
distribution as dividends prior to the Sale of the U.S. subsidiaries was limited
by law to insurance regulatory approval in certain cases. Approval was required
for the payment of any dividend which exceeded the greater of either 10% of
property and casualty statutory capital stock and surplus as of the preceding
December 31 or net income of the preceding calendar year on a statutory basis.
Net income and shareholders' equity of the U.S. insurance subsidiary, as filed
with regulatory authorities on the basis of statutory accounting practices, are
as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1997 1996
-----------------------------------------------------------------------
<S> <C> <C>
Statutory net income....................... $ 899,000 $ 268,000
DECEMBER 31, 1997 1996
-----------------------------------------------------------------------
Statutory shareholder's equity............. $34,988,000 $35,513,000
</TABLE>
Nobel Insurance Company, domiciled in Texas, prepared statutory financial
statements in accordance with the accounting practices prescribed or permitted
by the insurance department of that state. Prescribed statutory accounting
practices include a variety of publications of the National Association of
Insurance Commissioners as well as state laws, regulations, and general
administrative rules. Permitted statutory accounting practices encompass all
accounting practices not so prescribed.
In 1997, the Board of Directors had the authorization to purchase 336,000 Nobel
shares in open market transactions. During 1997, the Company acquired 30,400
shares at a cost of $361,000, or an average cost of $11.875 per share. The
shares purchased reduced the capital shares outstanding and the cost of shares
purchased was deducted from shareholders' equity. The Company was precluded from
any further share repurchase under the terms of the Stock Purchase Agreement.
The Parent Company has an Incentive Stock Option Plan (the "ISO Plan"), covering
800,000 capital shares of the Company. Unless terminated earlier by action of
the Board of Directors of the Company, the ISO Plan will terminate in March
2001. The exercise price of all options granted pursuant to the ISO Plan must be
equal to at least the fair market value of the capital shares on the date of
grant. The options generally vest over a period of from one to four years, with
terms, which range from three to ten years. The options are granted with stock
appreciation rights ("SAR") which gives the Company the right to pay, upon
exercise of an option, the difference between the fair market value of the
optional shares and the option exercise price in shares, cash or a combination
of both. The Company adopted a policy which allows option holders to purchase
stock under the ISO Plan. Except at the Company's discretion, an individual
option holder could redeem up to 1,000 option shares by cash payment under the
SAR.
F-29
<PAGE>
NOBEL INSURANCE LIMITED
IN MEMBERS VOLUNTARY LIQUIDATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
years ended December 31, 1998, 1997 and 1996
10. SHAREHOLDERS' EQUITY AND RESTRICTIONS (Cont'd)
Also, the Company has granted stock options to non-employees pursuant to the
Non-Employee Directors' Stock Option Plan, as amended in 1995 covering up to
300,000 shares, or based on the approval of the Board of Directors. These
options generally vest over a period of one year, with terms which range from
five to ten years. Unless terminated earlier by action of the Board of
Directors, the Directors' Plan will terminate in May 2001.
Pursuant to the Sale Agreement with RenaissanceRe, certain executive officers of
the U.S. Subsidiaries agreed to convert options to purchase an aggregate of
155,118 common shares outstanding under the Company's Employee Stock option Plan
into 48,056 options to purchase RenaissanceRe shares at equivalent terms and
conditions. The conversion ratio was based on the closing market value of
RenaissanceRe shares of $45.19 on June 25, 1998 and $14.00 per share value for
Nobel shares. With respect to all other options outstanding under the Company's
Employee Stock Option Plan, the Company and RenaissanceRe agreed to accelerate
vesting and pay the stock appreciation value based on $14.00 per share
immediately upon the June 25, 1998 closing.
A summary of the status of the Company's stock option plans as of December 31,
1998, 1997 and 1996 and changes during the years ending on those dates is
presented below:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
Weighted Weighted Weighted
-Average -Average -Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at beginning of year 375,409 $ 9.21 385,584 $ 8.03 439,742 $6.57
Granted - - 75,775 12.49 65,450 11.38
Exercised (127,446) 8.61 ( 69,340) 6.28 (119,033) 4.48
(
Forfeited 92,245) 8.26 ( 16,610) 9.01 (575) 8.03
Converted to options to purchase
Renaissance Re shares (155,718) - - - - -
-------- ---------- ----------
Options outstanding at end of year - - 375,409 9.21 385,584 8.03
======== ========= =========
Options exercisable at end of year - - 273,493 8.74 242,477 7.32
======== ========= =========
</TABLE>
In 1998, 1997 and 1996, employee options covering 3,060, 3,870 and 2,300 shares,
respectively, were exercised and the Company elected to pay the stock
appreciation value of $17,998, $22,801, and $15,000, respectively. As a result
of the exercise of employee and director options in 1998, capital shares were
increased $124,000 and contributed surplus was increased $956,000.
F-30
<PAGE>
NOBEL INSURANCE LIMITED
IN MEMBERS VOLUNTARY LIQUIDATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
years ended December 31, 1998, 1997 and 1996
10. SHAREHOLDERS' EQUITY AND RESTRICTIONS (Cont'd)
The Company implemented Statement of Financial Accounting Standards No. 123 (FAS
123) at December 31, 1996. As provided for in FAS 123, the Company has elected
to continue to apply the intrinsic value method to recognize compensation cost
related to stock options. Under this method, no compensation cost related to the
stock options granted in 1997 or 1996 has been reflected in the accompanying
consolidated financial statements. The following pro forma amounts reflect the
difference between compensation cost included in net income, as reported, and
the related cost that would have been recognized had the fair value method
introduced in FAS 123 been used:
<TABLE>
<CAPTION>
JULY 11, 1998
THROUGH TO JANUARY 1, 1998
DECEMBER 31, THROUGH JULY 10,
1998 1998 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net income As reported $225 $9,414 $ 2,455 $ 4,287
==== ====== ======= =======
Pro forma $225 $9,414 $ 2,386 $ 4,224
==== ====== ======= =======
Net income per As reported:
share
Basic $0.05 $2.03 $ 0.55 $ 0.94
===== ===== ====== ======
Diluted $0.05 $2.03 $ 0.53 $ 0.92
===== ===== ====== ======
Pro forma:
Basic $0.05 $2.03 $ 0.53 $ 0.93
===== ===== ====== ======
Diluted $0.05 $2.03 $ 0.52 $ 0.91
===== ===== ====== ======
</TABLE>
During the initial phase-in period, the effects indicated above may not be
representative of the effects on net income and net income per share for future
years.
The Company uses the Black-Scholes option pricing model to estimate the fair
values of options. Under this method, the fair value of options granted during
1997 and 1996, as well as the significant assumptions used in the calculation,
are as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Grant-date fair value of options granted
during the year $ 1.49 $ 1.16
Risk-free interest rate 5.76% 5.31%
Expected life in years 1.32 1.10
Expected volatility 25% 25%
Expected dividends $ .20 $ .20
</TABLE>
F-31
<PAGE>
NOBEL INSURANCE LIMITED
IN MEMBERS VOLUNTARY LIQUIDATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
years ended December 31, 1998, 1997 and 1996
11. COMMITMENTS AND CONTINGENCIES
The Company is not a party, either as plaintiff or defendant, to any material
proceedings other than those routinely encountered in claims activity. It is
management's opinion, after consulting with counsel and a review of the facts
that the ultimate liability, if any, arising from any single contingency or in
the aggregate, will not have any material adverse effect on the Company's
consolidated financial position or results of operations.
12. 401K PROFIT SHARING PLAN
Prior to the Sale of the U.S. Subsidiaries, the Company sponsored a 401k Profit
Sharing Plan for eligible employees. The basic plan provisions for the 401k
included participation after six months of service; vesting over five years at
20% per year; 100% employer matching up to 4% of base compensation; and prior
years of service counting towards the vesting requirement. Funding for the 401k
was provided at each pay period. The amount funded and expensed by the Company
for employer matching was $148,000, $315,000, and $305,000 in 1998, 1997 and
1996, respectively.
13. UNCERTAINTY DUE TO THE YEAR 2000 ISSUE
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize the
year 2000 as 1900 or some other date, resulting in errors when information using
year 2000 dates is processed. In addition, similar problems may arise in some
systems which use certain dates in 1999 to represent something other than a
date. The effects of the Year 2000 Issue may be experienced before, on, or after
January 1, 2000, and, if not addressed, the impact on operations and financial
reporting may range from minor errors to significant systems failure which could
affect an entity's ability to conduct normal business operations. It is not
possible to be certain that all aspects of the Year 2000 Issue affecting the
Company, including those related to the efforts of customers, suppliers, or
other third parties, will be fully resolved.
F-32
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<DEBT-HELD-FOR-SALE> 0
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 0
<CASH> 13,550
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 0
<TOTAL-ASSETS> 14,221
<POLICY-LOSSES> 0
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 8,894
0
0
<COMMON> 232
<OTHER-SE> 4,528
<TOTAL-LIABILITY-AND-EQUITY> 0
20,939
<INVESTMENT-INCOME> 2,737
<INVESTMENT-GAINS> 2,264
<OTHER-INCOME> 3,480
<BENEFITS> 28,690
<UNDERWRITING-AMORTIZATION> 5,555
<UNDERWRITING-OTHER> 10,111
<INCOME-PRETAX> (14,936)
<INCOME-TAX> 4,462
<INCOME-CONTINUING> 9,614
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,639
<EPS-BASIC> 2.08
<EPS-DILUTED> 2.08
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
