<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the period ended March 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-8993
FUND AMERICAN ENTERPRISES HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 94-2708455
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
80 SOUTH MAIN STREET, HANOVER, NEW HAMPSHIRE 03755-2053
(Address of principal executive offices including zip code)
(603) 643-1567
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
As of May 7, 1999, 5,645,532 shares of Common Stock with a par value of $1.00
per share were outstanding.
<PAGE>
FUND AMERICAN ENTERPRISES HOLDINGS, INC.
TABLE OF CONTENTS
<TABLE>
<S> <C>
PART I. FINANCIAL INFORMATIONPAGE NO.
ITEM 1 FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets,
March 31, 1999 (Unaudited) and December 31, 1998 3
Condensed Consolidated Statements of Income and Comprehensive Income
(Unaudited), Three Months Ended March 31, 1999 and 1998 4
Condensed Consolidated Statements of Cash Flows (Unaudited),
Three Months Ended March 31, 1999 and 1998 5
Notes to Condensed Consolidated Financial
Statements (Unaudited) 6-12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 13-22
PART II. OTHER INFORMATION
ITEMS 1 THROUGH 6 23
SIGNATURES 24
</TABLE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FUND AMERICAN ENTERPRISES HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
MARCH 31, December 31,
1999 1998
-------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Fixed maturity investments, at fair value (cost: $892.6 and $916.1) $ 893.9 $ 929.6
Common equity securities, at fair value (cost: $181.6 and $195.4) 236.8
241.7
Other investments (cost: $68.5 and $69.1) 76.5 77.5
Short-term investments, at amortized cost (which approximated market value) 76.6 79.0
---------- -----------
Total investments 1,283.8 1,327.8
Cash 16.6 22.4
Investments in unconsolidated insurance 333.8 354.3
affiliates
Insurance and reinsurance balances receivable 127.0 124.7
Reinsurance recoverable on paid and unpaid losses 135.4 137.3
Deferred acquisition 33.8 35.4
costs
Investment income accrued 15.4 16.2
Other assets 44.1 35.2
Net assets of discontinued mortgage banking operations 109.5 110.4
---------- -----------
TOTAL ASSETS $ 2,099.4 $ 2,163.7
---------- -----------
---------- -----------
LIABILITIES
Loss and loss adjustment expense reserves $ 795.3 $ 811.7
Unearned insurance and reinsurance premiums 149.4 153.1
Short-term debt 16.5 51.5
Long-term debt 215.7 186.3
Deferred credit 35.3 37.1
Accounts payable and other liabilities 216.0 221.5
---------- -----------
Total liabilities 1,428.2 1,461.2
SHAREHOLDERS' EQUITY
Common stock at $1 par value per share - authorized 125,000,000 shares;
issued 30,662,802 and 30,863,547 shares 30.7 30.9
Common paid-in capital 354.0 354.2
Retained earnings 1,052.2 1,063.2
Common stock in treasury at cost - 25,009,411 and 25,034,939 shares (869.8) (871.0)
Accumulated other comprehensive income, after tax 104.1 125.2
---------- -----------
Total shareholders' equity 671.2 702.5
---------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 2,099.4 $ 2,163.7
---------- -----------
---------- -----------
</TABLE>
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<PAGE>
FUND AMERICAN ENTERPRISES HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
UNAUDITED
(MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------
1999 1998
------------ ------------
<S> <C> <C>
REVENUES:
Earned property and casualty insurance premiums $ 93.7 $ 37.5
Net investment income 15.8 5.2
Net realized investment gains 9.0 .5
Earnings from unconsolidated insurance affiliates 4.2 7.5
Other insurance operations revenue 2.4 2.3
Amortization of deferred credit 1.8 -
------------ ------------
Total revenues 126.9 53.0
------------ ------------
EXPENSES:
Insurance losses and loss adjustment expenses 66.4 26.5
Insurance and reinsurance acquisition expenses 22.8 6.2
Compensation and benefits 12.8 13.0
Interest expense 4.2 2.6
General expenses 4.1 3.7
------------ ------------
Total expenses 110.3 52.0
------------ ------------
PRETAX EARNINGS 16.6 1.0
Income tax provision 5.8 1.4
------------ ------------
NET INCOME (LOSS) FROM CONTINUING OPERATIONS 10.8 (.4)
Net income from discontinued mortgage banking operations 3.0 9.3
------------ ------------
NET INCOME 13.8 8.9
------------ ------------
------------ ------------
Net unrealized gains (losses) for investments held during the period and other, after tax (15.3) 26.6
Recognition of net unrealized gains for investments sold during the period, after tax (5.9) (.3)
------------ ------------
COMPREHENSIVE NET INCOME (LOSS) $ (7.4) $ 35.2
------------ ------------
------------ ------------
BASIC EARNINGS PER COMMON SHARE:
Net income $ 2.36 $ 1.50
Comprehensive net income (loss) (1.26) 5.94
DILUTED EARNINGS PER COMMON SHARE:
Net income $ 2.10 $ 1.33
Comprehensive net income (loss) (1.15) 5.32
</TABLE>
See Notes to Consolidated Financial Statements
-4-
<PAGE>
FUND AMERICAN ENTERPRISES HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
(MILLIONS)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------------------
1999 1998
Plan
--------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATIONS:
Net income (loss) from continuing operations $ 10.8 $ (.4)
Charges (credits) to reconcile net income to cash flows from operations:
Undistributed earnings from unconsolidated insurance (3.8) (5.8)
affiliates
Net realized investment gains (9.0) (.5)
Amortization of deferred credit (1.8) -
(Decrease) increase in unearned insurance premiums (3.7) 2.3
Increase in insurance premiums receivable (2.3) (1.4)
Decrease (increase) in deferred acquisition costs 1.6 (.1)
(Decrease) increase in insurance loss and loss adjustment expense (16.4) 2.6
reserves
Net change in current and deferred income taxes receivable and payable 1.6 (10.6)
Net change in other assets 9.1 (2.1)
Net change in other liabilities (8.9) (.5)
Other, net 1.6 1.2
--------------- --------------
Net cash used for continuing operations (21.2) (15.3)
Net cash provided from (used for) discontinued mortgage banking operations 85.1 (67.2)
--------------- --------------
NET CASH FLOWS PROVIDED FROM (USED FOR) OPERATING ACTIVITIES 63.9 (82.5)
--------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net decrease in short-term investments 2.4 7.2
Sales of common equity securities and other investments 23.7 3.0
Sales and maturities of fixed maturity investments 37.5 23.4
Purchases of common equity securities and other investments (10.2) (.9)
Purchases of fixed maturity investments (14.4) (26.4)
Investments in unconsolidated insurance affiliates - (70.0)
Net purchases of fixed assets (.7) (.5)
--------------- --------------
Net cash provided from (used for) continuing operations 38.3 (64.2)
Net cash (used for) provided from discontinued mortgage banking operations (46.2) 18.8
--------------- --------------
NET CASH FLOWS USED FOR INVESTING ACTIVITIES (7.9) (45.4)
--------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net issuances (repayments) of short-term debt (35.0) -
Issuances of long-term debt 85.0 50.0
Repayments of long-term debt (55.6) -
Purchases of common stock retired (25.3) (15.7)
Cash dividends paid to common shareholders (2.3) (2.4)
--------------- ------------
Net cash (used for) provided from continuing operations (33.2) 31.9
Net cash (used for) provided from discontinued mortgage banking operations (28.6) 96.9
--------------- --------------
NET CASH (USED FOR) PROVIDED FROM FINANCING ACTIVITIES (61.8) 128.8
--------------- --------------
NET (DECREASE) INCREASE IN CASH DURING PERIOD (5.8) .9
CASH BALANCE AT BEGINNING OF PERIOD 22.4 7.0
--------------- --------------
CASH BALANCE AT END OF PERIOD $ 16.6 $ 7.9
--------------- --------------
--------------- --------------
SUPPLEMENTAL CASH FLOWS INFORMATION:
Interest paid $ (22.9) $ (17.9)
Net income taxes paid $ (4.2) $ (11.9)
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
-5-
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
NOTE 1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements include the
accounts of Fund American Enterprises Holdings, Inc. (the "Company") and its
subsidiaries (collectively, "Fund American"). Fund American's principal
businesses are conducted through White Mountains Holdings, Inc. and its
operating subsidiaries ("White Mountains"). White Mountains' consolidated and
unconsolidated insurance operations are conducted through its subsidiaries and
affiliates in the businesses of property and casualty insurance, reinsurance and
financial guaranty insurance. White Mountains' mortgage banking operations are
conducted through Source One Mortgage Services Corporation and its subsidiaries
("Source One"). The financial statements have been prepared in accordance with
generally accepted accounting principles and include all adjustments (consisting
of normal recurring adjustments) considered necessary by management to fairly
present the financial position, results of operations and cash flows of Fund
American. These interim financial statements may not be indicative of financial
results for the full year and should be read in conjunction with the Company's
1998 Annual Report on Form 10-K. Certain amounts in the prior period financial
statements have been reclassified to conform with the current presentation,
including the segregation of mortgage banking net assets and mortgage banking
net income as discontinued operations which relates to a decision made by the
Company during the 1999 first quarter to exit from the mortgage banking
business. See Note 2.
On August 18, 1998, Fund American acquired all of the remaining outstanding
shares of the common stock of Folksamerica Holding Company, Inc.
("Folksamerica"), parent company of Folksamerica Reinsurance Company, for $169.1
million thereby causing Folksamerica to become a consolidated subsidiary of the
Company as of that date. Before the August 18th transaction, Fund American owned
a 50% non-consolidated interest in Folksamerica primarily through a preferred
stock investment with fixed price warrants to acquire common stock. As a result
of the August 18th transaction, Fund American was required to restate its
investment in Folksamerica preferred stock to its original cost. Because the
total cost of Fund American's investments in Folksamerica was less than the fair
value of Folksamerica's net identifiable assets at August 18, 1998, Fund
American recorded a $39.8 million deferred credit (negative goodwill) on August
18, 1998 that will be amortized to income over 5 years. The remaining
unamortized deferred credit balance as of March 31, 1999 and December 31, 1998
was $35.3 million and $37.1 million, respectively.
Condensed pro forma financial information for the three months ended March 31,
1998, which assumes that Fund American's acquisition of all the outstanding
common stock of Folksamerica had occurred as of January 1, 1998, follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Millions, except per share amounts Pro Forma
Three Months Ended
March 31, 1998
- --------------------------------------------------------------------------------------------
<S> <C>
Total revenues $ 133.7
Net income from continuing operations $ 8.1
Net income $ 17.4
Comprehensive net income $ 50.3
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
BASIC EARNINGS PER COMMON SHARE:
Net income $ 2.93
Comprehensive net income $ 8.48
DILUTED EARNINGS PER COMMON SHARE:
Net income $ 2.62
Comprehensive net income $ 7.61
- --------------------------------------------------------------------------------------------
</TABLE>
The pro forma information presented does not purport to represent what Fund
American's results of operations actually would have been had Fund American
acquired all the outstanding common stock of Folksamerica as of January 1, 1998,
or to project Fund American's results of operations for any future date or
period.
NOTE 2. DISCONTINUED MORTGAGE BANKING OPERATIONS
On March 23, 1999, Source One entered into a definitive agreement to sell a
substantial amount of its mortgage banking related assets and certain mortgage
banking liabilities to Citicorp Mortgage, Inc. ("Citicorp") which represented a
decision by the Company to exit from the mortgage banking business, thus, the
mortgage banking operations of Source One are shown as discontinued operations
herein. Summary condensed financial results of discontinued mortgage banking
operations follow:
CONDENSED STATEMENTS OF NET ASSETS OF DISCONTINUED MORTGAGE BANKING OPERATIONS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
MARCH 31, December 31,
Millions 1999 1998
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Capitalized mortgage servicing rights $ 209.7 $ 169.7
Mortgage loans held for sale 573.2 676.3
Other mortgage origination and servicing assets 237.0 271.9
Other assets 150.5 109.5
--------------------------------
Total assets of discontinued mortgage banking assets $ 1,170.4 $ 1,227.4
--------------------------------
LIABILITIES AND MINORITY INTEREST:
Short-term debt $ 677.7 $ 697.0
Long-term debt 165.7 173.4
Accounts payable and other liabilities 173.5 202.6
Minority interest - preferred stock 44.0 44.0
--------------------------------
Total liabilities and minority interest $ 1,060.9 $ 1,117.0
--------------------------------
Net assets of discontinued mortgage banking operations $ 109.5 $ 110.4
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE>
CONDENSED STATEMENTS OF INCOME FROM DISCONTINUED MORTGAGE BANKING OPERATIONS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Three Months ended March 31,
------------------------------
Millions 1999 1998
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
REVENUES:
Net investment income $21.6 $ 16.8
Net gain on sales of mortgages 20.3 16.7
Net mortgage servicing revenue 8.2 9.5
Other mortgage operations revenue 9.0 16.2
------------------------------
Total revenues 59.1 59.2
------------------------------
EXPENSES:
Compensation and benefits 21.0 16.9
Interest expense 19.1 15.3
General expenses 12.9 11.0
------------------------------
Total expenses 53.0 43.2
------------------------------
Pretax earnings 6.1 16.0
Income tax provision 2.2 5.8
------------------------------
Net income before minority interest 3.9 10.2
Minority interest - preferred stock dividends (.9) (.9)
------------------------------
Net income for discontinued mortgage banking operations $ 3.0 $ 9.3
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE 3. REINSURANCE AND INSURANCE LOSS AND LOSS ADJUSTMENT EXPENSE RESERVES
The following table summarizes Fund American's reinsurance loss and loss
adjustment expense reserve activities for the three months ended March 31, 1999:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Millions Three Months
Ended
March 31, 1999
- ----------------------------------------------------------------------------------------------------------------
<S> <C>
Gross beginning balance $ 723.2
Less beginning reinsurance recoverable (129.0)
--------------
Net loss and loss adjustment expenses 594.2 Losses and loss adjustment expenses
incurred relating to:
Current period losses 35.6
Prior period losses 2.6
Loss and loss adjustment expenses paid relating to:
Current period losses (1.6)
Prior period losses (46.8)
--------------
</TABLE>
-8-
<PAGE>
<TABLE>
<S> <C>
Net ending balance 584.0
Plus ending reinsurance recoverable 122.5
--------------
Gross ending balance $ 706.5
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
Incurred losses totalling $2.6 million related to prior accident years are
primarily attributable to reserve additions relating to asbestos, environmental
liability and breast implant exposures. The following table summarizes Fund
American's insurance loss and loss adjustment expense reserve activities for the
three months ended March 31, 1999 and 1998:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Millions Three Months Ended March 31,
-------------------------------
1999 1998
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Gross beginning balance $ 88.5 $ 71.9
Less beginning reinsurance recoverable (8.9) (8.7)
-------------------------------
Net loss and loss adjustment expenses 79.6 63.2
Losses and loss adjustment expenses (benefits) incurred relating to:
Current period losses 26.8 27.1
Prior period losses 1.4 (.6)
Loss and loss adjustment expenses paid relating to:
Current period losses (9.4) (8.1)
Prior period losses (18.6) (14.8)
-------------------------------
Net ending balance 79.8 66.8
Plus ending reinsurance recoverable 9.0 7.7
-------------------------------
Gross ending balance $ 88.8 $ 74.5
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
First quarter 1999 incurred losses totalling $1.4 million related to prior
accident years are primarily attributable to reserve additions relating to
commercial liability lines (automobile and general) in Oregon and Washington.
NOTE 4. ACCOUNTING STANDARDS RECENTLY ADOPTED AND ISSUED
In June 1997 the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosures about
Segments of an Enterprises and Related Information" which establishes new
standards for reporting information about operating segments. The required
information under SFAS No. 131 is contained in Note 6.
In March 1998, the American Institute of Certified Public Accountants (the
"AICPA") issued Statement of Position ("SOP") 98-1 entitled "Accounting For the
Cost of Computer Software Developed or Obtained for Internal Use" which requires
the capitalization of certain prospective costs in connection with developing or
obtaining software for current use. The adoption of SOP 98-1, which occurred as
of January 1, 1999, did not have a material impact on Fund American's financial
position or results of operations.
In June 1998 the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" which requires companies to record all
derivatives on the balance sheet as either assets or liabilities and measure
those instruments at fair value. The manner in which companies are to record
gains and losses resulting from changes in the values of those derivatives
depends on the use of the derivative and whether it qualifies for hedge
accounting. SFAS No. 133 is effective beginning in 2000 with earlier adoption
permitted. The adoption of SFAS No. 133, is not expected to have a material
effect on Fund American's financial position or results of operations.
-9-
<PAGE>
In October 1998, the AICPA issued SOP 98-7 entitled "Deposit Accounting:
Accounting for Insurance and Reinsurance Contracts That Do Not Transfer Risk".
SOP 98-7 provides guidance on how to account for all insurance and reinsurance
contracts that do not transfer insurance risk, except for long-duration life and
health insurance contracts. SOP 98-7 is effective for periods beginning January
1, 2000, with early adoption permitted. Fund American is currently evaluating
the impact of the adoption of SOP 98-7 and the potential effects on its
financial position and results of operations.
-10-
<PAGE>
NOTE 5. EARNINGS PER SHARE
The following table outlines the Company's computation of earnings per share for
the three months ended March 31, 1999 and 1998:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Three Months
Ended March 31,
-------------------
1999 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
BASIC EARNINGS PER COMMON SHARE NUMERATORS (IN MILLIONS):
Net income $ 13.8 $ 8.9
-------------------
Comprehensive net income (loss) $ (7.4) $ 35.2
- -------------------------------------------------------------------------------------------------------------------
DILUTED EARNINGS PER COMMON SHARE NUMERATORS (IN MILLIONS):
Net income $ 13.8 $ 8.9
Dilution to earnings from unconsolidated insurance affiliates (.1) (.1)
-------------------
Diluted net income $ 13.7 $ 8.8
-------------------
Diluted comprehensive net income (loss) $ (7.5) $ 35.1
- -------------------------------------------------------------------------------------------------------------------
EARNINGS PER COMMON SHARE DENOMINATORS (IN THOUSANDS):
Basic earnings per share numerator (average common shares outstanding) 5,831 5,935
Dilutive stock options and warrants to acquire common stock (a) 670 670
-------------------
Diluted earnings per share denominator 6,501 6,605
- -------------------------------------------------------------------------------------------------------------------
BASIC EARNINGS PER COMMON SHARE (IN DOLLARS):
Net income $ 2.36 $ 1.50
-------------------
-------------------
Comprehensive net income (loss) $(1.26) $ 5.94
- -------------------------------------------------------------------------------------------------------------------
DILUTED EARNINGS PER COMMON SHARE & ASSUMED CONVERSIONS (IN DOLLARS):
Net income $ 2.10 $ 1.33
-------------------
-------------------
Comprehensive net income (loss) $(1.15) $ 5.32
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Includes the net dilutive effects for each period presented of warrants to
acquire 1,000,000 Shares at $21.66 per Share and stock options to acquire
2,000 Shares at $24.82 per Share.
Basic earnings per share amounts are based on the weighted average number of the
Company's common stock ("Shares") outstanding. Diluted earnings per share
amounts are based on the weighted average number of Shares and the net effect of
potential dilutive Shares outstanding. Potential dilutive Shares include stock
options and warrants.
-11-
<PAGE>
NOTE 6. SEGMENT INFORMATION
Fund American has determined that its reportable segments include Reinsurance,
Property and Casualty Insurance, Investments in Unconsolidated Insurance
Affiliates (which includes Fund American's investment in MediaOne preferred
stock) and Holding Company (primarily the operations of the Company and White
Mountains on a stand-alone basis). Investment results are included within the
segment to which the investments relate. The Company has made this determination
based on consideration of the following criteria: (i) the nature of the business
activities of each of the Company's subsidiaries and affiliates; (ii) the manner
in which the Company's subsidiaries and affiliates are organized; (iii) the
existence of primary managers responsible for specific subsidiaries and
affiliates; and (iv) the organization of information provided to the Board.
There are no significant intercompany transactions among Fund American's
segments other than occasional intercompany sales and transfers of investment
securities (gains and losses resulting from such transfers have been eliminated
herein) . Certain amounts in the prior periods have been reclassified to conform
with the current presentation which involved the segregation of the mortgage
banking net assets, revenues and pretax earnings as discontinued operations. See
Note 1.
Financial information presented by segment is shown below:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Property Investments
and in Holding
Millions Reinsurance Casualty Unconsolidated Company Total
Insurance Affiliates
- --------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED MARCH 31, 1999
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues for external customers $53.6 $42.3 $-- $ -- $ 95.9
Net investment income 11.5 1.9 .9 1.5 15.8
Equity in earnings of unconsolidated affiliates -- -- 4.2 -- 4.2
Amortization of deferred credit 1.8 -- -- -- 1.8
Realized gains .3 .8 -- 7.9 9.0
Other -- -- -- .2 .2
--------------------------------------------------------------
Total revenues $67.2 $45.0 $5.1 $9.6 $126.9
--------------------------------------------------------------
--------------------------------------------------------------
Pretax earnings $7.7 $ .6 $5.1 $3.2 $16.6
--------------------------------------------------------------
--------------------------------------------------------------
Net income from continuing operations $5.9 $ .5 $3.7 $.7 $10.8
- --------------------------------------------------------------------------------------------------------------------
Three Months Ended March 31, 1998
- --------------------------------------------------------------------------------------------------------------------
Revenues for external customers $-- $39.8 $ -- $ -- $39.8
Net investment income -- 2.5 1.0 1.7 5.2
Equity in earnings of unconsolidated affiliates -- -- 7.5 -- 7.5
Realized gains (losses) -- .7 -- (.2) .5
Other -- -- -- -- --
--------------------------------------------------------------
Total revenues $-- $43.0 $8.5 $ 1.5 $53.0
--------------------------------------------------------------
--------------------------------------------------------------
Pretax earnings $-- $1.7 $8.5 $(9.2) $1.0
--------------------------------------------------------------
--------------------------------------------------------------
Net income (loss) from continuing operations $-- $1.1 $6.2 $(7.7) $(.4)
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Millions Property Investments Net Assets of
and in Discontinued Holding
Ending assets Reinsurance Casualty Unconsolidated Operation Company Total
Insurance Affiliates
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
MARCH 31, 1999 $1,199.2 $306.2 $382.7 $109.5 $101.8 $2,099.4
December 31, 1998 1,220.5 311.5 404.1 110.4 117.2 2,163.7
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
-12-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 1999 AND 1998
Fund American reported a comprehensive net loss of $7.4 million or $1.15 per
diluted common share for the quarter ended March 31, 1999, compared to
comprehensive net income of $35.2 million or $5.32 per diluted common share for
the comparable 1998 period. Net income, which does not include comprehensive
income items (primarily changes in unrealized investment gains and losses), was
$13.8 million or $2.10 per diluted common share for the quarter ended March 31,
1999, compared to $8.9 million or $1.33 per dilutive common share for the
comparable 1998 period.
Fund American reported net income from continuing operations of $10.8 million
for the quarter ended March 31, 1999, compared to a net loss from continuing
operations of $.4 million for the 1998 comparable period. The net loss reported
for the 1998 first quarter resulted primarily from storm losses experienced at
the Company's consolidated and unconsolidated property and casualty insurance
operations and a lower level of realized investment gains versus the current
period.
Fund American ended the first quarter of 1999 with a book value per share of
$107.50 ($112.80 including $5.30 per share of after tax unamortized deferred
credit) versus a 1998 ending book value per share of $109.68 ($115.11 including
$5.43 per share of after tax unamortized deferred credit).
The Company's decrease in book value and comprehensive net loss experienced
during the first quarter of 1999 is primarily the result of a 9% decrease in the
market value of Financial Security Assurance Holdings Ltd. ("FSA") during the
period. Fund American's sizable investments in options and convertible
securities to acquire FSA common shares are currently accounted for at fair
value which can result in significant fluctuations in the Company's carrying
value for such securities from period to period.
INSURANCE AND REINSURANCE OPERATIONS
Fund American's consolidated insurance and reinsurance operations consist of
Folksamerica, Valley Insurance Companies ("Valley"), a Northwest regional
property and casualty insurer which writes personal and commercial coverages,
Charter Insurance Companies ("Charter"), which writes non-standard automobile
insurance primarily in the states of Texas and Oklahoma, and White Mountains
Insurance Company ("WMIC"), which writes commercial lines in New York, Texas and
New England. Fund American's unconsolidated insurance affiliates consist of a
25% economic interest in FSA, which writes municipal and commercial bond credit
enhancement insurance and a 50% interest in Main Street America Holdings, Inc.
("MSA"), an affiliate of National Grange Mutual Insurance Company ("NGM") which
shares 60% of NGM's pool of east coast "main street" commercial and personal
lines business.
CONSOLIDATED REINSURANCE OPERATIONS. Folksamerica's reinsurance operations
provided $5.9 million to net income for the 1999 first quarter versus net income
of $1.8 million for the 1998 comparable during which Folksamerica was an
unconsolidated affiliate. For the 1999 first quarter Folksamerica's combined
ratio was 105.8% versus a combined ratio of 104.0% for the comparable 1998
period. A summary of White Mountains' consolidated insurance and reinsurance
operating results follows:
-13-
<PAGE>
<TABLE>
- --------------------------------------------------------------------------------------------------------------------
Three Months
Ended March 31,
-----------------------
Dollars in millions 1999 1998
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
FOLKSAMERICA:
Net written premiums $ 49.9 $ 58.5
Earned premiums $ 53.7 $ 66.5
Loss and loss adjustment expense 71.5% 70.7%
Underwriting expense 34.3% 33.3%
-----------------------
Combined ratio 105.8% 104.0%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
Folksamerica's 1999 combined ratio reflects a higher than anticipated expense
ratio due to lower premium volumes resulting from lower than expected production
on a number of domestic treaties, the effects of non-renewals in its property
portfolio and slower than anticipated growth in its Latin America business.
Folksamerica's first quarter 1999 loss and loss adjustment expense ratio
includes approximately $1.0 million of incurred losses associated with the
Columbian earthquake.
Folksamerica's 1999 first quarter written premiums totalled $49.9 million versus
$58.5 million during 1998. Management believes that Folksamerica's premiums are
not far below expectation given the fiercely competitive market conditions that
exist in today's reinsurance market. Folksamerica's strategy in such an
environment is to grow its business through well executed acquisitions rather
than chasing market share at unattractive prices. Consistent with this strategy,
Folksamerica expects to acquire USF Re Insurance Co. ("USF Re") from The Centris
Group Inc. ("Centris") during the 1999 second quarter. See "Liquidity and
Capital Resources".
CONSOLIDATED INSURANCE OPERATIONS. Valley, Charter, and WMIC contributed $.5
million of net income with an overall combined ratio of 102.0% for the 1999
first quarter versus $1.1 million of net income with an overall combined ratio
of 100.8% for the comparable 1998 period. Combined first quarter written
premiums for these companies remained flat at about $40.0 million from 1998 to
1999. During the 1999 first quarter, strong operating results at Charter
essentially offset poor operating results at Valley.
On February 11, 1999, Fund American entered into a definitive agreement to sell
Valley, Charter and WMIC to Unitrin, Inc. for total proceeds of approximately
$215 million (consisting of approximately $130 million in cash upon closing and
a special dividend consisting primarily of investment securities of
approximately $85 million prior to close). The transaction is subject to various
regulatory approvals and is expected to close during the 1999 second quarter.
The Company expects to record an after tax gain of approximately $53.0 million
on the sale of these companies. The sale of Valley, Charter and WMIC does not
represent a decision by the Company to exit the property and casualty insurance
business, thus, the financial results of these companies are not shown as
discontinued operations herein.
UNCONSOLIDATED INSURANCE OPERATIONS. FSA and its related investment in MediaOne
preferred stock contributed $3.2 million to net income during the 1999 first
quarter versus $3.0 million for the comparable 1998 period. FSA produced $122.1
million of present value premiums during the 1999 period, compared with $50.7
million in the prior year, due to a dramatic increase in its international
writings. During the first quarter of 1999, FSA's adjusted book value per share
(FSA's book value plus the after tax present value of all deferred premium
income, less deferred expenses) increased from $47.44 at year-end 1998 to $48.86
per share
-14-
<PAGE>
at March 31, 1999.
-15-
<PAGE>
MSA contributed $.5 million to net income during the 1999 first quarter versus
$1.4 million for the comparable 1998 period. MSA's first quarter 1999 combined
ratio of 106.7% (versus 100.5% for the comparable 1998 period) is below
management's long-term expectation. In response to its disappointing operating
results during recent months, NGM has been implementing rate increases within
certain of its major lines of business. These rate actions are expected to have
a growing favorable impact on MSA's operations as the year progresses.
In addition to recording equity in earnings from its investments in the common
stock of unconsolidated insurance affiliates, Fund American also records net
unrealized investment gains and losses as a result of changes in the value of
its options and convertible securities to acquire the common stock of FSA and
changes in its equity in the net unrealized investment gains and losses of FSA
and MSA. See "Investment Operations".
MORTGAGE BANKING (DISCONTINUED) OPERATIONS
During the 1999 first quarter, Source One's mortgage banking operations
contributed $3.0 million to net income versus $9.3 million for the comparable
1998 period. Source One's 1998 first quarter results included $5.3 million of
after tax gains from sales of mortgage servicing rights. No significant gains
from servicing sales were realized during the comparable 1999 period.
On May 1, 1999, the Company closed its sale of mortgage banking assets to
Citicorp and received net proceeds of $117.8 million (which is net of Source
One's public indebtedness assumed by Citicorp and Source One's credit agreement
borrowings which were required to be repaid at closing). The net proceeds
received were based on estimated mortgage asset values which is likely to result
in the Company receiving a future payment from Citicorp upon actual
determination of such values. Fund American has retained the Source One legal
entity (to be renamed "White Mountains Services Corporation") which will
continue to own all of Fund American's investments in FSA.
Significant mortgage banking assets and liabilities that were not part of the
Citicorp sale principally include Source One's investments in financial
instruments (which were liquidated during the 1999 first quarter), pool loan
purchases (which are expected to be substantially liquidated during the 1999
second quarter), $44.0 million of preferred stock outstanding (which will be
redeemed on June 3, 1999) and certain other long-term liabilities. Fund American
expects to record an after tax gain of approximately $15.0 million (which is net
of estimated future liabilities) during the 1999 second quarter pursuant to the
disposal of all its mortgage banking net assets, however, the actual amount of
such gain could be significantly more or less than $15.0 million due to the use
of estimated values at the Citicorp closing and the use of estimated values in
determining Source One's remaining long-term liabilities.
INVESTMENT OPERATIONS
Net investment income from continuing operations totalled $15.8 million for the
three months ended March 31, 1999 compared to $5.2 million for the comparable
1998 period. Fund American's investment income is comprised primarily of
interest income associated with the fixed maturity investments of its
consolidated insurance and reinsurance operations and dividend income from its
equity investments. The significant increase in net investment income during the
1999 first quarter is primarily the result of the addition of Folksamerica's
sizable fixed income portfolio to the Company's consolidated results for 1999.
-16-
<PAGE>
Total net investment gains and losses arising during the periods, before tax,
were as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Three Months
Ended March 31,
-----------------------
Millions 1999 1998
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net realized investment gains $ 9.0 $ .5
Net unrealized gains (losses) from investment securities (8.0) 10.9
Net unrealized gains (losses) from investments in unconsolidated (24.3) 29.7
insurance affiliates
-----------------------
Total net investment gains (losses) for investments held during the period $ (23.3) $ 41.1
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
The components of Fund American's change in net unrealized investment gains,
after tax, as recorded on the income statement are as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Three Months
Ended March 31,
-----------------------
Millions 1999 1998
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net realized investment gains $ 9.0 $ .5
Income tax expense applicable to such gains (3.1) (.2)
-----------------------
Net realized investment gains, after tax $ 5.9 $ .3
-----------------------
Net investment gains (losses) for investments held during the period $ (23.3) $ 41.1
Income tax benefit (expense) applicable to such gains and losses 8.1 (14.5)
-----------------------
Net investment gains (losses) for investments held during the period, (15.2) 26.6
after tax
Unrealized gains reclassed for investments sold during the period, (5.9) (.3)
after tax
-----------------------
Change in net unrealized investment gains, after tax $ (21.1) $ 26.3
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
Net realized investment gains of $9.0 million for the 1999 first quarter
resulted principally from sales of 300,000 shares of the common stock of
Travelers Property Casualty Corp. for net proceeds of $9.6 million and 1,350,000
units of the San Juan Basin Royalty Trust for net proceeds of $8.1 million. No
significant sales of investment securities occurred during the 1998 first
quarter.
Fund American records net unrealized investment gains and losses as a result of
changes in the value of its available for sale investment portfolio holdings,
changes in the value of its options and convertible securities to acquire the
common stock of FSA and changes in its equity in the net unrealized investment
gains and losses of its unconsolidated insurance affiliates. The $15.2 million
decrease in after tax net unrealized investment gains for investments held
during the 1999 first quarter primarily reflects a decrease in the value of its
FSA options and convertible securities arising during the period. Net unrealized
losses in the fixed maturity portfolios at the consolidated insurance and
reinsurance operations arising during the quarter (due to an increase in market
interest rates) were substantially offset by net unrealized gains in their
common stock portfolios. The $26.6 million increase in after tax net unrealized
investment gains for investments held during the 1998 first quarter primarily
reflects an increase in the value of its FSA options and convertible securities
during that period as well as an increase in the value of Fund American's
investment in the common stock of White River Corporation.
-17-
<PAGE>
EXPENSES
Insurance losses and loss adjustment expenses totalled $66.4 million for the
1999 first quarter versus $26.5 million for the comparable 1998 period.
Insurance and reinsurance acquisition expenses totalled $22.8 million for the
1999 first quarter versus $6.2 million for the comparable 1998 period. The
increases in these insurance expenses during the 1999 period are primarily
attributable to the inclusion of Folksamerica in the Company's consolidated
results for 1999.
Compensation and benefits expenses totalled $12.8 million for the 1999 first
quarter versus $13.0 million for the 1998 first quarter. Compensation and
benefits expenses include stock-based compensation accruals that vary with
changes in the market value of the Company's common stock. For the 1999 first
quarter, the Company recorded stock-based compensation accruals in response to a
5.0% decrease in the market value of the Company's common stock in addition to
the inclusion of Folksamerica's compensation and benefits expenses. For the 1998
first quarter, the Company recorded stock-based compensation accruals in
response to an 11.8% increase in the market value of the Company's common stock.
Increases in interest expense and general expenses from the 1998 first quarter
to the 1999 first quarter relate primarily to the inclusion of Folksamerica in
the Company's consolidated results for 1999.
LIQUIDITY AND CAPITAL RESOURCES
As part of the Folksamerica acquisition, Fund American agreed to repay or
refinance Folksamerica's $55.6 million of outstanding long-term indebtedness
during February 1999. On February 24, 1999, the Company repaid and replaced the
Folksamerica debt and its $50.0 million five-year credit facility at White
Mountains Holdings, Inc. with $85.0 million of borrowings under a new $100.0
million facility at Folksamerica. The new credit agreement contains customary
covenants and conditions.
During the 1999 first quarter the Company repurchased and retired 200,745 shares
of its common stock in a series of public and private transactions for a total
of $25.0 million. Also during the 1999 first quarter the Company issued from its
treasury a total of 25,528 common shares to its key employees in satisfaction of
certain stock-based employee benefit plan obligations.
On May 3, 1999 Source One called all of its Series A Preferred Stock outstanding
(the "Preferred Stock") for redemption which will occur on June 3, 1999. The
redemption will result in Source One making total cash payments to all holders
of the Preferred Stock of $44.0 million plus accrued dividends.
On March 31, 1999, Folksamerica entered into a definitive contract to acquire
USF Re from Centris for total consideration of $92.5 million. The purchase
consideration includes a the issuance of a $20.8 million, five-year note by
Folksamerica (which may be reduced by certain adverse loss developments at USF
Re post acquisition) with the balance to be paid in cash. Folksamerica's
acquisition of USF Re is subject to Federal and state regulatory approvals and
is expected to close during the second quarter of 1999.
-18-
<PAGE>
OTHER MATTERS
ACCOUNTING FOR FSA OPTIONS AND CONVERTIBLE PREFERRED STOCK. Fund American
currently owns 3,460,200 shares of the common stock of FSA ("FSA Shares") and
various fixed price options and shares of convertible preferred stock of FSA
(the "FSA Options and FSA Preferred Stock") which, in total, give Fund American
the right to acquire up to 4,560,607 additional FSA Shares. Fund American's
investment in FSA Shares is accounted for using the equity method of accounting
pursuant to which the investment is reported at FSA's book value ($36.25 per FSA
Share at March 31, 1999). Fund American's investments in FSA Options and FSA
Preferred Stock are currently accounted for under the provisions of SFAS No. 115
pursuant to which the investments are reported at fair value ($48.14 per
underlying FSA Share at March 31, 1999).
Fund American currently expects to exercise the FSA Options during 1999 and
convert the FSA Preferred Stock during 2004. Assuming that equity accounting
continues to be the proper accounting method for valuing Fund American's
investment in FSA Shares, upon exercise of the FSA Options and conversion of the
FSA Preferred Stock, Fund American expects that it would be required to restate
its historic balance sheets to account for its investments in FSA Options and
FSA Preferred Stock from fair value to their original cost. Upon exercise, Fund
American's original cost basis in the FSA Shares acquired will be increased by
the exercise price paid. Because the new cost basis of Fund American's
investment in FSA Shares is expected to be considerably less than its portion of
the fair value of FSA's net identifiable assets (which is expected to
approximate FSA's book value) at the date of exercise, Fund American would be
required to record a deferred credit that would be amortized to income over an
anticipated five year period. Assuming the FSA Options were exercised and the
FSA Preferred Stock converted as of March 31, 1999, Fund American would be
required to reduce its book value by $59.6 million ($8.95 per share) and would
record a deferred credit of $37.5 million ($3.63 per share). This net difference
in carrying value of $22.1 million (which represents the effective write-down of
the FSA Options and FSA Preferred Stock from fair value to FSA's book value)
would continue to exist until such time as equity accounting is no longer
appropriate for Fund American's investment in FSA Shares.
This analysis is based solely on Fund American's current circumstances
concerning its investments in FSA Options and FSA Preferred Stock. Fund
American's actual accounting valuation will be determined at the date of
exercise for the FSA Options and upon the date of conversion of the FSA
Preferred Stock and will be based on the circumstances concerning such
investments existing at that time.
YEAR 2000
STATUS. Since 1996 Fund American has been identifying, modifying and testing its
internal systems and controls to ensure that these systems can accurately
process transactions involving the Year 2000 and beyond with no material adverse
effects to its customers or disruption to its business operations. As of
December 31, 1998, the Company had substantially completed its testing phase
(the final phase of its Year 2000 remediation plan). Fund American estimates
that its total pretax cost of Year 2000 remediation, excluding its
unconsolidated insurance affiliates, is approximately $3.0 million of which the
majority of this amount has been expensed as of March 31, 1999. This estimate
does not include the cost of hardware and software replacements and upgrades
made in the normal course of business and represents less than 20% of Fund
American's total Information Technology budget.
Fund American has also been closely monitoring the year 2000 issues of its third
party
-19-
<PAGE>
constituents that it voluntarily interacts with (e.g. customers, suppliers,
reinsurers, creditors, borrowers...). Fund American's third party constituents
have been requested to provide Fund American with information concerning their
Year 2000 remediation plans and the status of such plans. For those constituents
who either fail to respond to this inquiry or are deemed to be unlikely to
remedy their own Year 2000 issues in a timely manner, Fund American is in the
process of either replacing that constituent or establishing similar
relationships with new parties that appear to be Year 2000 compliant.
As of December 31, 1998, FSA and MSA had also substantially completed the
testing phase of their Year remediation plans and are in the process of
determining their third party exposures in a similar manner to that of Fund
American. Fund American's nominees to the Boards of Directors of FSA and MSA
have received detailed briefings concerning their respective Year 2000 plans and
have determined that these plans appear to be on schedule for a timely
completion and should reduce the risk of Year 2000 issues. Fund American's
portion of the total estimated costs of the Year 2000 issue for its
unconsolidated insurance affiliates are not material and the majority of such
expenses have already been incurred.
RISKS. The failure to identify or correct significant Year 2000 issues could
result in an interruption in, or a failure of, certain normal business
activities or operations concerning the Company, its consolidated insurance and
mortgage banking subsidiaries and its unconsolidated insurance affiliates. Such
failures could adversely affect Fund American's results of operations, liquidity
and financial condition. Due to the general uncertainty inherent in the Year
2000 problem, resulting in part from the uncertainty of potential business
interruptions caused by third party constituents in which Fund American must
interact (including but not limited to suppliers of electrical power, various
private and public markets for equity and debt securities, certain agencies of
the Federal government and the states in which Fund American conducts business),
Fund American is unable to determine at this time whether the consequences of
any Year 2000 failures will have a material impact on its results of operation,
liquidity or financial condition. However, Fund American currently believes
that, with the implementation of its Year 2000 plan (which is in the final
stages of completion), the possibility of significant interruptions of normal
business activities due to the Year 2000 issue should be reduced.
Folksamerica's approach towards underwriting against potential Year 2000
exposures is to seek coverages which contain Year 2000 event exclusions. In
instances where exclusions are not provided, Folksamerica attempts to determine
whether the risk is acceptable based on a variety of factors (a description of
such factors is not provided herein as each situation is unique). Folksamerica
has estimated that less than 9% of its property reinsurance coverage in force
could be subject to Year 2000 exposures. However, these risks generally lie with
large corporations who have been aware of the issue for some time and have
invested significant time and resources towards Year 2000 remediation.
Additionally, Folksamerica does not anticipate significant Year 2000 exposures
from its casualty reinsurance coverage in force due to the nature of such
exposures. Further, Folksamerica generally writes such exposures on an excess of
loss basis which provides Folksamerica with additional protections against
potential losses of this nature.
The Company is currently in the process of developing a Year 2000 contingency
plan (the "Y2K Plan") which is designed to mitigate, to the extent possible, any
adverse affects the Company may suffer due to any potential business
interruptions caused by third party constituents in which Fund American must
interact (as further explained above). It is expected that the Y2K Plan will be
finalized during the third quarter of 1999.
-20-
<PAGE>
NAME CHANGE
In connection with a proposal to be presented to shareholders at the Company's
Annual Meeting of Shareholders to be held on May 27, 1999, management proposes
to change the name of the Company to "White Mountains Insurance Group, Inc.".
The new name is believed to better describe the Company's business focus and
locale as well as the probable nature of any future acquisitions. If the name
change is approved at the annual meeting, the Company intends to execute the
name change on or about June 1, 1999 and expects to change its NYSE ticker
symbol to "WTM".
-21-
<PAGE>
FORWARD LOOKING STATEMENTS
From time to time, the Company may publish forward-looking statements relating
to such matters as anticipated financial performance, business prospects, new
products and similar matters. This information is often subject to various risks
and uncertainties. The Private Securities Litigation Reform Act of 1995 provides
a safe harbor for forward-looking statements. In order to comply with the terms
of the safe harbor, the Company notes that numerous factors could cause actual
results and experience to differ materially from anticipated results or other
expectations expressed in its forward-looking statements. The risks and
uncertainties that may affect the operations, performance, development and
results of the Company's business are further described in the Company's 1998
Annual Report on Form 10-K (such as those involving competition, regulation and
certain business conditions).
-22-
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE BY SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
11 - Statement Re Computation of Per Share Earnings*
27 - Financial Data Schedule for the three-month period ended
March 31, 1999**
(b) Reports on Form 8-K
During the 1999 first quarter the Company filed a Current
Report on Form 8-K dated March 10, 1999 which reported a
change in the Company's independent auditors from KPMG LLP to
PricewaterhouseCoopers LLP. This change is subject to
ratification by the Company's shareholders pursuant to a
proposal to be acted upon at the Company's 1999 Annual Meeting
of shareholders.
* Not included herein as the information is contained elsewhere within
report. See Note 5 of the Notes to Condensed Consolidated Financial
Statements.
** Filed herewith.
-23-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FUND AMERICAN ENTERPRISES HOLDINGS, INC.
(Registrant)
Date: May 12, 1999 By: /s/ Michael S.Paquette
- ------------------ -----------------------------------------
Senior Vice President and Controller
-24-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<DEBT-HELD-FOR-SALE> 0
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 894
<EQUITIES> 313
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 1,284
<CASH> 17
<RECOVER-REINSURE> 135
<DEFERRED-ACQUISITION> 34
<TOTAL-ASSETS> 2,099
<POLICY-LOSSES> 795
<UNEARNED-PREMIUMS> 149
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 232
0
0
<COMMON> 385
<OTHER-SE> 286
<TOTAL-LIABILITY-AND-EQUITY> 2,099
94
<INVESTMENT-INCOME> 16
<INVESTMENT-GAINS> 9
<OTHER-INCOME> 8
<BENEFITS> 66
<UNDERWRITING-AMORTIZATION> 23
<UNDERWRITING-OTHER> 0
<INCOME-PRETAX> 17
<INCOME-TAX> 6
<INCOME-CONTINUING> 11
<DISCONTINUED> 3
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14
<EPS-PRIMARY> 2.36
<EPS-DILUTED> 2.10
<RESERVE-OPEN> 812
<PROVISION-CURRENT> 62
<PROVISION-PRIOR> 4
<PAYMENTS-CURRENT> (11)
<PAYMENTS-PRIOR> (72)
<RESERVE-CLOSE> 795
<CUMULATIVE-DEFICIENCY> (17)
</TABLE>
