<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
( X ) QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the period ended September 30, 1994
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 no. 0-15176
SCOR U.S. CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 75-1791342
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
110 William Street, Suite 1800
New York, New York 10038-3995
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 978-8200
Indicate by check mark whether the registrant (1) has filed all reports 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[ ]
At November 11, 1994, there were 18,196,512 shares of Common Stock, $.30
par value, outstanding.
<PAGE>
FORM 10-Q
SCOR U.S. CORPORATION
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
Item 1.Financial Statements
Independent Auditors' Report 3
Consolidated Balance Sheets
September 30, 1994 and December 31, 1993 4-5
Consolidated Statements of Operations
Three Months and Nine Months ended September 30,
1994 and 1993 6-7
Consolidated Statements of Stockholders' Equity
Nine Months ended September 30, 1994 and 1993 8
Consolidated Statements of Cash Flows
Three Months and Nine Months Ended September 30,
1994 and 1993 9-10
Notes to Consolidated Financial Statements 11-14
Item 2.Management's Discussion and Analysis of
Financial Condition and Results of Operations 15-24
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 25
Item 6. Exhibits And Reports On Form 8-K 25
Signatures 25
<PAGE>
INDEPENDENT AUDITORS' REVIEW REPORT
The Board of Directors
SCOR U.S. Corporation:
We have reviewed the consolidated balance sheet of SCOR U.S.
Corporation and subsidiaries (the Company) as of September 30, 1994,
and the related consolidated statements of operations, stockholders'
equity and cash flows for the three month and nine month periods ended
September 30, 1994 and 1993. These consolidated financial statements
are the responsibility of the Company's management.
We conducted our review in accordance with standards established
by the American Institute of Certified Public Accountants. A review of
interim financial information consists principally of applying
analytical procedures to financial data and making inquiries of
persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance with
generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material
modifications that should be made to the consolidated financial
statements referred to above for them to be in conformity with
generally accepted accounting principles.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet of SCOR U.S.
Corporation and subsidiaries as of December 31, 1993, and the related
consolidated statements of operations, stockholders' equity and cash
flows for the year then ended (not presented herein); and in our
report dated February 1, 1994, except for Note 15, as to which the
date was February 10, 1994, we expressed an unqualified opinion on
those consolidated financial statements.
As discussed in Note 3 to the consolidated financial statements
for the three month and nine month periods ended September 30, 1994,
the Company changed its method of accounting for multiple year
retrospectively rated reinsurance contracts and for the adoption of
the provisions of the Financial Accounting Standards Board's Statement
of Financial Accounting Standards No. 113,"Accounting and Reporting
for Reinsurance of Short-Duration and Long-Duration Contracts," in
1993.
KPMG Peat Marwick LLP
(Signature)
New York, New York
October 27, 1994
3<PAGE>
<TABLE>
SCOR U.S. CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands)
<CAPTION>
September 30, December 31,
1994 1993
<S> <C> <C>
ASSETS
Investments:
Fixed maturities:
Available for sale, at fair value
(amortized cost: $596,961 and $558,882) $ 575,584 $ 581,104
Held to maturity, at amortized cost
(fair value: $23,373 and $27,109) 23,484 24,876
Equity securities, at fair value
(cost: $15,655 and $15,581) 16,465 18,951
Short-term investments, at cost 53,864 90,642
Other long-term investments 1,166 1,081
670,563 716,654
Cash 9,079 17,096
Accrued investment income 10,429 10,169
Premiums receivable 85,036 80,319
Reinsurance recoverable on paid losses:
Affiliates 15,889 9,498
Other 50,819 27,329
Reinsurance recoverable on unpaid losses:
Affiliates 119,340 134,154
Other 97,676 87,689
Prepaid reinsurance premiums:
Affiliates 10,794 14,578
Other 10,849 11,839
Deferred policy acquisition costs 25,645 24,140
Deferred Federal income tax benefits 40,172 11,894
Investment in affiliates 11,260 10,789
Other assets 44,415 37,963
$ 1,201,966 $ 1,194,111
See notes to consolidated financial statements.
</TABLE>
4<PAGE>
<TABLE>
SCOR U.S. CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands)
<CAPTION>
September 30, December 31,
1994 1993
<S> <C> <C>
LIABILITIES
Losses and loss expenses $ 606,950 $ 562,209
Unearned premiums 121,085 114,376
Funds held under reinsurance treaties:
Affiliates 3,671 21,777
Other 19,212 17,825
Reinsurance balances payable:
Affiliates 12,570 18,196
Other 61,399 42,037
Convertible subordinated debentures 86,250 86,250
Notes payable 20,000 20,000
Commercial paper 11,099 10,721
Other liabilities 14,208 10,031
956,444 903,422
STOCKHOLDERS' EQUITY
Preferred stock, no par value, 5,000
shares authorized; no shares issued -0- -0-
Common stock, $0.30 par value,
50,000 shares authorized;
18,356 and 18,299 shares issued 5,507 5,490
Additional paid-in capital 113,442 112,670
Unrealized appreciation (depreciation)
of investments (13,368) 16,634
Foreign currency translation adjustment 164 12
Retained earnings 141,261 157,532
Treasury stock, at cost
(160 and 190 shares) (1,484) (1,649)
245,522 290,689
$ 1,201,966 $ 1,194,111
See notes to consolidated financial statements.
</TABLE>
5<PAGE>
<TABLE>
SCOR U.S. CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
(in thousands, except per share data)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
REVENUES
Net premiums earned $ 55,542 $ 59,847 $ 173,210 $ 170,329
Net investment income 10,157 10,893 30,363 31,791
Net realized investment gains 323 2,068 1,059 7,425
66,022 72,808 204,632 209,545
LOSSES AND EXPENSES
Losses and loss expenses, net 39,060 40,640 152,558 112,384
Commissions, net 14,144 15,708 46,019 43,477
Other underwriting and
administration expenses 6,799 6,660 19,586 19,666
Other expenses 1,590 1,011 3,065 2,939
Interest expense 2,454 2,409 6,982 5,930
64,047 66,428 228,210 184,396
Income (loss) from operations before
Federal income taxes and cumulative
effect of accounting changes 1,975 6,380 (23,578) 25,149
Federal income taxes (benefit) (472) 572 (12,210) 4,695
Income (loss) from operations 2,447 5,808 (11,368) 20,454
Cumulative effect of accounting changes -0- -0- -0- (2,600)
Net income (loss) $ 2,447 $ 5,808 $ (11,368) $ 17,854
See notes to consolidated financial statements.
</TABLE>
6<PAGE>
<TABLE>
SCOR U.S. CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
(in thousands, except per share data)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
PER SHARE DATA
PRIMARY
Average common and common
equivalent shares outstanding 18,212 18,425 18,146 18,464
Income (loss) from operations $ 0.13 $ 0.32 $ (0.63) $ 1.11
Cumulative effect of accounting changes -0- -0- -0- (0.14)
Net income (loss) $ 0.13 $ 0.32 $ (0.63) $ 0.97
FULLY DILUTED
Average common and common
equivalent shares outstanding 18,212 21,819 18,146 20,749
Income (loss) from operations $ 0.13 $ 0.30 $ (0.63) $ 1.06
Cumulative effect of accounting changes -0- -0- -0- (0.12)
Net income (loss) $ 0.13 $ 0.30 $ (0.63) $ 0.94
See notes to consolidated financial statements.
</TABLE>
7<PAGE>
SCOR U.S. CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Nine Months Ended September 30,
(Unaudited)
(in thousands, except per share data)
1994 1993
COMMON STOCK
Balance at beginning of year $ 5,490 $ 5,453
Issuance of common stock 17 37
Balance at end of period 5,507 5,490
ADDITIONAL PAID-IN CAPITAL
Balance at beginning of year 112,670 112,068
Issuance of common stock 700 1,416
Change in unpaid stock options exercised 72 (786)
Balance at end of period 113,442 112,698
UNREALIZED APPRECIATION (DEPRECIATION)
OF INVESTMENTS
Balance at beginning of year 16,634 11,416
Change in unrealized appreciation (30,002) 11,268
Balance at end of period (13,368) 22,684
FOREIGN CURRENCY TRANSLATION ADJUSTMENT
Balance at beginning of year 12 254
Change in foreign currency
translation adjustment 152 (447)
Balance at end of period 164 (193)
RETAINED EARNINGS
Balance at beginning of year 157,532 138,002
Net income (11,368) 17,854
Dividends ($.27 and $.24 per share) (4,903) (4,348)
Balance at end of period 141,261 151,508
TREASURY STOCK
Balance at beginning of year (1,649) (1,077)
Net (purchases) reissuance of treasury stock 165 (423)
Balance at end of period (1,484) (1,500)
TOTAL STOCKHOLDERS' EQUITY AT END OF PERIOD $ 245,522 $ 290,687
Common stock shares
Balance at beginning of year 18,299 18,176
Issuance of common stock 57 123
Balance at end of period 18,356 18,299
Treasury stock shares
Balance at beginning of year 190 153
Net purchases (reissuance) of treasury stock (30) 28
Balance at end of period 160 181
See notes to consolidated financial statements.
8<PAGE>
<TABLE>
SCOR U.S. CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 2,447 $ 5,808 $(11,368) $ 17,854
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Cumulative effect of accounting changes -0- -0- -0- 2,600
Realized investment gains (323) (2,068) (1,059) (7,425)
Changes in assets and liabilities:
Accrued investment income (154) 859 (260) 579
Premium balances, net 29,185 4,164 9,019 (3,980)
Prepaid reinsurance premiums 797 3,505 4,774 (2,439)
Reinsurance recoverable on paid losses (10,820) (65) (29,881) 7,003
Deferred policy acquisition costs (36) 481 (1,505) (1,429)
Losses and loss expenses (15,879) 648 44,741 2,265
Unearned premiums (548) (4,215) 6,709 4,863
Reinsurance recoverable on unpaid losses 7,052 3,303 4,827 (11,050)
Funds held under reinsurance treaties (321) (62) (16,719) (553)
Federal income taxes (472) 570 (14,010) 9,894
Other (3,967) 3,127 (3,766) 3,839
Net cash provided by (used in) operating activities 6,961 16,055 (8,498) 22,021
See notes to consolidated financial statements.
</TABLE>
9<PAGE>
<TABLE>
SCOR U.S. CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES
Sales, maturities or redemptions
of fixed maturities 54,168 89,096 192,956 272,193
Sales of equity securities 207 1,863 4,723 6,816
Net sales (purchases) of
short-term investments 1,792 (3,426) 38,526 (46,416)
Investments in fixed maturities (66,279) (78,403) (225,947) (304,222)
Investments in equity securities (1,685) (871) (3,900) (5,239)
Other (381) (3,234) (3,361) (6,828)
Net cash provided by (used in) investing activities (12,178) 5,025 2,997 (83,696)
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid (1,638) (1,449) (4,903) (4,348)
Proceeds from issuance of convertible
subordinated debentures -0- -0- -0- 85,172
Proceeds from issuance of commercial paper-net 3 8 30 65
Repayment of notes payable -0- (8,000) -0- (8,000)
Proceeds from stock options exercised 565 (523) 610 437
Other 1,372 300 1,747 597
Net cash provided by (used in) financing activities 302 (9,664) (2,516) 73,923
Net increase (decrease) in cash (4,915) 11,416 (8,017) 12,248
Cash at beginning of period 13,994 21,210 17,096 20,378
Cash at end of period $ 9,079 $ 32,626 $ 9,079 $ 32,626
See notes to consolidated financial statements.
</TABLE>
10<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
SCOR U.S. Corporation ("SCOR U.S." or "Company") is a
holding company, the principal operating subsidiaries of which
are SCOR Reinsurance Company ("SCOR Re"), General Security
Insurance Company ("GSIC"), The Unity Fire and General Insurance
Company ("Unity Fire") and General Security Indemnity Company
("GSIND").
The Company, through its subsidiaries, provides property
and casualty insurance and reinsurance to primary insurance
companies on both a treaty and facultative basis. SCOR Re
specializes in underwriting treaties covering non-standard
automobile, commercial and technical risks and provides property,
casualty and special risk coverages on a facultative basis. SCOR
Re writes treaty business almost exclusively through reinsurance
intermediaries. SCOR Re writes facultative business directly
with primary insurance companies and through reinsurance
intermediaries. GSIC and Unity Fire provide property and
casualty insurance on both a primary and excess basis,
specializing in alternative risk market coverages. GSIND
provides commercial property and casualty coverages on a surplus
lines basis.
The unaudited interim consolidated financial statements
have been prepared on the basis of Generally Accepted Accounting
Principles ("GAAP") and in the opinion of management, reflect all
adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of results for such periods.
The results of operations for any interim period are not
necessarily indicative of results for the full year.
These consolidated financial statements should be read in
conjunction with the consolidated financial statements and
related notes in the Company's 1993 Annual Report on Form 10-K as
filed with the Securities and Exchange Commission.
2. PER SHARE DATA
Primary earnings per share are based on the weighted
average number of common shares outstanding during the period
and, if dilutive, common shares assumed to be outstanding which
are issuable under stock option plans. Fully diluted earnings
per share are based on the additional assumption that the
Debentures (as defined in Note 6) are converted into common
shares, if dilutive.
3. ACCOUNTING CHANGES
Effective as of December 31, 1993, the Company adopted
11<PAGE>
Statement of Financial Accounting Standards No. 115 "Accounting
for Certain Investments in Debt and Equity Securities" ("SFAS
115"). SFAS 115 addresses the accounting and reporting for
investments in equity securities that have readily determinable
fair values and for all investments in debt securities. Under
SFAS 115, investments are classified into three categories. Debt
securities that management has the positive intent and the
ability to hold to maturity are classified as "held to maturity"
and reported at amortized cost. Debt and equity securities that
are bought and held for the purpose of selling them in the near
term are classified as "trading securities" and reported at fair
value with unrealized gains and losses included in earnings.
Debt and equity securities not classified as either of the above
categories are classified as "available for sale securities" and
reported at fair value with unrealized gains and losses reported
as a separate component of stockholders' equity. The adoption of
SFAS 115 did not have any effect on the Company's financial
position or its results from operations.
The FASB's Emerging Issues Task Force ("EITF") reached a
consensus on July 22, 1993 regarding Issue No. 93-6, "Accounting
for Multiple-Year Retrospectively-Rated Contracts by Ceding and
Assuming Enterprises" ("EITF 93-6"). EITF 93-6 has had an impact
on certain of the Company's retrocessional agreements. As a
result of the Company's implementation of the change in
accounting method, as of January 1, 1993, $2.6 million, or $0.14
per share (after-tax), is included as a reduction to income as a
cumulative adjustment. The effect of this change, excluding the
cumulative adjustment, for the three months and nine months ended
September 30, 1993 was to increase net income by $650,000, or
$0.04 per share, and $1.95 million, or $0.11 per share,
respectively.
In the first quarter of 1993, the Company adopted Statement
of Financial Accounting Standards No. 113 "Accounting and
Reporting for Reinsurance of Short-Duration and Long-Duration
Contracts" ("SFAS 113"). The significant provisions of SFAS 113
require grossing-up the balance sheet to eliminate the reporting
of assets and liabilities relating to reinsured contracts net of
the effects of reinsurance, establish the conditions for a
contract to be accounted for as reinsurance, require the deferral
and amortization of any gain from retroactive contracts as
defined in SFAS 113, and provide guidance in assessing transfer
of insurance risk in reinsurance. The adoption of SFAS 113 did
not have a material effect on the Company's financial position or
its results from operations.
4. INCOME TAXES
The Company's effective income tax rate differs from the
current statutory federal income tax rate of 35% principally due
to tax-exempt interest income and dividends received deductions.
12<PAGE>
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts
reported for income tax purposes and relate principally to loss
reserve discounting, unearned premiums and unrealized
appreciation (depreciation) of investments.
A valuation allowance is provided when it is more likely than not
that some portion of the deferred income tax benefits will not be
realized. Management believes that the deferred tax benefits
will be fully realized in the future.
5. REINSURANCE
The effect of ceded reinsurance on the Statement of
Operations for the three and nine months ended September 30, 1994
and 1993 are as follows (in thousands):
THREE MONTHS ENDED SEPTEMBER 30, 1994
Loss
and Loss
Premium Premium Expenses
Written Earned Incurred
Direct $ 5,183 $ 3,395 $ 2,108
Assumed 70,142 72,478 42,679
Ceded- affiliate (8,131) (7,912) 1,218
Ceded - other (11,403) (12,419) (6,945)
Net $ 55,791 $ 55,542 $ 39,060
THREE MONTHS ENDED SEPTEMBER 30, 1993
Direct $ 3,187 $ 1,975 $ 628
Assumed 77,906 83,333 47,956
Ceded - affiliate (12,643) (12,238) (12,014)
Ceded - other (9,313) (13,223) 4,070
Net $ 59,137 $ 59,847 $ 40,640
13<PAGE>
NINE MONTHS ENDED SEPTEMBER 30, 1994
Loss
and Loss
Premiums Premiums Expenses
Written Earned Incurred
Direct $ 11,138 $ 10,218 $ 7,744
Assumed 228,128 222,339 205,724
Ceded - affiliate (25,061) (28,845) (24,461)
Ceded - other (29,512) (30,502) (36,449)
Net $ 184,693 $ 173,210 $ 152,558
NINE MONTHS ENDED SEPTEMBER 30, 1993
Direct $ 8,020 $ 6,132 $ 6,772
Assumed 233,733 230,760 158,757
Ceded - affiliate (34,682) (33,258) (35,095)
Ceded - other (34,320) (33,305) (18,050)
Net $ 172,751 $ 170,329 $ 112,384
6. CONVERTIBLE SUBORDINATED DEBENTURES
On March 29, 1993, SCOR U.S. sold at par $86.25 million of
5.25% Convertible Subordinated Debentures due April 1, 2000
("Debentures") through a private offering. The Debentures are
not redeemable by the Company prior to April 3, 1996 and are
convertible into approximately 3.4 million shares of SCOR U.S.
common stock at a conversion price of $25.375 per share.
Expenses incurred in the offering of approximately $1.8 million
were deferred and are being amortized over the life of the
Debentures. The Company contributed $50 million of the net
proceeds to SCOR Re.
14<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
GENERAL
SCOR U.S. Corporation ("SCOR U.S." or the "Company") is a
holding company, the principal operating subsidiaries of which
are SCOR Reinsurance Company ("SCOR Re"), General Security
Insurance Company ("GSIC"), The Unity Fire and General Insurance
Company ("Unity Fire") and General Security Indemnity Company
("GSIND").
The Company, through its subsidiaries, provides property and
casualty insurance and reinsurance to primary insurance companies
on both a treaty and facultative basis. SCOR Re specializes in
underwriting treaties covering non-standard automobile,
commercial and technical risks and provides property, casualty
and special risk coverages on a facultative basis. SCOR Re
writes treaty business almost exclusively through reinsurance
intermediaries. SCOR Re writes facultative business directly
with primary insurance companies and through reinsurance
intermediaries. GSIC and Unity Fire provide property and
casualty insurance on both a primary and excess basis,
specializing in alternative risk market coverages. GSIND
provides commercial property and casualty coverages on a surplus
lines basis.
The operating results of the property and casualty insurance
and reinsurance industry are subject to significant fluctuations
due to competition, catastrophic events, general economic
conditions, interest rates and other factors such as changes in
tax laws and regulations. The operating results of SCOR U.S.
have been influenced by these cycles.
UNDERWRITING RESULTS
The underwriting results of a property and casualty insurer
or reinsurer are discussed frequently by reference to its loss
ratio, underwriting expense ratio and combined ratio. The loss
ratio is the result of dividing losses and loss expenses incurred
by net premiums earned. The underwriting expense ratio is the
result of dividing underwriting expenses by net premiums written
for purposes of Statutory Accounting Practices ("SAP") and net
premiums earned for purposes of Generally Accepted Accounting
Principles ("GAAP"). The combined ratio is the sum of the loss
ratio and the underwriting expense ratio. A combined ratio under
100% generally indicates underwriting profits and a combined
ratio exceeding 100% generally indicates underwriting losses.
Underwriting profit is only one element of overall profitability,
15<PAGE>
which also includes investment results, interest expense and the
effects of income taxation. Accordingly, the combined ratio
alone should not be used to measure overall profitability. Except
as indicated, the ratios discussed below have been calculated on
a GAAP basis.
The following table sets forth the Company's GAAP combined
ratios and the components thereof for the periods indicated, and
the SAP combined ratio for the Company's insurance and
reinsurance subsidiaries. The GAAP ratios include the operating
expenses of the holding company and the non-insurance
subsidiaries, in addition to the operating expenses of the
insurance and reinsurance subsidiaries. The SAP expense ratios
include only the operating expenses of the insurance and
reinsurance subsidiaries. In addition, the GAAP loss ratio takes
into consideration recoveries under certain retrocessional
agreements with SCOR S.A., the Company's majority shareholder,
whereas these recoveries are included in other income for SAP
purposes.
Three Months Ended Nine Months Ended
September 30, September 30,
1994 1993 1994 1993
GAAP RATIOS
(Total Company)
Loss ratio 70.3% 67.9% 88.1% 66.0%
Commission ratio 25.5% 26.2% 26.6% 25.5%
U/W, admin. and other
expense ratio 15.1% 12.8% 13.1% 13.3%
Expense ratio 40.6% 39.0% 39.7% 38.8%
Combined ratio 110.9% 106.9% 127.8% 104.8%
SAP RATIOS
Combined ratio 107.2% 104.1% 122.8% 105.8%
* Reinsurance and insurance subsidiaries only.
COMPARISON OF THIRD QUARTER RESULTS FOR 1994 WITH 1993
Gross premiums written for 1994 decreased 7% to
$75.3 million from $81.1 million in 1993. Net premiums written
for 1994 decreased 6% to $55.8 million from $59.1 million for
1993. The decrease in premium volume was attributable principally
to the continued withdrawal from certain property and casualty
16<PAGE>
lines of business where the Company believes rates and/or
conditions are inadequate. More specifically, throughout 1994
the Company has been reducing its property business written on a
pro rata basis. A combination of an acceleration in the
reduction of this business and fewer attractive opportunities in
targeted lines of business caused the reduction in 1994 premium
volume.
Net losses and loss expenses incurred decreased 4% in 1994
to $39.1 million from $40.6 million in 1993. The loss ratio was
70.3% for 1994 as compared with 67.9% for 1993. During 1994 the
Company incurred $2.3 million of net losses ($2.0 million of
gross losses) resulting from property catastrophe events, most of
which was due to adverse claims development from the winter
freezes in early 1994. Losses incurred relating to property
catastrophe events adversely affected the 1994 loss ratio by 3.9
points. During 1993, the Company incurred $3.3 million of net
losses ($2.9 million of gross losses) resulting from property
catastrophe events, primarily the flood claims arising from
Midwest storms in mid-1993, which adversely affected the loss
ratio by 5.6 points.
During 1994 and 1993, the Company ceded $20.3 million and
$25.5 million of earned premiums, respectively. The Company
recovered from retrocessionnaires $5.7 million and $7.9 million
of losses during 1994 and 1993, respectively.
Commission expenses decreased 10% to $14.1 million in 1994
from $15.7 million in 1993. The commission ratio was 25.5% for
1994, compared with 26.2% for 1993.
Underwriting, administration and other expenses increased
9% in 1994 to $8.4 million from $7.7 million in 1993. The
underwriting and other expense ratio was 15.1% for 1994 as
compared with 12.8% for 1993.
The combined ratio was 110.9% for 1994, compared with
106.9% for 1993. The effect of property catastrophe events on
the 1994 and 1993 combined ratios was 3.8 points and 5.6 points,
respectively.
Net investment income for 1994 decreased 7% to $10.2
million from $10.9 million in 1993. Net investment income (pre-
tax) has been affected adversely by the high level of claim
payments made since mid-1992 related to catastrophic events.
Offsetting the above factor was an increase in investment income
related to the proceeds of the issuance by the Company in March,
1993 of $86.25 million of 5.25% Convertible Subordinated
Debentures due April 1, 2000 ("Debentures") (see Liquidity and
Capital Resources). On an after-tax basis, net investment income
decreased 3% to $7.8 million for 1994, compared with $8.1 million
in 1993. Net realized investment gains for 1994 were $300,000
17<PAGE>
compared with $2.1 million for 1993.
Interest expense increased 2% to $2.5 million in 1994 from
$2.4 million in 1993.
The Company's net income for 1994 was $2.4, or $0.13 per
share, on a primary basis, compared with $5.8 million, or $0.32
per share, for 1993. The 1994 results were affected by after-tax
charges to operations, net of reinsurance, of $1.4 million, or
$0.08 per share for property catastrophe events, while the 1993
results were affected by after-tax charges to operations, net of
reinsurance, of $2.2 million, or $0.12 per share for property
catastrophe events. Average common and common equivalent shares
outstanding (on a primary basis) for 1994 were 18.2 million,
compared with 18.4 million for 1993.
COMPARISON OF YEAR TO DATE RESULTS FOR 1994 WITH 1993
Gross premiums written for 1994 decreased 1% to
$239.3 million from $241.8 million in 1993. Net premiums written
for 1994 increased 7% to $184.7 million from $172.8 million for
1993. Gross premiums written and net premiums written for 1994
were increased by $1.0 million and reduced by $5.0 million,
respectively, of additional premiums to reinstate catastrophe
reinsurance protections primarily related to the January 1994
Northridge earthquake. Excluding these reinstatement premiums,
gross premiums written for 1994 decreased by 1% and net premiums
written increased by 10%, compared with 1993. The decrease in
premium volume was attributable principally to the Company's
continued withdrawal from certain property and casualty lines of
business where the Company believes rates and/or conditions are
inadequate. Net premiums written increased in 1994 due to
generally higher retention levels on the Company's current mix of
business, including the attachment point of the Company's
catastrophe protection.
Net losses and loss expenses incurred increased 36% in 1994
to $152.6 million from $112.4 million in 1993. The loss ratio
was 88.1% for 1994 as compared with 66.0% for 1993. During 1994
the Company incurred $33.7 million of net losses ($63.0 million
of gross losses) resulting from property catastrophe events,
which added 21.4 points to the loss ratio. Of these amounts, the
January 1994 Northridge, California earthquake accounted for
$26.1 million of net incurred losses and $54.8 million of gross
incurred losses. During 1993 the Company incurred $12.8 million
of net losses ($14.6 million of gross losses) resulting from
property catastrophe events, primarily the World Trade Center
bombing, the East Coast blizzard, and the floods caused by
Midwest storms which adversely affected the loss ratio by 7.5
points.
18<PAGE>
During 1994 and 1993, the Company ceded $59.3 million and
$66.6 million of earned premiums, respectively. The Company
recovered from retrocessionnaires $60.9 million and $53.1 million
of losses during 1994 and 1993, respectively. Ceded premiums in
1994 included $6.0 million of reinstatement premiums paid by the
Company. Ceded losses in 1994 included $29.3 million of losses
resulting from property catastrophe events.
Commission expenses increased 6% to $46.0 million in 1994
from $43.5 million in 1993. The commission ratio was 26.6% for
1994, compared with 25.5% for 1993. The increase in the
commission ratio for 1994 is primarily attributable to the effect
of net reinstatement premiums related to the property catastrophe
events, which added 0.8 points to the 1994 commission ratio.
Underwriting, administration and other expenses in 1994
were $22.7 million, virtually unchanged from 1993. The
underwriting and other expense ratio was 13.1% for 1994 as
compared with 13.3% for 1993. The effect of net reinstatement
premiums related to the property catastrophe events added 0.4
points to the 1994 ratio.
The combined ratio was 127.8% for 1994, compared with
104.8% for 1993. The effect of property catastrophe events on
the 1994 and 1993 combined ratio was 22.6 points and 7.5 points,
respectively.
Net investment income for 1994 decreased 4% to $30.4
million from $31.8 million in 1993. Net investment income (pre-
tax) has been affected adversely by the high level of claim
payments made since mid-1992 related to catastrophic events and
the Company's managed shift toward a greater percentage of tax-
exempt securities. Offsetting the above factors was an increase
in investment income related to the proceeds of the issuance by
the Company in March, 1993 of the Debentures. On an after-tax
basis net investment income decreased 1% in 1994 to $23.9 million
from $24.2 million in 1993. Net realized investment gains for
1994 were $1.1 million compared with $7.4 million for 1993.
Interest expense increased 18% to $7.0 million in 1994 from
$5.9 million in 1993. The increase was principally attributable
to nine months of interest expense recognized on the Debentures
in 1994 compared with six months of interest expense in 1993.
The Company's net loss for 1994 was $11.4 million, or $0.63
per share, on a primary basis, compared with net income of $17.9
million, or $0.97 per share, for 1993. The 1994 results were
affected by after-tax charges to operations, net of reinsurance,
of $25.2 million, or $1.39 per share for property catastrophe
events. The 1993 results were affected by after-tax charges to
operations, net of reinsurance, of $8.3 million, or $0.45 per
share for property catastrophe events. Average common and common
19<PAGE>
equivalent shares outstanding (on a primary basis) for 1994 were
18.1 million, compared with 18.5 million for 1993.
INCOME TAXES
Statement of Financial Accounting Standards No. 109
requires the establishment of a valuation allowance for deferred
income tax benefits where it is more likely than not that some
portion of the deferred income tax benefits will not be realized.
Management believes, based on the Company's historical record of
generating taxable income and its expectations of future
earnings, that the Company's taxable income in future periods
will be sufficient to realize the net deferred income tax
benefits reflected on its consolidated balance sheet as of
September 30, 1994. The Company also has the ability to recover
certain income taxes paid on capital gains if capital losses were
to be realized. In addition, management believes certain tax
planning strategies exist, including its ability to alter the mix
of its investment portfolio to taxable investments from
tax-exempt investments, which could be implemented if necessary
to ensure sufficient taxable income to realize fully its net
deferred income tax benefits. Accordingly, SCOR U.S. has not
established a valuation allowance with respect to its net
deferred income tax benefits.
LIQUIDITY AND CAPITAL RESOURCES
SCOR U.S. is a holding company. Its principal sources of
cash are cash dividends from its operating subsidiaries,
borrowings, and the issuance of equity securities. Generally,
dividends that can be paid, without prior approval of the New
York Insurance Superintendent, by insurers domiciled in New York
State, including SCOR Re, are limited for any twelve-month period
to the lesser of 10% of statutory surplus or adjusted net
investment income (as defined by New York Insurance Law) for the
previous twelve months. During the twelve months ended September
30, 1994, $18.4 million of dividends were declared to SCOR U.S.
At September 30, 1994, the aggregate statutory surplus of the
SCOR U.S. operating subsidiaries was $239.3 million.
On March 29, 1993, SCOR U.S. sold at par $86.25 million of
5.25% Convertible Subordinated Debentures due April 1, 2000
through a private offering. The Debentures are not redeemable by
the Company prior to April 3, 1996 and are convertible into
approximately 3.4 million shares of SCOR U.S. common stock at a
conversion price of $25.375 per share. Expenses incurred in the
offering of approximately $1.8 million were deferred and are
being amortized over the life of the Debentures. The Company
contributed $50 million of the net proceeds to SCOR Re.
On October 1, 1990 SCOR U.S. renewed a $20.0 million note
which was payable on that date. The new note is due and payable
20<PAGE>
on October 3, 1995 and bears interest at a fixed annual rate of
9.575%. The Company has entered into an interest rate swap
agreement on this note with a commercial bank. The swap
agreement has a maturity date of October 1, 1995 and provides for
the Company to make floating rate payments in exchange for the
fixed rate payments due on the loan. The floating rate, which
resets every six months and is capped at 12 3/8%, was 11% as of
October 1, 1994.
SCOR U.S. has established a commercial paper program which
allows it to raise up to $50.0 million. At September 30, 1994,
$11.1 million of commercial paper was outstanding.
SCOR U.S. has a $30.0 million revolving line of credit with
a bank which serves as a backstop for its commercial paper
program. No borrowings have been made under this facility.
At September 30, 1994, the amount remaining under the
Company's existing stock repurchase program is approximately $1.4
million, which may be utilized as market conditions permit. The
Company has not repurchased any shares under this program during
1994.
The primary sources of liquidity for the SCOR U.S.
insurance and reinsurance subsidiaries are net cash flow from
operating activities, the maturity or sale of investments, and
capital contributions from SCOR U.S. Net cash used in operating
activities was $8.5 million for the 1994 nine month period
compared with cash provided by operations of $22.0 million for
the 1993 nine month period. Cash flow from operating activities
during 1994 was adversely affected by continued property
catastrophe paid loss activity as well as the payment of several
large previously reserved casualty claims. The Company has not
suffered any adverse effect due to the recent catastrophe
activity in the timing of recoveries or credit worthiness of
retrocessionnaires. Loss payments associated with the recent
catastrophe activity are not expected to have an adverse material
effect on the Company's short-term or long-term liquidity.
During 1993, the Company incurred $9.4 million of capital
expenditures, which primarily related to the development of
information systems. At September 30, 1994, the Company had no
significant commitments for capital expenditures.
Effective January 1, 1991, SCOR Re and certain of the
Company's other operating subsidiaries operate under a
reinsurance pooling agreement pursuant to which the net amounts
under all new and renewal business written by each such company
are pooled. The net balances of the pool are then distributed to
each company in accordance with established proportions.
At September 30, 1994, total investments and cash at
21<PAGE>
carrying value were $679.6 million compared with $733.8 million
at December 31, 1993. The decreased level of investments and
cash is primarily attributable to the decrease during the period
in the fair value of investments carried at fair value and the
negative cash flow from operations during the period. SCOR U.S.
fixed maturity investments are substantially all investment
grade, liquid securities with a weighted average maturity of 7
years. Approximately 98% of the fixed maturity portfolio is
rated A or better. SCOR U.S. does not have any investment in
real estate or high yield bonds. At September 30, 1994, the
Company did not have any non-income producing investments.
SCOR U.S. believes that cash and short-term investments are
maintained at an adequate level for payment of claims and
expenses as they become due. In addition, SCOR U.S. maintains a
maturity distribution profile of fixed maturity investments
sufficient to fund anticipated loss and loss expense obligations
as they become due. The Company's long-term obligations
primarily consist of the Debentures and the claims liabilities of
the principal operating subsidiaries, which at September 30, 1994
averaged approximately 4.5 years.
The Company may be subject to gains and losses resulting
from currency fluctuations because some of its investments are
denominated in currencies other than United States dollars, as
are some of its net loss reserve liabilities. The Company makes
investments denominated in foreign currencies to mitigate, in
part, the effects of currency fluctuations on its results of
operations. Investments denominated in foreign currencies
do not constitute a material portion of the Company's investment
portfolio and, in the opinion of management, are sufficient to
meet its foreign currency obligations. Net losses resulting from
foreign currency transactions during the nine month periods ended
September 30, 1994 and 1993 were $200,000 and $300,000,
respectively.
Stockholders' equity at September 30, 1994 was $245.5
million, a decrease of $45.2 million compared with December 31,
1993. This decrease resulted primarily from the net loss of
$11.4 million for the period, unrealized depreciation of
investments carried at fair value, net of tax effect, of $30.0
million, and cash dividends declared of $4.9 million.
The ratio of net premiums written to surplus, sometimes
referred to as "insurance exposure", relates to the amount of
risk to which an insurer's statutory capital and surplus can be
exposed, as measured by the amount of premiums written in
relation to such surplus. Insurance practice and regulatory
guidelines suggest that property and casualty insurance companies
maintain a net premiums written to surplus ratio of less than 3
to 1. For the reinsurance industry, a ratio of 2 to 1 or less is
generally considered prudent. SCOR U.S.'s net premiums written
22<PAGE>
to surplus ratios were 1.03 to 1 and 0.85 to 1 for 1994 and 1993,
respectively.
REGULATORY MATTERS
The National Association of Insurance Commissioners
("NAIC"), an organization that assists state insurance regulators
in achieving regulatory objectives, established minimum capital
requirements, referred to as risk based capital, by adopting a
risk-based capital formula for property and casualty companies in
December 1993. The risk based capital formula will be applied to
statutory financial statements beginning for the year ending
December 31, 1994. The essential elements of these requirements
focus on a company's types of business, historical loss
development patterns and asset quality. Based on the preliminary
assessment of the requirements, SCOR U.S. believes that the
statutory surplus of each of its operating subsidiaries will be
sufficient to meet these risk based capital requirements and to
conduct its respective operations.
The NAIC is currently developing an Investments of Insurers
Model Act, which, if adopted by state regulatory authorities,
would establish uniform limitations upon the type and amounts of
investments insurers may hold. Based upon the current proposals
of this Model Act, which are subject to review and change, the
Company does not believe a uniform standard would significantly
affect the current investment mix or operations of its insurance
and reinsurance subsidiaries.
ACCOUNTING PRONOUNCEMENTS
Effective as of December 31, 1993, the Company adopted
Statement of Financial Accounting Standards No. 115 "Accounting
for Certain Investments in Debt and Equity Securities" ("SFAS
115"). SFAS 115 addresses the accounting and reporting for
investments in equity securities that have readily determinable
fair values and for all investments in debt securities. Under
SFAS 115, investments are classified into three categories. Debt
securities that management has the positive intent and the
ability to hold to maturity are classified as "held to maturity"
and reported at amortized cost. Debt and equity securities that
are bought and held for the purpose of selling them in the near
term are classified as "trading securities" and reported at fair
value with unrealized gains and losses included in earnings.
Debt and equity securities not classified as either of the above
categories are classified as "available for sale securities" and
reported at fair value with unrealized gains and losses reported
as a separate component of stockholders' equity. The adoption of
SFAS 115 did not have any effect on the Company's financial
position or its results from operations.
23<PAGE>
The FASB's Emerging Issues Task Force ("EITF") reached a
consensus on July 22, 1993 regarding Issue No. 93-6, "Accounting
for Multiple-Year Retrospectively-Rated Contracts by Ceding and
Assuming Enterprises" ("EITF 93-6"). EITF 93-6 has had an impact
on certain of the Company's retrocessional agreements. As a
result of the Company's implementation of the change in
accounting method, as of January 1, 1993, $2.6 million, or $0.14
per share (after-tax), is included as a reduction to income as a
cumulative adjustment. The effect of this change, excluding the
cumulative adjustment, for the three months and nine months ended
September 30, 1993 was to increase net income by $650,000, or
$0.04 per share, and $1.95 million, or $0.11 per share,
respectively.
In the first quarter of 1993, the Company adopted Statement
of Financial Accounting Standards No. 113 "Accounting and
Reporting for Reinsurance of Short-Duration and Long-Duration
Contracts" ("SFAS 113"). The significant provisions of SFAS 113
require grossing-up the balance sheet to eliminate the reporting
of assets and liabilities relating to reinsured contracts net of
the effects of reinsurance, establish the conditions for a
contract to be accounted for as reinsurance, require the deferral
and amortization of any gain from retroactive contracts as
defined in SFAS 113, and provide guidance in assessing transfer
of insurance risk in reinsurance. The adoption of SFAS 113 did
not have a material effect on the Company's financial position or
its results from operations.
24<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
SCOR Re, GSIC, Unity Fire and GSIND are each a party to various
lawsuits arising in the normal course of their business. SCOR
U.S. does not believe that any of the litigation to which SCOR
Re, GSIC, Unity Fire or GSIND is currently a party will have a
material adverse effect on the operating results or financial
condition of SCOR U.S. and its subsidiaries.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
11 Computation of Earnings per Share
15 Letter re Unaudited Interim Financial Information
27 Financial Data Schedule
b) Reports on Form 8-K
None.
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.
SCOR U.S. Corporation
(Registrant)
Dated: November 11, 1994 Jeffrey D. Cropsey
(Signature)
Jeffrey D. Cropsey
Senior Vice President and
Chief Financial Officer
25<PAGE>
<TABLE>
SCOR U.S. CORPORATION EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
(In thousands, except per share data)
<CAPTION>
Three Months Ended, Nine Months Ended,
September 30 September 30
1994 1993 1994 1993
<S> <C> <C> <C> <C>
PRIMARY
Net income (loss) applicable to common stock $ 2,447 $ 5,808 $ (11,368) $ 17,854
Average number of common shares outstanding 18,168 18,195 18,146 18,182
Add:
Assumed exercise of stock options 44 230 -0- 282
Common and common equivalent shares outstanding 18,212 18,425 18,146 18,464
Net income (loss) per share assuming
exercise of common stock equivalents $ 0.13 $ 0.32 $ (0.63) $ 0.97
FULLY DILUTED
Net income (loss) applicable to common stock $ 2,447 $ 6,588 $ (11,368) $ 19,426
Average number of common shares outstanding 18,168 18,195 18,146 18,155
Add:
Assumed exercise of stock options 44 230 -0- 282
Assumed convertion of convertible bonds -0- 3,394 -0- 2,312
Common and common equivalent shares outstanding
assuming full dilution 18,212 21,819 18,146 20,749
Net income (loss) per share assuming
full dilution $ 0.13 $ 0.30 $ (0.63) $ 0.94<PAGE>
<PAGE>
</TABLE>
EXHIBIT 15
SCOR U.S. Corporation
New York, New York
Gentlemen:
We acknowledge our awareness that our report dated October 27,
1994 related to our review of interim financial information of
SCOR U.S. Corporation for the three month and nine month periods
ended September 30, 1994 and included in the quarterly report on
Form
10-Q is incorporated by reference in the Company's Registration
Statements on Form S-8 (Registration Nos. 33-12604, 33-44577, and
33-46753). Our report refers to the changes in the Company's
methods of accounting for multiple year retrospectively rated
reinsurance contracts and for the adoption of the Financial
Accounting Standards Board's Statement of Financial Accounting
Standards No. 113, "Accounting and Reporting for Reinsurance of
Short-Duration and Long-Duration Contracts," in 1993.
Pursuant to Rule 436(c) under the Securities Act, such report is
not considered a part of a Registration Statement prepared or
certified by an accountant within the meaning of Section 7 and 11
of the Act.
Very truly yours,
KPMG Peat Marwick LLP
(Signature)
New York, New York
October 27, 1994<PAGE>
<TABLE> <S> <C>
<ARTICLE> 7
<CIK> 0000798363
<NAME> SCOR U.S. CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1994
<DEBT-HELD-FOR-SALE> 0
<DEBT-CARRYING-VALUE> 23,484
<DEBT-MARKET-VALUE> 575,584
<EQUITIES> 16,465
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 670,563
<CASH> 9,079
<RECOVER-REINSURE> 66,708
<DEFERRED-ACQUISITION> 25,645
<TOTAL-ASSETS> 1,201,966
<POLICY-LOSSES> 389,934<F1>
<UNEARNED-PREMIUMS> 99,442<F2>
<POLICY-OTHER> 73,969
<POLICY-HOLDER-FUNDS> 22,883
<NOTES-PAYABLE> 117,349
<COMMON> 5,507
0
0
<OTHER-SE> 240,015
<TOTAL-LIABILITY-AND-EQUITY> 1,201,966
173,210
<INVESTMENT-INCOME> 30,363
<INVESTMENT-GAINS> 1,059
<OTHER-INCOME> 0
<BENEFITS> 152,558
<UNDERWRITING-AMORTIZATION> 46,019
<UNDERWRITING-OTHER> 22,651
<INCOME-PRETAX> (23,578)
<INCOME-TAX> (12,210)
<INCOME-CONTINUING> (11,368)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (11,368)
<EPS-PRIMARY> 0.63
<EPS-DILUTED> 0.63
<RESERVE-OPEN> 340,366<F3>
<PROVISION-CURRENT> 163,312
<PROVISION-PRIOR> (10,753)
<PAYMENTS-CURRENT> 30,525
<PAYMENTS-PRIOR> 72,466
<RESERVE-CLOSE> 389,934<F1>
<CUMULATIVE-DEFICIENCY> (9,744)
<FN>
<F1>Reserve for losses and loss expenses at September 30, 1994 is presented net
of reinsurance recoverable on unpaid losses of $217,016.
<F2>Unearned premiums at September 30, 1994 is presented net of ceded unearned
premiums of $21,643.
<F3>Reserve for losses and loss expenses at December 31, 1993 is presented net
of reinsurance recoverable on unpaid losses of $221,843.
</FN>
</TABLE>
