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 March 31, 1995
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)t
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 May 12, 1995, there were 18,164,620 shares of Common Stock, $.30 par
value, outstanding.<PAGE>
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
Item 1. Financial Statements
Independent Auditors' Review Report 3
Consolidated Balance Sheets
March 31, 1995 and December 31, 1994 4-5
Consolidated Statements of Operations
Three Months ended March 31, 1995 and 1994 6-7
Consolidated Statements of Stockholders' Equity
Three Months ended March 31, 1995 and 1994 8-9
Consolidated Statements of Cash Flows
Three Months Ended March 31, 1995 and 1994 10-11
Notes to Consolidated Financial Statements 12-13
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 14-20
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 21
Item 6. Exhibits And Reports On Form 8-K 21
Signatures 21
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 March 31, 1995, and
the related consolidated statements of operations, stockholders'
equity and cash flows for the three month periods ended March 31, 1995
and 1994. 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 review procedures to financial data and making inquiries of
persons responsible for financial and accounting matters. It is
substantially less in scope than an audit 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, 1994, 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 2, 1995 we expressed an unqualified opinion on
those consolidated financial statements.
KPMG Peat Marwick LLP
May 2, 1995
3<PAGE>
SCOR U.S. CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands)
March 31, December 31,
1995 1994
(Unaudited)
ASSETS
Investments:
Fixed maturities:
Available for sale, at fair value
(amortized cost: $603,339 and $596,791) $ 590,352 $ 563,656
Held to maturity, at amortized cost
(fair value: $23,584 and $22,274) 23,713 22,871
Equity securities, at fair value
(cost: $259 and $1,897) 494 1,738
Short-term investments, at cost 83,620 83,303
Other long-term investments 1,395 1,225
-------- --------
699,574 672,793
Cash 8,085 4,763
Accrued investment income 10,473 10,339
Premiums receivable 87,153 72,018
Reinsurance recoverable on paid losses
Affiliates 5,850 4,399
Other 7,615 19,356
Reinsurance recoverable on unpaid losses
Affiliates 124,430 127,096
Other 98,536 95,576
Prepaid reinsurance premiums
Affiliates 9,179 10,504
Other 7,887 8,803
Deferred policy acquisition costs 23,393 22,844
Deferred Federal income tax benefits 29,762 34,818
Investment in affiliates 11,783 11,532
Other assets 43,854 48,874
--------- ---------
$1,167,574 $ 1,143,715
========= =========
See notes to consolidated financial statements.
4<PAGE>
SCOR U.S. CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands)
March 31, December 31,
1995 1994
LIABILITIES
Losses and loss expenses $ 614,315 $ 604,787
Unearned premiums 110,774 110,082
Funds held under reinsurance treaties
Affiliates 1,405 3,654
Other 18,020 17,104
Reinsurance balances payable
Affiliates 17,638 15,328
Other 16,717 28,357
Convertible subordinated debentures 76,450 82,350
Notes payable 25,000 20,000
Commercial paper 20,004 11,310
Other liabilities 10,910 11,348
------- -------
911,233 904,320
------- -------
STOCKHOLDERS' EQUITY
Preferred stock, no par value, 5,000
shares authorized; no shares issued
Common stock, $0.30 par value,
50,000 shares authorized;
18,356 and 18,356 shares issued 5,507 5,507
Additional paid-in capital 114,563 114,556
Unrealized depreciation of investments,
net of deferred tax effect (8,288) (21,640)
Foreign currency translation adjustment (305) (414)
Retained earnings 146,638 143,153
Treasury stock, at cost(193 and 192 shares) (1,774) (1,767)
--------- ---------
256,341 239,395
--------- ---------
$ 1,167,574 $ 1,143,715
========= =========
See notes to consolidated financial statements.
5<PAGE>
SCOR U.S. CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended March 31,
(Unaudited)
(in thousands, except per share data)
1995 1994
REVENUES
Net premiums earned $70,597 $ 62,685
Net investment income 10,978 9,998
Net realized investment gains (losses) (112) 323
------ ------
81,463 73,006
------ ------
LOSSES AND EXPENSES
Losses and loss expenses, net 47,109 70,507
Commissions, net 19,420 17,519
Other underwriting and
administration expenses 7,321 6,807
Other expenses 699 413
Interest expense 2,404 2,324
------ ------
76,953 97,570
------ ------
Income (loss) from operations before
Federal income taxes (benefit) 4,510 (24,564)
Federal income taxes (benefit) 634 (10,146)
------ ------
Income (loss) from operations 3,876 (14,418)
Extraordinary gain on redemption of
debentures, net of tax 517 -0-
------ ------
Net income (loss) $ 4,393 $ (14,418)
====== ======
See notes to consolidated financial statements.
6<PAGE>
SCOR U.S. CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended March 31,
(Unaudited)
(in thousands, except per share data)
1995 1994
PER SHARE DATA
PRIMARY
Average common and common
equivalent shares outstanding 18,164 18,221
====== ======
Income (loss) from operations $ 0.21 $ (0.79)
Extraordinary item 0.03 -0-
------ ------
Net income (loss) $ 0.24 $ (0.79)
====== ======
FULLY DILUTED
Average common and common
equivalent shares outstanding 18,164 18,221
====== ======
Income (loss) from operations $ 0.21 $ (0.79)
Extraordinary item 0.03 -0-
------ ------
Net income (loss) $ 0.24 $ (0.79)
====== ======
See notes to consolidated financial statements.
7<PAGE>
SCOR U.S. CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Three Months Ended March 31,
(Unaudited)
(in thousands, except per share data)
1995 1994
COMMON STOCK
Balance at beginning of year $ 5,507 $ 5,490
Issuance of common stock -0- -0-
------- -------
Balance at end of period 5,507 5,490
------- -------
ADDITIONAL PAID-IN CAPITAL
Balance at beginning of year 114,556 112,670
Issuance of common stock -0- 179
Change in unpaid stock options exercised 7 21
------- -------
Balance at end of period 114,563 112,870
------- -------
UNREALIZED APPRECIATION (DEPRECIATION)
OF INVESTMENTS
Balance at beginning of year (21,640) 16,634
Unrealized appreciation (depreciation)
for period 13,352 (20,802)
------- -------
Balance at end of period (8,288) (4,168)
------- -------
FOREIGN CURRENCY TRANSLATION ADJUSTMENT
Balance at beginning of year (414) 12
Change in foreign currency
translation adjustment 109 (306)
------- -------
Balance at end of period (305) (294)
------- -------
RETAINED EARNINGS
Balance at beginning of year 143,153 157,532
Net income (loss) 4,393 (14,418)
Dividends ($.05 and $.09 per share) (908) (1,633)
------- -------
Balance at end of period 146,638 141,481
------- -------
See notes to consolidated financial statements.
8<PAGE>
SCOR U.S. CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Three Months Ended March 31,
(Unaudited)
(in thousands, except per share data)
1995 1994
TREASURY STOCK
Balance at beginning of year (1,767) (1,649)
Net (purchases) reissuance of treasury stock (7) 182
------- -------
Balance at end of period (1,774) (1,467)
------- -------
TOTAL STOCKHOLDERS' EQUITY AT END OF PERIOD $ 256,341 $ 253,912
======= =======
Common stock shares
Balance at beginning of year 18,356 18,299
Issuance of common stock -0- -0-
------- -------
Balance at end of period 18,356 18,299
======= =======
Treasury stock shares
Balance at beginning of year 192 190
Net purchases (reissuance) of treasury stock 1 (32)
------ ------
Balance at end of period 193 158
====== ======
See notes to consolidated financial statements.
9<PAGE>
SCOR U.S. CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31,
(Unaudited)
(in thousands)
1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 4,393 $ (14,418)
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Extraordinary gain on redemption of
debentures (517) -0-
Realized investment (gains) losses 112 (323)
Changes in assets and liabilities:
Accrued investment income (134) 56
Premium balances, net (24,465) 3,218
Prepaid reinsurance premiums 2,241 1,682
Reinsurance recoverable on paid losses 10,290 (13,392)
Deferred policy acquisition costs (549) (1,418)
Losses and loss expenses 9,528 53,167
Unearned premiums 692 8,446
Reinsurance recoverable on unpaid losses (294) (8,600)
Funds held under reinsurance treaties (1,333) (16,521)
Federal income taxes 634 (11,946)
Other 5,774 (230)
------ ------
Net cash provided by (used in) operating
activities 6,372 (279)
------ ------
See notes to consolidated financial statements.
10<PAGE>
SCOR U.S. CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31,
(Unaudited)
(in thousands)
1995 1994
CASH FLOWS FROM INVESTING ACTIVITIES
Sales, maturities or redemptions
of fixed maturities 19,803 39,926
Sales of equity securities 1,215 2,371
Net sales of short-term investments 801 44,254
Investments in fixed maturities (28,706) (78,803)
Investments in equity securities -0- (1,729)
Other (306) (1,172)
------ ------
Net cash provided by (used in) investing
activities (7,193) 4,847
------ ------
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid (908) (1,633)
Redemption of convertible subordinated
debentures (8,462) -0-
Proceeds of notes payable 5,000 -0-
Proceeds from issuance of commercial paper-net 8,468 21
Proceeds from stock options exercised 7 18
Other 38 93
------ ------
Net cash provided by (used in) financing
activities 4,143 (1,501)
------ ------
Net increase in cash 3,322 3,067
Cash at beginning of period 4,763 17,096
------ ------
Cash at end of period $ 8,085 $ 20,163
====== ======
See notes to consolidated financial statements.
11<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
SCOR U.S. Corporation ("SCOR U.S." or, collectively with its
subsidiaries, the "Company") is a holding company, the principal
operating subsidiary of which is SCOR Reinsurance Company ("SCOR Re").
The Company also operates through SCOR Re's wholly owned subsidiaries,
General Security Insurance Company ("GSIC"), The Unity Fire and
General Insurance Company ("Unity Fire") and General Security
Indemnity Company ("GSIND"). (SCOR Re, GSIC, Unity Fire and GSIND are
collectively referred to as the "Operating Subsidiaries").
The Company, through its subsidiaries, provides property and
casualty insurance and reinsurance. Reinsurance is provided 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 and writes facultative business directly with primary
insurance companies and through reinsurance intermediaries. GSIC and
Unity Fire provide commercial property and casualty insurance on both
a primary and excess basis and underwrite 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 1994 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 Company's Convertible Subordinated
Debentures are converted into common shares, if dilutive.
3. 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
12<PAGE>
interest income and dividends received deductions.
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.
4. REINSURANCE
The effect of ceded reinsurance on the Statement of Operations for the
three months ended March 31, 1995 and 1994 are as follows (in thousands):
Loss
and Loss
Premiums Premiums Expenses
Written Earned Incurred
March 31, 1995
Direct $ 4,822 $ 6,069 $ 10,537
Assumed 87,849 85,911 50,786
Ceded - affiliate (7,723) (9,275) (5,705)
Ceded - other (11,418) (12,108) (8,509)
-------- -------- -------
Net $ 73,530 $ 70,597 $ 47,109
======== ======== =======
March 31, 1994
Direct $ 3,590 $ 3,806 $ 3,100
Assumed 91,153 82,491 119,413
Ceded- affiliate (10,878) (13,647) (23,359)
Ceded - other (11,052) (9,965) (28,647)
---------- ---------- ---------
Net $ 72,813 $ 62,685 $ 70,507
========== ========== =========
13<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
GENERAL
SCOR U.S. Corporation ("SCOR U.S." or, collectively with its
subsidiaries, the "Company") is a holding company, the principal operating
subsidiary of which is SCOR Reinsurance Company ("SCOR Re"). The Company
also operates through SCOR Re's wholly owned subsidiaries, General Security
Insurance Company ("GSIC"), The Unity Fire and General Insurance Company
("Unity Fire") and General Security Indemnity Company ("GSIND"). (SCOR Re,
GSIC, Unity Fire and GSIND are collectively referred to as the "Operating
Subsidiaries").
The Company, through its subsidiaries, provides property and casualty
insurance and reinsurance. Reinsurance is provided 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 and writes facultative business directly
with primary insurance companies and through reinsurance intermediaries.
GSIC and Unity Fire provide commercial property and casualty insurance on
both a primary and excess basis and underwrite 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. historically 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, 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.
14<PAGE>
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 operations of
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 March 31,
1995 1994
GAAP RATIOS
(Total Company)
Loss ratio 66.7% 112.5%
----- -----
Commission ratio 27.5 27.9
U/W, admin. and other
expense ratio 11.4 11.5
----- ------
Expense ratio 38.9 39.4
----- ------
Combined ratio 105.6% 151.9%
===== =====
SAP COMBINED RATIOS*
Combined ratio 104.0% 144.1%
===== =====
* Reinsurance and insurance subsidiaries only.
COMPARISON OF FIRST QUARTER RESULTS FOR 1995 WITH 1994
Gross premiums written for 1995 decreased 2% to $92.7 million from
$94.7 million in 1994. Net premiums written for 1995 increased 1% to
$73.5 million from $72.8 million for 1994. Gross premiums written and net
premiums written for 1994 were increased by $800,000 and reduced by $5.6
million, respectively, for additional premiums to reinstate catastrophe
reinsurance protections primarily related to the January 1994 Northridge
earthquake. Excluding these reinstatement premiums, gross premiums written
and net premiums written for 1995 decreased by 2% and 7%, respectively,
compared with 1994. The Company's premium volume was adversely affected by
its continued withdrawal from certain property and casualty lines of
business where the Company believes rates and/or conditions are
inadequate.
15<PAGE>
More specifically, the Company has been reducing its treaty property
business written on a pro rata basis. However, the Company's increased
premium writings in targeted market segments, such as nonstandard
automobile, offset most of the decline in property pro rata business.
Net losses and loss expenses incurred decreased 33% in 1995 to $47.1
million from $70.5 million in 1994. The loss ratio was 66.7% for 1995 as
compared with 112.5% for 1994. During 1994 the Company incurred $31.8
million of net losses resulting from property catastrophe events, primarily
the Northridge earthquake and the early 1994 winter freeze, which added
55.9 points to the loss ratio. Of these amounts, the Northridge earthquake
accounted for $26.1 million of net incurred losses and $54.8 million of
gross incurred losses. During 1995 the Company experienced $1.1 million of
net favorable development ($3.0 million gross) resulting from pre 1995
property catastrophe events, which reduced the loss ratio by 2.1 points.
During 1995 and 1994, the Company ceded $21.4 million and $23.6
million of earned premiums, respectively. The Company recovered from
retrocessionnaires $14.2 million and $52.0 million of losses during 1995
and 1994, respectively. Ceded premiums in 1994 included $6.4 million of
reinstatement premiums incurred by the Company primarily relating to the
Northridge earthquake. Ceded losses in 1994 included $28.7 million of
losses relating to the Northridge earthquake.
Commission expenses increased 11% to $19.4 million in 1995 from
$17.5 million in 1994. The commission ratio was 27.5% for 1995, compared
with 27.9% for 1994. The effect of net reinstatement premiums primarily
related to the Northridge earthquake added 2.2 points to the 1994
commission ratio. The increase in the commission ratio for 1995 compared
with the 1994 commission ratio, excluding the effect of catastrophe events,
is primarily attributable to the effect of adjustable commissions that are
based upon the results of reinsurance contracts.
Underwriting, administration and other expenses increased 11% in 1995
to $8.0 million from $7.2 million in 1994. The underwriting and other
expense ratio was 11.4% for 1995 as compared with 11.5% for 1994. The
effect of net reinstatement premiums related primarily to the Northridge
earthquake added 0.9 points to the 1994 ratio. The increase in
underwriting, administration and other expenses in 1995 was principally
caused by increased amortization and depreciation resulting from recent
capital expenditures primarily related to the development of information
systems.
The combined ratio was 105.6% for 1995, compared with 151.9% for
1994. The effect of property catastrophe events on the 1995 and 1994
combined ratio was (2.5) points and 59.0 points, respectively.
Net investment income increased 10% to $11.0 million for 1995 compared
with $10.0 million for 1994. The increase in net investment income (pre-
tax) primarily resulted from an increase in the proportion of taxable
investments in the Company's portfolio and positive operating cash flow
over the past twelve months. On an after-tax basis, net investment income
16<PAGE>
increased 1% to $8.2 million for 1995, compared with $8.1 million in 1994.
Net realized investment losses for 1995 were $100,000, compared with net
realized investment gains of $300,000 for 1994.
Interest expense increased 3% to $2.4 million in 1995 from
$2.3 million in 1994.
During 1995 the Company repurchased in the open market $5.9 million in
principal amount of its Subordinated Convertible Debentures (the
"Debentures")and recognized an extraordinary gain of $517,000 or $0.03 per
share, net of tax.
The Company's net income for 1995 was $4.4 million, or $0.24 per
share, on a primary basis, compared with a net loss of $14.4 million, or
$0.79 per share, on a primary basis, for 1994. The 1994 results were
affected by after-tax charges to operations, net of reinsurance, of $24.3
million, or $1.34 per share, for property catastrophe events. The 1995
results include an after-tax benefit to operations of $1.1 million, or
$0.06 per share, for net favorable development on pre-1995 property
catastrophe events. Average common and common equivalent shares
outstanding (on a primary basis) for 1995 were 18.2 million, compared with
18.2 million for 1994.
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 March 31, 1995.
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. Management also believes that the Company's
net deferred income tax benefits related to unrealized depreciation of
fixed maturity investments is recoverable through its ability to hold these
investments to maturity. 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 by
insurers domiciled in New York State without prior approval of the New York
Insurance Superintendent are limited for any twelve-month period to the
17<PAGE>
lesser of 10% of statutory surplus or adjusted net investment income (as
defined by The New York Insurance Law) for the previous twelve months.
During the twelve months ended March 31, 1995, $10.6 million of dividends
were declared to SCOR U.S. At March 31, 1995, the aggregate statutory
surplus of the SCOR U.S. operating subsidiaries was $244.5 million.
During 1995, the Company repurchased in the open market $5.9 million
in principal amount of the Debentures and recognized an extraordinary gain
of $517,000, or $0.03 per share, net of tax. These purchases, along with
the December 1994 repurchase of $3.9 million in principal amount of the
Debentures, were executed under a $10 million program authorized by the
Board of Directors. Funding for the aggregate amount of repurchased
Debentures, which purchases settled in January 1995, was provided by the
issuance of the Company's commercial paper.
In January 1995, the Board of Directors authorized the Company to
repurchase up to an additional $20 million of Debentures in the open
market, as market conditions permit. In connection with this additional
authorization, SCOR U.S. has established a $20 million credit agreement
with SCOR S.A., the proceeds of which are restricted to the repurchase of
the Debentures or the repayment of any debt incurred to repurchase
Debentures.
On October 1, 1990 SCOR U.S. renewed a $20.0 million bank note which
was payable on that date. This note is due and payable 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 related to 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
fixed rate payments due on the loan. The floating rate, which resets every
six months and is capped at 12.380, was 11.068% as of January 1, 1995.
SCOR U.S. has established a commercial paper program which allows it
to raise up to $50.0 million. At March 31, 1995, $20.0 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 March 31, 1995, 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 1995.
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 provided by operating activities was $7.7 million for 1995
compared with cash used in operations of $300,000 for 1994. Cash flow from
operating activities during 1994 was adversely affected by continued
property catastrophe paid loss activity as well as the payment of several
18<PAGE>
large 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.
At March 31, 1995, total investments and cash at carrying value were
$707.7 million compared with $677.6 million at December 31, 1994. The
increased level of investments and cash is primarily attributable to the
increase during the period in the fair value of investments carried at fair
value and the positive cash flow generated from operations. SCOR U.S.
fixed maturity investments are substantially all investment grade, liquid
securities with a weighted average maturity of 5.8 years. Approximately
99% of the fixed maturity portfolio is rated A or better. SCOR U.S. does
not have any investments in real estate or high yield bonds. At March 31,
1995, 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 March 31,
1995 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 gains (losses) resulting from foreign currency
transactions during the periods ending March 31, 1995 and 1994 were
($469,000) and $663,000, respectively.
Stockholders' equity at March 31, 1995 was $256.3 million, an increase
of $16.9 million compared with December 31, 1994. This increase resulted
primarily from net income of $4.4 million for the period, unrealized
appreciation of investments carried at fair value, net of tax effect, of
$13.4 million, less cash dividends declared of $900,000.
On March 10, 1995 the Company's Board of Directors reduced the regular
quarterly dividend to $.05 per share from the previous quarterly rate of
$.09 per share.
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
19<PAGE>
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 to surplus ratios
were 1.2 to 1 and 1.2 to 1 for 1995 and 1994, respectively.
RATINGS
Upon issuance in 1993, the Debentures were assigned an A3 rating from
Moody's Investors Service, Inc. ("Moody's") and were rated BBB-Plus by
Standard & Poor's Corp. ("S&P"). The Company's commercial paper program
had been rated P-1 by Moody's and A-1 by S&P since its establishment. On
November 22, 1994 S&P lowered its ratings on the Debentures to BBB and on
the commercial paper to A-2. S&P attributed its action to the Company's
volatile earnings record and reduced surplus resulting from its past
concentration in reinsuring property risks, while acknowledging that the
Company maintains a good position in the brokered reinsurance market, has a
sound investment strategy and benefits from its ownership by SCOR S.A.
Moody's has not changed any of the Company's ratings to date. Although the
Company may experience increased future borrowing costs as a result of
negative ratings changes, the Company has not experienced any significant
adverse effects due to S&P's action.
The Company recently was notified by A.M. Best & Company, Inc., an
independent insurance industry rating organization, that the rating of its
principal operating companies has been reduced from A+ (Superior) to A
(Excellent) for reasons similar to those noted above. The Company does not
expect any significant effect as a result of this action.
20<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is party to various lawsuits arising in the normal course of
its business. The Company does not believe that any of the litigation to
which it 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
10(v) SCOR U.S. Corporation Annual Incentive Plan for 1995
11 Computation of Earnings per Share
15 Letter re Unaudited Interim Financial Information
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)
Jeffrey D. Cropsey
Jeffrey D. Cropsey
Senior Vice President and
Chief Financial Officer
May 12, 1995
EXHIBIT 10(v)
SCOR U.S. GROUP
ANNUAL INCENTIVE PLAN FOR 1995
1. NAME AND PURPOSE. This Plan shall be known as the SCOR U.S.
Group Annual Incentive Plan. The purpose of the Plan is to
provide the officers of SCOR U.S. Corporation (the "Company"),
SCOR Reinsurance Company ("SCOR Re") and other subsidiaries of
the Company (hereinafter sometimes collectively referred to as
the "SCOR U.S. Group") designated from time to time by the
Committee (as defined in Paragraph 2) with the opportunity to
receive cash awards based on the successful achievement of the
operational and strategic objectives of the SCOR U.S. Group
during a given fiscal year (the "Plan Year") and thereby assist
the SCOR U.S. Group in attracting and retaining officers who
contribute to its success.
2. PLAN ADMINISTRATION. The Plan shall be administered jointly by
the Compensation Committees of the Boards of Directors of the
Company and SCOR Re (the "Committee"). The Committee shall have
full authority to interpret and administer the Plan and any rules
and regulations relating to it.
3. ELIGIBILITY. Each Plan Year, the CEO will recommend and the
Committee will approve those officers who shall be eligible as
participants to receive incentive payments under the Plan. The
Committee may approve the participation of officers at any time
during the Plan Year. Incentive payments to participants will be
based on base salary earnings (actual base salary dollars earned
during the Plan Year) as an active employee during the Plan Year.
Participation in any one year does not guarantee that an employee
or position will participate in any following year.
4. TARGET AWARDS. The size of the incentive payments to a
participant will be determined by target incentive awards
expressed as a percentage of base salary earnings. At the
beginning of each Plan Year, the CEO shall recommend and the
Committee shall set (a) the maximum aggregate amount of incentive
payments that can be paid pursuant to the Plan (the "Maximum
Aggregate Payout"), and (b) the target incentive awards for each
participant or class of participants during the Plan Year (the
"Original Target Incentives").
5. PERFORMANCE MEASURES. The awards generated by the Plan will be
calculated as provided in Paragraph 6 below and will be based on
the achievement by the SCOR U.S. Group of one or more financial
targets approved by the Committee at the beginning of each Plan
Year (the "Company Performance Measure"), as well as factors
relating to each individual participant. In establishing the
Company Performance Measure, the Committee will identify
threshold, target and superior levels of achievement. Individual<PAGE>
performance of each participant will be based upon management's
evaluation of achievement of pre-set individual goals and overall
performance of job responsibilities (the "Individual Performance
Evaluation").
6. CALCULATION OF AWARDS.
(a) The first step in calculating the awards under this Plan for
a Plan Year is to determine the Company Performance Measure
as soon as possible after the consolidated financial
statements of the Company for the Plan Year are available.
Guidelines for any adjustments to financial results will be
recommended by the Chief Financial Officer and approved by
the Committee each year at the beginning of the Plan Year.
In addition, the results set forth in the consolidated
financial statements for purposes of this Plan may be
adjusted by the Committee during or after the Plan Year to
reflect (i) extraordinary, unusual or non-recurring items or
events, including natural catastrophes, (ii) material
differences between any significant assumptions used in
establishing the Company Performance Measure target(s) and
actual events or conditions experienced during the Plan
Year, and (iii) comparative peer group performance during
the Plan Year.
(1) In the event the achievement of the Company Performance
Measure is at or above the target level, as modified by
the Committee as provided in the first paragraph of
this Paragraph 6(a), then, subject to adjustment as
provided in Paragraph 6(b) below, each participant
would be eligible to receive the Original Target
Incentive; provided, however, that each such Original
Target Incentive would also be subject to adjustment in
accordance with Paragraph 6(c) below.
(2) In the event the achievement of the Company Performance
Measure is at or above the threshold level but below
the target level, as modified by the Committee as
provided in the first paragraph of this Paragraph 6(a),
then, subject to adjustment as provided in Paragraph
6(b) below, each participant would be eligible to
receive an incentive award in an amount equal to the
product of the percentage of the Company Performance
Measure target achieved multiplied by the participant's
Original Target Incentive ("Modified Target
Incentive"); provided, however, that each such Modified
Target Incentive would also be subject to adjustment in
accordance with Paragraph 6(c) below.
(3) In the event the achievement of the Company Performance
Measure is below the threshold level, as modified by
the Committee as provided in the first paragraph of
this Paragraph 6(a) above, then no incentive awards
will be made using the Plan design; provided, however,
a pool of dollars equaling up to 20% of aggregate
individual Original Target Incentives calculated as of
December 31 of that Plan Year could be used to make
awards to selected officers, at management's
discretion, subject to approval by the Committee.<PAGE>
(b) In the event that the aggregate amount of the Original
Target Incentives for all participants calculated at the end
of the Plan Year as set forth in Paragraph 6(a)(1) above or
the aggregate amount of the Modified Target Incentives for
all participants calculated at the end of the Plan Year as
set forth in Paragraph 6(a)(2) above exceeds the Maximum
Aggregate Payout for that Plan Year, the Original Target
Incentive or Modified Target Incentive of each participant
shall be reduced by multiplying the proposed Original Target
Incentive or Modified Target Incentive of each participant
by a fraction the numerator of which is the Maximum
Aggregate Payout for that Plan Year and the denominator of
which is the aggregate amount of all Original Target
Incentives or Modified Target Incentives for that Plan Year.
(c) If incentive awards are generated pursuant to Paragraph
6(a), as modified in accordance with Paragraph 6(b), if
necessary, the CEO shall recommend, subject to the approval
of the Committee, increasing or decreasing the size of
individual awards under the Plan in order to (i) adjust the
opportunities for awards in recognition of the achievement
of an above-target Company Performance Measure, and (ii)
take into account management's Individual Performance
Evaluation of the participant, assessment of the
participant's contribution to the overall performance of the
SCOR U.S. Group during the Plan Year, and judgment as to
the criticality of the participant's role in enabling the
SCOR U.S. Group to achieve its strategic objectives.
(d) No award to a participant shall exceed 150% of that
participant's Original Target Incentive. The aggregate
amount of incentive awards to all participants shall not in
any event exceed the Maximum Aggregate Payout.
7. PAYMENTS. Payments will be made no later than March 15 following
the Plan Year.
8. TERMINATION FOR REASONS OTHER THAN DEATH, DISABILITY OR
RETIREMENT. If a participant terminates employment for any
reason, other than death, disability or retirement, as defined in
a Company-sponsored Plan, prior to date of payment, she or he is
ineligible to receive any payment under this Plan.
9. TERMINATION DUE TO DEATH, DISABILITY OR RETIREMENT. If a
participant terminates employment due to death, disability or
retirement, as defined in a Company-sponsored Plan, prior to the
end of the Plan Year, and has been actively employed for a
minimum of six months in that Plan Year, the employee shall be
eligible for a pro rata award based on her or his base salary
earnings as an active employee during the Plan Year. Payments to
employees whose employment has terminated for any reason, with
less than six months of service, shall be made at the sole
discretion of the Committee.
10. NO IMPLIED CONTRACT. The Plan shall not be construed to
constitute an employment contract between the Company or any of
its subsidiaries and any participant. All participants shall
remain subject to discharge to the same extent as if the Plan had
not been put into effect.<PAGE>
11. AMENDMENTS. The Board of Directors shall have the power to amend
the Plan or to suspend or terminate the Plan in whole or in part.
12. EFFECTIVE DATE. The Plan shall become effective on January 1,
1995.
13. MISCELLANEOUS.
(a) Any tax required to be withheld by any governmental
authority shall be deducted from each incentive payment.
(b) No payout of incentives shall be subject in any manner to
anticipation, alienation, pledge, transfer or assignment,
except by will or the laws of descent and distribution.
(c) Each payout of an incentive shall be from the general funds
of the Company, SCOR Re or any other subsidiary of the
Company designated by the Committee. No special or separate
fund shall be established or other segregation of assets
made to assure payout of any incentive. No participant
shall have any interest in any identifiable property or
assets of the Company or any of its subsidiaries.
(d) The Plan shall be construed and its provisions enforced and
administered in accordance with the laws of the State of New
York.<PAGE>
EXHIBIT A TO RESOLUTION APPROVING THE ANNUAL INCENTIVE PLAN
1) Maximum Aggregate Incentive Awards
In no event, shall the aggregate amount of incentive payments,
after tax, generated under this Plan with respect to a Plan Year
exceed an amount equal to 6% of the net income of the Company
calculated in conformity with GAAP, as adopted by the Company as
of the first day of the Plan Year, excluding any amounts accrued
during the Plan Year with respect to the Plan, after tax, which
reduce net income.
2) Individual Target Awards for 1995
TARGET AWARD
POSITION LEVEL % OF BASE SALARY
Senior Executives 35
Department Heads 30
Other Vice Presidents 25
Assistant Vice Presidents 20
Other Officers 15<PAGE>
EXHIBIT B TO RESOLUTION APPROVING THE ANNUAL INCENTIVE PLAN
SCOR U. S. GROUP PERFORMANCE SCALE FOR 1995
RETURN ON EQUITY
Performance Percentage ROE
Superior (150%) 13.5%
Target (100%) 9.0%
Threshold (60%) 5.4%
NOTES: (1) If the ROE falls between the percentages listed above,
the performance percentage shall be determined by
interpolation on a straight line basis rounded to the
nearest one tenth of one percent.
(2) - "Return on Equity" for any Plan Year means the
result of dividing (A) the Company's Net Income
for such Plan Year by (B) the Company's Average
Stockholders' Equity for such Plan Year, rounded
to the nearest one-tenth of one percent.
- "Net Income" for any Plan Year means the total net
income of the Company and its consolidated
subsidiaries for such Plan Year (including all
charges for any payments accrued under the Plan),
as computed in conformity with generally accepted
accounting principles and reported to stockholders
in the Company's consolidated financial statements
for such Plan Year.
- "Stockholders' Equity" at the end of any calendar
quarter shall be the amount set forth as
stockholders' equity in the financial statements
at such quarter end.
- "Average Stockholders' Equity" for any Plan Year
means the result of dividing (A) the sum of the
Stockholders' Equity as of the end of each of the
four calendar quarters in such Plan Year plus the
Stockholders' Equity as of the end of the calendar
quarter ending on December 31 of the year
immediately preceding Plan Year, by (B) five.
(3) Where appropriate, the results of peer group companies
may be used by the Board to modify evaluations of
results against the above goal.<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 11
SCOR U.S. CORPORATION
COMPUTATION OF EARNINGS PER SHARE
(In thousands, except per share data)
1995 1994
PRIMARY:
<S> <C> <C>
Net income (loss) applicable to common stock $ 4,393 $ (14,418)
====== ========
Average number of common shares outstanding 18,164 18,221
Add:
Assumed exercise of stock options -0- -0-
------ ------
Common and common equivalent shares outstanding 18,164 18,221
====== ======
Net income (loss) per share assuming
exercise of common stock equivalents $ 0.24 $ (0.79)
====== ======
FULLY DILUTED:
Net income (loss) applicable to common stock $ 4,393 $ (14,418)
====== ========
Average number of common shares outstanding 18,164 18,221
Add:
Assumed exercise of stock options -0- -0-
------ ------
Common and common equivalent shares outstanding
assuming full dilution 18,164 18,221
====== ======
Net income (loss) per share assuming full dilution $ 0.24 $ (0.79)
====== ======
</TABLE>
<PAGE>
EXHIBIT 15
SCOR U.S. Corporation
New York, New York
Gentlemen:
We acknowledge our awareness that our report dated May 2, 1995
related to our review of interim financial information for SCOR
U.S. Corporation for the three month period ended March 31, 1995
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).
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
May 2, 1995<PAGE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 7
<CIK> 0000798363
<NAME> SCOR U.S. CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> QTR-1
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<DEBT-HELD-FOR-SALE> 0
<DEBT-CARRYING-VALUE> 23,713
<DEBT-MARKET-VALUE> 590,352
<EQUITIES> 494
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 699,574
<CASH> 8,085
<RECOVER-REINSURE> 13,465
<DEFERRED-ACQUISITION> 23,393
<TOTAL-ASSETS> 1,167,574
<POLICY-LOSSES> 391,349<F1>
<UNEARNED-PREMIUMS> 93,708<F2>
<POLICY-OTHER> 34,355
<POLICY-HOLDER-FUNDS> 19,425
<NOTES-PAYABLE> 121,454
<COMMON> 5,507
0
0
<OTHER-SE> 250,834
<TOTAL-LIABILITY-AND-EQUITY> 1,167,574
70,597
<INVESTMENT-INCOME> 10,978
<INVESTMENT-GAINS> (112)
<OTHER-INCOME> 0
<BENEFITS> 47,109
<UNDERWRITING-AMORTIZATION> 19,420
<UNDERWRITING-OTHER> 8,020
<INCOME-PRETAX> 4,510
<INCOME-TAX> 634
<INCOME-CONTINUING> 3,876
<DISCONTINUED> 0
<EXTRAORDINARY> 517
<CHANGES> 0
<NET-INCOME> 4,393
<EPS-PRIMARY> 0.24
<EPS-DILUTED> 0.24
<RESERVE-OPEN> 382,115<F3>
<PROVISION-CURRENT> 45,557
<PROVISION-PRIOR> 1,552
<PAYMENTS-CURRENT> 2,120
<PAYMENTS-PRIOR> 35,755
<RESERVE-CLOSE> 391,349<F1>
<CUMULATIVE-DEFICIENCY> 1,552
<FN>
<F1>Reserve for losses and loss expenses at March 31, 1995 is presented
net of reinsurance recoverable on unpaid losses of $222,966.
<F2>Unearned premiums at March 31, 1995 is presented net of ceded unearned
premiums of $17,066.
<F3>Reserve for losses and loss expenses at December 31, 1994 is presented
net of reinsurance recoverable on unpaid losses of $222,672.
</FN>
</TABLE>
