<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly report under section 13 or 15(d) of the Securities Exchange Act
of 1934. For the period ended June 30, 1999.
or
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934. For the transition period from _____________ to
_____________ .
Commission File Number 1-10760
MUTUAL RISK MANAGEMENT LTD.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
BERMUDA NOT APPLICABLE
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
44 Church Street,
Hamilton HM 12, Bermuda
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
(441) 295-5688
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Not applicable
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
The number of outstanding shares of the registrant's Common Stock, $0.01 par
value, as of June 30, 1999 was 43,518,826.
<PAGE>
MUTUAL RISK MANAGEMENT LTD.
I N D E X
Part I. Financial Information:
<TABLE>
<CAPTION>
<S> <C>
Item 1. Financial Statements:
Unaudited Consolidated Statements of Income and Comprehensive Income
for the quarter and six month periods ended June 30, 1999 and 1998 3
Unaudited Consolidated Balance Sheets at June 30, 1999
and December 31, 1998 4
Unaudited Consolidated Statements of Cash Flows for the
six month periods ended June 30, 1999 and 1998 5
Unaudited Consolidated Statements of Changes in Shareholders' Equity for
the periods ended June 30, 1999 and December 31, 1998 6
Notes to Unaudited Consolidated Financial Statements at
June 30, 1999 7-8
Item 2. Management's Discussion and Analysis of Financial 9-15
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures about 15
Market Risk
PART II. Other Information:
Item 2. Changes in Securities 16
Item 4. Submission of matters to a vote of Security Holders 16
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
Exhibits
Exhibit 3(ii) - Amended Bye-laws of the Company
Exhibit 11 - Computation of Net Earnings per Common
Share and Common Share Equivalents
Exhibit 27 - Financial Data Schedule
</TABLE>
2
<PAGE>
MUTUAL RISK MANAGEMENT LTD. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
Quarter ended June 30, Six months ended June 30,
1999 1998 (a) 1999 1998 (a)
REVENUES
<S> <C> <C> <C> <C>
Fee income $ 45,784,153 $37,887,248 $ 91,278,028 $ 73,711,689
Premiums earned 50,233,190 20,877,189 89,017,827 49,806,383
Net investment income 9,442,791 7,158,854 16,663,438 15,223,346
Realized capital losses (1,531,951) (944,594) (1,029,574) (1,157,247)
Other (losses) income (111,545) 174,803 (220,485) 43,501
------------ ----------- ------------ ------------
Total Revenues 103,816,638 65,153,500 195,709,234 137,627,672
------------ ----------- ------------ ------------
EXPENSES
Losses and loss expenses incurred 41,563,127 12,378,364 67,792,538 33,877,354
Acquisition costs 9,918,526 8,795,924 23,413,737 16,891,793
Operating expenses 30,436,875 23,673,281 59,537,010 47,017,148
Interest expense 1,521,272 1,717,338 3,123,346 3,444,671
Other expenses 663,646 440,082 1,323,814 806,394
------------ ----------- ------------ ------------
Total Expenses 84,103,446 47,004,989 155,190,445 102,037,360
------------ ----------- ------------ ------------
INCOME BEFORE INCOME TAXES AND
MINORITY INTEREST 19,713,192 18,148,511 40,518,789 35,590,312
Income taxes 1,615,299 2,056,911 3,629,584 4,324,207
------------ ----------- ------------ ------------
INCOME BEFORE MINORITY INTEREST 18,097,893 16,091,600 36,889,205 31,266,105
Minority interest (2,650) 0 4,975 0
------------ ----------- ------------ ------------
Net income available to common shareholders 18,095,243 16,091,600 36,894,180 31,266,105
Other comprehensive income, net of tax:
Unrealized losses on investments, net (7,332,063) (332,609) (10,824,111) (561,079)
of reclassification adjustment ------------ ----------- ------------ ------------
COMPREHENSIVE INCOME $ 10,763,180 $15,758,991 $ 26,070,069 $ 30,705,026
============ =========== ============ ============
EARNINGS PER COMMON SHARE:
Net income available to Common Shareholders:
Basic EPS $0.42 $0.39 $0.86 $0.77
============ =========== ============ ============
Diluted EPS $0.39 $0.35 $0.79 $0.69
============ =========== ============ ============
Dividends per share $0.06 $0.05 $0.12 $0.10
============ =========== ============ ============
Weighted average number of Common
Shares outstanding - basic 43,411,317 41,379,758 43,024,869 40,668,137
============ =========== ============ ============
Weighted average number of Common
Shares outstanding - diluted 50,600,829 50,240,888 50,507,111 50,005,344
============ =========== ============ ============
</TABLE>
(a) Prior period results have been restated to reflect a pooling of interests
following the acquisition of Captive Resources, Inc.,CompFirst, Inc. and
the International Advisory Services Group of Companies.
See Accompanying Notes to Unaudited Consolidated Financial Statements
3
<PAGE>
MUTUAL RISK MANAGEMENT LTD. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998(a)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 76,651,571 $ 117,422,652
Investments : Held in available for sale account at fair
value (Amortized cost $459,313,155; 1998 - $455,648,153) 450,078,219 460,624,263
-------------- --------------
Total marketable investments 526,729,790 578,046,915
Other investments 21,635,318 22,473,945
Investment income due and accrued 4,167,636 5,252,341
Accounts receivable 469,631,064 353,869,570
Reinsurance receivables 1,219,961,317 1,079,562,857
Deferred expenses 35,891,894 27,215,385
Prepaid reinsurance premiums 262,951,860 206,486,764
Fixed assets 23,624,972 19,671,107
Deferred tax benefit 3,567,307 898,853
Goodwill 51,587,208 52,901,100
Other assets 13,148,036 5,615,792
Assets held in separate accounts 737,178,765 722,262,819
-------------- --------------
Total Assets $3,370,075,167 $3,074,257,448
============== ==============
LIABILITIES & SHAREHOLDERS' EQUITY
LIABILITIES
Reserve for losses and loss expenses $1,342,604,841 $1,190,425,877
Reserve for unearned premiums 309,099,700 241,893,089
Pension fund reserves 70,125,012 79,753,421
Claims deposit liabilities 33,291,687 37,447,768
Accounts payable 285,405,876 243,418,491
Accrued expenses 8,485,195 12,051,758
Taxes payable 20,641,906 14,849,898
Loans payable 3,523,223 3,537,671
Prepaid fees 52,078,977 47,126,199
Debentures 114,093,336 125,485,201
Other liabilities 7,824,630 12,839,258
Liabilities related to separate accounts 737,178,765 722,262,819
-------------- --------------
Total Liabilities 2,984,353,148 2,731,091,450
============== ==============
SHAREHOLDERS' EQUITY
Common Shares - Authorized 180,000,000 (par value $0.01)
Issued 43,518,826 (1998 - 42,205,596) 435,188 422,056
Additional paid-in capital 137,520,960 114,916,045
Accumulated other comprehensive income (loss) (6,367,330) 4,456,781
Retained earnings 254,133,201 223,371,116
-------------- --------------
Total Shareholders' Equity 385,722,019 343,165,998
-------------- --------------
Total Liabilities & Shareholders' Equity $3,370,075,167 $3,074,257,448
============== ==============
</TABLE>
(a) Prior period results have been restated to reflect a pooling of interests
following the acquisition of Captive Resources, Inc.
See Accompanying Notes to Unaudited Consolidated Financial Statements
4
<PAGE>
MUTUAL RISK MANAGEMENT LTD. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended June 30,
NET CASH FLOW FROM OPERATING ACTIVITIES 1999 1998(a)
<S> <C> <C>
Net income $ 36,894,180 $ 31,266,105
Items not affecting cash:
Depreciation 3,228,371 2,870,901
Amortization of investments (919,120) 4,526,222
Net (gain) loss on sale of investments 1,392,924 (96,928)
Other investment (gains) losses (360,916) (599,114)
Amortization of convertible debentures 3,028,535 3,332,384
Deferred tax benefit 718,481 (1,862,355)
Other items, net 1,028,200 462,123
Net changes in non-cash balances relating to operations:
Accounts receivable (115,761,494) (82,804,982)
Reinsurance receivables (140,398,460) (86,712,221)
Investment income due and accrued 1,084,705 (426,284)
Deferred expenses (8,676,509) 3,450,938
Prepaid reinsurance premiums (56,465,096) (48,617,031)
Other assets (7,532,244) 1,110,784
Reserve for losses and loss expenses 152,178,964 88,920,094
Prepaid fees 4,952,777 4,215,707
Reserve for unearned premium 67,206,611 52,456,459
Accounts payable 41,987,385 33,959,589
Taxes payable 5,792,008 1,532,856
Accrued expenses (3,566,563) 467,775
Other liabilities (5,156,510) 1,504,710
------------- ------------
NET CASH (APPLIED TO) FROM OPERATING ACTIVITIES (19,343,771) 8,957,732
------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of investments - Available for sale 40,188,085 52,307,121
Proceeds from maturity of investments - Available for sale 33,683,069 26,622,831
Fixed assets purchased (7,213,937) (5,959,809)
Investments purchased - Available for sale (78,009,960) (82,712,167)
Acquisitions and other investments 924,866 (10,145,734)
Proceeds from sale of other investments 576,522 2,928,891
Other items, net 28,047 5,309
------------- ------------
NET CASH APPLIED TO INVESTING ACTIVITIES (9,823,308) (16,953,558)
------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Loan repayment & interest received - 388,683
Loan (repaid) received (14,448) (9,517)
Proceeds from shares issued 8,185,147 4,505,321
Claims deposit liabilities (4,156,081) 975,406
Pension fund reserves (9,628,409) -
Dividends paid (5,990,211) (5,224,916)
------------- ------------
NET CASH (APPLIED TO) FROM FINANCING ACTIVITIES (11,604,002) 634,977
------------- ------------
Net decrease in cash and cash equivalents (40,771,081) (7,360,849)
Cash and cash equivalents at beginning of period 117,422,652 82,706,146
------------- ------------
Cash and cash equivalents at end of period $ 76,651,571 $ 75,345,297
============= ============
Supplemental cash flow information:
Interest paid $ 94,811 $ 112,287
============= ============
Income taxes paid, net $ 0 $ 4,063,973
============= ============
</TABLE>
(a) Prior period results have been restated to reflect a pooling of interests
following the acquisition of Captive Resources, Inc., CompFirst, Inc. and
the International Advisory Services Group of Companies.
See Accompanying Notes to Unaudited Consolidated Financial Statements
5
<PAGE>
MUTUAL RISK MANAGEMENT LTD. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common
Change in Share Dividend
Opening Shares Unrealized Net Dividends Acquired Closing
Balance Issued (Loss) Gain (1) Income Declared (2) Companies (3) Balance
<S> <C> <C> <C> <C> <C> <C> <C>
Six Months Ended June 30, 1999
- ------------------------------
Common Shares $ 422,056 $ 13,132 $ - $ - $ - $ - $ 435,188
Additional paid-in capital 114,916,045 22,604,915 - - - - 137,520,960
Accumulated other
comprehensive income (loss) 4,456,781 - (10,824,111) - - - (6,367,330)
Retained earnings 223,371,116 - - 36,894,180 (5,241,159) (890,936) 254,133,201
------------ ----------- ------------ ----------- ----------- --------- ------------
Total Shareholders' Equity
at June 30, 1999 $343,165,998 $22,618,047 $(10,824,111) $36,894,180 $(5,241,159) $(890,936) $385,722,019
============ =========== ============ =========== =========== ========= ============
Year Ended December 31, 1998 (4)(5)
- -----------------------------------
Common Shares $ 398,795 $ 23,261 $ - $ - $ - $ - $ 422,056
Additional paid-in capital 89,339,040 25,577,005 - - - - 114,916,045
Accumulated other
comprehensive income 4,035,397 - 421,384 - - - 4,456,781
Retained earnings 169,801,514 - - 64,527,198 (8,827,418) (2,130,178) 223,371,116
------------ ----------- ------------ ----------- ----------- --------- ------------
Total Shareholders' Equity
at December 31, 1998 $263,574,746 $25,600,266 $421,384 $64,527,198 $(8,827,418) $(2,130,178) $343,165,998
============ =========== ============ =========== =========== ========= ============
</TABLE>
(1) Net of reclassification adjustment, net of tax (See Note 2).
(2) Dividend per share amounts were $.12 and $.21 for the six months ended
June 30, 1999 and the year ended December 31, 1998, respectively.
(3) Prior to the mergers, International Advisory Services and Captive Resources
paid dividends of $1.12 and $.84 in 1998 and 1999 respectively based on the
equivalent number of Common Shares that would have been outstanding on the
dividend dates after giving effect to the pooling of interests.
(4) Prior period results have been restated to reflect a pooling of interests
following the acquisition of Captive Resources, Inc.
(5) See Note 3.
See Accompanying Notes to Unaudited Consolidated Financial Statements
6
<PAGE>
MUTUAL RISK MANAGEMENT LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
1. INTERIM ACCOUNTING POLICY
In the opinion of management of the Company, the accompanying unaudited
consolidated financial statements include all adjustments, consisting only of
normal recurring adjustments, necessary to present fairly the financial position
of the Company and the results of operations and cash flows for the quarter and
six months ended June 30, 1999 and 1998. Although the Company believes that the
disclosure in these financial statements is adequate to make the information
presented not misleading certain information and footnote information normally
included in financial statements prepared in accordance with generally accepted
accounting principles has been condensed or omitted pursuant to the rules and
regulations of the Securities and Exchange Commission. Results of operations for
the quarter and six months ended June 30, 1999 are not necessarily indicative of
what operating results may be for the full year.
2. COMPREHENSIVE INCOME
Statement 130 requires unrealized gains or losses on the Company's available for
sale investments, to be included in Other comprehensive income.
<TABLE>
<CAPTION>
Six Months ended June 30, 1999 Quarter ended June 30, 1999
(In thousands) Before tax Net of tax Before tax Net of tax
Amount Tax Amount Amount Tax Amount
---------- --- ---------- ---------- --- ----------
<S> <C> <C> <C> <C> <C> <C>
Net unrealized (losses)
gains on available for
sale investments arising
during the period. $(15,604) $3,403 $(12,201) $(11,100) $2,289 $(8,811)
Less: reclassification
adjustment for gains
realized in net income 1,393 (16) 1,377 1,527 (48) 1,479
------ ----- ------ ------ ----- -----
Other comprehensive income $(14,211) $3,387 $(10,824) $ (9,573) $2,241 $(7,332)
====== ===== ====== ====== ===== =====
<CAPTION>
Six Months ended June 30, 1998 Quarter ended June 30, 1998
(In thousands) Before tax Net of tax Before tax Net of tax
Amount Tax Amount Amount Tax Amount
---------- --- ---------- ---------- --- ----------
<S> <C> <C> <C> <C> <C> <C>
Net unrealized gains
(losses) on available for
sale investments arising
during the period. $ (2,336) 651 $ (1,685) $ (2,701) $1,312 $(1,389)
Less: reclassification
adjustment for losses
realized in net income 1,706 (582) 1,124 1,544 (487) 1,057
------ ----- ------ ------ ----- -----
Other comprehensive income $ (630) $ 69 $ (561) $ (1,157) $ 825 $ (332)
====== ===== ====== ====== ===== =====
</TABLE>
7
<PAGE>
3. ACQUISITIONS
On March 1, 1999, the Company acquired Captive Resources, Inc. ("CRI") in a
business combination accounted for as a pooling of interests. CRI became a
wholly owned subsidiary of the Company through the exchange of 1,058,766 Common
Shares for 100% of its outstanding stock.
<TABLE>
<CAPTION>
(In thousands) Quarter ended Six Months ended
June 30, 1998 June 30, 1998
-------------- ----------------
<S> <C> <C>
Revenues
MRM (1) $63,120 $133,735
Acquired company 2,034 3,893
------- --------
As restated $65,154 $137,628
======= ========
Net Income available to common shareholders
MRM (1) $15,490 $ 30,395
Acquired company 602 871
------- --------
As restated $16,092 $ 31,266
======= ========
</TABLE>
(1) As previously-reported in footnote 19 of the December 31, 1998 Form 10-K.
Shareholders' equity at January 1, 1998 was restated as follows:
<TABLE>
<CAPTION>
(In thousands) As previously Acquired As restated
reported company
<S> <C> <C> <C>
Common shares $ 388 $ 11 $ 399
Additional paid-in capital 89,349 (10) 89,339
Accumulated other
comprehensive income 4,035 - 4,035
Retained earnings 169,517 285 169,802
-------- ---- --------
Total shareholders' equity $263,289 $286 $263,575
======== ==== ========
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
4. SEGMENT INFORMATION Quarter ended June 30, Six Months ended June 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Revenue
Program Business $ 26,047 $19,537 $ 48,955 $ 35,744
Corporate Risk Management 11,803 12,690 26,828 27,392
Specialty Brokerage 3,300 2,444 6,441 4,458
Financial Services 4,634 3,216 9,054 6,118
Underwriting 50,233 20,877 89,018 49,806
Net investment income 7,911 6,215 15,633 14,066
Other (111) 175 (220) 43
----------------------------- ---------------------------------
Total $103,817 $65,154 $195,709 $137,627
----------------------------- ---------------------------------
Income before income taxes and Minority interest
Program Business $ 9,333 $ 8,002 $ 17,499 $ 13,756
Corporate Risk Management 4,553 5,333 11,100 11,918
Specialty Brokerage 1,264 823 2,792 1,129
Financial Services 197 56 349 (108)
Underwriting (1,249) (297) (2,188) (963)
Net investment income 6,390 4,498 12,511 10,621
Other (775) (266) (1,544) (763)
----------------------------- ---------------------------------
Total $ 19,713 $18,149 $ 40,519 $ 35,590
----------------------------- ---------------------------------
</TABLE>
The subsidiaries' accounting records do not capture information by reporting
segment sufficient to determine identifiable assets by such reporting
segments.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
For the Quarter and Six Months ended june 30, 1999 and 1998
The results of operations for the quarter and six months ended June 30, 1999
reflect a continuation of growth in Fee income and Net income due primarily to
the growth of existing accounts. Net income available to common shareholders
amounted to $36.9 million or $0.79 per Common Share on a diluted basis for the
six months ended June 30, 1999, representing an increase of 14% on a per share
basis over the corresponding period as shown in the tables below.
TABLE 1 - EARNINGS PER SHARE
<TABLE>
<CAPTION>
Second Quarter to June 30,
1999 1998 (a)
------------------------- -------------------------
($ thousands except per share data)
PER PER
COMMON SHARE COMMON SHARE
---------------- ----------------
Basic Diluted Basic Diluted
<S> <C> <C> <C> <C> <C> <C>
Net income available to
Common Shareholders $18,095 $ 0.42 $ 0.39 $16,092 $ 0.39 $ 0.35
======= ======= ======= ======== ======= =======
Average number of
shares outstanding (000's) 43,411 50,601 41,380 50,241
------- ------- ------- -------
</TABLE>
<TABLE>
<CAPTION>
Six Months ended June 30,
1999 1998 (a)
------------------------- -------------------------
($ thousands except per share data)
PER PER
COMMON SHARE COMMON SHARE
---------------- ----------------
Basic Diluted Basic Diluted
<S> <C> <C> <C> <C> <C> <C>
Net income available to
Common Shareholders $36,894 $ 0.86 $ 0.79 $31,266 $ 0.77 $ 0.69
======= ======= ======= ======= ======= =======
Average number of
shares outstanding (000's) 43,025 50,507 40,668 50,005
------- ------- ------- -------
</TABLE>
(a) Prior period results have been restated to reflect a pooling of interests
following the acquisitions of Captive Resources, Inc., CompFirst, Inc. and
the International Advisory Services Group of Companies.
Total revenues amounted to $103.8 million and $195.7 million for the quarter and
six months ended June 30, 1999, representing increases of 59% and 42% over the
corresponding 1998 periods. Table II shows the major components of Revenues for
these periods.
10
<PAGE>
TABLE II - REVENUES
<TABLE>
<CAPTION>
Periods to June 30,
(In thousands)
Second Quarter Six Months
1999 1998 Growth 1999 1998 Growth
--------- -------- -------- --------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Fee income $ 45,784 $37,887 21% $ 91,278 $ 73,712 24%
Premiums earned 50,233 20,877 141% 89,018 49,806 79%
Net investment income 9,443 7,159 32% 16,663 15,223 9%
Realized capital losses (1,532) (944) (62%) (1,030) (1,157) 11%
Other income (111) 175 NM (220) 43 NM
-------- ------- -------- --------
$103,817 $65,154 59% $195,709 $137,627 42%
======== ======= ======== ========
</TABLE>
SEGMENT ANALYSIS
The components of Fee income by business segment are illustrated in
Table III.
TABLE III - FEE INCOME BY BUSINESS SEGMENT
<TABLE>
<CAPTION>
Periods to June 30,
Second Quarter Six Months
1999 1998 Growth 1999 1998 Growth
------- ------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Program business $26,047 $19,537 33% $48,955 $35,744 37%
Corporate risk
management 11,803 12,690 (7%) 26,828 27,392 (2%)
Specialty brokerage 3,300 2,444 35% 6,441 4,458 44%
Financial services 4,634 3,216 44% 9,054 6,118 48%
------- ------- ------- -------
Total $45,784 $37,887 21% $91,278 $73,712 24%
======= ======= ======= =======
</TABLE>
11
<PAGE>
Program Business
Program Business involves replacing traditional insurers and acting as a conduit
between producers of specialty books of business and reinsurers wishing to write
that business. The segment accounted for 57% of total Fee Income in the quarter
and 54% for the first six months of 1999 compared to 52% and 48% in the
corresponding 1998 periods. Program Business fees increased 33% in the second
quarter to $26.0 million and 37% to $49.0 million in the first six months as
compared to $19.5 million and $35.7 million, respectively, in 1998. This
resulted from the continued expansion of this business segment especially
through the growth of existing programs. Profit margins were 36% for both the
quarter and six months of 1999, down from 41% and 38% for the corresponding
periods of 1998. However, excluding underwriting management operations, margins
in the Program Business segment remained flat at approximately 47% for all
periods.
Gross premiums written increased 27% to $556 million for the first six months of
1999 as compared to $436 million in 1998, primarily as a result of the growth
within the Program Business segment. Program Business generally involves greater
premium volume per unit than Corporate Risk Management business. Premiums earned
increased 141% to $50.2 million in the second quarter and 79% to $89.0 million
in the first six months of 1999, as compared to $20.9 million and $49.8 million
in the corresponding 1998 periods. These increases in Premiums earned were also
primarily due to the growth within the Program Business segment.
Corporate Risk Management
Corporate Risk Management, the Company's original business segment, involves
providing services to businesses and associations seeking to insure a portion of
their risk in a loss sensitive Alternative Market structure. This segment
accounted for 26% of total Fee income in the second quarter and 29% for the
first six months of 1999, down from 33% and 38% in the corresponding 1998
periods. Corporate Risk Management fees decreased by 7% in the second quarter to
$11.8 million, compared to $12.7 million in the second quarter of 1998, and by
2% in the first six months to $26.8 million, compared to $27.4 million in 1998,
reflecting the continuation of the soft insurance market cycle for commercial
risks. Profit margins were 39% in the second quarter and 41% for the first six
months of 1999, compared to 42% and 44% in the corresponding 1998 periods.
Specialty Brokerage
The Company's Specialty Brokerage business segment provides access to
Alternative Risk Transfer insurers and reinsurers in Bermuda and Europe. The
segment produced $3.3 million of total Fee income in the second quarter and $6.4
million in the first six months of 1999, representing 7% of total Fee income in
both the second quarter and the first six months. Specialty Brokerage fees grew
by 35% in the second quarter and 44% in the first six months of 1999 from $2.4
million and $4.5 million in the corresponding 1998 periods as a result of
increased business placed in Bermuda and London. Profit margins increased to 38%
in the second quarter and to 43% for the first six months from 34% and 25% in
the corresponding 1998 periods as a result of the increased revenues.
Financial Services
Financial Services, the Company's newest business segment, provides
administrative services to offshore mutual funds and other companies. The
segment accounted for 10% of total Fee income for both the second quarter and
six month periods of 1999. Fees from Financial Services increased in the quarter
by 44% to $4.6 million over the 1998 corresponding period, and by 48% to $9.1
million for the half year, primarily as a result of an increase in the number of
mutual funds under administration from 163 at June 30, 1998 to 237. Profit
margins in the Financial Services segment have been adversely affected in 1998
12
<PAGE>
and 1999 by the previously announced revised executive incentive plan and staff
expansion costs to service new business, but increased to 4% in both the second
quarter and the first six months of 1999. Excluding the effect of the revised
executive incentive plan, the profit margins in this segment would have been 15%
for both the quarter and six months as compared to 20% and 15% for the
corresponding 1998 periods.
Investment Income
Gross investment income increased by $1.6 million or 9.3% to $18.8 million in
the first six months of 1999 over the corresponding 1998 period primarily as a
result of an increase in the yield on invested assets.
Net investment income increased by 32% to $9.4 million in the second quarter and
by 9% to $16.7 million for the first six months of 1999. Investment yields rose
to 9.0% in the second quarter and 7.8% for the first six months of 1999 as
compared to 7.0% and 7.5% in 1998. The increase in yield in the quarter was due
to higher rates of return on invested assets in Bermuda and the inclusion of
income from one of the Company's programs accounted for as Claims deposit
liabilities which resulted from a change in the structure of the program. This
increased yield was partly offset by Realized capital losses in the portfolio.
TABLE IV - EXPENSES
<TABLE>
<CAPTION>
Periods to June 30,
Second Quarter Six Months
1999 1998 Increase 1999 1998 Increase
------- ------- ---------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Operating expenses $30,437 $23,673 29% $ 59,537 $ 47,017 27%
Total insurance costs 51,482 21,174 143% 91,206 50,769 80%
Interest expense 1,521 1,717 (11%) 3,123 3,445 (9%)
Other expenses 664 441 51% 1,324 806 64%
------- ------- -------- --------
Total $84,104 $47,005 79% $155,190 $102,037 52%
======= ======= ======== ========
</TABLE>
Operating expenses increased 29% to $30.4 million for the quarter, compared to
$23.7 million in the second quarter of last year, and increased 27% to $59.5
million for the first six months of 1999, compared to $47.0 million in the first
six months of 1998. The increase in Operating expenses is attributable to growth
in personnel and other expenses resulting from the increased business as well as
recent acquisitions. Excluding these acquisitions, the increase in operating
expenses would have been 22% for the second quarter and 20% for the six months.
The increases in Total insurance costs are the direct result of the increases in
premiums earned during the quarter and six months.
The effective tax rate was 8.2% in the quarter and 9.0% for the six months of
1999 compared to 11.3% and 12.2% in the corresponding 1998 periods. The decrease
in the quarterly and six month rates is due mainly to an increase in earnings
outside of the United States. This, plus the Company's investment in tax-exempt
municipal securities and the tax benefit derived from the exercise of employee
stock options, offset by state income taxes and foreign taxes, are the major
causes of the difference between the expected federal income tax rate in the
United States of 35% plus state income taxes and the Company's effective rates.
13
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Total assets increased to $3.4 billion at June 30, 1999 from $3.1 billion at
December 31, 1998. Assets held in separate accounts which are principally
managed assets attributable to participants in the Company's IPC Programs
accounted for approximately 22% of Total assets at June 30, 1999 and 23% at
December 31, 1998. Total Shareholders' equity increased to $386 million at June
30, 1999 from $343 million at December 31, 1998 primarily as a result of Net
income in the period and the issuance of Common Shares on the conversion of
Debentures offset by the payment of dividends and the change in the unrealized
loss on investments. Return on equity was 20% for the first six months of 1999.
CASH FLOW
Cash flow from operations has historically provided the Company its principal
source of liquidity. Cash flow was negative in the quarter, but improved from
the first quarter where negative cash flow resulted from the Company's Program
Business segment not producing the expected levels of cash flow. The Company
believes it will return to a positive cash flow during the year and will be able
to meet its liquidity requirements.
IMPACT OF THE YEAR 2000 ISSUE
The Company began assessing the impact of the Year 2000 issue on its computer
hardware and software systems in 1997. Certain systems have been identified for
replacement before year-end 1999 due to normal business requirements. The
replacement systems will be assessed for Year 2000-related problems. Remediation
is expected to continue through the end of the 1999 third quarter. Currently
management has inventoried and is conducting a review of all such systems. As of
June 30, 1999, the Company's historical Year 2000 remediation costs have not
been material and future costs are not expected to exceed $.5 million. The
Company's lack of legacy systems is fortunate, most of its applications are PC
databases, some networked but most from a programming stand point, easily
corrected. As of this disclosure date, management has not identified any
hardware or software computer system within the Company with a significant Year
2000 compliance problem that is expected to have a materially adverse effect on
the Company's financial condition or results of operations. As the Company
regularly updates its hardware and software the pure additional cost for Year
2000 compliance should not be material.
The Company continues to assess the Year 2000 compliance of its critical
business operations and products that could potentially be affected by the Year
2000 problem. The purpose of this review is to determine what impact, if any,
the Year 2000 issue may have on the Company and its significant customers,
suppliers, and others, and whether that impact will be material to the Company's
financial condition or results of operations. The Company is in the process of
contacting its critical customers, reinsurance intermediaries, managing general
agents, suppliers, and others to determine the nature and extent of their Year
2000 compliance efforts and to assess whether their failure to resolve their own
Year 2000 issues would have a material adverse affect on the Company's financial
condition or results of operations. Based on these assessments, management will
take such further action as they deem appropriate including, but not limited to,
the development of contingency plans.
The extent to which the Company's financial condition or results of operations
may be materially affected by the Year 2000 problems of third parties depends on
a variety of factors including, but not limited to, whether these third parties
can resolve their own Year 2000 issues; whether their remediated systems remain
compatible with the Company's systems; and the nature and extent to which the
Company's systems may be affected by the third party's non compliant systems.
Significant failures of certain essential services including, but not limited
to, the telecommunications, utility, banking, securities, and transportation
industries, due to their own Year 2000 problems are generally beyond the
Company's control and could have an adverse material impact on the Company's
financial condition or results of operations.
14
<PAGE>
SAFE HARBOR DISCLOSURE FOR FORWARD-LOOKING STATEMENTS
In connection with the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995 (the "1995 Act"), the Company sets forth below
cautionary statements identifying important factors that could cause the
Company's actual results to differ materially from those which might be
projected, forecasted, or estimated or otherwise implied in the Company's
forward-looking statements, as defined in the 1995 Act, made by or on behalf of
the Company in press releases, written statements or documents filed with the
Securities and Exchange Commission, or in its communications and discussions
with investors and analysts in the normal course of business through meetings,
telephone calls and conference calls. Such statements may include, but are not
limited to, projections of Fee income, Premiums earned, Net investment income,
Other income, Losses and loss expenses incurred, Acquisition costs, Operating
expenses, Other expenses, earnings (including earnings per share), cash flows,
plans for future operations, Shareholders' equity, financing needs, capital
plans, dividends, plans relating to products or services of the Company, and
estimates concerning the effects of litigation or other disputes, as well as
assumptions for any of the foregoing and are generally expressed with words such
as "believes", "estimates", "expects", "anticipates", "could have", "may have",
and similar expressions.
Forward-looking statements are inherently subject to risks and uncertainties.
The Company cautions that factors which may cause the Company's results to
differ materially from such forward-looking statements include, but are not
limited to, the following: (a) Changes in the level of competition in the
reinsurance or primary insurance markets that adversely affect the volume or
profitability of the Company's business. These changes include, but are not
limited to, the intensification of price competition, the entry of new
competitors, existing competitors exiting the market, and the development of new
products by new and existing competitors; (b) Changes in the demand for
reinsurance, including changes in ceding companies' retentions, and changes in
the demand for primary and excess and surplus lines insurance coverages; (c) The
ability of the Company to execute its business strategies and its reliance on
key personnel; (d) Adverse development on claims and claims expense liabilities
related to business and the failure of clients, reinsurers or others to meet
their obligations to the Company in connection with such losses.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
No material change from the disclosure set forth in the Company's Form 10-K
for the year ended December 31, 1998.
15
<PAGE>
PART II - OTHER INFORMATION
Item 2. Changes in Securities.
At the 1999 Annual General Meeting of the Shareholders held on May 19,
1999, the Common Shareholders of the Company approved the increase in the
number of Common Shares authorized for issuance from 60 million to 180
million.
Item 4. Submission of matters to a vote of Security Holders.
The Company held its 1999 Annual General Meeting of Shareholders on May 19,
1999. The following are the results of the voting on the various matters
considered at the meeting:
(i) Election of Directors.
NOMINEE FOR WITHHELD
John Kessock, Jr. 35,276,249 74,238
Glenn R. Partridge 35,272,343 78,144
Beverly H. Patrick 35,274,389 76,098
Robert A. Mulderig 35,275,857 74,630
(ii) Approval of an increase in the Authorized Share Capital by increasing the
number of Common Shares from 60 million to 180 million.
For: 28,791,680
Against: 6,532,764
Abstain: 26,043
(iii) Approval of the Company's 1998 Long-Term Incentive Plan.
For: 21,922,033
Against: 7,072,044
Abstain: 47,134
(iv) Appointment of Ernst & Young as the Company's Auditors
For: 35,316,009
Against: 14,687
Abstain: 19,791
16
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
A. Exhibit 3(ii) - Amended Bye-laws of the Company.
Exhibit 11 - Computation of Net Earnings Per Common Share and
Common Share Equivalents.
Exhibit 27 - Financial Data Schedule
27.1 Current quarter ended June 30, 1999
B. Reports on Form 8-K. No reports on Form 8-K were filed during the
three month period ended June 30, 1999.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MUTUAL RISK MANAGEMENT LTD.
/s/ James C. Kelly
___________________________________________
James C. Kelly
Senior Vice President, Chief Financial Officer and
Authorized Signatory
Date: August 12, 1999
18
<PAGE>
Exhibit 3(ii)
I N D E X
---------
Bye-LAW Subject
- ------- -------
1 Share Capital
2 Common Shares
3 Authority of Board to Issue Shares and Divide Shares Into Different
Classes
4 The Series B Shares
5 Restrictions on Certain "Business Combinations"
6 Employee Share Purchase
7 Repurchase by Company of its Own Shares
8 Trusts Not Recognised by Company
9 Share Certificates
10 Lost Share Certificates
11 Certificates to be under Seal
12 Register of Members
13-16 Transfer of Shares
17-19 Transmission of Shares
20-22 Increase of Capital
23 Alteration of Capital
24-25 Reduction of Capital
26 General Meetings
27-28 Notice of General Meetings
29-34 Proceedings at General Meetings
35 Inspectors
36-47 Voting
48-53 Proxies and Corporate Representatives
54-56 Appointment and Removal of Directors
57 Resignation and Disqualification of Directors
<PAGE>
58 Directors' Fees and Additional Remuneration and Expenses
59 Directors' Interests
60 Powers and Duties of the Board
61-66 Officers
67 Compensation of Officers of the Company
68-71 Delegation of the Board's Powers
72 Proceedings of the Board
73-80 Telephonic Board Meetings
81 Minutes
82-83 Secretary
84 The Seal
85-91 Dividends and Other Payments
92 Reserves
93-94 Capitalization of Profits
95 Record Dates
96-98 Accounting Records
99 Audit
100-101 Service of Notices and Other Documents
102 Winding Up
103-106 Indemnity
107 Alteration of Bye-Laws
108 Registered Office
109 Interpretation
<PAGE>
BYE-LAWS
of
MUTUAL RISK MANAGEMENT LID.
SHARE CAPITAL
-------------
1. The authorised share capital of the Company is $24,751,835 divided into the
following classes of shares:
(i) 180,000,000 Common Shares of $0.01 each (the "Common Shares");
(ii) 2,951,835 Series B Non-Voting Redeemable Preferred Shares of
$0.01 each (the "Series B Shares"); and;
(iii) $20,000,000 of Preferred Shares of such par value (being not less
than $0.01 each) as the Board shall determine pursuant to the terms
of Bye-Law 3 hereof (the "Preferred Shares").
COMMON SHARES
-------------
2. (1) At a general meeting of the Company every holder of Common shares
shall, on a show of hands, be entitled to one vote, and on a poll,
shall be entitled to one vote for every share held by him.
(2) The Board may in its discretion, at any time, and from time to time,
issue or cause to be issued all or any part of the authorised but
unissued Common Shares of the Company for consideration of such
character and value as the Board shall in its absolute discretion
from time to time fix or determine.
AUTHORITY OF BOARD TO ISSUE AND DIVIDE PREFERRED SHARES INTO
------------------------------------------------------------
DIFFERENT CLASSES
-----------------
3. (1) The Board may in its discretion at any time, and from time to
time, issue or cause to be issued all or any part of the authorised
but unissued Preferred Shares of the
<PAGE>
Company for consideration of such character and value as the Board
shall in its absolute discretion from time to time fix or determine.
(2) Without prejudice to the generality of (1) hereof, the Board is
hereby further expressly authorised at any time, and from time to
time, to divide any or all of the authorised but unissued Preferred
Shares of the Company into several classes, to consolidate or sub-
divide and to set the par value of any of the unissued Preferred
Shares, and in the resolution or resolutions establishing a
particular series, before issuance of any of the shares thereof, to
fix and determine the number of shares and the design ation of such
series, so as to distinguish it from the shares of all other series
and classes, and to fix and determine the voting rights, preferences,
qualifications, privileges, limitations, options, conversion rights,
redemption features, restrictions, and other special or relative
rights of such series. Each of such series may differ from every
other series previously authorised, as may be determined by the Board
in any or all respects, to the fullest extent now, or hereafter
permitted by the laws of Bermuda including, but not limited to, the
variations between different series in the following respects:
(a) the distinctive designation of such series and the number of shares
which shall constitute such series, which number may be increased or
decreased (but not below the number of shares thereof then
outstanding) from time to time by the Board;
(b) the annual dividend or dividend rate for such series, and the date or
dates from which dividends shall commence to accrue;
(c) the par value of the shares prior to issue, provided however, that
the par value shall in no case be set at less than $0.01 per share;
(d) the price or prices at which, and the terms and conditions on which,
if any, the shares of such series may be redeemed or made redeemable;
(e) the purchase or sinking fund provisions, if any, for the purchase or
redemption of shares of such series;
(f) subject to the terms of Bye-Law 4 hereof, the preferential amount or
amounts, if any, payable upon shares of such series in the event of
the liquidation, dissolution, or
<PAGE>
winding up of the Company;
(g) the terms and conditions, if any, upon which shares of such series
may be converted and the class or series of shares of the Company or
other securities into which such shares may be converted;
(h) the relative seniority, priority or junior rank of such series as to
dividends or assets in relation to any other classes or series of
capital shares then or thereafter to be issued;
(i) such other terms, preferences, qualifications, privileges,
limitations, options, restrictions, and other special rights, if any,
of shares of such series as the Board may, at the time of such
resolution or resolutions, lawfully fix or determine;
(j) cancel shares which, at the date of the passing of the resolution in
that behalf, have not been taken or agreed to be taken by any person;
(k) where any difficulty arises in regard to any division, consolidation,
or sub-division under this Bye-Law, the Board may settle the same as
it thinks expedient and, in particular, may arrange for the sale of
the shares representing fractions and the distribution of the net
proceeds of sale in due proportion amongst the Members who would have
been entitled to the fractions, and for this purpose the Board may
authorise some person to transfer the shares representing fractions
to the purchaser thereof, who shall not be bound to see to the
application of the purchase money nor shall his title to the shares
be affected by any irregularity or invalidity in the proceedings
relating to the sale.
THE SERIES B SHARES
-------------------
4. (1) The Series B Shares shall confer on the holders thereof the right, in
priority to the shares of any other class of the Company, to fixed
cumulative preferential semi-annual dividends, payable on l5th
February and l5th August in each year, commencing on 15th August
1987, at an annual rate which shall be computed on the par value of
US$1.00 per Series B Share equal to the six-months London Interbank
<PAGE>
Offered Rate ruling on the lst August, in the case of the semiannual
dividend payable on 15th February and on lst January in the case of
the semi-annual dividend payable on 15th August in each year, or if
no such rate shall have been quoted on that date, on the next
following date upon which such rate shall have been quoted. Provided
that, if the aggregate amount of any semi-annual dividend payable to
the holders of the Series B Shares shall be greater than an amount
equal to the net profit (as hereinafter defined) of the Company for
the first or second half (as the case may be) of its financial year
ended immediately prior to the date for payment of such semi-annual
dividend, then and in such event the aggregate amount of such
dividend so payable may be reduced to an amount equal to the net
profit of the Company established as aforesaid for the relevant half
of its said financial year and the annual rate of such dividend shall
be computed accordingly. Provided that, if on any date for the
payment of a semi-annual dividend on the Series B Shares the Company
shall either :
(a) be permitted to pay a reduced semi-annual dividend for the reason
hereinbefore in this paragraph described, or
(b) have insufficient moneys available to enable it to pay the
semi-annual dividend without borrowing additional monies for
the purpose, or
(c) if the Board shall, in its discretion, have decided that it is
contrary to the interests of the Company to pay all or part of a
semi-annual dividend on the due date for payment thereof, or that
it is in the interests of the Company to transfer moneys
otherwise available for payment of dividends to reserves created
to meet one or more specified contingencies,
any amount of semi-annual dividend unpaid shall accumulate, with
interest at the rate hereinafter mentioned, and shall be added to the
next semi-annual dividend payable thereafter and thenceforth until
the same shall have been paid in full with interest as aforesaid and
no dividend shall be paid on any share of any other class of the
Company while any semi-annual dividend on the Series B Shares, or any
part thereof, or any interest accrued thereon shall be in arrears and
unpaid. Provided that the amount of any semi-annual dividend which
shall be unpaid on the due date for
<PAGE>
payment thereof shall bear interest at the same rate as is applicable
to the fixed cumulative preferential semi-annual dividends pursuant
to paragraph 1 hereof, such interest to accrue from the said due date
and be paid by the Company on the date of payment of the arrears of
semi-annual dividend from which it shall have arisen.
(2) In the event that payment of all or any part of a semiannual dividend
on the Series B Shares shall not be made on the due date for payment
thereof by decision of the Board pursuant to sub-paragraph (c) of
paragraph 1 hereof, and if, by subsequent decisions of the Board
pursuant to the same sub-paragraph (c), payment thereof shall not
have been made at the expiration of two years from the said due date,
the discretions granted to the Board by the said sub-paragraph (c)
shall ipso facto be vested in the holders of the Series B Shares, so
that any decision to defer further the payment of the said semi-
annual dividend shall be made only with the consent in writing of the
holders of a majority of the Series B Shares, or with the sanction of
a resolution passed at a separate general meeting of the holders of
such shares and the Board shall, forthwith upon the expiry of the
said period of two years, or upon the first date thereafter when the
Company shall have funds lawfully available for the payment of such
deferred dividend and the moneys with which to pay the same, either
cause the Company to pay the full amount of the deferred dividend,
with interest as aforesaid, or take all such steps as may be
necessary to obtain such consent or sanction without delay.
(3) The expression "net profit" shall mean in relation to the Series B
Shares the total of all the operating revenues of the Company and its
subsidiaries for the period in question, including realised gains,
less the total of all the operating expenses of the Company and its
said subsidiaries, including realised losses, after eliminating the
balances of all inter-company accounts between the Company and its
said subsidiaries and between any two of such subsidiaries.
(4) The Company shall on 15th August, 1997 redeem at the price of $1.00
(U.S.) per
<PAGE>
share all of the Series B Shares. No dividend shall be declared or
paid on any share of any class of the Company on or after the 15th
August, 1997, until all of the Series B Shares shall have been
redeemed as aforesaid.
(5) Without prejudice to the foregoing, the Company may at any time and
from time to time prior to 15th August, 1997, upon giving not less
than one month's prior notice in writing to the holders thereof,
redeem all or any part of the Series B Shares at the price of $1.00
(U.S.) per share out of moneys of the Company which may be lawfully
be applied for that purpose. In the case of any redemption of less
than all of the Series B Shares, the Board shall have power to decide
in its discretion the manner in which the particular Series B Shares
to be redeemed shall be determined and the manner in which any
fractions of Series B Shares arising on a partial redemption shall be
dealt with.
(6) The holders of the Series B Shares shall be entitled on a winding-up
in priority to the holders of shares of any other class of the
Company, to receive out of the assets of the Company available for
distribution to Members a sum equal to the amount which would have
been received by the holder of the Series B Shares in the event that
all of the Series B Shares outstanding on the day prior to the date
of commencement of winding up had been redeemed on that day.
(7) The provisions of these Bye-Laws relating to the convening of a
Special General Meeting of the Company shall mutatis mutandis apply
to the convening of a Special General Meeting of the holders of
Series B Shares for the matters referred to herein.
(8) The holders of the Series B Shares shall not be entitled to any
further or other right to participate in the profits or assets of the
Company.
(9) The holders of the Series B Shares shall not be entitled to receive
notice of, or to attend or vote at, any annual general meeting or
special general meeting of Members
<PAGE>
of the Company.
(10) Series B Shares are not convertible.
RESTRICTIONS ON CERTAIN "BUSINESS COMBINATIONS"
-----------------------------------------------
5. (1) Except as permitted by sub-section (2) of this Bye-Law, no Interested
Shareholder (as hereinafter defined) shall, whether directly or
indirect, be a party to or take any action in connection with any
Business Combination with the Company or any of its subsidiary
companies for a period of five years commencing on the date such
person first became an interested Shareholder.
(2) The restrictions contained in sub-section (1) of this section shall
not apply to a Business Combination:(i) if the Business Combination
is approved by prior resolution of the Continuing Directors (as that
term is hereinafter defined) of the Board (whether such approval is
made prior to or subsequent to the acquisition of, or announcement of
public disclosure of the intention to acquire, beneficial ownership
of voting shares that caused the Interested Shareholder to become an
Interested Shareholder); or (ii) if the Business Combination is
approved by prior resolution of a majority of outstanding voting
shares of the Company other than those beneficially held by an
Interested Shareholder.
(3) For the purposes of this Bye-Law:-
(a) "beneficial owner" when used with respect to any share means a
person:-
(i) who individually or with or through any Subsidiary or Affiliate
beneficially owns such share, directly or indirectly; or
(ii) who individually or with or through any Subsidiary or Affiliate
beneficially owns such share, directly or indirectly; or (2)
who individually or with or through any Subsidiary or Affiliate
has:-
(a) the right to acquire such share (whether such right is
exercisable
<PAGE>
immediately or only after the passage of time) pursuant to
an-v agreement, arrangement or understanding (whether or
not in writing), or upon the exercise of conversion
rights, exchange rights, warrants or options or otherwise;
provided however, that a person shall not be deemed the
beneficial owner of any share tendered pursuant to a
tender or exchange offer until such offer is accepted; or
(b) the right to vote such share pursuant to any agreement,
arrangement or understanding (whether or not in writing);
provided however, that a person shall not be deemed the
beneficial owner of any share under this sub-
paragraph(ii) if the right to vote such share arises:-
(i) solely from a revocable proxy or consent given in
response to a proxy or consent solicitation made to
shareholders or any class of shareholders generally;
or
(ii) solely under a nominee or trustee agreement where
the nominee or trustee has no economic interest in
the share (other than the right to be paid normal
nominee or trustee fees or remuneration);
(iii) who has any agreement, arrangement or understanding
(whether or not in writing) for the purpose of
acquiring, holding, voting (except where the right
to vote is within the exclusion of sub-paragraphs
(i) or (ii) of paragraph (2)(b) above or disposing
of such share with any other person who beneficially
owns, or whose subsidiaries or affiliates directly
or indirectly beneficially own such share or any
interest therein;
but does not include an underwriter, acting in the ordinary
course of his business as an underwriter, who acquires
shares pursuant to any issue or offer of shares
underwritten by him.
(b) "Business Combination" means:-
(i) any scheme of arrangement, reconstruction or
amalgamation
<PAGE>
involving the Company or any of its Subsidiaries and
an Interested Shareholder;
(ii) any transaction or series of transactions involving
the sale, purchase, lease, exchange, mortgage,
pledge, transfer or other disposition or encumbrance
of assets between the Company or any of its
Subsidiaries and any Interested Shareholder having an
aggregate market value in excess of 5% of the
consolidated value in the Company and its
Subsidiaries prior to the relevant transaction or
series of transactions;
(iii) the issue or transfer to an Interested Shareholder or
any Affiliate thereof of any securities by the
Company or any of its Subsidiaries other than an
issue or distribution to all Shareholders of the
Company entitled to participate therein (such
entitlement not being dependent upon or affected by
any scheme or proposed by an Interested Shareholder)
pro rata to their respective entitlements ;
(iv) the adoption of any plan or proposal for the
liquidation or dissolution of the Company or any of
its Subsidiaries unless such plan or proposal is
initiated, proposed or adopted independently of, and
not by agreement or arrangement with, any Interested
Shareholder or any Affiliate thereof;
(v) the reclassification of any securities or other
restructuring of the capital of the Company or any of
its Subsidiary companies in such a way as to confer a
benefit on an Interested Shareholder or any Affiliate
thereof which is not conferred on the Members
generally; or (vi) the making by the Company or any
of its Subsidiaries of any loans, advances,
guarantees, pledges or financial assistance to an
Interested Shareholder;
(c) The term "Continuing Director" means (i) any member of the
Board, while such person is a member of the Board who is
not an Interested
<PAGE>
Shareholder or an Affiliate or Associate or representative
of the Interested Shareholder and was a member of the Board
prior to the time that the Interested Shareholder became an
Interested Shareholder, and (ii) any person who
subsequently becomes a member of the Board, while such
person is a member of the Board, who is not an Interested
Shareholder or an Affiliate or Associate or representative
of the Interested Shareholder, if such person's nomination
for election or election to the Board is recommended or
approved by a majority of the Continuing Directors then in
office;
(d) "Interested Shareholder" means a Member of the Company
(other than the Company or any Subsidiary, any profit-
sharing employee share ownership or other employee benefit
plan of the Company or any Subsidiary or any trustee of or
fiduciary with respect to any such plan when acting in such
capacity) who is, or has announced or publicly disclosed a
plan or intention to become, the beneficial owner of Common
Shares representing ten percent (10%) or more of the votes
entitled to be cast by the holders of all then outstanding
voting shares of the Company. For the purposes of
determining whether a person is an Interested Shareholder
for the purposes hereof, the number of shares deemed to be
outstanding shall include shares deemed beneficially owned
by such person through application of this paragraph (3)
hereof, but shall not include any other shares that may be
issuable pursuant to any agreement, arrangement or
understanding, or upon exercise of conversion rights,
warrants or options, otherwise;
(e) "person" includes:-
(i) any person acting in concert with him or any nominee
for him or person acting on his behalf; (ii) any
company in which such person holds or beneficially
owns 10% or more of the shares carrying voting
rights or rights over shares; or (iii) any person
<PAGE>
or entity over which the person acquiring the shares
has, directly or indirectly, the power to direct or
cause the direction of management or policies;
(f) "persons acting in concert" include:-
(i) persons who, pursuant to an agreement, arrangement
or understanding (whether formal or informal),
actively co-operate either in the acquisition by any
of them of any holding of shares or of the
beneficial ownership of shares or right over shares
in the Company or in the exercise of voting rights
with respect to shares in the Company;
(ii) a company with any of its directors (or their close
relatives, nominees, related trusts or companies in
which any director holds or beneficially owns 10% or
more of the shares carrying voting rights or rights
over shares);
(iii) a company with the trustees or managers of any of
its pension, provident or employee benefit funds or
any employee stock option scheme which involves the
issue of shares in the company to such trustees for
the benefit of employees;
(iv) a person who is a fund manager with any investment
company, unit trust or other person whose
investments such person manages on a discretionary
basis, in respect of the relevant investment
accounts;
(v) a company with its parent company or any of its
Subsidiary companies; or
(vi) a company, in which 10% or more of the shares
carrying voting rights or rights over shares are
held or beneficially owned by a person, with any
other company in which 10% or more of the shares
carrying voting rights or rights over shares are
held or beneficially owned by the same person;
(g) "rights over shares" includes any rights acquired by a
person of an
<PAGE>
agreement to acquire shares of an option to acquire shares
or an irrevocable commitment to accept an offer to acquire
shares and includes warrants or options to subscribe for
shares in a company if immediately exercisable, as if such
warrants or option had at the relevant time been exercised;
(h) "securities" includes shares, debentures, and options or
warrants to subscribe for or purchase any shares or
debentures, and any rights in respect thereof or any other
right which if exercised would enable a person not
otherwise able so to do, to exercise voting rights in
excess of the threshold;
(i) "threshold" means 10% or more of the voting rights;
(j) "voting rights" means all the voting rights attributable to
the share capital of the Company which are currently
exercisable, or, in the case of options and warrants to
subscribe for shares, would be exercisable if those options
and warrants were themselves exercised, at a general
meeting of the Company;
(k) a person shall be deemed not to acquire or hold any share
if he acquires or holds such share solely as nominee or
bare trustee thereof and has no beneficial or economic
interest therein other than the right to be paid normal
nominee or trustee fees or remuneration;
(l) the terms "Affiliate" and "Associate" shall have the
respective meanings ascribed to such terms in Rule 12b-2
under the United States Securities Exchange Act as in
effect on April 10, 1991 (the term "registrant" in said
Rule 12b-2 meaning in this case the Company);
(m) the term "Subsidiary" for the purposes of this Bye-Law
means any company of which a majority of any class of
equity security is beneficially owned by the Company .
<PAGE>
EMPLOYEE SHARE PURCHASE
-----------------------
6. (1) The Board may from time to time:-
(a) establish a scheme or schemes whereby the Company provides money
for the purchase of, or subscription for, fully-paid shares or
share options or in relation to share bonus plans for Common
Shares in the Company or its holding company, if any, being a
purchase of subscription by trustees of or for shares to be held
by or for the benefit of employees of the Company or of its
associated company;
(b) provide for the making by the Company of loans to persons, other
than Directors, bona fide in the employment of the Company or of
its associated company, with a view to enabling those persons to
purchase or subscribe for fully-paid shares in the Company or its
holding company, to be held by themselves by way of beneficial
ownership; and
(c) provide for the giving by the Company, directly or indirectly of
financial assistance, whether by means of a loan, guarantee, the
provision of security or otherwise, to its bona fide employees,
or the bona fide employees of any associated company or not they
shall also be Directors, in order that they shall also be
Directors, in order that they may buy shares in the Company and
the Board may, in its discretion, from time to time require, as
one of the terms of issue of any such shares or by contract, that
any such employee shall be required or allowed to sell such
shares to the Company, upon such terms and at such price as the
Board may by such terms of issue or contract establish, when such
employee ceases to be employed by the Company or its associated
company.
(2) For the purposes of this Bye-Law a company shall be deemed to be an
associated company of the Company if shares of the first-mentioned
company carrying fifty percent or more of the votes for the election
of directors are held, otherwise than by
<PAGE>
way of security directly or indirectly, by or for the benefit of the
Company.
REPURCHASE BY COMPANY OF ITS OWN SHARES
---------------------------------------
7. Subject to these Bye-Laws any purchase by the Company of any class of its
own shares in exercise of the powers conferred by Section 42A of the
Companies Act 1981, shall be on such terms and conditions as the Board
shall determine.
TRUSTS NOT RECOGNISED BY COMPANY
--------------------------------
8. Except as ordered by a court of competent jurisdiction or as required by
law, no person shall be recognised by the Company as holding any share upon
trust and the Company shall not be bound by or required in any way to
recognise (even when having notice thereof) any equitable, contingent,
future or partial interest in any share or any interest in any fractional
part of a share or (except only as otherwise provided in these Bye-laws or
by law) any other right in respect of any share except an absolute right to
the entirety thereof in the registered holder.
SHARE CERTIFICATES
------------------
9. The preparation, issue and delivery of certificates shall be governed by
the Companies Acts. In the case of a share held jointly be several persons,
delivery of a certificate to one of several joint holders shall be
sufficient delivery to all.
LOST SHARE CERTIFICATES
-----------------------
10. If a share certificate is defaced, lost or destroyed it may be replaced
without fee but on such terms (if any) as to evidence and indemnity and to
payment of the costs and out of pocket expenses of the Company in
investigating such evidence and preparing such indemnity as the Board may
think fit and, in the case of defacement, on delivery of the old
certificate to
<PAGE>
the Company.
CERTIFICATES TO BE UNDER SEAL
-----------------------------
11. All certificates for share or loan capital or other securities of the
Company (other than letters of allotment, scrip certificates and other like
documents) shall, except to the extent that the terms and conditions for
the time being relating thereto otherwise provide, be issued under the
Seal. The Board may by resolution determine, either generally or in any
particular case, that any signatures on any such certificates need not be
autographic but may be affixed to such certificates by some mechanical
means or may be printed thereon or that such certificates need not be
signed by any persons.
REGISTER OF MEMBERS
-------------------
12. (1) The Secretary and/or the Company's duly appointed Registrar and
Transfer Agent shall establish and maintain the Register of Members
which shall be available for inspection at the office of the Registrar
and Transfer Agent and at the Registered Office in the manner
prescribed by the Companies Acts. Unless the Board otherwise
determines, the Register of Members shall be open to inspection in the
manner prescribed by the Companies Acts between 10:00 a.m. and 12:00
noon on every working day. Unless the Board so determines, no Member
or intending Member shall be entitled to have entered in the Register
any indication of any trust or any equitable, contingent, future or
partial interest in any share or any interest in any fractional part
of a share and if any such entry exists or is permitted by the Board
it shall not be deemed to abrogate any of the provisions of Bye-Law 8.
(2) The Secretary and/or the Company's duly appointed Registrar and
Transfer Agent, if there be one then acting, shall prepare and make,
at least ten days before every meeting of Members, a complete list of
the Members entitled to vote at the meeting, arranged in alphabetical
order, and showing the address of each Member and the number of shares
registered in the name of each Member. Such list shall be open to
<PAGE>
the examination of any Member, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days
prior to the meeting, either at a place within the city where the
meeting is to be held, at the place where the meeting is to be held or
at the office of the Transfer Agent. The list shall also be produced
and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any Member who is present.
(3) For the purposes of this Bye-Law, "Registrar and Transfer Agent" shall
be deemed to include the duly appointed Co-Registrar and Co-Transfer
Agent of the Company.
TRANSFER OF SHARES
------------------
13. Subject to the Companies Acts and to the restrictions contained in these
Bye-Laws as may be applicable, any Member may transfer all or any of his
shares by an instrument of transfer in the usual common form or in any
other form which the Board may approve.
14. The instrument of transfer of a share shall be signed by or on behalf of
the transferor and where any share is not fully-paid the transferee, and
the transferor shall be deemed to remain the holder of the share until the
name of the transferee is entered in the Register in respect thereof. All
instruments of transfer when registered may be retained by the Company.
The Board may, in its absolute discretion and without assigning any reason
therefor, decline to register any transfer of any share which is not a
fully-paid share.
The Board may also decline to register any transfer unless:-
(a) the instrument of transfer is lodged with the Company, accompanied by
the certificate for the shares to which it relates, and such other
evidence as the Board may reasonably require to show the right of the
transferor to make the transfer,
(b) the instrument of transfer is in respect of any one class of share,
(c) where applicable, the permission of the Bermuda Monetary Authority
with respect thereto has been obtained,
(d) it shall be satisfied that the proposed transfer is in compliance with
the United States
<PAGE>
Securities Act of 1933.
15. If the Board declines to register a transfer it shall, within three months
after the date on which the instrument of transfer was lodged, send to the
transferee notice of such refusal.
16. No fee, other than reimbursement of any expenses or taxes incurred by the
Company, shall be charged by the Company for registering any transfer,
probate, letters of administration, certificate of death or marriage, power
of attorney, distringas or stop notice, order of court or other instrument
relating to or affecting the title to any share, or otherwise making an
entry in the Register relating to any share.
TRANSMISSION OF SHARES
----------------------
17. Subject to the Companies Act and these Bye-Laws, in the case of the death
of a Member, the survivor or survivors, where the deceased was joint
holder, and the estate representative, where he was sole holder, shall be
the only person recognised by the Company as having any title to his
shares; but nothing herein contained shall release the estate of a deceased
holder (whether the sole or joint) from any liability in respect of any
share held by him solely or jointly with other persons. For the purpose of
this Bye-Law, estate representative means the person to whom probate or
letters of administration has or have been granted in Bermuda or, failing
any such person, such other person as the Board may in its absolute
discretion determine to be the person recognised by the Company for the
purpose of this Bye-Law.
18. Subject to the Companies Acts and these Bye-Laws, any person becoming
entitled to a share in consequence of the death of a Member or otherwise by
operation of applicable law may, subject as hereafter provided and upon
such evidence being produced as may from time to time be required by the
Board as to his entitlement, either be registered himself as the holder of
the share or elect to have some person nominated by him registered as the
transferee thereof. If the person so becoming entitled elects to be
registered himself, he shall deliver or send to the Company a notice in
writing signed by him stating that he so elects. If he shall
<PAGE>
elect to have his nominee registered, he shall signify his election by
signing an instrument of transfer of such share in favour of his nominee.
All the limitations, restrictions and provisions of these Bye-Laws relating
to the right to transfer and the registration of transfer of shares shall
be applicable to any such notice or instrument of transfer as aforesaid as
if the death of the Member or other event giving rise to the transmission
had not occurred and the notice or instrument of transfer as an instrument
of transfer signed by such Member.
19. A person becoming entitled to a share in consequence of the death of a
Member or otherwise by operation of applicable law shall (upon such
evidence being produced as may from time to time be required by the Board
as to his entitlement) be entitled to receive and may give a discharge for
any dividends or other moneys payable in respect of the share to receive
notices of or to attend or vote at general meetings of the Company or, save
as aforesaid, to exercise in respect of the share of any of the rights or
privileges of a member until he shall have become registered as the holder
thereof. The Board may at any time give notice requiring such person to
elect either to be registered himself or to transfer the share and if the
notice is not complied with within sixty days the Board may thereafter
withhold payment of all dividends and other moneys payable in respect of
the shares until the requirements of the notice have been complied with.
INCREASE OF CAPITAL
-------------------
20. Without prejudice to the powers conferred on the Board of Directors in Bye-
Laws 2 and 3 hereof and subject to the Companies Acts and these Bye-Laws,
the Company may from time to time increase its authorised share capital
detailed in Bye-Law 1 hereof by such sum to be divided into shares of such
par value as the Company in general meeting shall prescribe.
21. The Company may, but shall not be bound to do so, by the resolution
increasing the capital, direct that the new shares or any of them shall be
offered n the first instance either at par or at a premium or (subject to
the provisions of the Companies Acts) at a discount to all the holders for
the time being of shares of any class or classes in proportion to the
number of
<PAGE>
such shares held by them respectively or make any other provision as to the
issue of the new shares.
22. The new shares shall be subject to all the provisions of these Bye-Laws.
ALTERATION OF CAPITAL
---------------------
23. Subject to the Companies Acts and to any confirmation or consent required
by law or these Bye-Laws, the Company may by resolution in general meeting
from time to time convert any preference shares into redeemable preference
shares.
REDUCTION OF CAPITAL
--------------------
24. Subject to the Companies Acts, its memorandum and any confirmation or
consent required by law or these Bye-Laws, the Company may from time to
time in general meeting authorise the reduction of its authorised share
capital or any capital redemption reserve fund or any share premium or
contributed surplus account in any manner; provided however, that any
resolution for the reduction of the authorised share capital of the Company
shall only be effective if the same is approved by the affirmative vote of
seventy five percent (75%) of the outstanding Voting Shares of the Company
duly case at a general meeting of the Company called for that purpose.
25. In relation to any such reduction, the Company may in general meeting
determine the term upon which such reduction is to be effected including in
the case of a reduction of part only of a class of shares, those shares to
be affected.
GENERAL MEETINGS
----------------
26. (1) The Board shall convene and the Company shall hold general meetings as
Annual General Meetings in accordance with the requirements of the
Companies Acts. The
<PAGE>
Board may, whenever it thinks fit, and shall, when required by the
Companies Acts, convene general meetings other than Annual General
Meetings which shall be called Special General Meetings. Except with
the unanimous approval of the Board, all Annual and Special General
Meetings of the Company shall be held in Bermuda. Any resolution or
matter which requires the approval of the Members of the Company shall
only be approved at an annual or special general meeting of the
Company called for the purpose in accordance with the provisions of
these Bye-Laws and, for the avoidance of any doubt, Members may not
act by written consent or a resolution in writing.
(2) In accordance with the terms of the Mutual Risk Management Ltd.
Company Act 1991, the percentage of the paid up capital of the Company
carrying the right to vote at general meetings of the Company which
shall be necessary to requisition a Special General Meeting of the
Members pursuant to Section 74 of the Companies Act shall be 50% or
more.
NOTICE OF GENERAL MEETINGS
--------------------------
27. (1) An Annual General Meeting and any Special General Meeting shall be
called by not less than 21 clear days' notice in writing. For the
purposes of this Bye-Law, the expression "clear days'" means that the
day on which the notice is despatched and the day of the meeting shall
not be counted in calculating the notice period.
Notice of every general meeting shall be given in any manner permitted
by these Bye-Laws to all Members other than such as, under the
provisions of these Bye-Laws or the terms of issue of the shares they
hold, are not entitled to receive such notice from the Company.
Notwithstanding that a meeting of the Company is called by shorter
notice than that specified in this Bye-Law, it shall be deemed to have
been duly called if it is so agreed:-
<PAGE>
(a) in the case of a meeting called as an Annual General Meeting, by
all the Members entitled to attend and vote thereat;
(b) in the case of any other meeting, by a majority in number of the
Members having the right to attend and vote at the meeting, being
a majority together holding not less than 95 percent in nominal
value of the shares giving that right.
(2) At any annual or Special General Meeting of the Members, only such
business shall be conducted as shall have been properly brought before
the meeting. To be properly brought before an Annual or Special
General Meeting, business must be specified in the notice of meeting
(or any supplement thereto) given by or at the direction of the Board,
otherwise properly brought before the meeting by or at the direction
of the Board, or otherwise properly brought before the meeting by a
Member. In addition to any other applicable requirements, for
business to be properly brought before an Annual or Special General
Meeting by a Member, the Member must have given timely notice thereof
in writing to the Secretary of the Company. To be timely, a Member's
notice must be delivered to or mailed and received at the registered
office of the Company, not less than 50 days nor more than 75 days
prior to the meeting; provided however, that in the event that less
than 65 days' notice or prior public disclosure of the date of the
meeting is given or made to Members, notice by the Member to be timely
must be so received not later than the close of business on the 15th
day following the day on which such notice of the date of the Annual
or Special General Meeting was mailed or such public disclosure was
made. A Member's notice to the Secretary shall set forth as to each
matter the Member proposes to bring before the meeting (i) a brief
description of the business desired to be brought before the meeting
and the reasons for conducting such business at the meeting, (ii) the
name and record address of the Member proposing such business, (iii)
the class and number of shares of the Company which are beneficially
owned by the Member, (iv) any material interest of the Member in such
business. Provided at all times that Members may only give notice to
the Secretary of matters to be brought before an Annual or Special
General Meeting for the purposes of this Bye-Law that are matters
<PAGE>
that are suitable and appropriate for submission to general meetings
of the Members of a publicly-quoted company.
Notwithstanding anything in the Bye-Laws to the contrary, no business
shall be conducted at an Annual or Special General Meeting except in
accordance with the procedures set forth in this Bye-Law. Provided
however, that nothing in this Bye-Law shall be deemed to preclude
discussion by any Member of any business properly brought before the
Annual or Special General Meeting in accordance with the procedures
herein detailed.
The Chairman of an Annual or Special General Meeting shall, if the
facts warrant, determine and declare to the meeting that business was
not properly brought before the meeting in accordance with the
provisions of this Bye-Law, and if he should so determine, he shall so
declare to the meeting and any such business not properly brought
before the meeting shall not be transacted.
For the avoidance of doubt, it is hereby noted that any nomination or
nominations of persons for election to the Board of the Company made
in accordance with the provisions of Bye-Law 54 hereof shall be deemed
for the purposes of this Bye-Law to constitute business properly
brought before an Annual or Special General Meeting, as the case may
be.
28. The accidental omission to give notice of a meeting or (in cases where
instruments of proxy are sent out with the notice) the accidental omission
to send such instrument of proxy to, or the non-receipt of notice of a
meeting or such instrument of proxy by, any person entitled to receive such
notice shall not invalidate the proceedings at that meeting.
PROCEEDINGS AT GENERAL MEETINGS
-------------------------------
29. No business shall be transacted at any general meeting unless it shall have
been properly
<PAGE>
brought before the Annual or Special General Meeting in accordance with
Bye-Law 27(2) hereof and a quorum is present when the meeting proceeds to
business, but the absence of a quorum shall not preclude the appointment,
choice or election of a chairman which shall not be treated as part of the
business of the meeting. Save as otherwise provided in these Bye-Laws, at
least two Members representing not less than 30% of the outstanding shares
carrying the right to vote in the Company, represented in person or by
proxy, shall constitute a quorum for all purposes.
30. If within five minutes (or such longer time as the Chairman of the meeting
may determine to wait) after the time appointed for the meeting, a quorum
is not present, the meeting, if convened on the requisition of Members,
shall be dissolved. In any other case, it shall stand adjourned to such
other day and such other time and place as the Chairman of the meeting may
determine and at such adjourned meeting two Members present in person
(whatever the number of shares held by them) shall be a quorum. The
Company shall give not less than 7 days' notice of any meeting adjourned
through want of a quorum and such notice shall state that two Members
present in person (whatever the number of shares held by them) shall be a
quorum.
31. Each Director shall be entitled to attend and speak at any general meeting
of the Company.
32. The Chairman of the Board shall preside as Chairman at every general
meeting. In his absence, the following shall preside in the order stated:
the President or any Senior Vice President. If none of the foregoing is
present within five minutes after the time appointed for holding the
meeting, or if none of them is willing to act as Chairman, the Directors
present shall choose one of their number to act or if one Director only is
present he shall preside as Chairman if willing to act. If no Director is
present or if each of the Directors present declines to take the chair, the
persons present and entitled to vote on a poll shall elect one of their
number to be Chairman.
33. The Chairman may, with the consent of any meeting at which a quorum is
present (and shall
<PAGE>
if so directed by the meeting), adjourn the meeting from time to time and
from place to place but no business shall be transacted at any adjourned
meeting except business which might lawfully have been transacted at the
meeting from which the adjournment took place. When a meeting is adjourned
for three months or more, notice of the adjourned meeting shall be given as
in the case of an original meeting.
34. Save as expressly provided by these Bye-Laws, it shall not be necessary to
give any notice of an adjournment or of the business to be transacted at an
adjourned meeting.
INSPECTORS
----------
35. The Board may, in advance of any meeting of Members, appoint one or more
inspectors to act at such meeting or any adjournment thereof. If the
inspectors shall not be so appointed or if any of them shall fail to appear
or act, the Chairman of the meeting may and on the request of any Member
entitled to vote thereat shall, appoint inspectors. Each inspector, before
entering upon the discharge of his duties, shall take and sign an oath
faithfully to exercise the duties of inspector at such meeting with strict
impartiality and according to the best of his ability. The inspectors
shall determine the number of shares outstanding and the voting power of
each, the number of shares represented at the meeting, the existence of a
quorum, the validity and effect of proxies, and shall receive votes,
ballots or consents, hear and determine all challenges and questions
arising in connection with the right to vote, count and tabulate all votes,
ballots or consents, determine the result, and do such acts as are proper
to conduct the election or vote with fairness to all Members. On the
request of the Chairman of the meeting or any Member entitled to vote
thereat, the inspectors shall make a report in writing of any challenge,
request or matter determined by them and shall execute a certificate of any
fact found by them. No director or candidate for the office of director
shall act as inspector. Inspectors need not be Members.
<PAGE>
VOTING
------
36. Save where a greater majority is required by the Companies Acts or these
Bye-Laws any question proposed for consideration at any general meeting
shall be decided on by a simple majority of votes cast. No matter or item
of business shall be put to a vote of a general meeting of Members unless
that matter or item of business is specifically articulated in the Notice
and Agenda of the meeting and complies with the provisions of Bye-Laws
27(2) and 54 hereof.
37. At any general meeting, a resolution put to the vote of the meeting shall
be decided on a show of hands unless (before or on the declaration of the
result of the show of hands or on the withdrawal of any other demand for a
poll) a poll is demanded by:-
(a) the Chairman of the meeting; or
(b) at least three Members present in person or represented by proxy; or
(c) any Member of Members present in person or represented by proxy and
holding between them not less than one tenth of the total voting
rights of all the Members having the right to vote at such meeting; or
(d) a Member of Members present in person or represented by proxy holding
shares conferring the right to vote at such meeting, being shares on
which an aggregate sum has been paid up equal to not less than one
tenth of the total sum paid up on all such shares conferring such
right.
Unless a poll is so demanded and the demand is not withdrawn, a declaration
by the Chairman that a resolution has, on a show of hands, been carried or
carried unanimously or by a particular majority or not carried by a
particular majority or lost shall be final and conclusive, and an entry to
that effect in the Minute Book of the Company shall be conclusive evidence
of the fact without proof of the number of votes recorded for or against
<PAGE>
such resolution.
38. If a poll is duly demanded, the result of the poll shall be deemed to be
the resolution of the meeting at which the poll is demanded.
39. A poll demanded on the election of a Chairman, or on a question of
adjournment, shall be taken forthwith. A poll demanded on any other
question shall be taken in such manner and either forthwith or at such time
(being not later than three months after the date of the demand) and place
as the Chairman shall direct. It shall not be necessary (unless the
Chairman otherwise directs) for notice to be given of a poll.
40. The demand for a poll shall not prevent the continuance of a meeting for
the transaction of any business other than the question on which the poll
has been demanded and it may be withdrawn at any time before the close of
the meeting or the taking of the poll, whichever is the earlier.
41. On a poll, votes may be cast either personally or by proxy.
42. A person entitled to more than one vote on a poll need not use all of his
votes or case all the votes he uses in the same way.
43. In the case of an equality of votes at a general meeting, whether on a show
of hands or on a poll, the Chairman of such meeting shall not be entitled
to a second or casting vote.
44. In the case of joint holders of a share, the vote of the Senior who tenders
a vote, whether in person or by proxy, shall be accepted to the exclusion
of the votes of the other joint holders, and for this purpose seniority
shall be determined by the order in which the names stand in the Register
in respect of the joint holding.
<PAGE>
45. A Member who is a patient for any purpose of any statute or applicable law
relating to mental health of in respect of whom an order has been made by
any Court having jurisdiction for the protection or management of the
affairs of persons incapable of managing their own affairs may vote,
whether on a show of hands or on a poll, by his receiver, committee,
curator bonis or other person in the nature of a receiver, committee,
curator bonis appointed by such Court and such receiver, committee, curator
bonis or other person may vote on a poll by proxy, and may otherwise act
and be treated as such Member for the purpose of the general meeting.
46. No Member shall, unless the Board otherwise determines, be entitled to cote
at any general meeting unless all calls or other sums presently payable by
him in respect of the shares in the Company have been paid.
47. If (i) any objection shall be raised to the qualification of any voter or
(ii) any votes have been counted which ought not have been counted or which
might have been rejected or (iii) any votes are not counted which ought to
have been counted, the objection or error shall not vitiate the decision of
the meeting or adjourned meeting on any resolution unless the same is
raised or pointed out at the meeting or, as the case may be, the adjourned
meeting at which the vote objected to is given or tendered or at which the
error occurs. Any objection or error shall be referred to the Chairman of
the meeting and shall only vitiate the decision of the meeting on any
resolution if the Chairman decides that the same may have affected the
decision of the meeting. The decision of the Chairman on such matters
shall be final and conclusive.
PROXIES AND CORPORATE REPRESENTATIVES
-------------------------------------
48. The instrument appointing a proxy shall be in writing under the hand of the
appointor or of his attorney authorised by him in writing or, if the
appointer is a company, either under its seal or under the hand of an
officer, attorney or other persons authorised to sign the same.
<PAGE>
49. A Member may designate a person who is not a Member of the Company as his
proxy to represent such Member and vote on his behalf at any General
Meeting of the Company or any Meeting of the holders of any class of shares
in the capital of the Company and the Company may appoint a representative
as permitted by the Companies Act and such representative need not be a
Member.
50. The instrument appointing a proxy together with such other evidence as top
its die execution as the Board may from time to time require, shall be
delivered at the Registered Office (or at such place as may be specified in
the notice convening the meeting or in any notice of adjournment or, in
either case, in any document sent therewith) at least two business days
prior to the holding of the meeting or adjourned meeting at which the
persons named in the instrument proposes to vote or, in the case of a poll
taken subsequent to the date of the a meeting or adjourned meeting, before
the time appointed for the taking of the poll and in default the instrument
of proxy shall not be treated as valid.
51. Instruments of proxy shall be in any common form or in such other form as
the Board may approve and the Board may, if it thinks fit, send out with
the notice of any meeting forms of instruments of proxy for use at that
meeting. The instrument of proxy shall be deemed to confer authority to
demand or join in demanding a poll and to vote on any amendment of a
resolution put to the meeting for which it is given as the proxy thinks
fit. The instrument of proxy shall unless the contrary is stated therein
be valid as well for any adjournment of the meeting as for the meeting to
which it relates.
52. (1) A vote given in accordance with the terms of an instrument of proxy
shall be valid notwithstanding the previous death or insanity of the
principal, or revocation of the instrument of proxy or of the
authority under which it was executed, provided that no intimation in
writing of such death, insanity or revocation shall have been received
by the Company at the Registered Office (or such other place as may be
<PAGE>
specified for the delivery of instruments of proxy in the notice
convening the meeting or other documents sent therewith) one hour at
least before the commencement of the meeting or adjourned meeting, or
the taking of the poll, at which the instrument of proxy is used.
(2) A proxyholder shall only vote in accordance with the direction made in
the instrument of proxy duly executed by the Member granting such
proxy and in the absence of such direction the proxyholder shall be
bound to vote the proxy in favour of the proposals recommended by the
Board of the Company.
53. Subject to the Companies Acts, the Board may at its discretion waive any of
the provisions of these Bye-Laws related to proxies or authorisations and,
in particular, may accept such verbal or other assurances as it thinks fit
as to the right of any person to attend and vote on behalf of any Member at
general meetings.
APPOINTMENT AND REMOVAL OF DIRECTORS
------------------------------------
54. (1) The number of Directors which shall constitute the whole Board of
Directors of the Company shall not be more than fifteen (15). The
Board is divided into three classes, Class I, Class II and Class III.
The number of Directors in each class shall be the whole number
contained in the quotient arrived at by dividing the authorised number
of Directors by three and if a fraction is also contained in such
quotient, then if such fraction is one-third (1/3) the extra Director
shall be a member of Class III and if the fraction is two-thirds (2/3)
one of the Directors shall be member of Class III and the other shall
be a member of Class II. Each Director shall serve for a term ending
on the third annual meeting following the annual meeting at which such
Director was elected; provided however, that the Directors first
elected to Class I shall serve for a term ending on the annual meeting
next ensuing, the Directors first elected to Class II shall serve for
a term ending on the second annual meeting following the meeting at
which such Directors were first elected, and the Directors first
elected to Class III
<PAGE>
shall serve a full term as hereinbefore provided. The foregoing
notwithstanding, each Director shall serve until his successor shall
have been duly elected and qualified, unless he shall resign, become
disqualified, disabled or shall otherwise be removed.
For the purpose of the preceding paragraph, reference to the first
election of Directors is to the election at the 1991 Annual General
Meeting. At each annual election held thereafter, the Directors
chosen to succeed those whose terms then expire shall be identified as
being of the same class as the Directors they succeed. If for any
reason the number of Directors in the various classes shall not
conform with the formula set forth in the preceding paragraph, the
Board may redesignate any Director to a different class in order that
the balance of Directors in such classes shall conform thereto.
(2) A Director need not be a Member.
(3) Only persons who are nominated in accordance with the following
procedures shall be eligible for election as Directors. Nominations
of persons for election to the Board of the Company may be made at a
meeting of Members by or at the discretion of the Board, by any
nominating committee or person appointed by the Board or by any Member
of the Company entitled to vote for the election of Director at the
meeting who complies with the notice procedures set forth in this Bye-
Law. Such nominations, other than those made by or at the direction
of the Board, shall be made pursuant to timely notice in writing to
the Secretary of the Company. To be timely, a Member's notice shall be
delivered to or mailed and received at the registered office of the
Company not less than 50 days nor more than 75 days prior to the
meeting; provided however that in the event that less than 65 days'
notice or prior public disclosure of the date of the meeting is given
or made to Members, notice by the Member to be timely must be received
not later than the close of business on the 15th day following the day
on which such notice of the date of the meeting was mailed or such
public disclosure was made. Such Member's notice to the Secretary
<PAGE>
shall set forth (a) as to each person whom the Member proposes to
nominate for election or re-election as a Director, (i) the name, age,
business address and residence address of the persons, (ii) the
principal occupation or employment of the person, (iii) the class and
number of shares of Common Shares of the Company which are
beneficially owned by the person and (iv) any other information
relating to the person that is required to be disclosed in
solicitations for proxies for election of Directors pursuant to
Schedule 14A under the Securities Exchange Act of 1934, as amended;
and (b) as to the Member giving the notice (i) the name and record
address of the Member and (ii) the class and number of shares of
capital stock of the Company which are beneficially owned by the
Member. The Company may require any proposed nominee to furnish such
other information as may reasonably be required by the Company to
determine the eligibility of such proposed nominee to serve as a
Director of the Company. No persons shall be eligible for election as
a Director of the Company unless nominated in accordance with the
procedures set forth herein.
The Chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance
with the foregoing procedure, and if he should so determine, he shall
so declare to the meeting and the defective nomination shall be
disregarded.
55. Without prejudice to the power of the Company in general meeting in
pursuance of any of the provisions of these Bye-Laws to appoint any person
to be a Director, the Board, so long as a quorum of Directors remains in
office, shall have power at any time and from time to time to appoint any
individual to be a Director so as to fill a casual vacancy. Any individual
appointed as a Director to fill a casual vacancy shall service for the
remainder of the unexpired term of the individual that he replaced.
56. The Company may in Special General Meeting call for that purpose remove a
Director for cause provided notice of any such meeting shall be served upon
the Director concerned not less than 14 days before the meeting and he
shall be entitled to be heard at that meeting. Any
<PAGE>
resolution to remove a Director of the Company pursuant to the terms of
this Bye-Law shall require the affirmative vote of the holders of eighty
percent (80%) of the outstanding shares of the Company then entitled to
vote generally for the election of Directors. Any vacancy created by the
removal of a Director at a Special General Meeting may be filled at the
Meeting by the election of another Director in his place or, in the absence
of any such election, by the Board.
RESIGNATION AND DISQUALIFICATION OF DIRECTORS
---------------------------------------------
57. The office of a Director shall be vacated upon the happening of any of the
following events:
(a) if he resigns his office by notice in writing delivered to the
Registered Office or tendered at a meeting of the Board;
(b) if he becomes of unsound mind or a patient for any purpose of any
statute or applicable law relating to mental health and the Board
resolves that his office is vacated;
(c) if he becomes bankrupt or compounds with his creditors;
(d) if he is prohibited by law from being a Director;
(e) if he is removed from office by a resolution in writing in accordance
with the procedure set out in Bye-Law 56.
DIRECTORS' FEES AND ADDITIONAL REMUNERATION AND EXPENSES
--------------------------------------------------------
58. The amount, if any, of Directors' fees shall from time to time be
determined by the Compensation/Stock Option Committee of the Board. In
addition, each Director shall be paid his reasonable traveling, hotel and
incidental expenses in attending and returning from meetings of the Board
or committees constituted pursuant to these Bye-Laws or general meeting and
shall be paid all expenses properly and reasonably incurred by him in the
conduct of the Company's business or in the discharge of his duties as
Director. Any question as to the reasonableness of expenses as provided
herein shall be a matter to be
<PAGE>
determined by the Compensation/Stock Committee of the Board. Any Director
who, by request, goes or resides abroad for any purposes of the Company or
who performs services which in the opinion of the Board go beyond the
ordinary duties of a Director may be paid such extra remuneration (whether
by way of salary, commission, participation in profits or otherwise) as the
Board may determine, and such extra remuneration shall be in addition to
any remuneration provided for by or pursuant to any other Bye-Law.
DIRECTORS' INTERESTS
--------------------
59. (a) A Director may hold any other office or place of profit with the
Company (except that of Auditor) in conjunction with this office of
Director for such period and upon such terms as the Board may
determine, and may be paid such extra remuneration therefor (whether
by way of salary, commission, participation in profits or otherwise)
as the Board may determine, and such extra remuneration shall be in
addition to any remuneration provided for by or pursuant to any other
Bye-Laws.
(b) A Director may act by himself or his firm in a professional capacity
for the Company (otherwise than as auditor) and he or his firm shall
be entitled to remuneration for professional services as if he were
not a Director.
(c) Subject to the provisions of the Companies Acts, a Director may
notwithstanding his office be a party to, or otherwise interested in,
any transaction or arrangement with the Company or in which the
Company is otherwise interested; and be a Director or other officer
of, or employed by, or a part to any transaction or arrangement with,
or otherwise interested in, any body corporate promoted by the Company
or in which the Company is interested. The Board may also cause the
voting power conferred by the shares in any other company held or
owned by the Company to be exercised in such manner in all respect as
it thinks fit, including the exercise thereof in favour of any
resolution appointing the Directors or any of them to be directors or
officers of such other company, or voting or providing for the payment
of remuneration to the
<PAGE>
directors or officers of such other company.
(d) So long as, where it is necessary, he declares the nature of his
interest at the first opportunity at a meeting of the Board or by
writing to the Directors as required by the Companies Acts, a Director
shall not by reason of his office be accountable to the Company for
any benefit which he derives from any office or employment to which
these Bye-Laws allow him to be appointed or from any transaction or
arrangement in which these Bye-Laws allow him to be interested, and no
such transaction or arrangement shall be liable to be avoided on the
ground on any interest or benefit.
(e) Subject to the Companies Acts and any further disclosures required
thereby, a general notice to the Directors by a Director or officer
declaring that he is a director or officer or has an interest in a
person and is to be regarded as interested in any transaction or
arrangement made with that person, shall be a sufficient declaration
of interest in relation to any transaction or arrangement so made.
POWERS AND DUTIES OF THE BOARD
------------------------------
60. Subject to the provisions of the Companies Acts and these Bye-Laws and to
any directions given by the Company in general meeting, the Board shall
manage all aspects of the business of the Company and in connection with
the exercise of its powers shall have regard to the best interests of the
Company and its Members and in determining what is in the best interests of
the Company and its Members, the Board shall have regard to all relevant
factors including without limitation the possible effects that the exercise
of any of its powers may have on the business of the Company and its
subsidiaries and on the employees, customers, suppliers and creditors of
the Company and its subsidiaries.
No alteration of these Bye-Laws and no such direction shall invalidate any
prior act of the Board which would have been valid if that alteration had
not been made or that direction had not been given. All actions shall be
taken by the Board (or its committees) conducting their
<PAGE>
duties as a corporate body, and no individual from time to time serving as
a member of the Board shall have the authority in his capacity as a Board
member to negotiate or conclude any contracts in the name of the Company or
otherwise to bind the Company, except as set forth in a specific
authorisation duly adopted by the Board. The powers given by this Bye-Law
shall not be limited by any special power given to the Board by these Bye-
Laws and a meeting of the Board at which a quorum is present shall be
competent to exercise all the powers, authorities and discretions for the
time being vested in or exercisable by the Board.
OFFICERS
--------
61. The officers of the Company shall include a Chairman, a President and one
or more Senior Vice Presidents who may not need not be Directors and shall
be elected by the Board as soon as possible after each annual general
meeting. The authority of the Chairman shall be that of a Chief Executive
Officer.
The authority of any Officer of the Company including the President and any
Senior Vice Presidents so long as such officers, in the opinion of the
Board, shall be resident in the United States shall be limited to
maintaining an oversight and review of and providing recommendations and
information to the Board, but not to any third party, regarding the affairs
of the Company pertaining to its subsidiaries incorporated in the United
States and otherwise to enable the Company to fulfil its role as the holder
of shares of such subsidiaries. The President and any Senior Vice
Presidents shall have no authority (i) to negotiate or conclude contracts
in the name of the Company (or any of its subsidiaries not incorporated in
the United States) or otherwise bind the Company (or any of its
subsidiaries not incorporated in the United States) within the United
States; or (ii) to conduct or manage any activities of the Company (or any
of its subsidiaries not incorporated in the United States) within or
outside of the United States, or (iii) to act in any way which might result
in the Company (or any of its subsidiaries not incorporated in the United
States) being considered to be engaged in a trade of business in the United
States within the meaning of the Internal Revenue Code of 1986 or any
subsequent United States Tax Legislation.
<PAGE>
Any purported action or contract done or made by the President or any
Senior Vice Presidents or any other duly appointed officer of the Company
in violation of the provisions hereof shall be null and void ab initio and
the Company or any of its subsidiaries shall in no way be bound or affected
by any such action or contract done or made on violation of the provisions
hereof.
Any person elected or appointed pursuant to this Bye-Law Shall hold office
for such period and upon such terms as the Board may determine and the
Board may revoke or terminate any such election or appointment. Any such
revocation or termination shall be without prejudice to any claim for
damages that such officer may have against the Company or the Company may
have against such officer for any breach of any contract of service between
him and the Company which may be involved in such revocation or
termination. Save as provided in the Companies Acts or these Bye-Laws, and
subject to the limitations on the authority of the President and any Senior
Vice Presidents contained in these Bye-Laws, the powers and duties of the
officers of the Company shall be such (if any) as are determined from time
to time by the Board.
62. In addition to the provisions of Bye-Law 61 hereof, the Board may appoint
any person whether or not he is a Director to hold such other office
(including any additional Vice Presidencies) as the Board may from time to
time determine. Any person elected or appointed pursuant to this Bye-Law
shall hold office for such period and upon such terms and the Board may
determine and the Board may revoke or terminate any such election or
appointment. Any such revocation or termination shall be without prejudice
to any claim for damages that such officer may have against the Company or
the Company may have against such officer for any breach of contract of
service between him and the Company which may be involved in such
revocation or termination. Save as provided in the Companies Acts or these
Bye-Laws, the powers and duties of the officers of the Company shall be
such (if any) as are determined from time to time by the Board.
<PAGE>
63. The Board may exercise all the powers of the Company to borrow money and to
mortgage or charge all or any part of the undertaking, property and assets
(present and future) and uncalled capital of the Company and to issue
debentures and other securities, whether outright or as collateral security
for any debt, liability or obligation of the Company or of any other
persons.
64. All cheques, promissory notes, drafts, bills or exchange or other
instruments, whether negotiable or transferrrable or not, and all receipts
for money paid to the Company shall be signed, drawn, accepted, endorsed or
otherwise executed, as the case may be, in such manner as the Board shall
from time to time by resolution determine.
65. The Board on behalf of the Company may provide benefits, whether by the
payment of gratuities or pensions or otherwise, for any persons including
any Director of former Director who has held any executive officer or
employment with the Company or with any body corporate which is or have
been a subsidiary or affiliate of the Company or a predecessor in the
business of the Company or of any such subsidiary or affiliate, and to any
member of his family or any person who is or was dependent on him, and may
contribute to any fund and pay premiums for the purchase or provision of
any such gratuity, pension or other benefit, for the the insurance of any
such person.
66. Subject to Bye-Law 61 hereof, the Board may from time to time appoint one
or more of its body to hold any employment or executive office with the
Company for such period and upon such terms as the Board may determine may
revoke or terminate any such appointments. Any such revocation or
termination as aforesaid shall be without prejudice to any claim for
damages that such Director may have against the Company or the Company may
have against such Director for any breach of any contract of service
between him and the Company which may be involved in such revocation or
termination. Any person so appointed shall receive remuneration (if any)
(whether by way of salary, commission,
<PAGE>
participation in profits or otherwise) as the Board may determine, and
either in addition to or in lieu of his remuneration as a Director.
COMPENSATION OF OFFICERS OF THE COMPANY
---------------------------------------
67. The compensation payable by the Company to its Executive Officers as
detailed herein and such other officers and employees of the Company as the
Board may from time to time approve shall be determined by the
Compensation/Stock Option Committee of the Board. The said
Compensation/Stock Option Committee shall have the absolute power to set
remuneration of officers and employees of the Comapny in terms of salary,
commission, participation in profits or otherwise of the Company as the
said Committee in its absolute discretion shall determine. For the
avoidance of doubt, the issue of compensation payable by the Company to its
Executive Officers and employees shall be as provided herein, that is, it
shall be a matter for the Compensation/Stock Option Committee of the Board
only and shall not under any circumstances be a matter for action by
Members in general meeting.
DELEGATION OF THE BOARD'S POWERS
--------------------------------
68. The Board may by power of attorney appoint any company, firm or person or
any fluctuating body of persons, whether nominated directly or indirectly
by the Board, to be the attorney or attorneys of the Company for such
purposes and with such powers, authorities and discretions (not exceeding
those vested in or exerciseable by the Board under these Bye-Laws) and for
such period and subject to such conditions as it may think fit, and any
such power of attorney may contain such provisions for the protection and
convenience of persons dealing with any such attorney and of such attorney
as the Board may think fit, and may also authorise any such attorney to
sub-delegate all or any of the powers, authorities and discretions vested
in him.
69. The Board may entrust to and confer upon any Director or officer any of the
powers exerciseable by it upon such terms and conditions with such
restrictions as it thinks fit, and
<PAGE>
either collaterally with, or to the exclusion of, its own powers, and may
from time to time revoke or vary all or any of such powers but no person
dealing in good faith and without notice of such revocation or variation
shall be affected thereby.
70. The Board may delegate any of its powers, authorities and discretions to
committees, consisting of such person or persons (whether a member or
members of its body or not) as it thinks fit. Any committee so formed
shall, in the exercise of the powers, authorities and discretions so
delegated, conform to any regualtions which may be imposed upon it by the
Board.
71. Subject to Bye-Law 61 hereof and without prejudice to the generality of
Bye-Law 70, the Board shall, immediately following the Annual General
Meeting each year, establish the following Committees of the Board:-
(1) The Audit Committee
(2) The Executive Committee
(3) The Investment Committee
(4) The Compensation/Stock Option Committee
(5) The Reinsurance Security Committee, and
(6) The Nominating Committee
The foregoing committees shall consist of such person or persons (whether a
member or members of its body or not) as the Board thinks fit. The
Committee shall, in the exercise of the powers, authorities and discretions
delegated to them, conform to any regulations which may be imposed upon
them from time to time by the Board.
PROCEEDINGS OF THE BOARD
------------------------
72. The Board may meet for the despatch of business, adjourn or otherwise
regulate its meetings as it thinks fit, provided that no business shall be
transacted at a meeting of the Board unless
<PAGE>
not less than 7 clear days' notice in writing of the meeting shall be given
to each director giving reasonable details of the business to be so
transacted, and provided further that any director may by notice in writing
to the Company agree that no notice need, or any shorter notice specified
in the notice may, be given to him either generally or in respect of a
particular meeting. Questions arising at any meeting shall be determined by
a majority of votes. In the case of an equality of votes, the motion shall
be deemed to have been lost. Any four Directors of the Company or the
Chairman acting alone may summon a Board Meeting. A Director may, and the
Secretary on the requistion of the Director shall at any time summon a
Board meeting. For the purpose of this Bye-Law the expression 'clear days'
means that the day on which the notice is despatched and the day of the
meeting shall not be counted in calculating notice period. Except with the
unanimous approval of the Directors, all Board Meetings shall be held in
Bermuda.
TELEPHONIC BOARD MEETINGS
-------------------------
73. Directors may participate in any meeting of the Board by means of
conference telephone or other communications equipment through which all
persons participating in the meeting can communicate with each other and
such participation shall constitute presence at a meeting as if those
participating were present in person. A telephonic board meeting shall
only be initiated from Bermuda where there is a quorum present in Bermuda
when the telephone link-up is initiated and Bermuda shall thus be deemed to
be the situs of the Board Meeting.
74. Notice of a Board meeting shall be deemed to be duly given to a Director if
it is given to him personally or sent to him by post, cable, telex,
telecopier or other mode or representing or reproducing words in a legible
and non-transitory form at his last known address or any other address
given by him to the Company for this purpose. A Director may waive notice
of any meeting either prospectively or retrospectively.
75. (a) The quorum necessary for the transaction of the business of the Board
shall be two Directors. Any Director who ceases to be a Director at a
board meeting may continue
<PAGE>
to be present and to act as a Director and be counted in the quorum
until the termination of the Board meeting.
(b) A Director who to his knowledge is in any way, whether directly or
indirectly, interested in a contract or proposed contract, transaction
or arrangement with the Company has complied with the provisions of
the Companies Acts and these Bye-Laws with regard to disclosure of his
interests shall be entitled to vote in respect of any contract,
transaction or arrangement in which he is so interested and if he
shall do so his vote shall be counted, and he shall be taken into
account in ascertaining whether a quorum is present.
76. So long as a quorum of Directors remains in office, the continuing
Directors may act notwithstanding any vacancy in the Board but, if no
quorum of Directors remains, the continuing Directors or a sole continuing
Director may act only for the purpose of calling a general meeting.
77. The Board shall elect the Chairman of the Board from amongst its members.
If the Chairman of the Board is absent, the President shall be Chairman.
If at any meeting neither the Chairman of the Board nor the President is
present within five minutes after the time appointed for the holding the
same, the Directors present may choose one of their number to be Chairman
of the meeting.
78. The meetings and proceedings of any committee consisting of two or more
members shall be governed by the provisions contained in these Bye-Laws for
regulating the meetings and proceedings of the Board so far as the same are
applicable and are not superseded by any regulations imposed by the Board.
79. A resolution in writing signed by all the Directors for the time being
entitled to receive notice of a meeting of the Board or by all the members
of a committee for the time being shall be valid and effectual as a
resolution passed at a meeting of the Board or, as the case may be,
<PAGE>
of such committee duly called and constituted. Such resolution may be
contained in one document or in several documents in the like form each
signed by one or more of the Directors or members of the committee
concerned.
80. All acts done by the Board or by any committee or by any person acting as a
Director or member of a committee or any person duly authorised by the
Board or any committee, shall, notwithstanding that it is afterwards
discovered that there was some defect in the appointment of any member of
the Board or such committee or person acting as aforesaid or that they or
any of them were disqualified or had vacated their office, be as valid as
if every such person had been duly appointed and was qualified and had
continued to be a Director, member of such committee or persons so
authorised.
MINUTES
-------
81. (1) The Directors shall cause minutes to be made and books kept for the
purpose of recording -
(a) all appointments of officers made by the Directors;
(b) the names of the Directors and other persons (if any) present at
each meeting of Directors and of any committee;
(c) of all proceedings at meetings of the Company, of the holders of
any class of shares in the Company, and of committees;
(d) of all proceedings of managers (if any).
(2) Save as expressly directed by the Chairman, the Secretary shall be
under no obligation to circulate to the Members copies of the minutes
of any general meeting. Copies of the same shall be available for
inspection at the registered office of the Company without charge
during normal business hours and the Secretary shall on request supply
photocopies of the same to any Member.
SECRETARY
---------
82. The Secretary shall be appointed by the Board at such remuneration (if any)
and upon such
<PAGE>
terms as it may think fit and any secretary so appointed may be removed by
the Board. The duties of the Secretary shall be those prescribed by the
Companies Acts together with such other duties as shall from time to time
be prescribed by the Board.
83. A provision of the Companies Acts or these Bye-Laws requiring or
authorising a thing to be done by or to a Director and the Secretary shall
not be satisfied by its being done or to the same person acting both as
Director and as, or in the place of, the Secretary.
THE SEAL
--------
84. (a) The Seal shall consist of a circular metal device with the name of the
Company around the outer margin thereof and the country and year of
incorporation across the centre thereof.
(b) The Board shall provide for the custody of the Seal, which Seal shall
only be used by authority of the Board or of a committee authorised by
the Board in that behalf. Subject to these Bye-Laws, any instrument to
which the seal is affixed shall be signed by a Director and by the
Secretary or by a second Director; provided that the Secretary or a
Director may affix the Seal over his signature only to authenticate
copies of these Bye-Laws, the minutes of any meeting or any other
documents requiring authentication.
(c) The Company may have one duplicate Seal which shall be known as the
"Overseas Seal" and which shall be used for the execution of documents
and instruments which require to be executed outside Bermuda. The
provisions of paragraph (a) of this Bye-Law applicable to the Seal
shall mutatis mutandis apply to the Overseas Seal.
(c) The Overseas Seal of the Company may be used outside Bermuda for the
bona fide purposes of the Company and wherever and whenever so used
shall be duly noted and recorded at a meeting of the Board and copies
of all instruments sealed by the Overseas Seal shall be kept at, or
remitted to, the registered office of the Company.
<PAGE>
DIVIDENDS AND OTHER PAYMENTS
----------------------------
85. Subject to the Companies Acts and these Bye-Laws, the Board may from time
to time declare cash dividends to be paid to the Members according to their
rights and interests in the profits including such interim dividends as
appear to the Board to be justified by the position of the Company. The
Board may also pay any fixed cash dividend which is payable on any shares
of the Company half yearly or on such other dates, whenever the position of
the Company, in the opinion of the Board, justifies such payment. For the
purpose of this Bye-Law, contributed surplus shall be deemed not be a
profit of the Company and shall not be taken account of in calculating the
amount of the profits available for distribution to the Members and shall
not be available for distribution other than in the manner provided for in
Bye-Law 91.
86. Except insofar as the rights attaching to, or the terms of issue of, any
share otherwise provide:-
(a) all dividends may be declared and paid according to the amounts paid
up on the shares in respect of which the dividend is paid, and an
amount paid up on a share in advance of calls may be treated for the
purpose of this Bye-Law as paid-up on the share;
(b) dividends may be apportioned and paid pro rata according to the
amounts paid-up on the shares during any portion or portions of the
period in respect of which the dividend is paid.
87. The Board may deduct from any dividend or other moneys payable to a Member
by the Company on or in respect of any shares all sums of money (if any)
presently payable by him to the Company on account of calls or otherwise in
respect of shares of the Company.
<PAGE>
88. No dividend or other moneys payable by the Company on or in respect of any
share shall bear interest against the Company.
89. Any dividend, interest or other sum payable in cash to the holder of shares
may be paid by cheque or warrant sent through the post addressed to the
holder at his address in the Register or, in the case of joint holders,
addressed to the holder whose name stands first in the Register in respect
of the shares at his registered address as appears in the register or
addressed to such person at such address as the holder or joint holders may
in writing direct. Every such cheque or warrant shall, unless the holder or
joint holders otherwise direct, be made payable to the order of the holder
or, in the case of joint holders, to the order of the holder whose name
stands first in the Register in respect of such shares, and shall be sent
at his or their risk and payment of the cheque or warrant by the bank on
which it is drawn shall constitute a good discharge to the Company. Any
one of two or more joint holders may give effectual receipts for any
dividends or other moneys payable or property distributable in respect of
the shares held by such joint holders.
90. Any dividend unclaimed for a period of six years from the date of
declaration of such dividend shall be forfeited and shall revert to the
Company and the payment by the Board of any unclaimed dividend, interest or
other sum payable on or in respect of the share into a separate account
shall not constitute the Company a trustee in respect thereof.
91. The Board may (a) declare a distribution to any Member out of contributed
surplus and (b) may direct payment or satisfaction of such distribution or
any dividend wholly or in part by the distribution of specific assets, and
in particular of paid-up shares or debentures of any other company, and
where any difficulty arises in regard to such distribution or dividend and
Board may settle it as it thinks expedient, and in particular, may
authorise any person to sell and transfer any fractions or may ignore
fractions altogether, and may fix the value for distribution or dividend
purposes of any such specific assets and may determine that cash
<PAGE>
payments shall be made to any Members upon the footing of the values so
fixed in order to secure equality of distribution and may vest any such
specific asset in trustees as may seem expedient to the Board.
RESERVES
--------
92. The Board may, before recommending or declaring any dividend, set aside out
of the profits of the Company such sums as it thinks proper as reserves
which shall, at the discretion of the Board, be applicable for any purpose
to which the profits of the Company may be properly applied and pending
such application may, also at such discretion, either be employed in the
business of the Company or be invested in such investments as the Board may
from time to time think fit. The Board may also without placing the same
to reserve carry forward any profits which it may think it prudent not to
distribute.
CAPITALIZATION OF PROFITS
-------------------------
93. The Company may, upon the recommendation of the Board, at any time and from
time to time resolve in general meeting to the effect that it is desirable
to capitalize all or part of any amount for the time being standing to the
credit of any reserve or fund which is available for distribution or to the
credit of any share premium account or any capital redemption reserve fund
and accordingly that such amount be set free for distribution amongst the
Members or any class of Members who would be entitled thereto if
distributed by way of dividend and in the same proportions, on the footing
that the same be not paid in cash but be applied either in or towards
paying up amounts for the time being unpaid on any shares in the Company
held by such Members respectively or in payment up in full of unissued
shares, debentures or other obligations of the Company, to be allotted and
distributed credited as fully paid amongst such Members, or partly in one
way and partly in the other, and the Board shall give effect to such
resolution, provided that for the purpose of this Bye-Law, a share premium
account and a capital redemption reserve fund may be applied only in paying
up of unissued shares to be issued to such Members credited as fully paid.
<PAGE>
94. Where any difficulty arises in regard to any distribution under the last
preceding Bye-Law the Board may settle the same as it thinks expedient and,
in particular, may authorise any person to sell and transfer any fractions
or may resolve that the distribution should be as nearly as may be
practicable in the correct proportion but not exactly so or may ignore
fractions altogether, and may determine that cash payments should be made
to any Members in order to adjust the rights of all parties, as may seem
expedient to the Board. The Board may appoint any person to sign on behalf
of the persons entitled to participate in the distribution any contract
necessary or desirable for giving effect thereto and such appointment shall
be effective and binding upon the Members.
RECORD DATES
------------
95. The Board may fix any date as the record date for the payment of any
dividend or distribution or for the allotment or issue of shares in the
Company. The Board shall also fix the record date for General Meetings of
the Company identifying the persons entitled to receive notices of and vote
at the General Meeting. Such record date for any General Meeting shall be
a period fixed by the Board but shall not be more than 90 days or less than
7 days prior to the General Meeting.
ACCOUNTING RECORDS
------------------
96. The Board shall cause to be kept accounting records sufficient to give a
true and fair view of the state of the Company's affairs and to show and
explain its transactions, in accordance with the Companies Acts.
97. The records of account shall be kept at the Registered Office or at such
other place or places as the Board thinks fit, and shall at all times be
open to inspection by the Directors, and provided that if the records of
account are kept at some place outside Bermuda, there shall
<PAGE>
be kept at an office of the Company in Bermuda such records as will enable
the Directors to ascertain with reasonable accuracy the financial position
of the Company at the end of each three month period. No Member (other than
an officer of the Company) shall have any right to inspect any accounting
record or book or document of the Company except as conferred by law or
authorised by the Board or the Company in general meeting.
98. A copy of every balance sheet and statement of income and expenditure,
including every document required by law to be annexed thereto, which is to
be laid before the Company in general meeting, together with a copy of the
auditors' report, shall be sent to each person entitled thereto in
accordance with the requirements of the Companies Acts.
AUDIT
-----
99. Save and to the extent that an audit is waived in the manner permitted by
the Companies Acts, auditors shall be appointed and their duties regulated
in accordance with the Companies Acts, any other applicable law and such
requirements not inconsistent with the Companies Acts as the Board may from
time to time determine.
SERVICE OF NOTICES AND OTHER DOCUMENTS
--------------------------------------
100. Any notice of a general meeting of the Company shall be deemed to be duly
given to a Member if it is sent to him by cable, telex, telecopier or other
mode of representing or reproducing words in a legible and non-transitory
form at his address as appearing in the Register or any other address given
by him to the Company for this purpose. Any such notice shall be deemed to
have been served twenty-four hours after its despatch.
101. Any notice or other document delivered, sent or given to a Member in any
manner permitted by these Bye-Laws shall, notwithstanding that such Member
is then dead or bankrupt or than any other event has occurred, and whether
or not the Company has notice of the death or bankruptcy or other event, be
deemed to have been duly served or delivered in respect of any
<PAGE>
share registered in the name of such Member as sole or joint holder unless
his name shall, at the time of the service or delivery of the notice or
document, have been removed from the Register as the holder of the share,
and such service or delivery shall for all purposes be deemed as sufficient
service or delivery of such notice or document on all persons interested
(whether jointly with or as claiming through or under him) in the share.
WINDING UP
----------
102. Subject to these Bye-Laws, if the Company shall be wound up, the liquidator
may, with the sanction of a resolution of the Company and any other
sanction required by the Companies Acts, divide amongst the Members in
specie or kind the whole or any part of the assets of the Company (whether
they shall consist of property of the same kind or not) and may for such
purposes set such values as he deems fair upon any property to be divided
as aforesaid and may determine how such division shall be carried out as
between the Members or different classes of Members. The liquidator may,
with the like sanction, vest the whole or any part of such assets in
trustees upon such trust for the benefit of the contributories as the
liquidator, with the like sanction, shall think fit, but so that no Member
shall be compelled to accept any shares or other assets upon which there is
any liability.
INDEMNITY
---------
103. Subject to the proviso below, every Director, officer of the Company and
member of a committee constituted under Bye-Laws 70 and 71 shall be
indemnified out of the funds of the Company against civil liabilities loss
damage or expense (including but not limited to liabilities under contract,
tort and statute or any applicable foreign law or regulation and all
reasonable legal and other costs and expenses properly payable) incurred or
suffered by him as such Director, officer or committee member and the
indemnity contained in this Bye-law shall extend to any person acting as a
Director, officer or committee member in the reasonable belief that he has
been so appointed or elected notwithstanding any defect in such appointment
or election provided always that the indemnity contained in this Bye-law
shall
<PAGE>
not extend to any matter which would render it void pursuant to the
Companies Acts.
104. To the extent that any Director, officer or member of a committee duly
constituted under these Bye-Laws is entitled to claim an indemnity pursuant
to these Bye-Laws in respect of amounts paid or discharged by him, the
relative indemnity shall take effect as an obligation of the Company to
reimburse the person making such payment or effecting such discharge.
105. No Director, Secretary or other duly appointed Officer of the Company shall
be personally liable to the Company or its Members for monetary damages in
respect of the exercise or non-exercise of any power or duty vested in such
Director, Secretary or Officer, provided however, the foregoing shall not
extend to any matter which would be rendered void by the operation of
Section 98 of the Companies Act.
106 Expenses incurred in defending a civil or criminal action, suit or
proceeding shall be paid by the Company in advance of the final disposition
of such action, suit or proceeding as authorised by the Board in the
specific case upon receipt of an undertaking by or on behalf of the
Director, Secretary, officer, liquidator or trustee to repay such amount
unless it shall ultimately be determined that he is entitled to be
indemnified by the Company as authorised in these Bye-Laws or otherwise
pursuant to the laws of Bermuda.
ALTERATION TO BYE-LAWS
----------------------
107. Any amendment to these Bye-Laws shall be decided on by a simple majority of
votes cast at any General Meeting of the Company; provided however, that
any proposed amendment to Bye-Laws 2, 3, 5, 24, 26, 27, 56, and 107 shall
be decided on by the affirmative vote of 75% of the outstanding voting
shares in the Company duly cast at a general meeting of the Company called
for the purpose.
<PAGE>
REGISTERED OFFICE
-----------------
108. The Registered office shall be at such place in Bermuda as the Board shall
from time to time appoint.
INTERPRETATION
--------------
109. In these Bye-Laws unless the context otherwise requires -
"Bermuda" means the Islands of Bermuda;
"Board" means the Board of Directors of the Company or the Directors
present at a meeting of Directors at which there is a quorum;
"Company" means Mutual Risk Management Ltd. incorporated in Bermuda on the
5th day of September, 1977;
"the Companies Acts" means every Bermuda statute from time to time in force
concerning companies insofar as the same applies to the Company;
"Member" means any person who agrees to become a member of the Company and
whose name is entered in its register. The term "member" and "shareholder"
are hereby deemed synonymous;
"paid up" means paid up or credited as paid up;
"Register" means the Register of Members of the Company;
<PAGE>
"Seal" means the common seal of the Company;
"Secretary" includes a temporary or assistant Secretary and any person
appointed by the Board to perform any of the duties of the Secretary;
"these Bye-Laws" means these Bye-Laws in their present form or as from time
to time amended;
for the purposes of these Bye-Laws a corporation shall be deemed to be
present in person if its representative duly authorised pursuant to the
Companies Acts is present;
words importing the singular number only include the plural number and vice
versa;
words importing the masculine gender only include the feminine and neuter
genders respectively;
words importing persons include companies or associations or bodies of
persons, whether corporate or un-incorporate;
reference to writing shall include typewriting, printing, lithography,
photography and other modes of representing or reproducing words in a
legible and non-transitory form;
any words or expressions defined in the Companies Acts in force at the date
when these Bye-Laws any part thereof are adopted shall bear the same
meaning in these Bye-Laws or such part (as the case may be).
******
****
*
<PAGE>
EXHIBIT 11.1
MUTUAL RISK MANAGEMENT LTD.
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Quarter Ended June, 30 Six Months Ended June, 30
1999 1998 1999 1998
(in thousands except share and per share amounts)
<S> <C> <C> <C> <C>
Basic
Income Available to Common Shareholders $ 18,095 $ 16,092 $ 36,894 $ 31,366
========== ========== ========== ==========
Weighted Average Common Shares outstanding 43,411,317 41,379,758 43,024,869 40,668,137
---------- ---------- ---------- ----------
Basic earnings per Common Share $0.42 $0.39 $0.86 $0.77
========== ========== ========== ==========
Diluted
Income Available to Common Shareholders $ 18,095 $ 16,092 $ 36,894 $ 31,266
Debenture interest 1,476 1,658 3,029 3,333
---------- ---------- ---------- ----------
$19,571 $ 17,750 $ 39,923 $ 34,599
========== ========== ========== ==========
Weighted Average Common Shares outstanding 43,411,317 41,379,758 43,024,869 40,668,137
---------- ---------- ---------- ----------
Common share equivalents associated with options, Redeemable Common Shares
and Convertible Debentures :
Options 4,367,839 4,065,366 4,367,839 4,065,366
Redeemable Common Shares 0 0 0 0
Convertible Debentures 5,723,691 6,666,881 5,723,691 6,666,881
---------- ---------- ---------- ----------
10,091,530 10,732,247 10,091,530 10,732,247
Common Shares purchased with proceeds
from options exercised (2,902,018) (1,871,117) (2,609,288) (1,395,040)
---------- ---------- ---------- ----------
7,189,512 8,861,130 7,482,242 9,337,207
---------- ---------- ---------- ----------
Total Weighted Average Common Shares 50,600,829 50,240,888 50,507,111 50,005,344
========== ========== ========== ==========
Diluted earnings per Common Share $0.39 $0.35 $0.79 $0.69
========== ========== ========== ==========
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MUTUAL RISK
MANAGEMENT LTD.'S FINANCIAL STATEMENTS AS OF JUNE 30, 1999 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000826918
<NAME> MUTUAL RISK MANAGEMENT LTD.
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<DEBT-HELD-FOR-SALE> 450,078
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 450,078
<CASH> 76,652
<RECOVER-REINSURE> 1,219,961
<DEFERRED-ACQUISITION> 35,892
<TOTAL-ASSETS> 3,370,075
<POLICY-LOSSES> 1,342,605
<UNEARNED-PREMIUMS> 309,100
<POLICY-OTHER> 70,125
<POLICY-HOLDER-FUNDS> 33,292
<NOTES-PAYABLE> 117,616
0
0
<COMMON> 435
<OTHER-SE> 385,287
<TOTAL-LIABILITY-AND-EQUITY> 3,370,075
89,018
<INVESTMENT-INCOME> 16,663
<INVESTMENT-GAINS> (1,030)
<OTHER-INCOME> 91,058
<BENEFITS> 67,792
<UNDERWRITING-AMORTIZATION> 23,414
<UNDERWRITING-OTHER> 63,984
<INCOME-PRETAX> 40,519
<INCOME-TAX> 3,630
<INCOME-CONTINUING> 36,889
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 36,894
<EPS-BASIC> 0.86
<EPS-DILUTED> 0.79
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
