SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-Q
----------------------
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED JUNE 30, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____TO____
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CAPITAL RE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 001-10995 52-1567009
(STATE OR OTHER COMMISSION FILE NUMBER) (IRS EMPLOYER
JURISDICTION OF IDENTIFICATION NUMBER)
INCORPORATION OR
ORGANIZATION)
1325 AVENUE OF THE AMERICAS
18TH FLOOR
NEW YORK, NEW YORK 10019
(212) 974-0100
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTIONS 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 (REGISTRANT BECAME SUBJECT TO THE
FILING REQUIREMENTS ON APRIL 8, 1992.)
AS OF AUGUST 10, 1998 THERE WERE 31,914,119 OUTSTANDING SHARES OF COMMON STOCK,
PAR VALUE $.01 PER SHARE, OF THE REGISTRANT.
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CAPITAL RE CORPORATION AND SUBSIDIARIES
INDEX
<S> <C> <C>
PART I FINANCIAL INFORMATION PAGE
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) CAPITAL RE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS -JUNE 30, 1998 (UNAUDITED) AND 3
DECEMBER 31, 1997 (UNAUDITED)
CONSOLIDATED STATEMENTS OF INCOME - THREE AND SIX MONTHS
ENDED JUNE 30, 1998 (UNAUDITED) AND JUNE 30, 1997 4
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - THREE AND SIX
MONTHS ENDED JUNE 30, 1998(UNAUDITED) AND JUNE 30, 1997
(UNAUDITED) 5
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY - SIX MONTHS
ENDED JUNE 30, 1998 (UNAUDITED) 6
CONSOLIDATED STATEMENTS OF CASH FLOWS - SIX MONTHS ENDED
JUNE 30, 1998 (UNAUDITED) AND JUNE 30, 1997 (UNAUDITED) 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 8-9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS 10-19
PART II OTHER INFORMATION
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 20
ITEM 5 OTHER INFORMATION 21
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K 21-23
SIGNATURES 24
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<TABLE>
<CAPTION>
CAPITAL RE CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(Dollars in thousands except per share amounts)
June 30, December 31,
1998 1997
-------------- ---------------
ASSETS
<S> <C> <C>
Fixed maturity securities available for sale, at market
(amortized cost: $972,136 in 1998 and $887,605 in 1997) $1,016,698 $932,823
Short-term investments, at cost, which approximates market 70,264 78,268
-------------- ---------------
Total Investments 1,086,962 1,011,091
Cash 15,414 18,878
Accrued investment income 15,938 13,761
Deferred acquisition costs 152,482 135,332
Prepaid reinsurance premiums 71,724 64,953
Reinsurance recoverable on ceded losses 16,350 7,245
Funds held under reinsurance agreements 4,434 3,926
Premiums receivable, net 43,149 25,414
Amounts receivable on ceded annuity reserves 57,421 58,635
Investment in affiliates 22,003 21,858
Goodwill 9,846 12,677
Other assets 10,729 12,032
-------------- ---------------
Total Assets $1,506,452 $1,385,802
============== ===============
LIABILITIES
Deferred premium revenue $456,790 $402,145
Reserve for losses and loss adjustment expenses 53,911 37,900
Annuity benefit reserves 57,421 58,635
Accident and health reserves 16,094 16,367
Profit commission liability 40,466 30,457
Deferred federal income taxes payable 76,670 72,879
Bank note payable 25,000 25,000
Long-term debt 74,838 74,819
Other liabilities 23,776 23,657
-------------- ---------------
Total Liabilities $824,966 $741,859
-------------- ---------------
COMPANY OBLIGATED MANDATORILY REDEEMABLE
PREFERRED SECURITIES OF CAPITAL RE LLC 75,000 75,000
STOCKHOLDERS' EQUITY
Preferred stock - $.01 par value per share; 25,000,000 shares
authorized; no shares issued and outstanding
in 1998 and 1997 --- ---
Common stock - $.01 par value per share; 75,000,000 shares
authorized, 31,866,622 and 31,826,874 shares issued and
outstanding in 1998 and 1997, respectively 323 322
Additional paid-in capital 225,505 224,999
Retained earnings 356,686 319,253
Treasury stock; 428,000 and 428,000 shares in 1998 and 1997, respectively (4,891) (4,891)
Other Comprehensive Income
Net unrealized gain on fixed maturities securities
available for sale, net of tax 28,972 29,392
Foreign exchange translation (109) (132)
-------------- ---------------
Accumulated Other Comprehensive Income 28,863 29,260
-------------- ---------------
Total Stockholders' Equity 606,486 568,943
-------------- ---------------
Total Liabilities, Preferred Securities of Capital Re LLC and
Stockholders' Equity $1,506,452 $1,385,802
-------------- ---------------
</TABLE>
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<TABLE>
<CAPTION>
CAPITAL RE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income
(Dollars in thousands except per share amounts)
Three Months Ended Six Months Ended
June 30, June 30,
(Unaudited) (Unaudited)
------------------------------- --------------------------------
1998 1997 1998 1997
------------------------------- --------------------------------
REVENUES:
<S> <C> <C> <C> <C>
Gross premiums written $80,286 $60,431 $173,531 $124,956
Ceded premiums 5,471 1,460 20,833 9,716
------------------------------- --------------------------------
Net premiums written 74,815 58,971 152,698 115,240
(Increase)/decrease in deferred premium revenue (22,589) (27,097) (47,729) (52,817)
------------------------------- --------------------------------
Net premiums earned 52,226 31,874 104,969 62,423
Net investment income 16,303 13,991 32,433 27,805
Net realized gain/(loss) 1,281 (192) 2,461 2,593
Fee income 555 874 1,039 1,319
Other income 25 107 189 133
Equity income in affiliate 101 237 133 470
------------------------------- --------------------------------
Total Revenues 70,491 46,891 141,224 94,743
------------------------------- --------------------------------
EXPENSES:
Loss and loss adjustment expenses 9,560 5,031 25,218 9,848
Acquisition costs 21,713 16,069 48,827 33,394
Increase in deferred acquisition costs (7,274) (5,397) (17,071) (12,482)
Profit commission expense 7,716 1,971 10,588 3,967
Other operating expenses 6,672 2,870 11,273 5,916
Amortization of goodwill 167 167 334 334
Interest expense 1,851 1,844 3,730 3,722
Foreign exchange (gain)/loss 425 (151) 85 242
Minority interest in Capital Re LLC 1,434 1,434 2,869 2,869
------------------------------- --------------------------------
Total Expenses 42,264 23,838 85,853 47,810
------------------------------- --------------------------------
Income before provision for federal income taxes 28,227 23,053 55,371 46,933
Provision for federal income taxes
Current 7,414 5,034 11,303 8,864
Deferred 626 1,913 4,087 4,825
------------------------------- --------------------------------
Total provision for federal income taxes 8,040 6,947 15,390 13,689
------------------------------- --------------------------------
Net Income $20,187 $16,106 $39,981 $33,244
=============================== --------------------------------
Earnings per common share $0.63 $0.51 $1.26 $1.05
=============================== ================================
Diluted Earnings per common share $0.61 $0.50 $1.21 $1.03
=============================== ================================
Cash dividends per common share $0.04 $0.04 $0.08 $0.07
=============================== ================================
Weighted average number of common
shares outstanding 31,865 31,723 31,849 31,723
=============================== ================================
Diluted Weighted average number of common
shares outstanding 33,025 32,388 32,951 32,419
=============================== ================================
</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
<TABLE>
<CAPTION>
CAPITAL RE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
(Dollars in thousands)
Three Months Ended Six Months Ended
June 30, June 30,
(unaudited) (unaudited)
------------------------------- --------------------------------
1998 1997 1998 1997
------------------------------- --------------------------------
<S> <C> <C> <C> <C>
Net Income $20,187 $16,106 $39,981 $33,244
Other Comprehensive Income, net of tax:
Change in net unrealized gain on
fixed maturities securities available for sale 2,171 11,636 (420) (1,363)
Change in foreign exchange translation (161) 142 23 (327)
----- ------ ----- -------
Other Comprehensive Income 2,010 11,778 (397) (1,690)
----- ------ ----- -------
Comprehensive Income $22,197 $27,884 $39,584 $31,554
======= ======= ======= =======
</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
<TABLE>
<CAPTION>
CAPITAL RE CORPORATION AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity
(Dollars in thousands except share amounts)
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS
-----------------------------------------------
<S> <C> <C> <C>
Balance, January 1, 1998 $322 $224,999 $319,253
Net Income -- -- 39,981
Exercise of stock options, including tax benefit (39,748 shares) 1 506 --
Fixed maturities securities available for sale adjustments -- -- --
Foreign exchange translation -- -- --
Dividend ($.08 per common share) -- -- (2,548)
--------------------------------------------------
Balance, June 30, 1998 $323 $225,505 $356,686
==================================================
NET UNREALIZED
GAIN ON
FIXED MATURITIES
SECURITIES TOTAL
TREASURY FOREIGN EXCH. AVAILABLE FOR STOCKHOLDERS'
STOCK TRANSLATION SALE EQUITY
---------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, January 1, 1998 ($4,891) ($132) $29,392 $568,943
Net Income -- -- -- 39,981
Exercise of stock options, including tax benefit (39,748 shares) -- -- -- 507
Fixed maturities securities available for sale adjustments -- -- (420) (420)
Foreign exchange translation -- 23 -- 23
Dividend ($.08 per common share) -- -- -- (2,548)
----------------------------------------------------------------
Balance, June 30, 1998 ($4,891) ($109) $28,972 $606,486
=================================================================
</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
<TABLE>
<CAPTION>
CAPITAL RE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Dollars in thousands)
SIX MONTHS ENDED
JUNE 30,
---------------------------------------
1998 1997
---------------------------------------
OPERATING ACTIVITIES:
<S> <C> <C>
Net income $39,981 $33,244
Adjustments to reconcile net income to
net cash provided by operating activities:
Amortization of bond discount on long-term debt 19 19
Net amortization of security premiums (612) (374)
Provision for deferred federal income taxes 4,028 4,825
Acquisition costs deferred (48,827) (33,394)
Amortization of deferred acquisition costs 31,730 20,905
Equity Income in affiliates (145) (470)
Change in accrued investment income (2,172) (297)
Change in premiums receivable, net (27,283) (33,779)
Change in deferred premium revenue, net 47,775 52,839
Change in outstanding loss reserves, net 6,871 1,578
Net realized (gain) on investments (2,461) (2,593)
Change in ceded balances payable 9,654 6,901
Other 10,847 3,880
--------- ---------
Net Cash Provided by Operating Activities 69,405 53,284
INVESTING ACTIVITIES:
Securities available-for-sale:
Purchases - fixed maturities (398,667) (589,254)
Sales-fixed maturities 316,811 579,785
Maturities (purchases) of short-term
investments, net 8,404 (76,468)
investments in Affiliates 0 (11,000)
Other investing activities 2,624 37,565
--------- ---------
Net Cash Used in Investing Activities (70,828) (59,372)
FINANCING ACTIVITIES:
Net proceeds from exercise of stock options 507 856
Purchase of treasury stock at cost 0 (1,021)
Dividends paid (2,548) (2,222)
--------- ---------
Net Cash Used by Financing Activities (2,041) (2,387)
Effect of exchange rate changes on cash 0 0
--------- ---------
(Decrease) Increase in Cash (3,464) (8,475)
Cash at Beginning of Period 18,878 15,285
--------- ---------
Cash at End of Period $15,414 $6,810
========= =========
</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
CAPITAL RE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
June 30, 1998
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements and footnotes have
been prepared in accordance with the instructions to Form 10-Q and the
preparation of unaudited interim financial statements under the Rules and
Regulations of the Securities and Exchange Commission and do not include all the
information and disclosures required by generally accepted accounting
principles. These statements should be read in conjunction with the audited
consolidated financial statements of Capital Re Corporation and Subsidiaries
(the "Corporation") included in the Corporation's 1997 Annual Report on Form
10-K. The accompanying unaudited consolidated financial statements include all
adjustments, consisting only of normal recurring adjustments, necessary to
present fairly the Corporation's financial position and results of operations.
The results of operations for the six months ended June 30, 1998 may not be
indicative of the results that may be expected for the year ending December 31,
1998.
As of January 1, 1998, the Company adopted Statement 130, "Reporting
Comprehensive Income". Statement 130 establishes new rules for the reporting and
display of comprehensive income and its components; however, the adoption of
this Statement had no impact on the Corporation income or shareholders' equity.
Statement 130 requires unrealized gains or losses on the Corporation's
available-for-sale securities and foreign currency translation adjustments,
which prior to adoption were reported separately in shareholders' equity to be
included in other comprehensive income. Prior year financial statements have
been reclassified to conform to the requirements of Statement 130. For the three
months and six months ended June 30, 1998 and 1997, total comprehensive income
amounted to $22.2 million and $39.6 million, and $27.9 million and $31.6
million, respectively.
2. REINSURANCE
Ceded earned premium for the three and six months ended June 30, 1998 and 1997
were $7.9 million and $14.2 million, and $4.5 million and $8.3 million,
respectively. Ceded losses for the same periods were $10.4 million and $11.6
million $0.9 million and $1.8 million, respectively.
3. INCOME TAXES
The effective tax rate for the six months ended June 30, 1998 and 1997 is lower
than the federal corporate tax rate on ordinary income of 35% due principally to
the effect of tax-exempt interest income. Income taxes paid for the six months
ended June 30, 1998 and 1997 were $9.1 million and $7.7 million, respectively.
4. OTHER
Interest paid for the six months ended June 30, 1998 and 1997 was $3.7 million.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Capital Re Corporation (the "Corporation") was incorporated in the State of
Delaware in December 1991, and is the successor by merger to a Maryland
corporation incorporated in 1986. The Corporation is an insurance holding
company and has six wholly owned operating subsidiaries. Capital Reinsurance
Company ("Capital Reinsurance"), domiciled in the State of Maryland, commenced
operations in January 1988. Capital Reinsurance is engaged in the business of
financial guaranty reinsurance, primarily the reinsurance of municipal and
non-municipal bond insurance obligations. Capital Mortgage Reinsurance Company
("Capital Mortgage"), a New York domiciled company, commenced operations in
February 1994. Capital Mortgage reinsures only residential mortgage guaranty
insurance obligations. KRE Reinsurance Ltd. (formerly Capital Mortgage
Reinsurance Company (Bermuda) Ltd.) ("KRE"), a Bermuda domiciled company,
commenced operations in March 1994. KRE is engaged in the business of reinsuring
financial guaranty, mortgage guaranty, financial insurance, trade credit and
other specialty lines of insurance, both as a direct reinsurer of third party
primary insurers and as a retrocessionaire of Capital Reinsurance, Capital
Mortgage, Capital Credit Reinsurance Company Ltd. ("Capital Credit") and Capital
Title Reinsurance Company ("Capital Title"). Capital Credit, also a Bermuda
domiciled insurance company, commenced operations in February 1990. Capital
Credit reinsures trade credit, political risk, and other specialty insurance
lines concentrated in Western Europe and the United States and is a
retrocessionaire of Capital Reinsurance and Capital Mortgage. Capital Title, a
New York domiciled insurance company, commenced operations in March 1996.
Capital Title is engaged in the business of reinsuring title insurance policies.
In November 1996, the Corporation acquired, through a United Kingdom holding
company, Capital Re (UK) Holdings, 100% of the issued shares of Tower Street
Holdings Limited (now known as RGB Holdings, Ltd.), the holding company for RGB
Underwriting Agencies Ltd. ("RGB"). RGB is a managing agency and presently
manages five syndicates operating in the Lloyd's of London ("Lloyd's") insurance
market. In November 1997, RGB Holdings, Ltd. acquired 100% of C.I. de Rougemont
Group Limited, the ultimate holding company for C.I. de Rougemont & Co. Ltd.
("CIDR"), another Lloyd's managing agency. CIDR manages two syndicates, one
marine and the other non-marine. Effective January 1, 1998, the CIDR non-marine
syndicate was merged with the non-marine syndicate of RGB. In connection with
its acquisition of RGB, the Corporation established a corporate name at Lloyd's,
CRC Capital Ltd. ("CRC"), to provide underwriting capacity to the managed
syndicates commencing with the 1997 year of account. CRC currently participates
in a marine, a non-marine and two life syndicates. At June 30, 1998, the results
of RGB, CIDR and CRC are consolidated in the Corporation's financial statements.
In December 1996, the Corporation entered into a joint venture with GCR Holdings
Ltd. ("GCR"), to form a Bermuda based insurer, Capital Global Underwriters
Limited ("CGUL"), which specializes in financial lines reinsurance. In April
1997, EXEL Limited ("EXEL") acquired GCR. In March 1998, EXEL sold its share of
CGUL to Bermuda based ACE Limited and CGUL was renamed ACE Capital Re Ltd. The
Corporation, through its subsidiary, KRE, owns a fifty-percent interest in ACE
Capital Re Ltd. and controls 9.9% of its voting stock. The Corporation accounts
for its investment in ACE Capital Re Ltd. under the equity method.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1998 VERSUS THREE MONTHS ENDED JUNE 30, 1997
Net income for the three months ended June 30, 1998 increased 25.5% to $20.2
million from $16.1 million for the same period of 1997. The Company adopted
Statement of Financial Standards No. 128, "Earnings per Share" ("FAS 128"), as
of December 31, 1997. FAS 128 requires the calculation and presentation on the
face of the income statement of basic earnings per share and, if applicable,
diluted earnings per share. Basic earnings per share is calculated based on the
weighted average common shares outstanding. All potentially dilutive securities
such as stock options and convertible securities are excluded from the basic
earnings per share calculation. In calculating diluted earnings per share, the
number of shares is increased to include all potentially dilutive securities,
including stock options and convertible securities. On June 30, 1998, the
Corporation completed a two for one stock split of its outstanding common
shares. Prior period financial results have been restated to reflect the stock
split. On a per share basis, basic and diluted net income increased to $0.63 and
$0.61, respectively, for the three months ended June 30, 1998 from $0.51 and
$0.50, respectively, for the same period of 1997, or 23.5% and 22.0%,
respectively. In addition, net operating income (net income excluding realized
gains and losses and foreign exchange gains and losses) increased 21.7% to $19.6
million for the three months ended June 30, 1998 from $16.1 million for the same
period in 1997. On a per share basis, basic and diluted net operating income
increased to $0.62 and $0.59, respectively, for the three months ended June 30,
1998 from $0.51 and $0.50, respectively, for the same period of 1997, or 21.6%
and 18.0%, respectively. Growth in net premiums earned to $52.2 million from
$31.9 million, or 63.6%, and growth in net investment income to $16.3 million
from $14.0 million, or 16.4%, were the principal causes of the increase in net
income.
Gross premiums written increased 32.9% to $80.3 million for the three months
ended June 30, 1998 from $60.4 million for the same period of 1997. Growth in
gross premiums written was experienced across all lines of business except for
the mortgage guaranty reinsurance line. Mortgage guaranty reinsurance premium
declined to $21.0 million for the three months ended June 30, 1998 from $24.6
million for the same period of 1997. This decline reflects the Corporation's
shift away from producing quota share business and toward producing structured
excess of loss business. In 1997, the Company added a financial reinsurance line
of business. This line consists of structured financial transactions involving
the reinsurance of annuity and accident and health reserves. The following table
shows gross premiums written by line of business for the three months ended June
30, 1998 and June 30, 1997.
Gross Premiums Written
Three Months Ended
June 30,
1998 1997
---- ----
(dollars in millions)
Municipal $16.5 $11.7
Non-Municipal 6.2 3.9
Financial Lines 1.4 0.0
Mortgage 21.0 24.6
Title 0.9 0.7
Credit and Specialty 9.8 4.7
Lloyd's 24.5 14.8
----- -----
$80.3 $60.4
Net premiums written increased by 26.8% to $74.8 million for the three months
ended June 30, 1998 from $59.0 million for the same period in 1997. The
following table shows net premiums written by line of business for the three
months ended June 30, 1998 and June 30, 1997.
Net Premiums Written
Three Months Ended
June 30,
1998 1997
---- ----
(dollars in millions)
Municipal $16.1 $11.5
Non-Municipal 6.2 3.8
Financial Lines 1.4 0.0
Mortgage 21.0 24.5
Title 0.9 0.7
Credit and Specialty 9.8 4.7
Lloyd's 19.4 13.8
----- -----
$74.8 $59.0
For the three months ended June 30, 1998, net premiums earned increased 63.6% to
$52.2 million from $31.9 million for the comparable 1997 period. This increase
was primarily due to growth in net premiums earned across all product lines of
business. For the three months ended June 30, 1998, net refunded earned premium
increased to $4.3 from $1.9 million for the comparable period in 1997. Excluding
the effects of net refunded municipal earned premium, net premiums earned
increased 59.7% to $47.9 million for the three months ended June 30, 1998 from
$30.0 million for the three months ended June 30, 1997. A refunding extinguishes
the Corporation's reinsurance liability for the refunded obligation and the
Corporation then recognizes revenue equal to the remaining related deferred
premium revenue. For the three months ended June 30, 1998 and 1997, ceded earned
premium was $7.9 million and $4.5 million, respectively. The following table
shows net premiums earned by line of business for the three months ended June
30, 1998 and June 30, 1997.
Net Premiums Earned
Three Months Ended
June 30,
1998 1997
---- ----
(dollars in millions)
Municipal $9.8 $7.2
Non-Municipal 4.9 2.3
Financial Lines 1.4 0.0
Mortgage 14.7 13.8
Title 1.0 0.7
Credit and Specialty 7.4 3.9
Lloyd's 13.0 4.0
----- -----
$52.2 $31.9
For the three months ended June 30, 1998, net investment income increased 16.4%
to $16.3 million from $14.0 million for the comparable period in 1997. Growth in
investment income was primarily attributable to a larger investment portfolio
caused by an increase in invested assets from positive operating cash flows
during the twelve months ended June 30, 1998. In addition, the Corporation
recognized net realized gains of $1.3 million for the three months ended June
30, 1998 compared to $0.2 million of net realized losses for same period in
1997.
Loss and loss adjustment expenses increased to $9.6 million from $5.0 million
for the three months ended June 30, 1998 and 1997, respectively. Losses recorded
for the three months ended June 30, 1998 were primarily attributable to the loss
recognition associated with the Lloyd's line of business and the addition of the
financial line of business, as well as normal loss development in the credit
reinsurance line of business. Ceded losses for the three months ended June 30,
1998 and 1997 were $10.4 million and $0.9 million, respectively.
Total expenses, including loss and loss adjustment expenses, increased 77.7% to
$42.3 million for the three months ended June 30, 1998 from $23.8 million for
the same period of 1997. This increase was primarily attributable to the
amortization of acquisition expenses associated with the increased level of
premiums earned across all lines of business and normal loss development from
the credit and financial lines of business. In addition, the increase in
expenses was attributable to an increase in overhead to support growth in the
Company's lines of businesses as well as operating and loss expenses associated
with the consolidation, for accounting purposes, of the Company's Lloyd's
operations with the Company's reinsurance operations. Furthermore, the combined
ratio, excluding expenses associated with non-insurance operations, increased to
72.9% for the three months ended June 30, 1998 from 63.9% for the comparable
1997 period. This increase is an expected result of the Corporation's
diversification strategy, which is producing more business from lines with
relatively higher combined ratios than that of the financial guaranty
reinsurance business.
For the three months ended June 30, 1998, the total federal tax provision
increased to $8.0 million from $6.9 million for the same period in 1997. In
addition, the effective tax rate decreased to 28.5% for the three months ended
June 30, 1998 from 30.1% for the same period of 1997.
SIX MONTHS ENDED JUNE 30, 1998 VERSUS SIX MONTHS ENDED JUNE 30, 1997
Net income for the six months ended June 30, 1998 increased 20.5% to $40.0
million from $33.2 million for the same period of 1997. The Company adopted
Statement of Financial Standards No. 128, "Earnings per Share" ("FAS 128"), as
of December 31, 1997. FAS 128 requires the calculation and presentation on the
face of the income statement of basic earnings per share and, if applicable,
diluted earnings per share. Basic earnings per share is calculated based on the
weighted average common shares outstanding. All potentially dilutive securities
such as stock options and convertible securities are excluded from the basic
earnings per share calculation. In calculating diluted earnings per share, the
number of shares is increased to include all potentially dilutive securities,
including stock options and convertible securities. On June 30, 1998, the
Corporation completed a two for one stock split of its outstanding common
shares. Prior period financial results have been restated to reflect the stock
split. On a per share basis, basic and diluted net income increased to $1.26 and
$1.21, respectively, for the six months ended June 30, 1998 from $1.05 and
$1.03, respectively, for the same period of 1997, or 20.0% and 17.5%,
respectively. In addition, net operating income (net income excluding realized
gains and losses and foreign exchange gains and losses) increased 21.1% to $38.4
million for the six months ended June 30, 1998 from $31.7 million for the same
period in 1997. On a per share basis, basic and diluted net operating income
increased to $1.21 and $1.17, respectively, for the six months ended June 30,
1998 from $1.00 and $0.98, respectively, for the same period of 1997, or 21.0%
and 19.4%, respectively. Growth in net premiums earned to $105.0 million from
$62.4 million, or 68.3%, and growth in net investment income to $32.4 million
from $27.8 million, or 16.5%, were the principal causes of the increase in net
income.
Gross premiums written increased 38.8% to $173.5 million for the six months
ended June 30, 1998 from $125.0 million for the same period of 1997. Gross
premiums written increased across all product lines. In addition, in 1997 the
Company added a financial reinsurance line of business. This line includes
structured financial transactions involving the reinsurance of annuity and
accident and health reserves. The following table shows gross premiums written
by line of business for the six months ended June 30, 1998 and June 30, 1997.
Gross Premiums Written
Six Months Ended
June 30,
1998 1997
---- ----
(dollars in millions)
Municipal $38.7 $29.6
Non-Municipal 12.2 7.2
Financial Lines 5.5 0.0
Mortgage 41.2 40.4
Title 2.0 1.5
Credit and Specialty 18.3 11.0
Lloyd's 55.6 35.3
------ ------
$173.5 $125.0
Net premiums written increased by 32.6% to $152.7 million for the six months
ended June 30, 1998 from $115.2 million for the same period in 1997. This
increase is commensurate with the increase in gross premiums written explained
above. The following table shows net premiums written by line of business for
the six months ended June 30, 1998 and June 30, 1997.
Net Premiums Written
Six Months Ended
June 30,
1998 1997
---- ----
(dollars in millions)
Municipal $37.4 $27.1
Non-Municipal 12.2 7.2
Financial Lines 5.5 0.0
Mortgage 41.2 40.2
Title 2.0 1.5
Credit and Specialty 18.2 11.0
Lloyd's 36.2 28.2
------ ------
$152.7 $115.2
For the six months ended June 30, 1998, net premiums earned increased 68.3% to
$105.0 million from $62.4 million for the comparable 1997 period. This increase
was primarily due to growth in net premiums earned across all product lines of
business. For the six months ended June 30, 1998, net refunded earned premium
increased to $7.9 from $2.4 million for the comparable period in 1997. Excluding
the effects of net municipal refunded earned premium, net premiums earned
increased 61.8% to $97.1 million for the six months ended June 30, 1998 from
$60.0 million for the six months ended June 30, 1997. A refunding extinguishes
the Corporation's reinsurance liability for the refunded obligation and the
Corporation then recognizes revenue equal to the remaining related deferred
premium revenue. For the six months ended June 30, 1998 and 1997, ceded earned
premium was $14.2 million and $8.3 million, respectively. The following table
shows net premiums earned by line of business for the six months ended June 30,
1998 and June 30, 1997.
Net Premiums Earned
Six Months Ended
June 30,
1998 1997
---- ----
(dollars in millions)
Municipal $19.2 $14.3
Non-Municipal 8.8 5.3
Financial Lines 5.5 0.0
Mortgage 32.7 27.4
Title 2.2 1.4
Credit and Specialty 14.6 8.3
Lloyd's 22.0 5.7
------ -----
$105.0 $62.4
For the six months ended June 30, 1998, net investment income increased 16.5% to
$32.4 million from $27.8 million for the comparable period in 1997. Growth in
investment income was primarily attributable to a larger investment portfolio
caused by an increase in invested assets from positive operating cash flows
during the twelve months ended June 30, 1998. In addition, the Corporation
recognized net realized gains of $2.5 million for the six months ended June 30,
1998 compared to $2.6 million for same period in 1997.
Loss and loss adjustment expenses increased to $25.2 million from $9.8 million
for the six months ended June 30, 1998 and 1997, respectively. Losses recorded
for the six months ended June 30, 1998 were primarily attributable to the loss
recognition associated with the Lloyd's line of business and the addition of the
financial line of business, as well as normal loss development in the credit
reinsurance line of business. Ceded losses for the six months ended June 30,
1998 and 1997 were $11.6 million and $1.8 million, respectively.
Total expenses, including loss and loss adjustment expenses, increased 79.7% to
$85.9 million for the six months ended June 30, 1998 from $47.8 million for the
same period of 1997. This increase was primarily attributable to the
amortization of acquisition expenses associated with the increased level of
premiums earned across all lines of business and normal loss development from
the credit and financial lines of business. In addition, the increase in
expenses was attributable to an increase in overhead to support growth in the
Company's lines of businesses as well as operating and loss expenses associated
with the consolidation, for accounting purposes, of the Company's Lloyd's
operations with the Company's reinsurance operations. Furthermore, the combined
ratio, excluding expenses associated with non-insurance operations, increased to
74.5% for the six months ended June 30, 1998 from 64.0% for the comparable 1997
period. This increase is an expected result of the Corporation's diversification
strategy, which is producing more business from lines with relatively higher
combined ratios than that of the financial guaranty reinsurance business.
For the six months ended June 30, 1998, the total federal tax provision
increased to $15.4 million from $13.7 million for the same period in 1997. In
addition, the effective tax rate decreased to 27.8% for the six months ended
June 30, 1998 from 29.2% for the same period of 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Corporation relies on dividends from Capital Reinsurance to fund its payment
of dividends on its capital stock and interest on its outstanding debt. The
major sources of liquidity for Capital Reinsurance are funds generated from
reinsurance premiums, net investment income and maturing investments. Capital
Reinsurance is domiciled in the State of Maryland, and, under Maryland insurance
law, the amount of the surplus of Capital Reinsurance available for distribution
as dividends is subject to certain statutory restrictions. The amount available
for distribution from Capital Reinsurance during 1998 with notice to, but
without prior approval of, the Maryland Insurance Commissioner is limited to 10%
of Capital Reinsurance's policyholders' surplus as of December 31, 1997, or
approximately $34.6 million. For the six months ended June 30, 1998, Capital
Reinsurance paid $5.0 million in dividends to the Corporation.
Credit Re Corporation, a wholly owned subsidiary of the Corporation, relies on
dividends from its wholly owned subsidiary, Capital Credit, for funds to be
provided to the Corporation. Capital Credit's major sources of liquidity are
funds generated from reinsurance premiums, net investment income and maturing
investments. Capital Credit is a Bermuda domiciled insurer whose distributions
are governed by Bermuda law. Under Bermuda law and the by-laws of Capital
Credit, dividends may be paid out of the profits of the company (defined as
accumulated realized profits less accumulated realized losses). Distributions to
shareholders may also be paid out of Capital Credit's surplus limited by
requirements that such company must at all times (i) maintain the minimum share
capital required under Bermuda law and (ii) have relevant assets in an amount
equal to or greater than 75% of relevant liabilities, all as defined under
Bermuda law. Since its organization, Capital Credit has not declared nor paid
any dividends.
Capital Mortgage is subject to the dividend restrictions imposed under New York
insurance law. Accordingly, dividends may only be declared and distributed out
of earned surplus (as defined under New York insurance law). Additionally, no
dividend may be declared or distributed by Capital Mortgage in an amount which,
together with all dividends declared or distributed by Capital Mortgage during
the preceding twelve months, exceeds the lesser of 10% of such company's surplus
to policyholders as shown by its last Annual Statutory Statement on file with
the New York insurance department, or 100% of adjusted net investment income (as
defined under New York insurance law) during such period, unless, upon prior
application, the New York Superintendent of Insurance approves a greater
dividend distribution based upon his finding that Capital Mortgage will retain
sufficient surplus to support its obligations and writings. KRE's dividends and
distributions to its sole shareholder, Capital Mortgage, are governed by Bermuda
law and are subject to the same restrictions as those for Capital Credit
described in the preceding paragraph. To date, Capital Mortgage and KRE have not
declared nor paid any dividends. The maximum dividend payable by Capital
Mortgage during 1998 is $0 since its earned surplus was ($0.4) million as of
December 31, 1997.
Capital Title is subject to the New York insurance laws and regulations
governing title insurers. Accordingly, dividends may only be declared and
distributed out of earned surplus as defined under New York insurance law and
only if such dividends do not reduce the company's surplus to less than 50% of
its outstanding capital shares, i.e., the value of its outstanding common
equity. Additionally, no dividend may be declared or distributed in an amount
which, together with all dividends declared or distributed by the company during
the preceding twelve months, exceeds 10% of the company's outstanding capital
shares, unless, after deducting such dividends, it has a surplus at least equal
to 50% of its statutory reinsurance reserve or a surplus at least equal to
$250,000, whichever is greater. During 1997, Capital Title paid a dividend in
the amount of $1.1 million to its immediate parent, KRE. As of December 31,
1997, Capital Title's maximum amount payable as a dividend during 1998 is
approximately $1.3 million.
In January 1994, the Corporation formed and capitalized, through the purchase of
common shares, Capital Re LLC. Capital Re LLC exists solely for the purpose of
issuing preferred and common shares and lending the proceeds of such issuance to
the Corporation to fund its business operations. In January 1994, Capital Re LLC
issued $75.0 million of company obligated mandatorily redeemable preferred
securities, the proceeds of which were loaned to the Corporation. The
Corporation has, among other undertakings, unconditionally guaranteed all
legally declared and unpaid dividends of Capital Re LLC. The company obligated
mandatorily redeemable preferred securities were issued at $25 par value per
share and pay monthly dividends at a rate of 7.65% per annum. Also in January
1994, Capital Reinsurance and Capital Credit invested an aggregate of $120.0
million to capitalize Capital Mortgage. Of the total original contribution of
$120.0 million, Capital Reinsurance invested $94.8 million and Capital Credit
invested $25.2 million.
On February 12, 1996, the Corporation completed a public offering of
approximately 3.5 million shares of common stock. Of the 3.5 million shares, an
institutional shareholder sold 2.6 million shares and the Corporation sold
853,120 shares in the public offering generating net proceeds to the Corporation
of approximately $25.9 million of which $21.5 million was used to complete the
$25 million capitalization of Capital Title. The remaining $4.4 million was used
for Corporation expenses associated with the public offering and general
corporate purposes. The Corporation received no proceeds from the institutional
shareholder's sale of shares.
In June 1997, Capital Reinsurance invested approximately $10.9 million in CGA
Group, Ltd. ("CGA"). CGA was formed to provide financial guaranty insurance of
structured securities, including commercial real estate and asset backed
transactions. Capital Reinsurance also has a commitment to invest an additional
$7.5 million in CGA to the extent that such investment would be necessary in
order for CGA's operating subsidiary, Commercial Guaranty Assurance, Ltd, to
maintain a triple-A rating from Duff & Phelps. Also, Capital Reinsurance
invested $0.1 million in St. George Holdings Ltd. ("St. George"). Through its
operating subsidiary, St. George Investments Ltd., St. George will purchase
securities to be held to maturity, selectively resold, or repackaged with CGA
insurance and then resold.
In December 1997, the Corporation's Board of Directors authorized an increase of
the quarterly common stock dividend rate to $0.04 per share, or $0.16 annually.
For the six months ended June 30, 1998, common dividends were declared and paid
in the amount of $2.6 million or $0.08 per share.
Cash flows from operations for the six months ended June 30, 1998 and 1997,
consisting of reinsurance premiums collected net of expenses, investment income
and income taxes, were $69.4 million and $53.3 million, respectively. The
Corporation believes that current levels of cash flow from operations provide
the Corporation with sufficient liquidity to meet its operating needs. The
Corporation's non-operating cash outflows are primarily dedicated to (i)
fixed-income investment activity, (ii) the payment of dividends on its common
shares, (iii) payments of interest on long-term debt and (iv) the payment of its
loan obligations to Capital Re LLC.
At June 30, 1998, cash and investments approximated $1.10 billion, an increase
of $70.0 million, or 6.8%, from $1.03 billion at December 31, 1997. In managing
its investment portfolio, the Corporation places a high priority on quality and
liquidity. As of June 30, 1998, the entire investment portfolio was invested in
highly rated fixed income securities.
At June 30, 1998, approximately $185.0 million, or 16.8%, of the Corporation's
investment portfolio was comprised of mortgage-backed securities ("MBS"). Of the
MBS portfolio, approximately $160.6 million, or 86.8%, is backed by agencies or
entities sponsored by the U.S. government as to the full amount of principal and
interest. As of June 30, 1998, the entire MBS portfolio was invested in triple A
rated securities.
Prepayment risk is an inherent risk of holding MBS. However, the degree of
prepayment risk is particular to the type of MBS held. The Corporation limits
its exposure to prepayments by purchasing less volatile types of MBS. As of June
30, 1998, $3.7 million, or approximately 2.0%, of the MBS portfolio was invested
in collateralized mortgage obligations ("CMOs") which are characterized as
planned amortization class CMOs ("PACs"). PACs are securities whose cash flows
are designed to remain constant over a variety of mortgage prepayment
environments. Other classes in the CMO security are structured to accept the
volatility of mortgage prepayment changes, thereby insulating the PAC class. Of
the remaining MBS portfolio, $181.3 million, or 98.0%, was invested in
mortgage-backed pass-throughs or sequential CMOs. Pass-throughs are securities
in which the monthly cash flows of principal and interest (both scheduled and
prepayments) generated by the underlying mortgages are distributed on a pro-rata
basis to the holders of securities. A sequential MBS is structured to divide the
CMO security into sequentially ordered classes. Receipt of principal payments
within classes is contingent on the retirement of all previously paying classes.
Generally, interest payments are made currently on all classes. While these
securities are more sensitive to prepayment risk than PACs, they are not
considered highly volatile securities. While the Corporation may consider
investing in any tranche of a sequential MBS, the individual security's
characteristics (duration, relative value, underlying collateral, etc.) along
with aggregate portfolio risk management determine which tranche of sequential
MBS will be purchased. At June 30, 1998, the Corporation had no securities such
as interest only securities, principal only securities, or MBS purchased at a
substantial premium to par that have the potential for loss of a significant
portion of the original investment due to changes in the prepayment rate of the
underlying loans supporting the security.
On January 22, 1998, the Corporation extended its existing agreement with
Deutsche Bank AG for the provision of a $25.0 million liquidity facility (the
"DB Liquidity Facility") which is available for general corporate purposes. The
DB Liquidity Facility was extended for one year and is scheduled to expire on
January 22, 1999. Capital Reinsurance also renewed an agreement on January 27,
1998 with Deutsche Bank AG for a credit facility (the "DB Credit Facility") of
up to $75.0 million specifically designed to provide rating agency qualified
capital to further support Capital Reinsurance's claims-paying resources. This
agreement expires January 27, 2005. The Corporation has not borrowed under
either the DB Liquidity Facility or the DB Credit Facility.
In addition, on August 20, 1996, the Corporation entered into a credit agreement
with Chase Manhattan Bank for the provision of a $25.0 million credit facility
(the "Chase Facility") which is available for general corporate purposes.
Furthermore, on August 26, 1996, the Corporation utilized $16 million of the
Chase Facility for purposes of paying subordinated notes which came due.
Interest on the bank note issued under the Chase Facility is payable quarterly
based upon the Corporation's chosen interest rate option under the terms of the
Chase Facility. In November 1996, the Corporation utilized the remaining $9
million of the Chase Facility for purposes of acquiring RGB.
The Corporation is addressing the Year 2000 issue. The Company has initiated a
plan to review its internal computer systems. It also has initiated discussions
with its significant clients and other entities to ensure that those parties
have appropriate plans to correct Year 2000 issues where their systems interface
with the Corporation's systems or otherwise impact its operations. While the
Corporation believes its planning efforts are adequate to address its Year 2000
concerns, there can be no guarantee that the systems of other companies on which
the Corporation's systems and operations rely will be converted on a timely
basis. In conclusion, the Corporation does not expect that there will be any
major Year 2000 impact to its computer systems, nor does it expect that the cost
of the Year 2000 initiative will be material.
<PAGE>
PART II - OTHER INFORMATION
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the annual meeting of the Corporation's shareholders held on May 20, 1998,
the nine nominees listed below were elected as directors of the Corporation to
hold office until the 1999 annual meeting and until their successors shall have
been elected and qualified. The number of votes cast for, against or withheld
and the number of abstentions with respect to each such matters is set forth
below, as are the number of broker non-votes, where applicable.
Name Votes For Votes Withheld
- ---- --------- --------------
Michael E. Satz 14,274,046 3,043
Harrison W. Conrad, Jr. 14,274,046 3,043
Richard L. Huber 14,274,046 3,043
Steven D. Kesler 14,273,826 3,263
Philip H. Robinson 14,273,846 3,243
Edwin L. Russell 14,273,826 3,263
Dan R. Skowronski 14,273,826 3,263
Barbara D. Stewart 14,274,046 3,043
Jeffrey F. Stuermer 14,274,046 3,043
ITEM 5 OTHER INFORMATION
Information Regarding Shareholder Proposals at the 1999 Annual Meeting
In order to present a proposal at the 1999 Annual Meeting of Stockholders, a
Capital Re Stockholder must provide written notice of the proposal to the
Company no later than March 6, 1999. The Company intends to use discretionary
voting authority with respect to any matter that brought before the 1999 annual
meeting of stockholders of which the Company has not received written notice by
March 6, 1999.
Capital Re Corporation
1325 Avenue of the Americas
New York, NY 10019
Attn.: Alan S. Roseman
Senior Vice President,
General Counsel and Secretary
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(A) THE FOLLOWING IS ANNEXED AS AN EXHIBIT:
EXHIBIT
NUMBER DESCRIPTION
------ -----------
11 STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS (UNAUDITED)
(B) REPORTS ON FORM 8-K: NONE
<PAGE>
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION PAGE
11 STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS (UNAUDITED) 23
<PAGE>
<TABLE>
<CAPTION>
CAPITAL RE CORPORATION AND SUBSIDIARIES
EXHIBIT 11 STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(UNAUDITED)
(Dollars in thousands except per share amounts)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- -------------------------
1998 1997 1998 1997
------------------------- -------------------------
EARNINGS PER COMMON SHARE (BASIC AND DILUTED)
<S> <C> <C> <C> <C>
Net Income 20,187 16,106 39,981 33,244
Basic weighted average shares outstanding during the period 31,865 31,723 31,849 31,723
Potentially dilutive employee stock options 1,160 665 1,102 696
------ ------ ------ ------
Diluted weighted average shares outstanding during the period 33,025 32,388 32,951 32,419
====== ====== ====== ======
Basic earnings per common share $0.63 $0.51 $1.26 $1.05
====== ====== ====== ======
Diluted earnings per common share $0.61 $0.50 $1.21 $1.03
====== ====== ====== ======
</TABLE>
<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.
CAPITAL RE CORPORATION
DATE: AUGUST 10, 1998 BY: /S/ DAVID A. BUZEN
------------------
DAVID A. BUZEN
EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
DATE: AUGUST 10, 1998 BY: /S/ ALAN S. ROSEMAN
-------------------
ALAN S. ROSEMAN
SENIOR VICE PRESIDENT,
GENERAL COUNSEL AND SECRETARY
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<DEBT-HELD-FOR-SALE> 1,086,962
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 1,086,962
<CASH> 15,414
<RECOVER-REINSURE> 16,350
<DEFERRED-ACQUISITION> 152,482
<TOTAL-ASSETS> 1,506,452
<POLICY-LOSSES> 53,911
<UNEARNED-PREMIUMS> 456,790
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 99,838
75,000
0
<COMMON> 323
<OTHER-SE> 606,163
<TOTAL-LIABILITY-AND-EQUITY> 1,506,452
152,698
<INVESTMENT-INCOME> 32,433
<INVESTMENT-GAINS> 2,461
<OTHER-INCOME> 1,361
<BENEFITS> 25,218
<UNDERWRITING-AMORTIZATION> 31,756
<UNDERWRITING-OTHER> 11,273
<INCOME-PRETAX> 55,371
<INCOME-TAX> 15,390
<INCOME-CONTINUING> 39,981
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 39,981
<EPS-PRIMARY> 1.26
<EPS-DILUTED> 1.21
<RESERVE-OPEN> 30,644
<PROVISION-CURRENT> 5,512
<PROVISION-PRIOR> 15,436
<PAYMENTS-CURRENT> 23
<PAYMENTS-PRIOR> 14,111
<RESERVE-CLOSE> 37,458
<CUMULATIVE-DEFICIENCY> 0<F1>
<FN>
Not Applicable for mortgage guaranty and specialty reinsurer
</FN>
</TABLE>
