FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended September 30, 1996
Commission file number 33-27665
NYMAGIC, INC.
(Exact name of registrant as specified in its charter)
New York 13-3534162
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
330 Madison Avenue, New York, New York 10017
(Address of principal executive offices) (zip code)
(212) 551-0600
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal years,
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
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
On October 1, 1996 there were 10,386,842 shares of common stock, $1.00 par value
outstanding.
NYMAGIC, INC.
INDEX
Part I. FINANCIAL INFORMATION: PAGE NO.
Consolidated Balance Sheets
September 30, 1996 and December 31, 1995 2
Consolidated Statements of Income
Nine months ended September 30, 1996 and September 30, 1995 3
Consolidated Statements of Income
Three months ended September 30, 1996 and September 30, 1995 4
Consolidated Statements of Cash Flows
Nine months ended September 30, 1996 and September 30, 1995 5
Notes to Consolidated Financial Statements 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Part II. OTHER INFORMATION 10
1
NYMAGIC, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
September 30, December 31,
1996 1995
ASSETS
Investments:
Fixed maturities held for sale,
at fair value (amortized cost
$333,478,978 and $319,279,410) $335,229,417 $328,649,365
Equity securities at fair value (cost
$35,567,444 and $27,986,694) 42,161,283 33,794,413
Short-term investments 25,561,241 40,862,313
Total investments 402,951,941 403,306,091
Cash 114,994 1,175,024
Accrued investment income 5,802,054 6,110,402
Premiums and other receivables, net 34,703,006 53,254,864
Reinsurance receivables 219,252,996 197,395,689
Deferred policy acquisition costs 9,013,994 11,660,903
Prepaid reinsurance premiums 10,128,245 16,956,441
Deferred income taxes 12,842,380 10,264,908
Property, improvements and equipment, net 2,172,456 2,273,538
Other assets 3,363,288 3,425,983
Total assets $700,345,354 $705,823,843
LIABILITIES
Unpaid losses and loss adjustment expenses $434,941,522 $417,794,525
Reserve for unearned premiums 56,295,397 79,568,955
Notes payable 16,226,941 12,726,941
Other liabilities 7,230,623 11,947,637
Dividends payable 1,038,684 1,069,181
Total liabilities 515,733,167 523,107,239
SHAREHOLDERS' EQUITY
Common stock 14,910,492 14,749,192
Paid-in capital 26,204,323 23,933,587
Unrealized appreciation
of investments (net of deferred income taxes) 5,423,778 9,865,486
Retained earnings 165,392,889 152,646,915
211,931,482 201,195,180
Treasury stock, at cost,
4,523,650 and 4,057,380 shares (27,319,295) (18,478,576)
Total shareholders' equity 184,612,187 182,716,604
Total liabilities and shareholders' equity $700,345,354 $705,823,843
The accompanying notes are an integral part of these consolidated financial
statements.
2
NYMAGIC, INC.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
Nine months ended
September 30,
1996 1995
Revenues:
Net premiums earned $73,973,258 $77,912,558
Commission income 1,062,269 1,934,168
Net investment income 15,982,959 16,031,606
Realized investment gains 2,623,115 2,160,976
Other income 355,569 458,480
Total revenues 93,997,170 98,497,788
Expenses:
Losses and loss adjustment expenses incurred 45,487,523 53,487,386
Policy acquisition expenses 15,021,954 15,760,244
General and administrative expenses 11,774,130 11,687,027
Interest expense 741,474 347,068
Total expenses 73,025,081 81,281,725
Income before income taxes 20,972,089 17,216,063
Income taxes:
Current 5,244,134 3,420,234
Deferred (185,784) 280,537
Total income taxes 5,058,350 3,700,771
Net income $ 15,913,739 $13,515,292
Net income per share $ 1.50 $ 1.19
Weighted average shares of common stock outstanding 10,608,104 11,360,843
Dividends declared per share $ .30 $ .30
The accompanying notes are an integral part of these consolidated financial
statements.
3
NYMAGIC, INC.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
Three months ended
September 30,
1996 1995
Revenues:
Net premiums earned $24,415,176 $24,794,626
Commission income 709,571 1,239,667
Net investment income 5,471,471 5,474,116
Realized investment gains 583,419 1,310,456
Other income 89,365 197,648
Total revenues 31,269,002 33,016,513
Expenses:
Losses and loss adjustment expenses incurred 15,552,840 18,041,249
Policy acquisition expenses 5,102,772 5,604,372
General and administrative expenses 4,086,009 4,155,107
Interest expense 296,113 67,398
Total expenses 25,037,734 27,868,126
Income before income taxes 6,231,268 5,148,387
Income taxes:
Current 1,743,370 1,189,994
Deferred (468,534) (79,651)
Total income taxes 1,274,836 1,110,343
Net income $ 4,956,432 $ 4,038,044
Net income per share $ .48 $ .36
Weighted average shares of common stock outstanding 10,419,725 11,325,034
Dividends declared per share $ .10 $ .10
The accompanying notes are an integral part of these consolidated financial
statements.
4
NYMAGIC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Nine months ended
September 30,
1996 1995
Cash flows from operating activities:
Net income $ 15,913,739 $ 13,515,292
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for deferred taxes (185,784) 280,537
Realized investment gains (2,623,115) (2,160,976)
Net bond amortization 1,434,448 1,060,426
Depreciation 337,819 383,027
Changes in:
Premiums and other receivables, net 18,551,858 11,932,322
Reinsurance receivables (21,857,307) 25,714,522
Accrued investment income 308,348 (112,772)
Deferred policy acquisition costs 2,646,909 2,860,853
Other assets 62,695 (3,780)
Unpaid losses and loss adjustment expenses 17,146,997 (9,010,825)
Prepaid reinsurance premiums 6,828,196 6,160,497
Reserve for unearned premiums (23,273,558) (19,029,754)
Other liabilities (4,717,014) (175,469)
Total adjustments (5,339,508) 17,898,608
Net cash provided by operating activities 10,574,231 31,413,900
Cash flows from investing activities:
Fixed maturities acquired (164,173,362) (213,409,359)
Equity securities acquired (27,085,562) (16,101,836)
Fixed maturities held for sale, matured 28,656,035 16,408,749
Fixed maturities held for sale, sold 119,234,369 159,024,470
Fixed maturities held for investment, matured ---0--- 8,256,420
Fixed maturities held for investment, sold ---0--- 1,243,939
Equity securities sold 22,788,587 14,857,463
Short-term investments acquired (548,918,745) (613,807,889)
Short-term investments sold or matured 564,208,099 620,350,325
Acquisition of property, equipment
and improvements, net (236,737) (130,390)
Net cash used in investing activities (5,527,316) (23,308,108)
Cash flows from financing activities:
Proceeds from stock options exercised 2,432,036 25,558
Cash dividends paid (3,198,262) (3,413,730)
Net repurchase of common stock (8,840,719) (1,625,218)
Proceeds from borrowings 10,000,000 6,100,000
Loan principal repayments (6,500,000) (9,411,764)
Net cash used in financing activities (6,106,945) (8,325,154)
Net decrease in cash (1,060,030) (219,362)
Cash at beginning of period 1,175,024 367,713
Cash at end of period $ 114,994 $ 148,351
The accompanying notes are an integral part of these consolidated financial
statements.
5
NYMAGIC, INC.
Notes to Consolidated Financial Statements
The interim consolidated financial statements are unaudited but, in the opinion
of management, reflect all material adjustments necessary for a fair
presentation of results for such periods. Adjustments to financial statements
consist of normal recurring items. The results of operations for any interim
period are not necessarily indicative of results for the full year. These
financial statements should be read in conjunction with the financial statements
and notes thereto contained in the Company's Annual Report on Form 10-K for the
year ended December 31, 1995.
6
NYMAGIC, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Net premiums earned were $24,415,176 in the third quarter ended September 30,
1996 and decreased 2% when compared to the third quarter of 1995. For the
nine months ended September 30, 1996, net premiums earned decreased 5% when
compared to the prior year's period. The decrease in premiums earned resulted
mainly from declines in the inland marine and other liability lines of business.
Inland marine premiums earned decreased 76% in 1996 which is consistent with the
Company's decision in the prior year to withdraw from writing property business
of the larger multilocation assureds. The other liability line decreased as a
result of the soft casualty market which allowed for a decline in premium
production. Gross aviation premiums written decreased year to date in 1996,
approximately 25%, due to a competitive rate environment and non-renewals of
certain accounts. However, net earned aviation premiums year to date increased
by 4% due in large part to a restructuring of the Company's aviation reinsurance
program and prior year rate increases which have now become earned in 1996.
This contributed to a 22% increase in aviation earned premiums for the quarter
ended September 30, 1996. Ocean marine earned premiums grew 11% in 1996 mainly
as a result of additional production in the hull and cargo classes and changes
in the ocean marine reinsurance program. Gross ocean marine premiums written
declined 3% primarily as a result of competitive markets.
Losses and loss adjustment expenses incurred as a percentage of net premiums
earned were 63.7% for the three months ended September 30, 1996 as compared to
72.8% for the third quarter of 1995. For the nine months ended
September 30, 1996, such ratio fell to 61.5% from 68.7% for the same period of
the prior year. Improved net loss experience in the Company's core ocean and
aviation lines contributed to the overall decline in the loss ratios. The inland
marine loss ratio in 1996 was beset by storm losses resulting from the severe
weather during the past winter season, and the other liability line deteriorated
from adverse loss development in 1996.
Commission income for the third quarter of 1996 was $709,571 as compared to
$1,239,667 for the same period of 1995 and was $1,062,269 for the nine months
ended September 30, 1996 as compared to $1,934,168 for the same period of the
prior year. Commission income includes management and contingent commissions
charged by MMO for operating the insurance pools. In 1996, management
commission from non-affiliated members of the insurance pools declined overall
in proportion to the decline in the pool's premium writings. Also, larger
reinsurance contingent commissions were recorded in the prior year as a result
of greater profitability in various marine war classes of business.
Interest expense increased to $741,474 for the nine months ended
September 30, 1996 from $347,068 for the same period of the prior year as a
result of an increase in loan principal outstanding.
Net investment income for the nine months ended and the quarter ended
September 30, 1996 was flat with the same respective periods of 1995 as a result
of a decrease in investment yield in the Company's fixed maturity portfolio and
a greater investment in tax-exempt securities which was however applied to a
larger asset base.
7
NYMAGIC, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Policy acquisition costs as a percentage of net premiums earned for the nine
months ended September 30, 1996 were 20.3% as compared with 20.2% for the same
period of the prior year. The same ratio was 20.9% and 22.6% for the three
months ended September 30, 1996 and 1995, respectively. Although the year to
date ratio is up slightly in 1996, the third quarter ratio decreased due to
declines in earned premium in the inland marine line whose acquisition costs
as a percentage of net premiums earned are greater than other lines of business.
General and administrative expenses increased by 1% in 1996 over the first nine
months of 1995 primarily as a result of the increased costs associated with the
Company's self-insured medical plan and increases in bad debt write-offs, but
offset by reductions in administrative expenses.
Realized investment gains of $2,623,115 for the nine months ended
September 30, 1996 resulted mainly from the sale of appreciated equity
securities.
The Company reported net income of $15,913,739 or $1.50 per share for the nine
months ended September 30, 1996 as compared to net income of $13,515,292 or
$1.19 per share for the same period of 1995. Net income was $4,956,432 or
$.48 per share for the three months ended September 30, 1996 as compared with
$4,038,044 or $.36 per share for the same period of the prior year.
Short-term investments of $25,561,241 amount to 4% of the Company's total assets
as of September 30, 1996. The Company believes these liquid assets, together
with the Company's line of credit, will enable the Company to meet its current
cash requirements. The Company borrowed $10,000,000 in 1996 to assist the
Company in the financing of stock repurchases. The Company repurchased 466,270
shares of common stock, pursuant to the Company's common stock repurchase plan,
during the first nine months of 1996 at market prices ranging from $17.00 to
$21.38.
Premiums and other receivables, net decreased to $34,703,006 as of
September 30, 1996. Declines in premium writings and increases in ceded
reinsurance payable contributed to the overall reduction in receivables.
Unrealized appreciation of investments, net of deferred income taxes, at
September 30, 1996, decreased to $5,423,778 from $9,865,486 at
December 31, 1995. Declines were recorded in fixed maturities available for
sale resulting from increased interest rates in 1996.
8
NYMAGIC, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
The insurance pools participated in the issuance of umbrella casualty insurance
for various Fortune 1,000 companies in the period from 1978 to 1983. Depending
on the accident year, the insurance pools' maximum net retention per occurrence
ranged from $250,000 to $500,000. The Company's effective pool participation on
such risks varied from 11% in 1978 to 30% in 1983. At September 30, 1996 and
December 31, 1995, the Company's net loss and loss adjustment expense reserves
for Asbestos/Pollution policies amounted to $8.3 million, and $7.1 million,
respectively. As of September 30, 1996, the Company had approximately 1,000
policies which had at least one claim relating to Asbestos/Pollution exposures
with an insignificant number of claims filed or resolved in 1996. Net loss and
loss adjustment expense payments on Asbestos/Pollution policies amounted to
$665,000 and $427,000 for the nine months ended September 30, 1996 and
September 30, 1995, respectively. The Company believes that the uncertainty
surrounding Asbestos/Pollution exposures, including issues as to insureds'
liabilities, ascertainment of loss date, definitions of occurrence, scope of
coverage, policy limits and application and interpretation of policy terms,
including exclusions, all affect the estimation of ultimate losses. Under such
circumstances, it is impossible to determine the ultimate loss for
Asbestos/Pollution related claims and, as of September 30, 1996, no meaningful
range of ultimate loss can be determined. Given the uncertainty in this area,
losses from Asbestos/Pollution related claims are likely to adversely impact
the Company's results from operations in future years and may vary materially
from such reserves reported as of September 30, 1996. However, as of
September 30, 1996, the Company believes that, in aggregate, the unpaid loss and
loss adjustment expense reserves as of September 30, 1996, allow for an adequate
provision and that the ultimate resolution of Asbestos/Pollution claims will
not have a material impact on the Company's financial position.
9
PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
There were no reports on Form 8-K filed for the three months ended
September 30, 1996.
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.
NYMAGIC, INC.
(Registrant)
Date: November 12, 1996
Mark W. Blackman
(Chief Executive Officer)
Thomas J. Iacopelli
(Chief Financial Officer)
10
PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
There were no reports on Form 8-K filed for the three months ended
September 30, 1996.
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.
NYMAGIC, INC.
(Registrant)
Date: November 12, 1996
/s/ Mark W. Blackman
Mark W. Blackman
(Chief Executive Officer)
/s/ Thomas J. Iacopelli
Thomas J. Iacopelli
(Chief Financial Officer)
10
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