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 June 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, NewYork, New York 10017
(Address of principal executive offices) (zip code)
(212) 551-0600
(Registrants telephone number, includingarea code)
(Former name, former address and formerfiscal years,
if changed since last report.)
Indicate by check mark whether the registrant (1) has filed allreports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during thepreceding 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 issuers classes of
common stock, as of the latest practicable date.
On July 1, 1996 there were 10,506,242 shares of common stock,$1.00 per value
outstanding.
NYMAGIC, INC.
INDEX
Part I. FINANCIAL INFORMATION: PAGE NO.
Consolidated Balance Sheets
June 30, 1996 and December 31, 1995 2
Consolidated Statements of Income
June 30, 1996 and June 30, 1995 3
Consolidated Statements of Cash Flows
June 30, 1996 and June 30, 1995 5
Notes to Consolidated Financial Statements 6
Managements Discussion And Analysis of Financial
Condition and Results of Operations 7
Part II. OTHER INFORMATION 10
1
CONSOLIDATED BALANCE SHEETS
(unaudited)
June 30, December 31,
1996 1995
ASSETS
Investments:
Fixed maturities held for sale,
at market value (amortized cost
$341,134,857 and $319,279,410) $341,647,439 $328,649,365
Equity securities at market (cost $34,712,954 and $27,986,694)
40,477,552 33,794,413
Short-term investments 24,910,453 40,862,313
Total investments 407,035,444 403,306,091
Cash 401,562 1,175,024
Accrued investment income 5,787,177 6,110,402
Premiums and other receivables, net 39,805,938 53,254,864
Reinsurance receivables 202,669,643 197,395,689
Deferred policy acquisition costs 10,571,796 11,660,903
Prepaid reinsurance premiums 16,497,683 16,956,441
Deferred income taxes 13,097,331 10,264,908
Property, improvements and equipment, net 2,208,002 2,273,538
Other assets 3,603,427 3,425,983
Total assets $701,678,003 $705,823,843
LIABILITIES & SHAREHOLDERS EQUITY
Unpaid losses and loss adjustment expenses$416,600,206 $417,794,525
Reserve for unearned premiums 69,645,461 79,568,955
Notes payable 15,226,941 12,726,941
Other liabilities
Dividends payable 1,059,600 1,069,181
Total liabilities 519,586,777 523,107,239
Common stock 14,785,492 14,749,192
Paid-in capital 24,452,873 23,933,587
Unrealized appreciation of investments (net of deferred income taxes)
4,080,165 9,865,486
Retained earnings 161,475,141 152,646,915
204,793,671 201,195,180
Treasury stock, at cost, 4,279,250 and 4,057,380 shares
(22,702,445) (18,478,576)
Total shareholders equity 182,091,226 182,716,604
Total liabilities and shareholders equity $701,678,003 $705,823,843
The accompanying notes are an integral part of these consolidatedfinancial
statements.
2
NYMAGIC, INC.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
Six months ended June 30,1996 1995
Revenues:
Net premiums earned $49,558,082 $53,117,932
Commission income 352,698 694,501
Net investment income 10,511,488 10,557,490
Realized investment gains 2,039,696 850,520
Other income 266,204 260,832
62,728,168 65,481,275
Expenses:
Losses and loss adjustment expenses incurred 29,934,683 35,446,137
Policy acquisition expenses 9,919,182 10,155,872
General and administrative expenses 7,688,121 7,531,892
Interest expense 445,361 279,698
Total expenses 47,987,347 53,413,599
Income before income taxes 14,740,821 12,067,676
Income taxes:
Current 3,500,764 2,230,240
Deferred 282,750 360,188
Total income taxes 3,783,514 2,590,428
Net income $ 10,957,307 $9,477,248
Net income per share $ 1.02 $ .83
Weighted average shares of common stock outstanding
10,740,082 11,379,120
Dividends declared per share $ .20 $ .20
The accompanying notes are an integral part of these consolidatedfinancial
statements.
3
NYMAGIC, INC.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
Three months ended June 30,1996 1995
Revenues:
Net premiums earned $26,583,683 $26,460,135
Commission income 120,140 448,624
Net investment income 5,134,314 5,313,598
Realized investment gains 530,020 995,192
Other income 104,195 125,623
Total revenues 32,472,352 33,343,172
Expenses:
Losses and loss adjustment expenses incurred 15,920,749 18,061,226
Policy acquisition expenses 5,802,725 5,011,860
General and administrative expenses 3,750,362 3,844,911
Interest expense 232,666 151,398
Total expenses 25,706,502 27,069,395
Income before income taxes 6,765,850 6,273,777
Income taxes:
Current 1,810,089 1,036,397
Deferred (208,959) 323,220
Total income taxes 1,601,130 1,359,617
Net income $ 5,164,720 $4,914,160
Net income per share $ .48 $ .43
Weighted average shares of common stock outstanding
10,734,183 11,379,134
Dividends declared per share $ .10 $ .10
The accompanying notes are an integral part of these consolidatedfinancial
statements.
4
NYMAGIC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Six months ended June 30, 1996 1995
Cash flows from operating activities:
Net income $ 10,957,307 $ 9,477,248
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for deferred taxes 282,750 360,188
Realized investment gains (2,039,696) (850,520)
Net bond amortization 1,002,247 689,865
Depreciation 220,441 241,421
Changes in:
Premiums and other receivables 17,991,526 14,561,069
Reinsurance receivables (2,877,141) 16,492,234
Accrued investment income 323,225 (105,413)
Deferred policy acquisition costs 1,089,107 1,508,944
Prepaid reinsurance premiums 4,974,196 3,738,989
Other assets (5,177,444) (112,078)
Unpaid losses and loss adjustment expenses(2,716,132) (12,473,525)
Reserve for unearned premiums (14,438,932) (13,419,492)
Other liabilities 4,689,332 90,015
Total adjustments 3,323,479 10,721,697
Net cash provided by operating activities 14,280,786 20,198,945
Cash flows from investing activities:
Fixed maturities acquired (121,428,358) (124,348,828)
Equity securities acquired (17,740,939) (11,809,102)
Fixed maturities held for sale, matured
Fixed maturities held for sale, sold 82,703,008 93,288,476
Fixed maturities held for investment, matured ---- 6,242,466
Equity securities sold 13,358,144 11,312,719
Net sale of short-term investments 15,939,024 4,695,064
Acquisition of property, equipment
and improvements (154,905) (82,380)
Net cash used in investing activities (11,747,303) (15,178,756)
Cash flows from financing activities:
Proceeds from stock options exercised 555,586 1,378
Cash dividends paid (2,138,662) (2,275,816)
Net repurchase of common stock (4,223,869) ----
Proceeds from borrowings 5,000,000 5,000,000
Loan principal repayments (2,500,000) (7,941,176)
Net cash used in financing activities (3,306,945) (5,215,614)
Net decrease in cash (773,462) (195,425)
Cash at beginning of period 1,175,024 367,713
Cash at end of period $ 401,562 $ 172,288
The accompanying notes are an integral part of these consolidatedfinancial
statements.
5
NYMAGIC, INC.
Notes to Consolidated financial Statements
1) The interim consolidated financial statements are unauditedbut, in the
opinion of management, reflect to financial statements consist of normal
recurring items. The results of operations for any interim period are not
necessarily indicative of results for the fullyear. These financial statements
should be read in conjunction with the financial statements and notesthereto
contained in the Company Annual Report on Form 10-K for the year ended December
31,1995.
6
NYMAGIC, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
Net premiums earned were $26,583,683 in the second quarter endedJune 30,
1996 and were flat when compared to the second quarter of 1995. For the six
months endedJune 30, 1996, net premiums earned decreased 7% when compared to
the prior years period. The decrease in premiums earned resulted mainly
from declines in the inland marine and other liability lines ofbusiness.
Inland marine premium decreased 67% in 1996 which is consistent with the
Companys decision in theprior year to withdraw from writing property business
of the larger multilocation assureds. The otherliability line decreased as a
result of the soft casualty market which allowed for a decline in premium
production. Although gross aviation premiums written decreased year to date in
1996, approximately 14%due to a softening of rates, net premiums earned only
decreased by 3% which in large part was due toa restructuring of the Companys
aviation reinsurance program. This contributed to an overall 20%increase in
aviation earned premiums for the quarter ended June 30, 1996. Ocean marine
premiums grew 8%mainly as a result of additional production in the hull and
cargo classes and changes in the ocean marinereinsurance program.
Losses and loss adjustment expenses incurred as a percentage ofnet premiums
earned were 59.9% for the three months ended June 30, 1996 as compared to 68.3%
for thesecond quarter of 1995. For the six months ended June 30, 1996, such
ratio was 60.4% as compared to 66.7% forthe same period of the prior year.
Improved net loss experience in the Companys core ocean andaviation lines
contributed to the overall decline in the loss ratio, however, the inland
loss ratio in 1996was beset by storm losses resulting from the severe weather
during the past winter season.
Commission income for the second quarter of 1996 was $120,140 ascompared to
$448,624 for the same period of 1995 and was $352,698 for the six months ended
June 30,1996 as compared to $694,501 for the same period of the prior year.
Commission income includes managementand contingent commissions charged by MMO
for operating the insurance pools. In 1996, management commissionfrom
non-affiliated members of the insurance pools declined overall in proportion
to the decline inthe pools premium writings. Contingent reinsurance
commissions were recorded in the second quarter of theprior year resulting
from profitable results in the hull and cargo war classes of business.
Interest expense increased to $445,361 for the six months ended period of the
prior year as a result of an increase in loanprincipal outstanding.
Net investment income for the six months ended June 30, 1996 was flat
with the same period of 1995,however, net investment income decreased 3% in
the second quarterof 1996 when compared to the prior years comparable period
as a result of a decrease in investment yield inthe Companys fixed
maturity portfolio and a greater investment in tax-exempt securities.
7
NYMAGIC, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS CONTINUED
Policy acquisition costs as a percentage of net premiums earnedfor the six
months ended June 30, 1996 were 20.0% as compared with 19.1% for the same
period of the prioryear. The same ratio was 21.8% and 18.9% for the three
months ended June 30, 1996 and 1995,respectively. The increase in the ratios
reflects the increasing share of expenses relating to the ocean marine lineof
business which, as a result of changes in the reinsurance program to an excess
of loss basis, hadthe effect of increasing policy acquisition costs. Also, as
aviation earned premium grew in thesecond quarter of 1996, so did the related
acquisition costs which as a percentage of net premiums earned aregreater
than other lines of business.
General and administrative expenses increased by 2% in 1996 overthe first six
months of 1995 primarily as a result of the increasing costs associated with the
Companys self-insured medical plan and increases in bad debt write-offs.
Realized investment gains of $2,039,696 for the six months endedJune 30, 1996
mainly resulted from the sale of appreciated equity securities.
as compared to net income of $9,477,248 or $.83 per share for thesame period
of 1995. Net income was $5,164,720 or $.48 per share for the three months ended
June 30,1996 as compared with $4,914,160 or $.43 per share for the same period
of the prior year.
Short-term investments of $24,910,453 amount to 4% of theCompanys total
assets as of June 30, 1996.
The Company believes these liquid assets together with the Companys line of
credit will enable the Company to meet its current cash requirements. The
Company borrowed $5,000,000 in the second quarter of 1996 to assist the
Company in the payment of losses and reinsurance premiums.
Premiums and other receivables, net decreased to $39,805,938 as of
June 30, 1996. Declines in premium writings and increases in ceded reinsurance
payable contributed tothe overall reduction in receivables.
Unrealized appreciation of investments, net of deferred incometaxes, at June
30, 1996 decreased to $4,080,165 from $9,865,486 at December 31, 1995.
Declines wererecorded in fixed maturities available for sale resulting from
increased interest rates in 1996.
The Company repurchased 221,870 shares of common stock, pursuantto the
Companys common stock repurchase plan, during the first six months of 1996 at
market prices ranging from $18.38 to $21.38.
8
NYMAGIC, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS CONTINUED
The insurance pools participated in the issuance of umbrellacasualty
insurance for various Fortune 1,000 companies in the period from 1978 to 1983.
Depending on theaccident year, the insurance pools maximum net retention per
occurrence ranged from $250,000 to participation on such risks varied from
11% in 1978 to 30% in 1983. At June 30, 1996 and December 31, 1995, the
Companys net loss and loss adjustment expense reservesfor Asbestos/Pollution
policies amounted to $7.6 million, and $7.1 million, respectively. As of
June 30,1996, the Company had approximately 1,000 policies which had at least
one claim relating toAsbestos/Pollution exposures with an insignificant number
of claims filed or resolved in 1996. Net loss and loss adjustmentexpense
payments on Asbestos/Pollution policies amounted to $190,000 and $309,000 for
the six months endedJune 30, 1996 and June 30, 1995, respectively. The Company
believes that the uncertaintysurrounding Asbestos/Pollution exposures,
including issues as to insureds liabilities, ascertainment of lossdate,
definitions of occurrence, scope of coverage, policy limits and application and
interpretation ofpolicy terms, including exclusions, all affect the estimation
of ultimate losses. Under suchcircumstances, it is impossible to determine the
ultimate loss for Asbestos/Pollution related claims and, as of June30, 1996, no
meaningful range of ultimate loss can be determined. Given the uncertainty in
thisarea, losses from Asbestos/Pollution related claims are likely to adversely
impact the Companys resultsfrom operations in future years and may vary
materially from such reserves reported as of June 30,1996. However, as of June
30, 1996, the Company believes that, in aggregate, the unpaid loss and loss
adjustment expense reserves as of June 30,1996, allow for an adequate provision
and that the ultimateresolution of Asbestos/Pollution claims will not have a
material impact on the Companys financial position.
ITEM 4 - Submission of Matters to a Vote of Security Holders
The Company held its Annual Meeting of Shareholders on May 14,1996. The
following matters were voted upon by the Companys shareholders:
(1) Class I Directors. The following were elected as Class Idirectors of the
Board of Directors, each to hold office for the following three years:
John N. Blackman, Jr.
Thomas J. Condon
Michael S. Shaffet
William A. Thorne
Sergio B. Tobia
The following is a list of the other directors whose termsof office as
directors continued after the meeting:
Mark W. Blackman
Jean H. Goulding
James A. Lambert
John Kean, Jr.
Charles A. Mitchell
Felix Salgado, Jr.
William R. Scarbrough
Richard T. Soper
Louise B. Tollefson
(2) Election of Independent Public Accountants. KPMG PeatMarwick LLP were
elected the Companys independent public accountants for the current fiscal year
of the Company.
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 monthsended June
30, 1996.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereuntoduly authorized.
NYMAGIC, INC.
(Registrant)
Date: August 8, 1996 /s/ Mark W. Blackman
Mark W. Blackman
(Chief Executive Officer)
/s/ Thomas J. Iacopelli
Thomas J. Iacopelli
(Chief Financial Officer)
11
