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, 1997
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 July 1, 1997 there were 9,647,606 shares of common stock, $1.00 par value
outstanding.
NYMAGIC, INC.
INDEX
Part I. FINANCIAL INFORMATION: PAGE NO.
Consolidated Balance Sheets
June 30, 1997 and December 31, 1996 2
Consolidated Statements of Income
June 30, 1997 and June 30, 1996 3
Consolidated Statements of Cash Flows
June 30, 1997 and June 30, 1996 5
Notes to Consolidated Financial Statements 6
Management's Discussion And Analysis of Financial
Condition and Results of Operations 7
Part II. OTHER INFORMATION 11
1
NYMAGIC, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
June 30, December 31,
1997 1996
ASSETS
Investments:
Fixed maturities available for sale,
at fair value (amortized cost
$345,463,713 and $341,130,292) $349,308,853 $345,483,129
Equity securities at fair value (cost
$40,503,679 and $37,161,709) 51,784,778 45,348,736
Short-term investments 22,014,305 18,377,180
Total investments 423,107,936 409,209,045
Cash 291,519 701,086
Accrued investment income 5,829,711 5,960,197
Premiums and other receivables, net 24,605,503 43,285,450
Reinsurance receivables 179,760,693 197,988,073
Deferred policy acquisition costs 8,831,743 10,904,241
Prepaid reinsurance premiums 8,160,438 10,562,213
Deferred income taxes 10,456,369 11,131,603
Property, improvements and equipment, net 2,451,514 2,107,087
Other assets 4,991,232 3,345,826
Total assets $668,486,658 $695,194,821
LIABILITIES & SHAREHOLDERS' EQUITY
Unpaid losses and loss adjustment expenses $393,325,294 $411,836,981
Reserve for unearned premiums 53,871,251 66,651,933
Notes payable 24,958,413 20,438,413
Other liabilities 4,832,045 6,401,463
Dividends payable 964,761 1,014,305
Total liabilities 477,951,764 506,343,095
Common stock 14,954,892 14,911,992
Paid-in capital 26,925,728 26,258,259
Unrealized appreciation
of investments (net of deferred income taxes) 9,832,053 8,150,910
Retained earnings 180,696,922 171,089,462
232,409,595 220,410,623
Treasury stock, at cost, 5,307,286 and
4,768,940 shares (41,874,701) (31,558,897)
Total shareholders' equity 190,534,894 188,851,726
Total liabilities and shareholders' equity $668,486,658 $695,194,821
The accompanying notes are an integral part of these consolidated financial
statements.
2
NYMAGIC, INC.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
Six months ended
June 30,
1997 1996
Revenues:
Net premiums earned $41,769,085 $49,558,082
Net investment income 10,680,660 10,511,488
Realized investment gains 3,523,370 2,039,696
Commission and other income 165,240 618,902
Total revenues 56,138,355 62,728,168
Expenses:
Losses and loss adjustment expenses incurred 22,663,291 29,934,683
Policy acquisition expenses 9,140,748 9,919,182
General and administrative expenses 8,324,890 7,688,121
Interest expense 599,823 445,361
Total expenses 40,728,752 47,987,347
Income before income taxes 15,409,603 14,740,821
Income taxes:
Current 4,053,075 3,500,764
Deferred (229,998) 282,750
Total income taxes 3,823,077 3,783,514
Net income $ 11,586,526 $10,957,307
Net income per share $ 1.15 $ 1.02
Weighted average shares of common stock outstanding 10,071,332 10,740,082
Dividends declared per share $ .20 $ .20
The accompanying notes are an integral part of these consolidated financial
statements.
3
NYMAGIC, INC.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
Three months ended
June 30,1997 1996
Revenues:
Net premiums earned $20,360,067 $26,583,683
Net investment income 5,304,363 5,134,314
Realized investment gains 1,513,092 530,020
Commission and other income 73,430 224,335
Total revenues 27,250,952 32,472,352
Expenses:
Losses and loss adjustment expenses incurred 10,615,193 15,920,749
Policy acquisition expenses 4,475,362 5,802,725
General and administrative expenses 4,289,953 3,750,362
Interest expense 341,696 232,666
Total expenses 19,722,204 25,706,502
Income before income taxes 7,528,748 6,765,850
Income taxes:
Current 1,837,685 1,810,089
Deferred (24,367) (208,959)
Total income taxes 1,813,318 1,601,130
Net income $ 5,715,430 $5,164,720
Net income per share $.57 $ .48
Weighted average shares of common stock outstanding 9,979,113 10,734,183
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)
Six months ended
June 30,
1997 1996
Cash flows from operating activities:
Net income $ 11,586,526 $ 10,957,307
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for deferred taxes (229,998) 282,750
Realized investment gains (3,523,370) (2,039,696)
Net bond amortization 850,420 1,002,247
Depreciation 255,723 220,441
Changes in:
Premiums and other receivables 18,679,947 17,991,526
Reinsurance receivables 18,227,380 (2,877,141)
Accrued investment income 130,486 323,225
Deferred policy acquisition costs 2,072,498 1,089,107
Prepaid reinsurance premiums 2,401,775 4,974,196
Other assets (1,645,406) (5,177,444)
Unpaid losses and loss adjustment expenses (18,511,687) (2,716,132)
Reserve for unearned premiums (12,780,682) (14,438,932)
Other liabilities (1,569,418) 4,689,332
Total adjustments 4,357,668 3,323,479
Net cash provided by operating activities 15,944,194 14,280,786
Cash flows from investing activities:
Fixed maturities acquired (134,252,424) (121,428,358)
Equity securities acquired (23,986,060) (17,740,939)
Fixed maturities matured 8,439,232 15,576,723
Fixed maturities sold 120,185,360 82,703,008
Equity securities sold 24,724,881 13,358,144
Net (purchase) sale of short-term investments (3,750,555) 15,939,024
Acquisition of property, equipment
and improvements (600,150) (154,905)
Net cash used in investing activities (9,239,716) (11,747,303)
Cash flows from financing activities:
Proceeds from stock options exercised 710,369 555,586
Cash dividends paid (2,028,610) (2,138,662)
Net repurchase of common stock (10,315,804) (4,223,869)
Proceeds from borrowings 9,520,000 5,000,000
Loan principal repayments (5,000,000) (2,500,000)
Net cash used in financing activities (7,114,045) (3,306,945)
Net decrease in cash (409,567) (773,462)
Cash at beginning of period 701,086 1,175,024
Cash at end of period $ 291,519 $ 401,562
The accompanying notes are an integral part of these consolidated financial
statements.
5
NYMAGIC, INC.
Notes to Consolidated financial Statements
1) 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, 1996.
6
NYMAGIC, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Net premiums earned were $20,360,067 in the second quarter ended June 30,
1997 or a decrease of approximately 23% when compared to the second quarter
of 1996. For the six months ended June 30, 1997, net premiums earned
decreased 16% when compared to the prior year's period. The decrease in
premiums earned resulted mainly from declines in the inland marine, other
liability and aviation lines of business. Inland marine premiums decreased
by 80% in 1997 which is consistent with the Company's decision in the
her liability line decreased by 36% in 1997 as a direct result of the soft
casualty market which allowed for a decline in premium production. A
softening of rates and the non-renewal of certain accounts accounted for a
46% decline in gross aviation premiums written which contributed to a 19%
reduction in net aviation premiums earned. Ocean marine premiums fell
approximately 5% as competition remains intense.
Losses and loss adjustment expenses incurred as a percentage of net premiums
earned were 52.1% for the three months ended June 30, 1997 as compared to
59.9% for the second quarter of 1996. For the six months ended June 30,
1997, such ratio was 54.3% as compared to 60.4% for the same period of the
prior year. Favorable net loss experience in the Company's core ocean and
aviation lines and improved net loss experience in the other liability and
inland lines contributed to the overall decline in the loss ratios.
Commission and other income for the six months ended June 30, 1997 was
$165,240 as compared to $618,902 for the same period of 1996 and was $73,430
for the second quarter of 1997 as compared to $224,335 for the same period of
the prior year. Commission income includes management and contingent
commissions charged by Mutual Marine Office, Inc. for operating the insurance
pools. As the Company increased its MMO pool participation in the ocean
marine and aviation pool from 90% to 100% effective for policies incepting on
or after January 1, 1997, management commission from non-affiliated members
of the insurance pools declined.
Interest expense increased to $599,823 for the six months ended June 30, 1997
from $445,361 for the same period of the prior year as a result of an
increase in loan principal outstanding.
Net investment income for the six months and quarter ended June 30, 1997
increased by 2% and 3%, respectively, from the same periods of 1996 as a
result of a larger invested asset base offset slightly by a decrease in
investment yield in the Company's fixed maturity portfolio resulting from
additional purchases of tax-exempt securities.
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 six
months ended June 30, 1997 were 21.9% as compared with 20.0% for the same
period of the prior year. The same ratio was 22.0% and 21.8% for the three
months ended June 30, 1997 and 1996, respectively. A decline in aviation
gross premiums without a comparable reduction in aviation ceded premiums had
the effect of increasing the ratios.
General and administrative expenses increased by 8% in 1997 over the first
six months of 1996 primarily as a result of increased personnel and
administrative costs to further strengthen support services.
Realized investment gains of $3,523,370 for the six months ended June 30,
1997 mainly resulted from the sale of appreciated equity securities.
The Company reported net income of $11,586,526 or $1.15 per share for the six
months ended June 30, 1997 as compared to net income of $10,957,307 or $1.02
per share for the same period of 1996. Net income was $5,715,430 or $.57
per share for the three months ended June 30, 1997 as compared with
$5,164,720 or $.48 per share for the same period of the prior year.
The Company believes that short-term investments of $22,014,305 together with
its available line of credit will enable the Company to meet its current cash
requirements.
The Company borrowed $9,520,000 in the second quarter of 1997 to repurchase
approximately 500,000 shares of common stock, pursuant to the Company's
common stock repurchase plan, at $19.00 per share. The Company repurchased
an additional 38,346 shares during the first six months of 1997 at market
prices ranging from $18.25 to $21.00.
Positive cash flow from operations enabled the Company to pay down its
existing note payable by $5,000,000 in the first quarter of 1997.
Premiums and other receivables, net decreased to $24,605,503 as of June 30,
1997. Improved cash flows at the MMO pool level and declines in premium
writings contributed to the overall decline in receivables.
Unrealized appreciation of investments, net of deferred income taxes, at
June 30, 1997 increased to $9,832,053 from $8,150,910 at December 31, 1996.
Increases were recorded in equity securities as a result of the strong stock
market in 1997.
8
NYMAGIC, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS CONTINUED
In February 1997, the FASB issued SFAS 128, "Earnings Per Share," which
specifies the computation, presentation and disclosure requirements of
earnings per share (EPS) for companies with publicly owned common stock or
potential common stock and supersedes the accounting requirements of APB
Opinion No. 15, "Earnings Per Share." The Company's stock option plans are
considered potential common stock under SFAS 128. SFAS 128 also requires the
dual presentation of "basic EPS" and "diluted EPS."
SFAS 128 is effective for financial statements for both interim and annual
periods ending after December 15, 1997. Earlier application is not permitted.
After adoption, all prior period EPS data reported shall be restated to
conform with SFAS 128. The adoption of SFAS 128 by the Company is not
expected to have a significant impact on the EPS data presented.
The FASB issued SFAS 130, "Reporting Comprehensive Income," in June 1997
which establishes standards for the reporting and presentation of
comprehensive income and its components. Comprehensive income encompasses
all changes in shareholders' equity, except those arising from transactions
with owners, and includes net income, net unrealized capital gains or losses
on available for sale securities and foreign currency translation adjustments.
SFAS 130 is effective for fiscal years beginning after December 15, 1997,
with earlier application permitted. The Company is currently evaluating the
presentation alternatives permitted by the statement. The adoption of SFAS
130 is not expected to affect the Company's financial position or results of
operations.
The FASB issued SFAS 131, "Disclosures about Segments of an Enterprise and
Related Information," in June 1997 which establishes standards for the
reporting of information relating to operating segments in annual financial
statements, as well as disclosure of selected information in interim
financial reports. Operating segments are defined as components of a
company for which separate financial information is available and is used by
management to allocate resources and assess performance . The statement
supercedes SFAS 14, "Financial Reporting for Segments of a Business
Enterprise, " which requires reporting segment information by industry and
geographic area. This statement is effective for year-end 1998 financial
statements and interim financial information will be required beginning in
1999. The Company is currently evaluating the segment information
disclosure pursuant to SFAS 131.
9
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 June 30, 1997 and December 31, 1996, the Company's net loss and
loss adjustment expense reserves for Asbestos/Pollution policies amounted to
$8.7 million and $8.5 million, respectively. As of June 30, 1997, the
Company had approximately 500 policies which had at least one claim relating
to Asbestos/Pollution exposures. In the first half of 1997, the Company
effected a change in the methodology employed for tracking the attachment
point of insureds' losses. As a result, the Company closed a significant
number of claim files which collectively resulted in an amount which was
immaterial to the financial statements. Net loss and loss adjustment expense
payments on Asbestos/Pollution policies amounted to $190,000
for each of the six month periods ended June 30, 1997 and June 30, 1996,
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 difficult to determine the ultimate loss for
Asbestos/Pollution related claims. 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 June 30, 1997. However, the
Company believes that, in aggregate, the unpaid loss and loss adjustment
expense reserves as of June 30, 1997, 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.
10
PART II - OTHER INFORMATION
ITEM 4 - Submission of Matters to a Vote of Security Holders
The Company held its Annual Meeting of Shareholders on May 13, 1997. The
following matters were voted upon by the Company's shareholders:
(1) Class I Directors. The following were elected as Class I directors of
the Board of Directors, each to hold office for the following three years:
Mark W. Blackman
Charles A. Mitchell
William R. Scarbrough
Richard T. Soper
Louise B. Tollefson
The following is a list of the other directors whose terms of office as
directors continued after the meeting:
John N. Blackman, Jr.
Thomas J. Condon
Jean H. Goulding
James A. Lambert
John Kean, Jr.
Michael S. Shaffet
William A. Thorne
Sergio B. Tobia
(2) Election of Independent Public Accountants. KPMG Peat Marwick LLP were
elected the Company's independent public accountants for the current fiscal
year of the Company.
(3) Declassification of the Board of Directors. The proposal to declassify
the Board of Directors so that all directors are elected to one year terms,
instead of the current staggered three-year terms, was defeated by
shareholders.
11
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 June 30,
1997.
[EQUITIES] 51,785
[MORTGAGE] 0
[REAL-ESTATE] 0
[TOTAL-INVEST] 423,108
[CASH] 292
[RECOVER-REINSURE] 179,761
[DEFERRED-ACQUISITION] 8,832
[TOTAL-ASSETS] 668,487
[POLICY-LOSSES] 0
[UNEARNED-PREMIUMS] 53,871
[POLICY-OTHER] 406,334
[POLICY-HOLDER-FUNDS] 0
[NOTES-PAYABLE] 24,958
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 14,955
[OTHER-SE] 175,580
[TOTAL-LIABILITY-AND-EQUITY] 668,487
[PREMIUMS] 41,769
[INVESTMENT-INCOME] 10,681
[INVESTMENT-GAINS] 3,523
[OTHER-INCOME] 165
[BENEFITS] 22,663
[UNDERWRITING-AMORTIZATION] 9,141
[UNDERWRITING-OTHER] 8,925
[INCOME-PRETAX] 15,410
[INCOME-TAX] 3,823
[INCOME-CONTINUING] 11,586
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 11,586
[EPS-PRIMARY] 1.15
[EPS-DILUTED] 1.15
[RESERVE-OPEN] 0
[PROVISION-CURRENT] 0
[PROVISION-PRIOR] 0
[PAYMENTS-CURRENT] 0
[PAYMENTS-PRIOR] 0
[RESERVE-CLOSE] 0
<CUMULATIVE-REDUNDANCY> 0
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: August 12, 1997 /s/ Mark W. Blackman
Mark W. Blackman
(Chief Executive Officer)
/s/ Thomas J. Iacopelli
Thomas J. Iacopelli
(Chief Financial Officer)
12
