SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 1O-K/A
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ______________ to ________________
Commission file number 1-11238.
NYMAGIC, INC.
(Exact name of registrant as specified in its charter)
New York 13-3534162
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
330 Madison Avenue, New York, NY 10017
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 551-0600
---------
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: Name of each exchange on which registered:
Common Stock, $1.00 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
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 by check mark if disclosure of delinquent filers pursuant to Rule 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of voting stock held by non-affiliates of the
registrant, as of March 1, 1997, was approximately $85,887,845.
The number of shares outstanding of each of the registrant's classes of common
stock, as of March 1, 1997, was 10,143,052 shares of common stock, $1.00 par
value.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's Proxy Statement for the 1997 Annual Meeting of
Shareholders are incorporated by reference in Part III.
<PAGE>
Part I
------
Item 1. Business.
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General
NYMAGIC, INC., a New York corporation (the "Company" or "NYMAGIC"), is
a holding company which owns and operates the following insurance companies and
insurance underwriters and managers:
Insurance Companies:
--------------------
New York Marine And General Insurance Company - ("New York Marine")
Gotham Insurance Company - ("Gotham")
The Company's insurance company subsidiaries, New York Marine and Gotham, each
maintain an A.M. Best insurance rating of A+.
Other:
------
Mutual Marine Office, Inc. - ("MMO")
Pacific Mutual Marine Office, Inc. - ("PMMO")
Mutual Marine Office of the Midwest, Inc. - ("Midwest")
all of which are collectively referred to hereinafter as the "Company."
NYMAGIC, through its subsidiaries, specializes in underwriting ocean
marine, inland marine, aviation and other liability insurance through insurance
pools managed by MMO, PMMO, and Midwest ("MMO and affiliates") since 1964. MMO
and affiliates were acquired by NYMAGIC in January 1991. In addition to managing
the insurance pools, NYMAGIC participates in the risks underwritten for the
pools through two insurance company subsidiaries, New York Marine and Gotham.
All premiums, losses and expenses are pro-rated among pool members in accordance
with their pool participation percentages. Effective January 1, 1994, the
Company increased to 81.47% its participation in the ocean marine, inland marine
and aviation business produced by the pools. Effective April 1, 1994, the
Company increased to 90.00% its participation in the inland marine business
produced by the pools and effective July 1, 1994, the Company increased to
90.00% its participation in the ocean marine and aviation business produced by
the pools and to 100% its participation in the other liability and inland marine
business produced by the pools. Substantially all of the Company's premiums for
the last three years have resulted from participation in the insurance pools
managed by MMO and affiliates.
The Company has approximately 121 employees of whom 19 are
underwriters.
The Pools
MMO, located in New York, PMMO, located in San Francisco and Midwest,
located in Chicago (the "Manager" or the "Managers"), manage the insurance pools
in which the Company participates.
The Manager accepts, on behalf of the pools, insurance risks brought to
the pools by brokers and others. All premiums, losses and expenses are prorated
among the pool members in accordance with their percentage participations in the
pools. Pursuant to the pool management agreements, the pool members have agreed
not to accept ocean marine insurance (other than ocean marine reinsurance)
unless received through the Manager and have authorized the Manager to accept
risks on behalf of the pool members and to effect all transactions in connection
with such risks, including the issuance of policies and endorsements and the
adjustment of claims. As compensation for its services, the Manager receives a
fee of 5.5% of gross premiums written by the pools and a contingent commission
of 10% on net underwriting profits, subject to adjustment.
<PAGE>
Inception to date underwriting results for various reinsurance treaties
are used to calculate reinsurance contingent commissions on an earned basis in
the period in which the related profit commission is billed. Adjustments to
commissions, resulting from revisions in coverage, retroactive or audit
adjustments, are recorded in the period when realized. Subject to review by the
reinsurers, the Managers determine the profitability of all contingent
commission agreements placed with various reinsurance companies.
New York Marine was substituted for another member of the pools in
existence in 1979, and Pennsylvania National Mutual Casualty Insurance Company
("Pennsylvania National") was admitted to each of the pools in 1981. Arkwright
Mutual Insurance Company ("Arkwright") increased its participation in the pools
effective December 31, 1985, by assuming the percentage participation of
Employers Mutual Casualty Company ("Employers") and Mutual Fire, Marine and
Inland Insurance Company ("Mutual Fire"), both of which withdrew from the pools
effective December 31, 1985. In addition, the Arkwright-Boston Insurance Company
transferred its entire interest in the pools to its affiliate, Arkwright,
effective December 31, 1985.
In the case of Employers and Arkwright-Boston Insurance Company, all
loss and unearned premium reserves as of December 31, 1985, were transferred to
Arkwright and any loss run-off related to such reserves are to be fully absorbed
by Arkwright. In the case of Mutual Fire, all loss and unearned premium reserves
incurred through policy year 1985 were assumed by all members of the pools in
proportion to their respective interests in the pools at the time such reserves
were incurred.
Mutual Fire was a member of the pools from 1964 through 1985, with a
participation percentage of 3.71% at the time of its withdrawal from the pools.
In 1986, Mutual Fire was placed under the supervision of the Pennsylvania
Department of Insurance and it has ceased to meet its obligations under the pool
agreements. Under the terms of the pool agreements, if any member is unable to
meet its obligations with respect to business written by the pools while it was
a member, the remaining pool members must assume their pro-rata share of the
defaulting member's obligations.
Effective December 31, 1990, Lumber Mutual Insurance Company ("Lumber")
ceased to participate in the pools and its 6.82% participation was assumed by
New York Marine as to policies incepting on or after January 1, 1991. In the
case of Lumber, all loss and unearned premium reserves incurred through policy
year 1990 were transferred to New York Marine. Effective December 31, 1991,
Pennsylvania National ceased to participate in the pools and its participation
was assumed by New York Marine as to policies incepting on or after January 1,
1992. In the case of Pennsylvania National, all loss and unearned premium
reserves incurred through policy year 1991 were transferred to New York Marine.
Effective January 1, 1994, the Company increased to 81.47% its
participation in the ocean marine, inland marine and aviation business produced
by the pools. The Company's participation in the other liability business
produced by the pools remained at 91.47%.
Effective April 1, 1994, the Company increased to 90.00% its
participation in the inland marine business produced by the pools.
Effective July 1, 1994, the Company increased to 90.00% its
participation in the ocean marine and aviation business produced by the pools
and to 100% its participation in the other liability and inland marine business
produced by the pools.
The Company's increase in pool participations effective July 1, 1994,
followed the assumption of Utica Mutual Insurance Company's ("Utica Mutual")
pool share and Utica Mutual's withdrawal from the pools. In the case of Utica
Mutual, all loss reserves, including incurred but not reported ("IBNR") and
unearned premium reserves, incurred on policies effective prior to its
withdrawal from the pools, remain as obligations of Utica Mutual.
The Company is not aware of any uncertainties with respect to any
possible defaults by either Arkwright or Utica Mutual with respect to their pool
obligations which might impact liquidity or results of operations.
<PAGE>
The pool managed by MMO, the largest when measured by premiums written,
was formed in 1964. The pools managed by PMMO and Midwest were formed in 1975
and 1980, respectively. Effective January 1, 1996, each pool is composed of the
following members:
Inland Marine,
Pool Member Ocean Marine, Other Liability
- ----------- Aviation Pools Pools
-------------- ---------------
New York Marine And General Insurance Company.. 90.00% 100%
Arkwright Mutual Insurance Company ............ 10.00% --
The 1995 A.M. Best ratings for Arkwright and Utica Mutual, the most
recent period for which such ratings are available, were A+ and A, respectively.
Assets and liabilities resulting from the insurance pools are allocated
to the members of the insurance pools based upon the pro-rata participation of
each member of each pool which is set forth in the management agreement entered
into by and between the pool participants and the Managers. An examination is
made of the insurance pools by the Pool's independent auditors to ensure the
method of allocation among pool participants is reasonable and accurate. The
allocation of premiums and losses is not subject to the Managers' discretion and
the Managers do not believe there exist any conflicts of interest in connection
with this aspect of the pools.
Investment Policy
The Company follows an investment policy which is reviewed quarterly
and revised periodically. For the years ended December 31, 1996 and 1995, the
yield on the Company's investment portfolio (computed on the basis of average
monthly cost of investment and statutory investment income) was 5.8% and 6.1%,
respectively. At December 31, 1996, the weighted average maturity of fixed
maturity investments was 7.3 years.
The investment policy for New York Marine as of December 31, 1996, was
as follows:
1. Liquid Funds - Minimum 7-1/2% of Investable Funds. In cash,
certificates of deposit, prime bankers acceptances, prime
commercial paper, tax-exempts rated AA/AA or MIG 2 or better,
tax-exempts rated AA by one service and unrated by the other,
not to exceed $5,000,000 par value in any one institution;
obligations of the U.S. Government and its agencies due one
year or less; tax-exempt notes with a split A/AA or AA/A
rating not to exceed $500,000 in any one institution.
2. Bond Funds
A) Tax-exempt securities and obligations of private
corporations rated A or better by each service which
provides a rating, not to exceed $5,000,000 maturity
value per issuing entity; maturities not to exceed
December 31 of the 20th year from the purchase date, to
include:
1) Pollution - control bonds guaranteed by industrial
corporations rated A or better.
2) Pre-refunded bonds.
3) Housing issues sponsored by the U.S. Government
and its agencies secured by underlying mortgage
securities with maturities not in excess of 30
years and average maturities not in excess of 20
years.
B) Preferred stocks with sinking funds, rated A/A or
better, limited to $500,000 par value per issuer for
new issues; to $500,000 purchase price for outstanding
issues.
C) Obligations of the U.S. Government and its agencies.
<PAGE>
3. A) Equities (including convertible securities) - Not more
than 25% of policyholders' surplus, and investment in
any one institution is not to exceed five percent (5%)
of policyholders' surplus at the time of purchase as
last reported to the New York State Insurance
Department.
B) Subsidiaries - the Company's investments in subsidiary
companies are excluded from the requirements of the
Company's Investment Program.
The investment policy of Gotham is similar to that of New York Marine
except that Gotham is limited to $2,000,000 maturity value for its bond
investments and $1,000,000 for short-term investments.
The investments of the Company's subsidiaries must also conform to the
requirements contained in the New York State Insurance Law and Regulations.
The Company's investments are monitored by the Finance Committee of
the Board of Directors. New York Marine's fixed income portfolio is managed by
J.P. Morgan Investment Management, Inc. ("JPMIM"). New York Marine's equity
portfolio is managed by JPMIM and, in part, by Sorema Asset Management. Gotham
has its fixed income portfolio managed by JPMIM and its equity portfolio managed
by Rorer Asset Management. See "Subsidiaries".
As of December 31, 1996, New York Marine's invested assets were
invested as follows:
Bonds Rated A or better $276,090,031
Bonds Rated below A -0-
Equities $ 35,035,480
As of December 31, 1996, Gotham's invested assets were invested as
follows:
Bonds Rated A or better $ 69,393,098
Bonds Rated below A -0-
Equities $ 10,313,256
Lines of Insurance
The Company writes ocean marine, inland marine, aircraft and non-marine
liability lines of insurance. Ocean marine insurance covers a broad range of
classes, including marine hull, primary and excess marine liabilities, drilling
rig, marine cargo, war risks and assumed reinsurance. Inland marine insurance
includes, among other things, differences in condition ("DIC"), excess property
packages, miscellaneous property insurance and assumed reinsurance. DIC
insurance covers those perils not included with a fire and extended coverage
policy, including burglary, collapse, flood, volcano and earthquake. In 1995, a
decision was made to reduce the Company's exposure to natural catastrophes
through the inland marine line. This resulted in a reduction in the gross and
net inland marine premiums written for 1995 and 1996. Aircraft insurance
includes hull and engine insurance as well as liability insurance. Non-marine
liability insurance includes, among other things, umbrella (excess casualty)
insurance, and excess and surplus line risks written primarily through Gotham.
The following tables set forth the pools' gross and net written
premiums. Insurance premiums written on a calendar year basis may be
attributable to various policy years. Thus, some of the 1996 premium written may
arise from policies incepting in 1995 and prior when the Company had a different
participation in the pools. Therefore, the Company's gross and net written
premiums cannot be obtained by multiplying the amounts below by the Company's
percentage participation in each year. However, the tables below do reflect the
size and mix of business produced by the Managers for the years so indicated.
<PAGE>
<TABLE>
Gross Premium Written by
Line of Business Year Ended December 31,
- ------------------------ ----------------------------------------------------------------------
1996 1995 1994
---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Ocean marine........................ $ 87,519 56% $ 93,892 50% $ 93,670 45%
Inland marine....................... 1,651 1% 14,380 8% 36,724 18%
Aircraft............................ 61,067 39% 70,707 38% 65,320 32%
Other liability..................... 5,309 4% 7,111 4% 10,868 5%
Other............................... 358 -- 290 -- 232 --
------ --- ------ --- ------ ---
Total............................... $155,904 100% $186,380 100% $206,814 100%
Net Premium Written by
Line of Business Year Ended December 31,
- ---------------------- ----------------------------------------------------------------------
1996 1995 1994
---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Ocean marine........................ $ 58,771 59% $ 55,749 52% $ 48,453 42%
Inland marine....................... ( 2,087) ( 2%) 1,227 1% 15,339 13%
Aircraft............................ 37,682 38% 42,339 40% 41,053 36%
Other liability..................... 5,325 5% 6,954 7% 10,467 9%
Other............................... 374 -- 290 -- 232 --
------ --- ------ --- ------ ---
Total............................... $100,065 100% $106,559 100% $115,544 100%
</TABLE>
Reinsurance Ceded
A reinsurance transaction takes place when an insurance company
transfers (cedes) a portion or all of its exposure on insurance written by it to
another insurer. The reinsurer assumes the exposure in return for a portion or
all of the premium. The ceding of reinsurance does not legally discharge the
insurer from its primary liability for the full amount of the policies, and the
ceding company is required to pay the loss if the assuming company fails to meet
its obligations under the reinsurance agreement. The Company, through the pools,
cedes the greater part of its reinsurance through annual reinsurance agreements
(treaties) with other insurance companies. These treaties, which are drawn by
lines or classes of insurance, allow the Company to automatically reinsure risks
without having to cede insurance on a risk by risk (facultative) basis, although
facultative reinsurance is utilized on occasion.
Generally, the Managers place reinsurance with companies which have an
A.M. Best rating greater than B+ or which have sufficient financial strength, in
management's opinion, to warrant being used for reinsurance protections. The
Managers also examine financial statements of reinsurers and review such
statements for profitability, reasonable leverage and adequate surplus. In
addition, the Company, through the pools, withholds funds and may obtain letters
of credit under reinsurance treaties. The Company continues to monitor the
financial status of all reinsurers on an annual basis, as well as the timely
receipt of cash, to assess the ability of reinsurers to pay reinsurance claims.
The Company, through the pools, attempts to limit its exposure from
losses on any one occurrence through the use of various excess of loss, quota
share and facultative reinsurance arrangements and to minimize the risk of
default by a reinsurer by reinsuring risks with many different reinsurers. The
Company utilizes approximately 80 to 100 separate reinsurance treaties each year
with a range of 8 to 20 reinsurers participating on each treaty. Many reinsurers
participate on multiple treaties. The Company utilizes quota share reinsurance
treaties in which the reinsurers participate on a set proportional basis in both
the premiums and losses. Additionally, the Company utilizes excess of loss
reinsurance treaties in which the reinsurers, in exchange for a minimum premium,
subject to upward adjustment based upon premium volume, agree to pay for that
part of each loss in excess of an agreed upon amount. The Company's retention of
exposure, net of these treaties, varies between its different classes of
business and from year to year, depending on several factors including the
pricing environment on both the direct and ceded book of business and the
availability of reinsurance. In general, reinsurance is obtained for each line
of business when necessary to reduce the Company's exposure to a maximum of $2
million for any one insured on any one occurrence. The Company can and does,
from time to time, carry a maximum exposure in excess of $2 million for any one
insured on any one occurrence. Such instances, when they occur, generally
reflect a business decision regarding the cost of further reductions in the
Company's exposure and/or the availability of reinsurance.
<PAGE>
The Company attempts to limit its exposure from catastrophes through
the purchase of general excess of loss reinsurance which provides coverage in
the event that multiple insureds incur losses arising from the same occurrence.
These coverages require the Company to pay a minimum premium, subject to upward
adjustment based upon premium volume. The treaties, which extend, in general,
for a twelve month period, obligate the reinsurers to pay for the portion of the
Company's aggregate losses (net of specific reinsurance) which fall within each
treaty's layer or exposure. The Company's retention on any one catastrophic
occurrence, after it obtains the benefit of its excess of loss reinsurance, has
not exceeded $4 million during the past three years. In the event of a
catastrophe loss, the Company would incur additional reinstatement premium
charges for its excess of loss reinsurance, to the extent that such treaties
incur a portion of the loss and in an amount not greater than the original cost
of the reinsurance.
The Company reinsures risks with several domestic and foreign
reinsurers as well as syndicates including Lloyd's of London ("Lloyd's"). The
Company's largest reinsurers as of December 31, 1996, were Arkwright, Lloyd's
and Utica Mutual, with aggregate net recoverables of $55 million, $17 million
and $21 million, respectively. The 1995 A.M. Best ratings for Arkwright and
Utica Mutual are A+ and A, respectively. Lloyd's of London maintains a trust
fund which was established for the benefit of all United States ceding
companies. In 1995, as part of a reconstruction process, the trust fund was
expanded to include certain obligations on a gross basis. In 1996, Equitas was
formed to handle the run-off of years 1992 and prior for Lloyd's. For the three
most recent years for which Lloyd's has reported results, 1993, 1992 and 1991,
Lloyd's reported gains of 2.25 billion pounds for 1993 and losses of 1.02
billion pounds and 2.05 billion pounds for 1992 and 1991. The Company has not
experienced difficulties in collecting amounts due from Lloyd's and the timing
of cash receipts has not materially affected the Company's liquidity. At
December 31, 1996, the Company's net exposure to reinsurers, other than
Arkwright, Lloyd's and Utica Mutual, was approximately $85 million, including
amounts recoverable for paid losses, outstanding losses, IBNR and unearned
premium reserves. This amount is recoverable collectively from approximately 700
reinsurers or syndicates, no single one of which was liable to the Company for
an unsecured amount in excess of approximately $3.0 million.
Operating Ratios
Premium to Surplus Ratio. The following table shows, for the periods
indicated, the Company's consolidated statutory ratios of net premiums written
(gross premiums less premiums ceded) to policyholders' surplus:
<TABLE>
Year Ended December 31,
--------------------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Net premiums written................ $ 90,513 $ 97,817 $100,907 $ 79,034 $ 60,872
Policyholders' surplus.............. 160,929 148,785 133,813 131,375 127,060
------- ------- ------- ------- -------
Ratio............................... .56 to 1 .66 to 1 .75 to 1 .60 to 1 .48 to 1
</TABLE>
While there are no statutory requirements applicable to the Company which
establish permissible premium to surplus ratios, guidelines established by the
National Association of Insurance Commissioners provide that the statutory net
premium written to surplus ratio should be no greater than 3 to 1. The Company
is well within those guidelines.
Combined Loss and Expense Ratios. The underwriting experience of the Company is
indicated by its "combined ratio," which is the sum of (l) the ratio of losses
and loss adjustment expenses incurred to net premiums earned (the "loss ratio")
and (2) the ratio of policy acquisition costs and other underwriting expenses to
net premiums written (the "expense ratio"). The Company's consolidated loss
ratios, expense ratios and combined ratios, on a statutory basis, are shown in
the following table: <TABLE>
Year Ended December 31,
--------------------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Loss Ratio...................... 62.6% 69.0% 80.2% 80.3% 77.7%
Expense Ratio................... 31.9% 30.3% 28.5% 26.6% 28.2%
---- ---- ----- ----- -----
Combined Ratio.................. 94.5% 99.3% 108.7% 106.9% 105.9%
</TABLE>
<PAGE>
The ratios set forth above have been calculated on a statutory basis
which reflect the operating results of NYMAGIC's two insurance company
subsidiaries, New York Marine and Gotham.
GAAP Combined Loss and Expense Ratios. The underwriting experience of
the Company is indicated by its "combined ratio," which is the sum of (1) the
ratio of losses and loss adjustment expenses incurred to net premiums earned
(the "loss ratio") and (2) the ratio of policy acquisition costs and other
underwriting expenses to net premiums earned (the "expense ratio").
The Company's consolidated loss ratios, expense ratios and combined
ratios, on a GAAP basis, are shown in the following table:
<TABLE>
Year Ended December 31,
--------------------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Loss Ratio....................... 61.2% 67.4% 78.1% 77.8% 84.6%
Expense Ratio.................... 32.3% 31.9% 34.4% 28.2% 20.0%
---- ---- ---- ---- ----
Combined Ratio................... 93.5% 99.3% 112.5% 106.0% 104.6%
</TABLE>
The ratios set forth above have been calculated on a GAAP basis which
reflect the operating results of NYMAGIC's two insurance company subsidiaries,
New York Marine and Gotham.
The GAAP loss ratio differs from the statutory loss ratio mainly as a
result of accruals for salvage and subrogation in years 1992 and 1993,
amortization of the deferred income in connection with the assumption of loss
reserves from Pennsylvania National and Lumber Mutual, and, in 1993 and
subsequent, an accrual on a statutory basis for unallocated loss adjustment
expenses which are based on management commissions charged by the pool and,
therefore, eliminated on a GAAP consolidated basis. The GAAP expense ratio
differs from the statutory expense ratio primarily as a result of amortization
of deferred policy acquisition costs for GAAP and receivable write-offs which
are reflected in income for GAAP. In 1992, the assumption of loss reserves from
two former pool members, Pennsylvania National and Lumber, served to increase
the GAAP loss ratio and decrease the GAAP expense ratio inasmuch as there were
no expenses associated with the assumption of the losses and the funds received
were recorded as premiums.
Reserves
The applicable insurance laws under which the Company operates require
that reserves be maintained for the payment of losses and loss adjustment
expenses with respect to both reported and incurred but not reported ("IBNR")
claims under its insurance policies. IBNR claims are those losses, based upon
historical experience and other relevant data, that the Company estimates will
be reported or ultimately develop on risks undertaken by the Company. The
Company maintains a conservative policy in establishing reserves, especially in
the year the policy is written. Case loss reserves are determined by evaluating
reported claims on the basis of the type of loss involved, knowledge of the
circumstances surrounding the claim, and the policy provisions relating to the
type of loss. IBNR claims are estimated on the basis of statistical information
with respect to the probable number and nature of claims arising from
occurrences which have not yet been reported. The establishment of reserves acts
to reduce income while the downward adjustment or reduction of reserves
increases income.
The loss settlement period on insurance claims may be many years and
during this period it often becomes necessary to adjust the estimate of
liability on a claim either upward or downward. Among the classes of marine,
aviation and non-marine liability insurance written by the Company are liability
classes which historically have had long lead times between occurrence of an
insurable event, reporting of the claim to the Company and final settlement. In
such cases, the Company is forced to estimate reserves over long periods of
time, with the possibility of several adjustments. Other classes of insurance,
such as property and claims-made non-marine liability classes, historically have
had shorter lead times between occurrence of an insurable event, reporting of
the claim to the Company and final settlement. The reserves with respect to such
classes are less likely to be readjusted.
The Company, from time to time, has increased its participation in the
pools. The effect of each such increase is prospective in nature and does not
affect the loss reserves herein set forth for the years prior to the effective
date of any such change in participation percent.
<PAGE>
The insurance pools participated in the issuance of umbrella casualty
insurance for various Fortune 1000 companies in the period from 1978 to 1983.
Depending on the accident year, the insurance pools' maximum 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 December
31, 1996 and 1995, the Company's gross, ceded and net loss and loss adjustment
expense reserves for Asbestos/Pollution policies amounted to $23.5 million,
$15.0 million and $8.5 million, and $20.6 million, $13.6 million and $7.0
million, respectively. As of December 31, 1996, the Company had approximately
1,000 policies which had at least one claim relating to Asbestos/Pollution
exposures. 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 December
31, 1996. However, as of December 31, 1996, the Company believes that, in
aggregate, the unpaid loss and loss adjustment expense reserves as of December
31, 1996, allow for an adequate provision and that the ultimate resolution of
the Asbestos/Pollution claims will not have a material impact on the Company's
financial position.
The following table sets forth NYMAGIC's net case reserve experience
for Asbestos/Pollution policies for each of the past three years:
<TABLE>
1996 1995 1994
(In Thousands)
-----------------------------------
<S> <C> <C> <C>
Asbestos
- --------
Case Reserves at beginning of period $1,307 $1,367 $1,158
Incurred loss and loss adjustment expenses ( 186) 7 274
Payments ( 8) ( 67) ( 65)
---- ---- ----
Case Reserves at end of period 1,103 1,307 1,367
Pollution
- ---------
Case Reserves at beginning of period $2,141 $1,977 $1,799
Incurred loss and loss adjustment expenses 975 642 713
Payments (793) ( 478) ( 535)
---- ---- ----
Case Reserves at end of period 2,323 2,141 1,977
</TABLE>
The following table sets forth NYMAGIC's net loss and loss adjustment expense
experience for Asbestos/Pollution policies for each of the past three years.
<TABLE>
1996 1995 1994
(In Thousands)
-----------------------------------
<S> <C> <C> <C>
Asbestos/Pollution
- ------------------
Unpaid loss and loss adjustment expenses
(Including IBNR) at beginning of period $7,041 $6,150 $4,954
Incurred loss and loss adjustment expenses 2,270 1,436 1,796
Payments ( 811) ( 545) ( 600)
---- ---- ----
Unpaid loss and loss adjustment expenses
(Including IBNR) at end of period 8,500 7,041 6,150
</TABLE>
The loss and loss adjustment payments related to the Company's
Asbestos/Pollution exposures have not been material in relation to the Company's
total loss and loss adjustment expense payments as shown in the table below:
<TABLE>
1996 1995 1994
(In Thousands)
-----------------------------------
<S> <C> <C> <C>
Total loss and loss adjustment expense
payments for the year ended December 31, $61,524 $51,719 $57,356
Asbestos/Pollution loss and loss adjustment expense
payments for the year ended December 31, 811 545 600
</TABLE>
<PAGE>
The insurance pools have written primary insurance relating to products
liability since 1985. The insurance pools' maximum loss per risk is generally
limited to $1,000,000 and the Company's participation percentage ranges from 59%
to 100% based upon policy year. The Company believes that, based upon the
maximum amount per risk and the Company's conservative reserving posture, the
reserves currently established are adequate to cover the ultimate resolution of
all product liability claims.
The following table shows changes in reserves in subsequent years (the
development) from the prior loss estimates based upon experience as of the end
of each succeeding year. The estimate is increased or decreased as more
information becomes known about the frequency and severity of losses for
individual years. A redundancy means the original estimate of the Company's
consolidated liability was higher than the current estimate; a deficiency means
that the current estimate is higher than the original estimate.
The first line of the table presents, for each of the last ten years,
the estimated liability for unpaid losses and loss adjustment expenses at the
end of the year, including the reserve for incurred but not reported losses.
These reserves include reserves assumed from Pennsylvania National and Lumber
pursuant to the assumption of their pool obligations. The first section of the
table shows, by year, the cumulative amounts of losses and loss adjustment
expenses paid as of the end of each succeeding year, expressed as a percentage
of the estimated liability for such amounts.
The second section sets forth the re-estimates in later years of
incurred losses, including payments, as a percentage of the estimate for the
years indicated. The cumulative redundancy represents as of December 31, 1996,
the aggregate change in the estimates over all prior years. The redundancies
have been reflected in income over the periods shown.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
<TABLE>
Year Ended December 31,
--------------------------------------------------------------------------------------------------------
1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Estimated Liability
for Net Unpaid Losses and
Loss Adjustment Expenses 67,430 91,099 116,089 138,920 156,533 170,744 203,735 208,366 212,377 229,916 227,370
Cumulative Amount of Net
Liability Paid As a Percentage
of Estimate Through:
1 Year Later 17% 18% 17% 17% 18% 19% 20% 22% 20% 20%
2 Years Later 30% 31% 27% 32% 36% 37% 37% 37% 34%
3 Years Later 41% 38% 39% 46% 49% 52% 48% 49%
4 Years Later 46% 45% 49% 57% 62% 61% 58%
5 Years Later 51% 52% 55% 66% 69% 69%
6 Years Later 56% 56% 61% 72% 75%
7 Years Later 58% 59% 65% 75%
8 Years Later 60% 62% 68%
9 Years Later 62% 64%
10 Years Later 64%
Net Liability Reestimated including Cumulative Net Paid Losses and Loss
Adjustment Expenses As a Percentage of Estimate As of:
1 Year Later 95% 97% 96% 96% 100% 99% 99% 99% 97% 94%
2 Years Later 92% 93% 90% 98% 100% 99% 97% 96% 95%
3 Years Later 90% 88% 89% 96% 98% 99% 95% 95%
4 Years Later 85% 84% 86% 94% 98% 97% 95%
5 Years Later 83% 79% 83% 91% 96% 98%
6 Years Later 78% 77% 80% 90% 96%
7 Years Later 76% 74% 79% 91%
8 Years Later 73% 73% 80%
9 Years Later 73% 74%
10 Years Later 75%
Net Cumulative Redundancy 16,733 23,343 23,245 13,088 6,253 4,208 9,639 9,605 10,961 12,753
Gross Unpaid Losses an Loss Adjustment Expenses $407,321 $435,072 $417,795 $411,837
Reinsurance Recoverable on Unpaid Losses and Loss Adjustment Expenses 198,955 222,695 187,879 184,467
Reserve Re-estimated Gross 379,045 416,175 420,075
Reserve Re-estimated Reinsurance Recoverable 179,242 210,158 202,912
Gross Cumulative Redundancy (Deficiency) 28,276 18,897 (2,280)
</TABLE>
<PAGE>
The Company makes no specific provision for inflation in connection
with reserve estimates, but does each year consider the adjustment of
outstanding case reserves and current inflationary indices in determining the
adequacy of the overall loss reserve. The Company monitors historical loss
payments to determine the sufficiency of this provision.
The following table provides a reconciliation of the consolidated
liability for losses and loss adjustment expenses at the beginning and end of
1996, 1995 and 1994:
<TABLE>
Year ended December 31,
------------------------------------------
1996 1995 1994
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Net liability for losses and loss adjustment
expenses at beginning of year............. $229,916 $212,377 $208,366
-------- -------- --------
Provision for losses and loss adjustment
expenses occurring in current year........ 71,731 75,618 64,061
Decrease in estimated losses and loss
adjustment expenses for claims occurring
in prior years (1)........................ ( 12,753) ( 6,360) ( 2,694)
Deferred income-loss portfolio
assumption(2)............................. 381 458 533
-------- -------- --------
Total losses and loss adjustment expenses
incurred 59,359 69,716 61,900
-------- -------- --------
Less:
Losses and loss adjustment expense payments for claims occurring during:
current year.......................... 15,012 10,043 11,185
prior years........................... 46,512 41,676 46,171
-------- -------- --------
61,524 51,719 57,356
Plus:
Deferred income-loss portfolio assumption(2) ( 381) ( 458) ( 533)
-------- -------- --------
Net liability for losses and loss adjustment
expenses at year end...................... 227,370 229,916 212,377
-------- -------- --------
Ceded unpaid losses and loss adjustment
expenses.................................. 184,467 187,879 222,695
-------- -------- --------
Gross unpaid losses and loss adjustment
expenses at year end $411,837 $417,795 $435,072
-------- -------- --------
</TABLE>
(1) The adjustment to the consolidated liability for losses and loss
adjustment expenses for losses occurring in prior years reflects the net effect
of the resolution of losses for other than full reserve value and subsequent
readjustments of loss values.
(2) Deferred income-loss portfolio assumption represents the difference
between cash received and unpaid loss reserves assumed as a result of the buyout
of Pennsylvania National's and Lumber's net pool obligations which was initially
capitalized and will be amortized over the payout period of the related losses.
The principal differences between the consolidated liability for unpaid
losses and loss adjustment expenses as reported in the Annual Statement filed
with state insurance departments in accordance with statutory accounting
principles and the liability based on generally accepted accounting principles
shown in the above tables is due to the reserve for the Company's pro rata share
of the pool obligations of Mutual Fire, a former pool member, the assumption of
Pennsylvania National's and Lumber's loss reserves arising from their former
participation in the MMO insurance pools and unpaid unallocated loss adjustment
expenses based upon management commissions payable to the Managers which are
eliminated on a consolidated basis. The loss reserves shown in the above tables
reflect in each year salvage and subrogation accruals of approximately 1% to 6%.
The estimated accrual for salvage and subrogation is based on the line of
business and historical salvage and subrogation recovery data. In neither
statutory nor generally accepted accounting principles are loss and loss
adjustment expense reserves discounted.
<PAGE>
The following table sets forth the reconciliation of the consolidated
net liability for losses and loss adjustment expenses based on statutory
accounting principles and based on generally accepted accounting principles as
of December 31, 1996, 1995 and 1994:
<TABLE>
Year ended December 31,
------------------------------------------
1996 1995 1994
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Liability for losses and loss adjustment expenses
reported based on statutory accounting principles........... $222,953 $225,260 $207,178
Liability for losses and loss adjustment expenses assumed
from Lumber Mutual and Pennsylvania National................ 4,508 4,615 5,287
(excludes $6,653,075, $8,173,000 and $9,907,000 at
December 31, 1996, 1995 and 1994, accounted for in the
statutory liability for losses and loss adjustment expenses.)
Estimated share of Mutual Fire, Marine and Inland
Insurance Company's pool obligations........................ 61 114 183
Unpaid unallocated loss adjustment expenses................... ( 152) ( 73) ( 271)
--------- -------- --------
Net liability for losses and loss adjustment expenses
reported based on generally accepted accounting
principles.................................................. 227,370 229,916 212,377
Ceded liability for unpaid losses and loss adjustment expenses 184,467 187,879 222,695
--------- -------- --------
Gross liability for unpaid losses and loss adjustment expenses $411,837 $417,795 $435,072
</TABLE>
Regulation
The Company is regulated by the insurance regulatory agencies of the
states in which it is authorized to do business. New York Marine is licensed to
engage in the insurance business in all states.
Gotham is permitted to write excess and surplus lines insurance on a
non-admitted basis in all of the states except Arkansas, Massachusetts, Nevada,
New Jersey, New Hampshire and Vermont. Gotham is licensed to engage in the
insurance business in the state of New York and, as such, cannot write excess
and surplus business in that state.
Many aspects of the Company's insurance business are subject to
regulation. For example, minimum capitalization must be maintained; certain
forms of policies must be approved before they may be offered; reserves must be
established in relation to the amounts of premiums earned and losses incurred;
and, in some cases, schedules of premium rates must be approved.
The insurance company subsidiaries also file statutory financial
statements with each state in the format requested by the National Association
of Insurance Commissioners (the "NAIC"). The NAIC provides accounting guidelines
for companies to report and is seeking to provide minimum solvency standards for
all companies in the form of risk-based capital requirements. Such standards
have been established, and the Company believes that the surplus of each of the
insurance companies are above the minimum amount required by the NAIC.
The Company is subject to an examination by the Insurance Department of
the State of New York. The insurance companies' most recent examination was for
the year ended December 31, 1990. There were no significant adjustments which
resulted from that examination.
The insurance company subsidiaries are limited under New York law in
the amount of dividends they can pay to the parent company, NYMAGIC, without
prior approval of the New York State Insurance Department. NYMAGIC's principal
source of income is dividends from its subsidiaries, which is used for payment
of operating expenses, including interest expense, loan repayments and payment
of dividends to NYMAGIC's shareholders. The maximum amount of dividends that may
be paid to NYMAGIC by the insurance company subsidiaries is limited to the
lesser of 10% of statutory surplus or 100% of net investment income, as defined
under New York insurance law. The maximum amount which could be paid to the
Company out of December 31, 1996, surplus was approximately $16,093,000.
<PAGE>
Insurance companies are being regulated more strictly by the various
states in recent years. The state of California is seeking to regulate premiums
more strictly under Proposition 103. The California Insurance Department has
advised the Company that it has no rate rollback liability under Proposition
103. Many states have also increased regulation of surplus lines insurance
thereby requiring stricter standards for authorization. Several states have
established guaranty funds which serve to provide the assured with payment due
under policies issued by insurance companies that have become insolvent.
Insurance companies that are authorized to write in states are assessed a fee,
normally based on direct writings in a particular state, to cover any payments
drawn from insolvency funds. The Company is subject to such assessments in the
various states.
Subsidiaries
NYMAGIC's largest insurance company subsidiary is New York Marine And
General Insurance Company which was formed in 1972. NYMAGIC was formed in 1989
to serve as a holding company for the subsidiary insurance companies. Prior
thereto, New York Marine And General Insurance Company was the parent company
and shares of its common stock, $1.00 par value, were traded publicly. NYMAGIC
became the holding company, and New York Marine its subsidiary, effective
October 2, 1989, following regulatory and shareholder approval.
NYMAGIC's other insurance company subsidiary, Gotham Insurance Company,
was organized in 1986 as a means of expanding into the excess and surplus lines
marketplace. New York Marine and Gotham entered into a Reinsurance Agreement,
effective January 1, 1987, under terms of which Gotham will cede 100% of its
gross direct writings to New York Marine and assume 15% of New York Marine's
total retained business, beginning with the 1987 policy year. Accordingly, for
policy year 1987 and subsequent, Gotham's underwriting statistics are expected
to be similar to New York Marine's. As of December 31, 1996, 75% and 25% of
Gotham's common stock is owned by New York Marine and NYMAGIC, respectively.
Gotham does not assume or cede business to or from other insurance
companies. Gotham had certain operating expenses of its own, however, for policy
year 1987 and subsequent, and Gotham's underwriting statistics are expected to
be similar to New York Marine's. As of December 31, 1996, New York Marine had
aggregate recoverables due from Gotham of approximately $37 million or 25% of
New York Marine's statutory surplus. Gotham had aggregate recoverables due from
New York Marine as of December 31, 1996, of approximately $32 million or 66% of
Gotham's statutory surplus.
New York Marine's and Gotham's combined net income on a GAAP basis
represented substantially all of the consolidated net income of the Company for
each of the years ended December 31, 1996, 1995 and 1994.
Mutual Marine Office, Inc. was acquired in 1991 and was formed in 1964
to underwrite a book of ocean marine insurance. MMO's activities expanded over
the years and it now underwrites a book of ocean marine, inland marine, aviation
and other liability insurance.
Mutual Marine Office of the Midwest, Inc. was acquired in 1991 and was
formed in 1978 to underwrite a varied book of business located in the Midwest
region.
Pacific Mutual Marine Office, Inc. was acquired in 1991 and was formed
in 1975 to underwrite a varied book of business in the West Coast region.
Competition
The insurance industry is highly competitive and the companies, both
domestic and foreign, against which the Company competes are often larger with
greater capital resources than the Company and the pools. The principal methods
of competition are pricing and responsiveness to the individual insured's
coverage requirements. The competitive nature of the business reached a peak in
1990 after several major catastrophes forced the withdrawal of several insurance
companies from various markets. As a result, the aviation, ocean and inland
marine market hardened in 1991 and remained favorable through 1994. However, in
1995 and 1996 as competition intensified, rates softened in the aviation and
ocean marine lines. Competition remains intense as a result of excess capacity
in the casualty market. Accordingly, the Company is not planning to renew those
policies which would result in an underwriting loss.
<PAGE>
Sufficient capacity currently exists in the catastrophe reinsurance
market which the Company relies upon to purchase reinsurance to protect its net
retention per occurrence or event. As a consequence, such reinsurance is more
costly and adversely impacts the Company's net income.
The Company believes it can successfully compete against other
companies in the insurance market due to its philosophy of underwriting quality
insurance, its reputation as a conservative well-capitalized insurer and its
willingness to forego unprofitable business.
Employees
The Company currently employs approximately 121 persons, of whom 19 are
insurance underwriters.
Item 2. Properties.
-----------
The Company does not own, directly or indirectly, any real estate. The
Company leases office space for day to day operations in the following cities:
New York - 37,000 square feet
Chicago - 3,500 square feet
San Francisco - 4,050 square feet
The Company's principal executive offices are approximately 37,000 sq.
ft. in size and are located in New York City. In 1993 the Company moved into its
location at 330 Madison Avenue, New York, New York, which was renovated and is
in excellent condition. The lease for the Company's principal executive offices
expires December 30, 2003. The minimum annual rent under the lease is $1,074,000
until 1998 and $1,184,000 from 1999 until the expiration of the lease. The lease
included a cash payment by the lessor to the Company of $1,853,000 of which the
benefit was deferred and amortized over the lease term.
Item 3. Legal Proceedings.
------------------
None.
Item 4. Submission of Matters to a Vote of Security Holders.
----------------------------------------------------
None.
<PAGE>
PART II
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters.
---------------------------------------------------------------------
The Company's common stock trades on the New York Stock Exchange (NYSE
Symbol: NYM). The following table sets forth representative high and low closing
prices for the periods indicated.
1996 1995
------------------ ------------------
High Low High Low
---- --- ---- ---
First Quarter............. $22.00 $16.38 $18.88 $17.88
Second Quarter............ 19.88 18.38 17.88 15.38
Third Quarter............. 19.13 17.00 17.88 15.88
Fourth Quarter............ 19.00 17.25 17.25 15.38
As of March 1, 1997, there were 73 shareholders of record. However,
management believes there are in excess of 2,500 beneficial owners of NYMAGIC's
common stock.
Dividend Policy
A cash dividend of ten (10) cents per share was declared and paid to
shareholders of record as of March 31, June 30, September 30, and December 31,
1996 and 1995. For a description of restrictions on the ability of the Company's
insurance subsidiaries to transfer funds to the Company in the form of
dividends, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources."
Item 6. Selected Financial Data.
------------------------
<TABLE>
OPERATING DATA Year Ended December 31,
----------------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Revenues:
Net premiums earned ......................... $ 97,036 $103,461 $79,255 $65,276 $78,639
Net investment income ....................... 21,270 21,659 18,854 17,746 17,856
Commission income ........................... 1,981 3,438 2,052 2,498 6,780
Realized investment gains ................... 4,589 4,111 2,992 6,458 6,277
Other income ................................ 690 661 420 275 249
------ ------ ------ ------ ------
Total revenues .............................. $125,566 $133,330 $103,573 $92,253 $109,801
Expenses:
Losses and loss adjustment
expenses incurred ......................... $ 59,359 $ 69,716 $61,900 $50,816 $66,550
Policy acquisition expenses ................. 18,828 21,017 14,260 10,429 8,037
General and administrative
expenses .................................. 16,168 16,236 16,742 14,749 17,658
Interest expense ............................ 1,035 438 495 661 996
------ ------ ------ ------ ------
Total expenses .............................. $ 95,390 $107,407 $93,397 $76,655 $93,241
<PAGE>
Selected Financial Data (continued)
- -----------------------------------
Year Ended December 31,
----------------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Income before income taxes .................. 30,176 25,923 10,176 15,598 16,560
------ ------ ------ ------ ------
Income taxes
Current ................................... 7,495 5,393 2,306 2,236 5,398
Deferred .................................... 56 410 ( 1,827) ( 66) ( 4,023)
------ ------ ------ ------ ------
Total income taxes .......................... 7,551 5,803 479 2,170 1,375
------ ------ ------ ------ ------
Income before
cumulative effect ......................... 22,625 20,120 9,697 13,428 15,185
Cumulative effect of change
in accounting for income taxes ............ -- -- -- 1,221 --
------ ------ ------ ------ ------
Net income .................................. $ 22,625 $ 20,120 $ 9,697 $14,649 $15,185
====== ====== ====== ====== ======
Average shares outstanding .................. 10,524 11,341 11,392 11,449 11,429
PER SHARE DATA:
Income before
cumulative effect ......................... $ 2.15 $ 1.77 $ .85 $ 1.17 $ 1.33
Cumulative effect of change
in accounting for income taxes ............ -- -- -- .11 --
------ ------ ------ ------ ------
Net income .................................. $ 2.15 $ 1.77 $ .85 $ 1.28 $ 1.33
====== ====== ====== ====== ======
Dividends declared .......................... $ .40 $ .40 $ .40 $ .40 $ .40
====== ====== ====== ====== ======
BALANCE SHEET DATA
AT PERIOD END:
Year Ended December 31,
----------------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C>
Total investments............................. $409,209 (2) $403,306 (2) $341,643 (2) $334,722 $303,608
Total assets................................. 695,195 (1) 705,824 (1) 705,986 (1) 663,268 (1) 419,200
Unpaid losses and loss
adjustment expenses ...................... 411,837 (1) 417,795 435,072 407,321 203,735
Notes payable ............................... 20,438 12,727 7,020 10,294 16,176
Total shareholders' equity .................. $188,852 $182,717 $164,313 $166,482 $158,115
<FN>
(1) Includes reserve liabilities reported gross of reinsurance credits pursuant
to Statement of Financial Accounting Standards No. 113.
(2) Fixed maturities held for sale are carried at fair value pursuant to
Statement of Financial Accounting Standards No. 115.
</FN>
</TABLE>
For a description of factors that materially affect the comparability of
the information reflected in the Selected Financial Data, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations" below.
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
----------------------------------------------
Results of Operations
---------------------
The Company participates in pools of insurance covering ocean marine,
inland marine, aircraft and non-marine liability insurance managed by MMO and
affiliates. The Company's participation in the ocean marine, inland marine and
aviation business produced by the pools increased to 81.47% effective January 1,
1994. The Company's participation in the inland marine pool increased to 100%
effective July 1, 1994, and its participation in the ocean marine and aviation
pools increased to 90% at the same time. Effective July 1, 1994, the Company's
participation in the other liability business produced by the pools increased to
100% from 91.47% effective July 1, 1994.
<PAGE>
<TABLE>
NYMAGIC Net Premiums
Written
by Line of Business Year Ended December 31,
- ---------------------------- -----------------------------------------------------------------------------
1996 1995 1994
---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Ocean Marine ................. $54,093 60% $48,944 50% $41,437 41%
Inland Marine................. ( 1,658) (2%) 2,803 3% 13,847 14%
Aircraft...................... 32,482 36% 38,962 40% 35,389 35%
Other liability............... 5,238 6% 6,818 7% 10,002 10%
Other......................... 358 -- 290 -- 232 ---
------- ---- ------- ---- -------- ----
Total......................... $90,513 100% $97,817 100% $100,907 100%
NYMAGIC Net Premiums Earned
by Line of Business Year Ended December 31,
- ---------------------------- -----------------------------------------------------------------------------
1996 1995 1994
---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Ocean Marine................ $52,483 54% $48,110 47% $38,006 48%
Inland Marine............... 2,408 3% 11,563 11% 5,231 7%
Aircraft.................... 35,416 36% 35,496 34% 24,584 31%
Other liability............. 6,355 7% 8,022 8% 12,203 14%
Other....................... 374 -- 270 -- 231 ---
------- ---- ------- ---- -------- ----
Total....................... $97,036 100% $103,461 100% $ 79,255 100%
</TABLE>
- ---------------------------
Unlike many types of property and casualty insurance, ocean marine,
inland marine, aviation and other liability premium rates are not strictly
regulated by governmental authorities. Consequently, the Company is able to
adjust premium rates quickly in response to competition, varying degrees of risk
and other factors. In addition, the Company, by virtue of its underwriting
flexibility, is able to emphasize specific lines of business in response to
advantageous premium rates and the anticipation of positive underwriting
results.
The Company's general and administrative expenses consist primarily of
compensation expense, employee benefits and rental expense for office
facilities. The Company's policy acquisition costs include brokerage commissions
and premium taxes and are primarily based on a percentage of premiums written.
Such costs have generally changed in proportion with changes in premium volume.
Losses and loss adjustment expenses incurred in connection with insurance claims
in any particular year depend upon a variety of factors including the rate of
inflation, accident or claim frequency, the occurrence of natural catastrophes
and the number of policies written.
The Company estimates reserves each year based upon, and in conformity
with, the factors discussed under "Business-Reserves". The Company maintains a
conservative policy for establishing reserves, especially in the year a policy
is written. Changes in estimates of reserves are reflected in operating results
in the year in which the change occurs.
1996 as Compared to 1995
The Company's net premiums earned decreased by 6% in 1996 as compared
to 1995. The decline primarily relates to the inland marine and other liability
lines of business.
The inland marine line recorded the largest decline in earned premiums
at 79%. This is consistent with the Company's plan in 1996 to withdraw from
writing the larger multi-location assureds. After several years of unprofitable
results caused by large catastrophe losses and expensive reinsurance, the
Company limited its 1996 writings to those that are ancillary to its ocean
marine risks. Negative premiums written for 1996 occurred as a consequence of
purchasing reinsurance to cover the run-off of the prior year's catastrophe
oriented business still in force in 1996. In 1997, the Company's strategy in
this line should remain consistent with 1996.
The other liability earned premiums decreased 21% as compared the prior
year. Due to fierce competition in this line, casualty market rates remain soft.
The Company will continue to selectively underwrite in this line, as it has over
the past several years, and premiums in 1997 are expected to further decline.
<PAGE>
The ocean marine line recorded the largest growth in written and earned
premiums among the Company's various lines of business. An 11% and 9% increase
over the prior year's written and earned premium, respectively, was achieved by
additional production in the hull and cargo classes of business coupled with
changes in the ocean marine reinsurance program. Gross premiums are down
slightly as rate reductions in various marine classes have outweighed the
additional production in the hull and cargo classes. Rates in the ocean marine
line have softened as competition intensifies. Reinsurance changes in the
Company's hull, cargo and energy classes have enabled it to retain more premium
income without sustaining much additional exposure. The 1997 premiums could
decrease as a result of this underwriting climate.
Although net earned premiums in the aviation line remained flat when
compared to 1995, gross and net writings decreased 14% and 16%, respectively.
1995 was a peak year for aviation rates after insurers suffered several years of
losses. As industry gross losses improved in 1995, competition intensified and
rates subsequently softened. As a casualty of this competitive rate environment,
certain accounts were not renewed in 1996 and thereby contributed to the overall
decline. The Company expects this competitive environment to remain in 1997.
Losses and loss adjustment expenses as a percentage of premiums earned
were 61.2% in 1996 as compared to 67.4% in 1995. Improved net loss experience in
the Company's core ocean and aviation lines contributed to the overall decline.
Although the inland loss ratio in 1996 was adversely affected by severe
weather experienced during the past winter season, such ratio improved as
compared to the prior year. The 1995 year included large property catastrophe
losses from various hurricanes.
The other liability line deteriorated in 1996 from adverse loss
development in both the umbrella and the non-marine liability occurrence
classes.
Commission income, consisting primarily of reinsurance profit
commissions and insurance pool profit and management commissions charged to
members of the insurance pools other than New York Marine, decreased by 42% in
1996. Larger reinsurance contingent commissions were recorded in 1995 as a
result of greater profitability in various marine war classes of business. Also,
management commission from a non-affiliated member of the insurance pools
decreased overall in proportion to the decline in the pool's gross writings in
1996.
Net investment income for the year ended December 31, 1996, decreased
by 2% from the prior year. Investment yields decreased on the Company's fixed
maturity portfolio due to both market conditions and a greater investment in
tax-exempt securities which was applied against a larger investment asset base.
Policy acquisition costs as a percentage of net premiums earned for the
year ended December 31, 1996 was 19.4% as compared to 20.3% for the prior year.
The inland marine line has the largest acquisition ratio among the Company's
various lines of business. Reductions in inland premium writings in 1996 had the
effect of decreasing policy acquisition costs and the overall ratio.
Interest expense increased by 137% in 1996 primarily as a result of an
increase in loan principal outstanding.
General and administrative expenses remained flat as compared with the
prior year as a result of continuing efforts to contain personnel costs and cost
effective reductions in administrative expenses.
Realized investment gains for the year ended December 31, 1996
amounted to $4,589,133 and result primarily from the sale of appreciated equity
securities.
Net income increased by 12% to $22,624,618 for the year ended December
31, 1996, from $20,119,862 for the prior year. Net income per share increased to
$2.15 in 1996 as compared to $1.77 in 1995.
Unrealized appreciation of investments as of December 31, 1996 included
gross unrealized gains and losses on equity securities of $8,754,704 and
$567,677 respectively, and gross unrealized gains and losses on fixed maturities
held for sale of $5,537,330 and $1,184,493, respectively. Declines in unrealized
gains were recorded in the Company's fixed maturities resulting from increases
in interest rates in 1996.
<PAGE>
Premiums and other receivables, net decreased 19% as of December 31,
1996. Declines in premium writings and increases in ceded balances payable
contributed to the overall decline.
Notes payable increased to $20,438,413 as of December 31, 1996 and
resulted from loans obtained to repurchase the Company's common stock.
Prepaid reinsurance premiums and reserve for unearned premiums
decreased in 1996 by 38% and 16%, respectively. The decline in gross writings in
1996 is consistent with the change in the reserve for unearned premiums. Also,
as the Company retained additional premium with modifications in its reinsurance
program, further reductions in ceded premiums occurred in 1996 which is
consistent with the change in prepaid reinsurance premiums.
1995 as Compared to 1994
The Company's net premiums earned increased by 31% in 1995 as compared
to 1994. Increases were recorded in the aviation, ocean and inland line of
business.
The ocean marine line recorded the largest growth in written premiums
among the Company's various lines of business with an 18% increase over the
prior year. Additional accounts within the marine liability class of this line
contributed to the overall increase. Rates in this line have started to soften
as competition intensifies.
The aviation line recorded a 44% increase in earned premiums primarily
as a result of rates remaining firm on those accounts with poor loss records. As
1995 saw an improvement in industry gross losses, rates softened on those
accounts with good records. In addition, certain unprofitable accounts were not
renewed.
The inland marine line recorded the largest growth in earned premiums
at 121% despite an 80% drop in premiums written. During 1995, the Company
curtailed inland marine production to reduce its exposure to property
catastrophe losses. As a result of unprofitable underwriting results, the
Company decided to withdraw from writing the larger multi-location assureds.
Rate increases obtained in the latter half of 1994, a large portion of which
remained unearned in 1994, became earned in 1995 and accounted for the large
increase in earned premiums over the prior year.
The other liability earned premiums decreased 34% when compared to the
prior year. The casualty market remains soft from excess capacity.
Losses and loss adjustment expenses as a percentage of premiums earned
were 67.4% in 1995 as compared to 78.1% in 1994. Improvements were noted in the
aviation and inland marine loss ratios in 1995 as severity losses decreased.
The 1994 year included the Company's worst loss in history resulting
from the Northridge earthquake where net losses and reinstatement costs amounted
to $5.8 million. In 1995, the Company also sustained another large property
catastrophe loss from Hurricane Luis amounting to gross losses of $5.5 million
and net losses of $3.5 million.
The aviation line improved as severity losses decreased from the
record levels in 1994 and premiums remained strong for most of 1995.
Commission income, consisting primarily of reinsurance profit
commissions and insurance pool profit and management commissions charged to
members of the insurance pools other than New York Marine, increased 68% in
1995. Increases in reinsurance contingent commissions resulting from profitable
underwriting in various ocean marine and aviation classes of business was
offset, in part, by a decrease in management commission from non-affiliated
members of the insurance pools as a result of their declining participation and
a decline in gross premiums in the pools.
Net investment income for the year ended December 31, 1995 increased by
15% over the prior year. Additional cash flow from operations contributed to a
larger asset base and increased investments in taxable securities accounted for
the overall increase.
<PAGE>
Policy acquisition costs as a percentage of net premiums earned for the
year ended December 31, 1995 was 20.3% as compared to 18.0% for the prior year.
In 1995 premiums earned included large increases in the aviation and inland
marine lines of business. These lines of business utilize excess of loss
reinsurance which has the effect of reducing premiums without a corresponding
reduction in policy acquisition costs. Consequently, this ratio increased since
both the aviation and inland marine lines have greater acquisition costs as a
percentage of net premiums earned than other lines of business.
Interest expense decreased by 12% in 1995 primarily as a result of a
decrease in average loan principal outstanding, however offset by increases in
short term interest rates.
General and administrative expenses decreased by 3% from the prior
year as a result of a decline in personnel and reductions in bad debt
write-offs.
Realized investment gains as of December 31, 1995 amounted to
$4,110,000 and result primarily from the sale of appreciated equity securities.
Net income increased to $20,120,000 for the year ended December 31,
1995 from $9,697,000 and net income per share increased to $1.77 in 1995
compared to $.85 in 1994.
Unrealized appreciation of investments as of December 31, 1995 included
gross unrealized gains and losses on equity securities of $6,158,237 and
$350,518, respectively, and gross unrealized gains and losses on fixed
maturities held for sale of $9,607,383 and $237,438, respectively. Increases in
unrealized gains were recorded in the Company's investments resulting from both
the strong stock and bond markets in 1995.
Reinsurance receivables decreased 17 % as of December 31, 1995
primarily as a result of gross losses on the 1994 earthquake being paid in 1995
and reinsurance on those losses being collected.
Deferred income taxes as of December 31, 1995 decreased by 43%
primarily as a result of an increase in unrealized appreciation in both fixed
maturities held for sale and equity securities.
Notes payable increased to $12,727,000 as of December 31, 1995
resulting from a loan obtained to buy back approximately $ 9,000,000 of the
Company's common stock.
Liquidity and Capital Resources
The Company monitors cash and short-term investments in order to have
an adequate level of funds available to satisfy claims and expenses as they
become due. As of December 31, 1996, the Company's assets included approximately
$19,078,000 in cash and short-term investments. The primary sources of the
Company's liquidity are funds generated from insurance premiums, investment
income and maturing or liquidating investments.
Historically, cash provided by operating activities was used in
investing and financing activities. Cash flows from operating activities
increased in 1995, but declined in 1996. Cash outflows from increased loss
payments on the Company's maturing book of casualty business and catastrophe
losses in 1996, 1995 and 1994 were offset by increased cash received on premiums
written in 1995 and 1994. As premiums declined in 1996, so did cash from
operations. Investment income which declined in 1996, increased in 1994 and
1995, thereby contributing to cash received from operating activities in 1995
and 1994.
Investing and financing activities increased further as a result of the
Company borrowing $25,000,000 from a bank in 1990. This amount was invested in
its principal insurance subsidiary, New York Marine, to further bolster its
surplus in order to support larger participation interests in the insurance
pools. Repayments of the loan started in 1991 and continued through 1995. In
1994, the Company entered into a $10,000,000 revolving credit agreement which
increased to $25,000,000 in 1996 with the same bank. The Company borrowed
approximately $2,608,000 under this facility in 1994 to assist the Company in
short-term liquidity needs and borrowed approximately $9,000,000 in 1995 to
repurchase 540,000 shares of the Company's Common Stock. Additional borrowings
of approximately $9,200,000 were made in 1996 mainly to repurchase stock.
<PAGE>
The Company adheres to investment guidelines set by the Finance
Committee of the Board of Directors. The investment guidelines are
conservatively designed to provide the Company with adequate capital growth and
sufficient liquidity to meet existing obligations. Such guidelines consider many
factors including anticipated tax position and regulatory requirements.
The Company's largest investments are in bonds from various states and
municipalities. Such securities receive favorable tax treatment under existing
tax laws, and our position is monitored regularly as the Company is effected by
the alternative minimum tax. As interest rates increased in 1994 and unrealized
gains evaporated, sales of fixed maturities slowed to further increase the
taxable investment position. As the Company's tax position changed with improved
earnings in 1996, additional investments were made in tax-exempt securities.
The Company has an unsecured credit facility with a bank that allows
for a maximum credit of $10,000,000. The use of this credit facility will assist
the Company as a source of short-term liquidity. In 1994, 1995 and 1996, amounts
were borrowed under this credit facility to assist the insurance pools managed
by the Company in the payment of gross losses. The amounts borrowed under the
line of credit were fully repaid after collecting recoverables due from
reinsurers on such losses.
Under the common stock Repurchase Plan, the Company may purchase up to
$45,000,000 of the Company's issued and outstanding shares of common stock on
the open market. As of December 31, 1996, the Company had repurchased a total of
1,552,982 shares of common stock at a total cost of approximately $27,639,768 at
market prices ranging from $16.50 to $24.25 per share.
NYMAGIC's principal source of cash flow is dividends from its insurance
company subsidiaries which is used to fund operating expenses, including
interest expense, loan repayments and payment of dividends to shareholders. The
Company's insurance company subsidiaries are limited by statute in the amount of
dividends that may be declared or paid during a year. The limitation restricts
dividends paid or declared to the lower of 10% of policyholders' surplus or 100%
of net investment income as defined under New York insurance law. The
limitations on dividends from the insurance company subsidiaries are not
expected to have an impact on the Company's ability to meet current cash
obligations or materially limit the current payment of dividends to the
Company's shareholders.
In October, 1995, the FASB issued its Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation." SFAS 123 is
effective for years beginning after December 15, 1995 and establishes new
accounting standards and reporting requirements for stock-based compensation
arrangements. Companies may choose between valuation method based on fair value
or the existing accounting may be used under the Accounting Principles Board's
(APB) Opinion No. 25. The Company has elected to remain under the existing
accounting requirements of APB Opinion No. 25., however, the necessary
disclosure requirements under SFAS 123 are included in 1996.
Inflation
Periods of inflation have prompted the pools, and consequently the
Company, to react quickly to actual or potential imbalances between costs,
including claim expenses, and premium rates. These imbalances have been
corrected mainly through improved underwriting controls, responsive management
information systems and frequent review of premium rates and loss experience.
Inflation also affects the final settlement costs of claims which may
not be paid for several years. The longer a claim takes to settle, the more
significant the impact of inflation on final settlement costs. The Company
periodically reviews outstanding claims and adjusts reserves for the pools based
on a number of factors, including inflation.
Item 8. Financial Statements and Supplementary Data.
--------------------------------------------
The consolidated financial statements required in response to this
item are included as part of Item 14(a) of this report.
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure.
---------------------------------------------
None.
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant.
---------------------------------------------------
The information required by this Item is incorporated by reference
herein from the "Compensation and Other Information" section of the Company's
Proxy Statement for the 1996 Annual Meeting of Shareholders, except for
information with respect to Directors and Executive Officers which is set forth
below.
NYMAGIC's charter and by-laws provide for a Board of Directors
consisting of not fewer than thirteen nor more than nineteen Directors divided
into three classes as nearly equal as possible. NYMAGIC presently has thirteen
Directors. The three year terms of classes III, II and I expire in the years
1998, 1997 and 1996 respectively. References to the Company include, as the
context requires, NYMAGIC and its predecessor, New York Marine And General
Insurance Company. The Executive Officers and Directors of the Company are as
follows:
Class of
Name Age Directors Position(s)
---- --- --------- -----------
Mark W. Blackman(1) 45 II President, Chief Executive Officer
and Director
John N. Blackman, Jr. (1)(2) 50 I Chairman of the Board, Director
Thomas J. Condon (2) 52 I Director
Jean H. Goulding 55 III Director
James A. Lambert (1) 41 III General Counsel, Chief Operating
Officer, Secretary and Director
John Kean, Jr. (4) 72 III Director
Charles A. Mitchell 48 II Vice-President, Director
William R. Scarbrough 68 II Director
Michael S. Shaffet (3) 61 I Director
Richard T. Soper(1)(2 ) 71 II Director
William A. Thorne (1)(2)(4) 71 I Director
Sergio B. Tobia (4) 58 I Director
Louise B. Tollefson (4) 73 II Director
Thomas J. Iacopelli 36 Chief Financial Officer
- --------------------------
(1) Member of Executive Committee.
(2) Member of Finance Committee.
(3) Member of Audit Committee.
(4) Member of Stock Option & Compensation Committee.
Mark W. Blackman has been a Director since 1979 and was appointed
President in 1988. Mr. Blackman has been employed by the Company or its
subsidiaries since 1977. Mr. Blackman is the son of Louise B. Tollefson and
brother of John N. Blackman, Jr.
John N. Blackman, Jr. has been a Director since 1975 and was appointed
Chairman of the Board in 1988. Mr. Blackman has been employed by MMO and
affiliates since 1973 and in December, 1988 became Chairman of the Board of MMO,
PMMO, and Midwest. Mr. Blackman is the son of Louise B. Tollefson and brother of
Mark W. Blackman.
Thomas J. Condon was elected to the Board of Directors in June 1987.
He is a Vice-President of Investments and Investment Advisor with A.G. Edwards &
Sons, Inc. which he joined in September 1993. Mr. Condon formerly served as
Senior Vice President at Peoples Westchester Savings Bank from 1981 through
September 1993.
Jean H. Goulding has been a Director since 1976. Ms. Goulding was
employed by the Company or its subsidiaries from 1965 to 1992 and served as
Executive Vice President-Underwriting from 1988 until her retirement in 1992.
<PAGE>
James A. Lambert has been a Director since 1986. Mr. Lambert was
appointed Chief Operating Officer in 1989 and has served as General Counsel and
Secretary since 1986.
John Kean, Jr. has been a Director since 1991. Until his retirement in
1991, Mr. Kean was a Senior Vice President and Director of Guy Carpenter & Co.,
Inc.
Charles A. Mitchell has been a Director and Vice President since 1981.
He has been employed by the Company or its subsidiaries since 1976.
William R. Scarbrough became a Director in June, 1995. Until his
retirement in 1993, Mr. Scarbrough was a Vice President and Director of Wm. H.
McGee & Co, Inc.
Michael S. Shaffet has been a Director since September 1990. Mr.
Shaffet is the Treasurer and Chief Financial Officer of M. Fabrikant & Sons,
Inc. Prior to assuming that position in 1989, he was a partner in Berman,
Shaffet & Schain, the accountants for MMO and affiliates.
Richard T. Soper has been a Director since 1972. Mr. Soper is Vice
Chairman of Argent Marine Operations, Inc. Prior to assuming that position in
1990, Mr. Soper served from 1986 as Chairman and President of the American
Bureau of Shipping. From 1978 to 1986, he was Executive Vice President of Sea
Land Service, Inc. and from 1983 to 1986, served as Chairman of the Board of
Intersea Operations, Ltd., Inc.
William A. Thorne has been a Director since 1972. Mr. Thorne has been
employed by Hydrocarbon Products Company, Inc. as its Treasurer and has been its
Chairman of the Board since March 1983.
Sergio B. Tobia has been a Director since 1981. Mr. Tobia was a Senior
Vice President and Director of Sorema North America Reinsurance Co. from 1989
until his retirement in 1996.
Louise B. Tollefson has been a Director since 1986. Mrs. Tollefson
owns approximately 18.0% of the Company's Common Stock and is the mother of John
N. Blackman, Jr. and Mark W. Blackman.
Thomas J. Iacopelli joined the Company in 1985 as its Assistant
Controller. In 1987, Mr. Iacopelli was appointed Controller of the Company and
in 1989 he was appointed Chief Financial Officer of the Company. Prior to
joining the Company, Mr. Iacopelli was employed by the accounting and consulting
firm of Coopers & Lybrand. Mr. Iacopelli is a Certified Public Accountant.
The Board of Directors, as well as its Audit, Finance and Stock Option
and Compensation Committees meet on a quarterly basis. In 1996, all Directors
attended at least 75% of the meetings of the Board and the Committees on which
they sit.
Item 11. Executive Compensation.
-----------------------
The information set forth under "Compensation and Other Information" in
the Company's Proxy Statement for the Annual Meeting of Shareholders is
incorporated herein by reference.
Stock Option Plans
In 1986, the Company's Board of Directors and Shareholders approved the
Company's 1986 Stock Option Plan (the "1986 Plan"), to provide a means whereby
the Company, through the grant of non-qualified stock options to key officers,
may attract and retain persons of ability as officers. The 1986 Plan authorizes
the issuance of options to purchase up to 500,000 shares of the Company's common
stock at not less than 95 percent of the fair market value at the date of grant.
The 1986 Plan is administered by a committee appointed by the Board of Directors
of the Company.
On January 12, 1987 and October 21, 1987, options for the purchase of
6,000 and 75,500 common shares, respectively, were granted to officers of the
Company, with an exercise price of $14.50 and $13.78, respectively. The market
value of the common stock on each of these days was $15.25 and $14.50,
respectively.
<PAGE>
On January 14, 1988, options for the purchase of 69,000 common shares
were granted to officers of the Company, with an exercise price of $13.78. The
market value of the common stock on that day was $14.50.
On June 14, 1989, and September 13, 1989, options for the purchase of
2,000 and 1,000 common shares, respectively, were granted to an officer of the
Company with an exercise price of $17.10 and $18.41, respectively. The market
value of the common stock on each of these days was $18.00 and $19.38,
respectively.
On June 13, 1991, options for the purchase of 58,500 common shares,
respectively, were granted to officers of the Company with an exercise price of
$25.48. The market value of the common stock on the date of the grant was
$26.82.
In 1991, the Company's Board of Directors and Shareholders approved
the Company's 1991 Stock Option Plan (the "1991 Plan").
On September 2, 1992, options for the purchase of 172,500 common shares
were granted to officers and employees of the Company with an exercise price of
$22.33. The market value of the common stock on that day was $23.50.
In December, 1993, options for the purchase of $116,000 common shares
were granted to officers and employees of the Company with an exercise price of
$22.92. The market value of the common stock on the date of the grant was $24.13
per share.
In September, 1994, options for the purchase of 12,500 common shares
were granted to an officer of the Company with an exercise price of $17.34. The
market value of the common stock on the date of the grant was $18.25 per share.
In December, 1994, options for the purchase of 68,500 common shares
were granted to officers and employees of the Company with an exercise price of
$15.56. The market value of the common stock on the date of the grant was $16.38
per share.
In December, 1995, options for the purchase of 210,500 common shares
were granted to officers and employees of the Company with an exercise price of
$15.79. The market value of the common stock on the date of the grant was
$16.625 per share. The grant of these options was made in connection with the
surrender by the option holders of options of equal amounts which had previously
been granted at higher exercise prices.
In September, 1996, options for the purchase of 10,000 common shares
were granted to officers and employees of the Company with an exercise price of
$17.58. The market value of the common stock on the date of the grant was $18.50
per share.
In December, 1996, options for the purchase of 10,000 common shares
were granted to officers and employees of the Company with an exercise price of
$17.22. The market value of the common stock on the date of the grant was $18.12
per share.
Retirement Plans
The Company maintains two retirement plans for the benefit of
employees. Both plans provide for 100% vesting upon completion of three years of
service. The Money Purchase Plan provides for a yearly contribution equal to
7-1/2% of an employee's cash compensation, for each year of service during which
the employee has completed 1000 hours of service and is employed on the last day
of the plan year. The Profit Sharing Plan does not provide for any specified
level of contribution but any contribution made is subject to the restrictions
set forth above for the Money Purchase Plan. For the most recent plan year, a
contribution equal to 7-1/2% of cash compensation, was made to all eligible
participants in the Profit Sharing Plan.
<PAGE>
Item 12. Security Ownership of Certain
Beneficial Owners and Management.
---------------------------------
The following table sets forth information as of March 1, 1997, with
respect to beneficial ownership of NYMAGIC Common Stock by beneficial owners
known by the Company to own more than 5% of such stock, directors and nominees
and directors and officers as a group. Except as described in the notes below,
all owners listed have power to vote and dispose of the shares held by them.
Amount Percent of
and Nature Common Stock
Name of Ownership Outstanding
---- ------------- ------------
The Capital Group Companies, Inc. 846,500(5) 8.35%
333 South Hope Street
Los Angeles, Ca. 90071
David L. Babson & Co. 577,500(6) 5.69%
One Memorial Drive
Cambridge, MA 02142
John N. Blackman, Jr 2,010,996(1) 19.83%
Mark W. Blackman 1,962,674(2) 19.35%
Thomas J. Condon 100
Jean H. Goulding 26,600 *
James A. Lambert 40,944(3) *
Charles A. Mitchell 5,700(3) *
William R. Scarbrough 100 *
Michael S. Shaffet 1,150(4) *
William A. Thorne 32,400(4) *
Sergio B. Tobia 3,220 *
Louise B. Tollefson 1,914,211 18.87%
----------- -----
All directors and officers as a
group (14 persons) 6,001,845 58.89%
---------------------------------
* Less than 1% of issued and outstanding Common Stock.
(1) Mr. Blackman is also the Trustee of trusts for the benefit of his
minor children which own, in total, 92,822 shares of the Company's Common Stock,
which shares are included herein.
(2) Trusts for the benefit of Mr. Blackman's children own, in total,
54,876 shares of the Company's Common Stock, which shares are included herein.
(3) Of the shares shown as beneficially owned by the following
individuals, the amount listed next to each name are shares with respect to
which options are currently exercisable by that person: Mr. Mitchell - 5,000,
and Mr. Lambert - 39,944.
(4) Of the shares shown as beneficially owned by Mr. Thorne, 16,200
shares are held by him individually and 16,200 shares are held by Mr. Thorne and
his wife as joint tenants. Of the shares shown as beneficially owned by Mr.
Shaffet, 400 are held individually by his wife.
(5) Capital Guardian Trust Company, a bank and an operating subsidiary
of The Capital Group Companies, Inc. has filed a report on Schedule 13G
disclosing beneficial ownership of 846,500 shares.
(6) David L. Babson & Co., Inc. has filed a report on Schedule 13G
disclosing beneficial ownership of 577,500 shares.
(7) Of the 6,001,845 shares indicated as beneficially owned by all
directors and officers as a group, 48,444 are shares with respect to which
options are currently exercisable. See "Compensation and Other Information-Stock
Option Plans". These shares are included in the total number of outstanding
shares for the purpose of determining the percentage of Common Stock
beneficially owned by all directors and officers as a group.
<PAGE>
Item 13. Certain Relationships and Related Transactions.
-----------------------------------------------
The Company made annual charitable donations to the John N. Blackman,
Sr. Foundation (the "Foundation") in the amount of approximately $480,000 in
1996, 1995 and 1994. The Foundation was established by Mr. John N. Blackman,
Sr., the founder of the Company, shortly before his death in 1988. The
Foundation supports numerous charities with a primary emphasis on those
charities assisting the indigent, disabled or disadvantaged. The Foundation is
managed by Mr. John N. Blackman, Jr., Mr. Mark W. Blackman and Mr. James A.
Lambert, all of whom donate their time and receive no form of remuneration from
the Foundation.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
-----------------------------------------------------------------
(a) 1. Financial Statements
--------------------
The list of financial statements appears in the accompanying
index on page 41.
2. Financial Statement Schedules
-----------------------------
The list of financial statement schedules appears in the
accompanying index on page 41.
3. Exhibits
--------
3.1. Charter. (Incorporated by reference to Exhibit 3-1 to
the Registrant's Registration Statement No. 33-27665).
3.3. By-laws. (Incorporated by reference to Exhibit 3.3. of the
Registrant's Registration Statement No.33-27665).
4.0. Specimen Certificate of common stock (Incorporated by
Registrant's Registration Statement No. Registration Statement No. 33-27665).
10.2. Restated Management Agreement dated as of January 1, 1986, by
and among Mutual Marine Office, Inc. and Arkwright-Boston Manufacturers Mutual
Insurance Company, Utica Mutual Insurance Company, Lumber Mutual Insurance
Company, the Registrant and Pennsylvania National Mutual Casualty Insurance
Company (Incorporated by reference to Exhibit 10.2 of the Registrant's Annual
Report Form 1O-K for the fiscal year ended December 31, 1986.)
10.2.2. Amendment to Restated Management Agreement, dated as of
December 30, 1988, and among Mutual Marine Office, Inc. and Arkwright Mutual
Insurance Company, Utica Mutual Insurance Company, Lumber Mutual Insurance
Company, the Registrant and Pennsylvania National Mutual Casualty Insurance
Company. (Incorporated by reference to Exhibit 10.2.2. of the Registrant's
Report on Form 8-K dated January 6, 1989.)
10.2.3. Amendment to Restated Management Agreement, dated as of
December 31, 1990, and among Mutual Marine Office, Inc. and Arkwright Mutual
Insurance Company, Utica Mutual Insurance Company, the Registrant and
Pennsylvania National Mutual Casualty Insurance Company. (Incorporated by
reference to Exhibit 10.2.3. of the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1992.)
10.4. Restated Management Agreement dated as of January 1, 1986, by
and among Mutual Inland Marine Office, Inc. and Arkwright-Boston Manufacturers
Mutual Insurance Company, Utica Mutual Insurance Company, Lumber Mutual
Insurance Company, the Registrant and Pennsylvania National Mutual Casualty
Insurance Company (Incorporated by reference to Exhibit 10.4 of the Registrant's
Annual Report Form 10-K for the fiscal year ended December 31, 1986.)
<PAGE>
10.4.2. Amendment to Restated Management Agreement, dated as of
December 30, 1988, and among Mutual Inland Marine Office, Inc. and Arkwright
Mutual Insurance Company, Utica Mutual Insurance Company, Lumber Mutual
Insurance Company, the Registrant and Pennsylvania National Mutual Casualty
Insurance Company (Incorporated by reference to Exhibit 10.4.2 of the
Registrant's Report on Form 8-K, dated January 6, 1989.)
10.4.3. Amendment to Restated Management Agreement, dated as of
December 31, 1990, by and among Mutual Inland Marine Office, Inc. and Arkwright
Mutual Insurance Company, Utica Mutual Insurance Company, the Registrant and
Pennsylvania National Mutual Casualty Insurance Company. (Incorporated by
reference to Exhibit 10.4.3. of the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1992.)
10.6. Restated Management Agreement dated as of January 1, 1986, by
and among Mutual Marine Office of the Midwest, Inc. and Arkwright-Boston
Manufacturers Mutual Insurance Company, Utica Mutual Insurance Company, Lumber
Mutual Insurance Company, the Registrant and Pennsylvania National Mutual
Casualty Insurance Company. (Incorporated by reference to Exhibit 10.6 of the
Registrant's Annual Report on Form 10-K for the fiscal year ended December 31,
1986.)
10.6.2. Amendment to Restated Management Agreement dated as of
December 30, 1988, by and among Mutual Marine Office of the Midwest, Inc. and
Arkwright Mutual Insurance Company, Utica Mutual Insurance Company, Lumber
Mutual Insurance Company, the Registrant and Pennsylvania National Mutual
Casualty Insurance Company. (Incorporated by reference to Exhibit 10.6.2 of the
Registrant's Report on Form 8-K, dated January 6, 1989.)
10.6.3. Amendment to Restated Management Agreement dated as of
December 31, 1990, by and among Mutual Marine Office of the Midwest, Inc. and
Arkwright Mutual Insurance Company, Utica Mutual Insurance Company, the
Registrant and Pennsylvania National Mutual Casualty Insurance Company.
(Incorporated by reference to Exhibit 10.6.3. of the Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1992.)
10.8. Restated Management Agreement dated as of January 1, 1986, by
and among Pacific Mutual Marine Office, Inc. and Arkwright-Boston Manufacturers
Mutual Insurance Company, Lumber Mutual Insurance Company, Utica Mutual
Insurance Company, the Registrant and Pennsylvania National Mutual Casualty
Insurance Company. (Incorporated by reference to Exhibit 10.8 of the
Registrant's Annual Report on Form 10-K for the fiscal year ended December 31,
1986.)
10.8.2. Amendment to Restated Management Agreement dated as of
December 30, 1988, by and among Pacific Mutual Marine Office, Inc. and Arkwright
Mutual Insurance Company, Lumber Mutual Insurance Company, Utica Mutual
Insurance Company, the Registrant and Pennsylvania National Mutual Casualty
Insurance Company. (Incorporated by reference to Exhibit 10.8.2 of the
Registrant's Report on Form 8-K, dated January 6, 1989.)
10.8.3. Amendment to Restated Management Agreement dated as of
December 31, 1990, by and among Pacific Mutual Marine Office, Inc. and Arkwright
Mutual Insurance Company, Utica Mutual Insurance Company, the Registrant and
Pennsylvania National Mutual Casualty Insurance Company. (Incorporated by
reference to Exhibit 10.8.3. of the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1992.)
21. Subsidiaries of the Registrant.
23. Consent of KPMG Peat Marwick LLP.
28. Schedule P as of December 31, 1996.
(b) Reports on Form 8-K
-------------------
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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)
By: /s/ Mark W. Blackman
----------------------
Mark W. Blackman
Chief Executive Officer
Date: March 5, 1997
--------------
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
Name Title Date
- ---- ----- ----
/s/ John N. Blackman, Jr Chairman of the Board March 5, 1997
- ------------------------ and Director
John N. Blackman, Jr.
/s/ Mark W. Blackman President, Chief Executive March 5, 1997
- -------------------- Officer and Director
Mark W. Blackman
/s/ Thomas J. Condon Director March 5, 1997
- --------------------
Thomas J. Condon
/s/ Jean H. Goulding Director March 5, 1997
- --------------------
Jean H. Goulding
/s/ James A. Lambert Director, General Counsel, March 5, 1997
- -------------------- Chief Operating Officer
James A. Lambert and Secretary
/s/ John Kean, Jr Director March 5, 1997
- --------------------
John Kean, Jr.
<PAGE>
Name Title Date
- ---- ----- ----
/s/ Charles A. Mitchell Director and Vice President March 5, 1997
- --------------------
Charles A. Mitchell
/s/ Michael S. Shaffet Director March 5, 1997
- --------------------
Michael S. Shaffet
/s/ William R. Scarbrough Director March 5, 1997
- --------------------
William R. Scarbrough
/s/ Richard T. Soper Director March 5, 1997
- --------------------
Richard T. Soper
/s/ William A. Thorne Director March 5, 1997
- --------------------
William A. Thorne
/s/ Sergio B. Tobia Director March 5, 1997
- --------------------
Sergio B. Tobia
/s/ Louise B. Tollefson Director March 5, 1997
- -----------------------
Louise B. Tollefson
/s/ Thomas J. Iacopelli Principal Accounting Officer March 5, 1997
- ----------------------- and Chief Financial Officer
Thomas J. Iacopelli
<PAGE>
NYMAGIC, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
(Page Numbers Omitted in Electronic Filing)
Independent Auditors' Report......................
Consolidated Balance Sheets.......................
Consolidated Statements of Income.................
Consolidated Statements of Shareholders' Equity...
Consolidated Statements of Cash Flows.............
Notes to Consolidated Financial Statements........
Financial Statement Schedule II...................
Financial Statement Schedule V....................
Financial Statement Schedule VI...................
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders NYMAGIC, INC.:
We have audited the accompanying consolidated balance sheets of NYMAGIC, INC.
and subsidiaries as of December 31, 1996 and 1995, and the related consolidated
statements of income, shareholders' equity, and cash flows for each of the years
in the three year period ended December 31, 1996. In connection with our audits
of the consolidated financial statements, we have also audited the financial
statement schedules as listed in the accompanying index. These consolidated
financial statements and financial statement schedules are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedules based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
NYMAGIC, INC. and subsidiaries as of December 31, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
years in the three year period ended December 31, 1996 in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedules, when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly, in all
material respects, the information set forth therein.
As discussed in Note 1 to the consolidated financial statements, the Company
adopted the provisions of the Financial Accounting Standards Board's Statement
of Financial Accounting Standards No. 115 "Accounting for Certain Investments in
Debt and Equity Securities," effective January 1, 1994.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
New York, New York
February 14, 1997
<PAGE>
NYMAGIC, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
December 31,
----------------------------------------
1996 1995
-------- --------
<S> <C> <C>
ASSETS
Investments: (Note 2)
Fixed maturities available for sale at fair value
(amortized cost $341,130,292 and $319,279,410) ............................... $345,483,129 $328,649,365
Equity securities at fair value
(cost $37,161,709 and $27,986,694) ........................................ 45,348,736 33,794,413
Short-term investments ....................................................... 18,377,180 40,862,313
------------ ------------
Total investments ......................................................... 409,209,045 403,306,091
------------ ------------
Cash ......................................................................... 701,086 1,175,024
Accrued investment income .................................................... 5,960,197 6,110,402
Premiums and other receivables, net (less
allowance for doubtful accounts of $750,000 and $775,000) ................. 43,285,450 53,254,864
Reinsurance receivables (less allowance for doubtful
accounts of $4,075,000 and $2,250,000) .................................... 197,988,073 197,395,689
Deferred policy acquisition costs ............................................ 10,904,241 11,660,903
Prepaid reinsurance premiums ................................................. 10,562,213 16,956,441
Deferred income taxes (Note 6) ............................................... 11,131,603 10,264,908
Property, improvements & equipment, net (Note 5) ............................. 2,107,087 2,273,538
Other assets ................................................................. 3,345,826 3,425,983
------------ ------------
Total assets .............................................................. $695,194,821 $705,823,843
============ ============
LIABILITIES
Unpaid losses and loss adjustment expenses
(Note 4) .................................................................. $411,836,981 $417,794,525
Reserve for unearned premiums ................................................ 66,651,933 79,568,955
Notes payable (Note 9) ....................................................... 20,438,413 12,726,941
Other liabilities ............................................................ 6,401,463 11,947,637
Dividends payable ............................................................ 1,014,305 1,069,181
------------ ------------
Total liabilities ................................................... 506,343,095 523,107,239
============ ============
Commitments and contingent liabilities (Notes 4 and 10)
SHAREHOLDERS' EQUITY
Common stock ................................................................. 14,911,992 14,749,192
Paid-in capital .............................................................. 26,258,259 23,933,587
Unrealized appreciation of investments
(net of deferred income taxes) ............................................ 8,150,910 9,865,486
Retained earnings ............................................................ 171,089,462 152,646,915
------------ ------------
220,410,623 201,195,180
Treasury stock, at cost, 4,768,940 and 4,057,380
shares (Note 11) .......................................................... (31,558,897) (18,478,576)
------------ ------------
Total shareholders' equity .............................................. 188,851,726 182,716,604
------------ ------------
Total liabilities and shareholders' equity .............................. $695,194,821 $705,823,843
============ ============
The accompanying notes are an integral part of these consolidated financial statements.
<PAGE>
NYMAGIC, INC.
CONSOLIDATED STATEMENTS OF INCOME
Year ended December 31,
----------------------------------------------------------------
1996 1995 1994
----------------------------------------------------------------
<S> <C> <C> <C>
Revenue:
Net premiums earned ............................... $ 97,036,021 $103,461,499 $ 79,255,390
Commission income ................................. 1,980,632 3,438,418 2,052,132
Net investment income (Note 2) .................... 21,270,194 21,658,931 18,854,067
Realized investment gains (Note 2) ................ 4,589,133 4,110,515 2,992,259
Other income ...................................... 689,641 660,924 419,742
------------ ------------ ------------
Total revenues .................................... 125,565,621 133,330,287 103,573,590
------------ ------------ ------------
Expenses:
Losses and loss adjustment expenses
incurred (Note 4) ............................ 59,358,857 69,716,186 61,900,419
Policy acquisition expenses (Note 4) ........... 18,827,794 21,017,503 14,260,494
General and administrative expenses ............ 16,168,162 16,236,323 16,741,824
Interest expense ............................... 1,035,058 437,653 494,730
------------ ------------ ------------
Total expenses ............................... 95,389,871 107,407,665 93,397,467
------------ ------------ ------------
Income before income taxes ........................ 30,175,750 25,922,622 10,176,123
------------ ------------ ------------
Income tax provision (Note 6):
Current ........................................ 7,494,593 5,392,637 2,306,264
Deferred ....................................... 56,539 410,123 (1,827,394)
------------ ------------ ------------
Total income taxes ........................... 7,551,132 5,802,760 478,870
------------ ------------ ------------
Net income ........................................ $ 22,624,618 $ 20,119,862 $ 9,697,253
============ ============ ============
Weighted average number of shares of
common stock outstanding ....................... 10,523,996 11,341,370 11,392,064
============ ============ ============
Net income per share .............................. $2.15 $1.77 $.85
============ ============ ============
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
NYMAGIC, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Year ended December 31,
----------------------------------------------------------------
1996 1995 1994
----------------------------------------------------------------
<S> <C> <C> <C>
Common stock, authorized shares,
par value $1 each ................................. 30,000,000 30,000,000 30,000,000
============ ============ ============
Balance, beginning of year ........................ $ 14,749,192 $ 14,747,292 $ 14,742,192
Shares issued ..................................... 162,800 1,900 5,100
------------ ------------ ------------
Balance, end of year ..................... 14,911,992 14,749,192 14,747,292
------------ ------------ ------------
Paid-in capital:
Balance, beginning of year ........................ 23,933,587 23,736,024 23,623,113
Shares issued ..................................... 2,324,672 197,563 112,911
------------ ------------ ------------
Balance, end of year ..................... 26,258,259 23,933,587 23,736,024
------------ ------------ ------------
Unrealized appreciation (depreciation) of investments:
Balance, beginning of year ........................ 9,865,486 (4,132,749) 2,648,444
Cumulative effect, as of January 1, 1994, of
change in accounting principle, net (Note 1).... ----- ----- 4,640,331
Net change during year ............................ (2,637,810) 21,439,413 (17,305,340)
Applicable deferred income taxes on the
change ............................................ 923,234 (7,441,178) 5,883,816
------------ ------------ ------------
Balance, end of year ..................... 8,150,910 9,865,486 (4,132,749)
------------ ------------ ------------
Retained earnings:
Balance, beginning of year ........................ 152,646,915 137,000,454 131,857,815
Net income ........................................ 22,624,618 20,119,862 9,697,253
Dividends declared ................................ (4,182,071) (4,473,401) (4,554,614)
------------ ------------ ------------
Balance, end of year ..................... 171,089,462 152,646,915 137,000,454
------------ ------------ ------------
Treasury stock:
Balance, beginning of year ........................ (18,478,576) (7,037,640) (6,389,105)
Net repurchase of common stock .................... (13,080,321) (11,440,936) (648,535)
------------ ------------ ------------
Balance, end of year ..................... ($31,558,897) $(18,478,576) $ (7,037,640)
============ ============ ============
Number of Shares
Common stock, par value $1 each:
Issued, beginning of year ...................... 14,749,192 14,747,292 14,742,192
Shares Issued .................................. 162,800 1,900 5,100
------------ ------------ ------------
Issued, end of year ............................ 14,911,992 14,749,192 14,747,292
============ ============ ============
Common stock, shares outstanding ............... 10,143,052 10,691,812 11,379,034
============ ============ ============
Dividends declared per share ................... $ .40 $ .40 $ .40
============ ============ ============
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
NYMAGIC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31,
---------------------------------------------------------------
1996 1995 1994
---------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income ...................................... $ 22,624,618 $ 20,119,862 $ 9,697,253
------------ ------------ ------------
Adjustments to reconcile net income to
net cash provided by operating
activities:
Provision for deferred taxes ................... 56,539 410,123 (1,827,394)
Realized investment gains ...................... (4,589,133) (4,110,515) (2,992,259)
Net bond amortization .......................... 1,933,151 1,492,577 1,662,500
Depreciation and other, net .................... 442,945 520,011 547,686
Changes in:
Premiums and other receivables ................. 9,969,414 5,213,463 (7,133,570)
Reinsurance receivables ........................ (592,384) 41,589,294 (22,403,089)
Accrued investment income ...................... 150,205 (359,831) (217,004)
Deferred policy acquisition costs .............. 756,662 1,797,197 (4,711,678)
Prepaid reinsurance premiums ................... 6,394,228 6,202,940 1,569,185
Other assets ................................... 80,157 (59,531) 1,239,278
Unpaid losses and loss adjustment
expenses ..................................... (5,957,544) (17,277,135) 27,750,472
Reserve for unearned premiums .................. (12,917,022) (11,847,234) 20,082,034
Other liabilities .............................. (5,546,174) 4,920,993 331,982
------------ ------------ ------------
Total adjustments .......................... (9,818,956) 28,492,352 13,898,143
------------ ------------ ------------
Net cash provided by operating activities ......... 12,805,662 48,612,214 23,595,396
------------ ------------ ------------
Cash flows from investing activities:
Fixed maturities acquired ...................... (231,515,433) (272,053,730) (50,377,503)
Equity securities acquired ..................... (37,880,911) (21,224,924) (22,794,461)
Short-term investments sold or matured ......... 631,722,760 835,378,875 501,112,681
Short-term investments acquired ................ (609,264,339) (844,049,317) (492,460,664)
Fixed maturities matured ....................... 36,302,944 33,726,487 11,997,585
Fixed maturities sold .......................... 171,112,392 209,230,556 13,053,400
Equity securities sold ......................... 33,637,805 21,385,913 23,603,258
Acquisition of property & equipment, net ....... (276,494) (121,852) (508,966)
------------ ------------ ------------
Net cash used in investing activities ............. (6,161,276) (37,727,992) (16,374,670)
------------ ------------ ------------
Cash flows from financing activities:
Proceeds from stock issuance ................... 2,487,472 199,463 118,011
Cash dividends paid to stockholders ............ (4,236,947) (4,542,123) (4,557,814)
Net repurchase of common stock ................. (13,080,321) (11,440,936) (648,535)
Proceeds from borrowings ....................... 14,211,472 15,118,449 7,608,491
Loan principal payments ........................ (6,500,000) (9,411,764) (10,882,353)
------------ ------------ ------------
Net cash used in financing activities .......... (7,118,324) (10,076,911) (8,362,200)
------------ ------------ ------------
Net (decrease) increase in cash ................... (473,938) 807,311 (1,141,474)
Cash at beginning of year ...................... 1,175,024 367,713 1,509,187
------------ ------------ ------------
Cash at end of year ............................ $ 701,086 $ 1,175,024 $ 367,713
============ ============ ============
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>
NYMAGIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Summary Of Significant Accounting Policies:
Nature of Operations
NYMAGIC, through its subsidiaries, specializes in underwriting ocean
marine, inland marine, aviation and other liability insurance through insurance
pools managed by Mutual Marine Office, Inc. - ("MMO"), Pacific Mutual Marine
Office, Inc. - ("PMMO"), and Mutual Marine Office of the Midwest, Inc. -
("Midwest"). MMO, located in New York, PMMO located in San Francisco, and
Midwest, located in Chicago, manage the insurance pools in which the Company's
insurance subsidiaries, New York Marine and General Insurance Company - ("New
York Marine") and Gotham Insurance Company ("Gotham"), participate. All
premiums, losses and expenses are prorated among pool members in accordance with
their pool participation percentages. Effective January 1, 1994, the Company
increased to 81.47% its participation in the ocean marine, inland marine and
aviation business produced by the pools. Effective April 1, 1994, the Company
increased to 91.47% its participation in the inland marine business produced by
the pools, and effective July 1, 1994, the Company increased to 90.00% its
participation in the ocean marine and aviation business produced by the pools
and to 100% its participation in the other liability and inland marine business
produced by the pools. Substantially all of the Company's premiums for the last
three years have resulted from participation in the insurance pools managed by
MMO and affiliates.
Basis of Reporting
The consolidated financial statements have been prepared on the basis
of generally accepted accounting principles which differ in certain material
respects from the accounting practices prescribed or permitted by state
insurance regulatory authorities for the Company's two insurance subsidiaries.
The principal differences recorded under generally accepted accounting
principles are deferred policy acquisition costs, an allowance for doubtful
accounts, fixed maturities available for sale are carried at market value,
reinsurance receivables and prepaid reinsurance premiums are reflected as assets
and deferred income taxes.
Management is required to make estimates that affect the reported
amounts of assets, liabilities, revenues and expenses. Actual amounts could
differ from those amounts previously estimated.
Consolidation
The consolidated financial statements include the accounts of the
Company, two insurance subsidiaries, New York Marine and Gotham, and three
agency subsidiaries collectively referred to as ("MMO"). Gotham is owned 25% by
the Company and 75% by New York Marine. All other subsidiaries are wholly owned.
All intercompany accounts and transactions have been eliminated in
consolidation.
Investments
Fixed maturities are classified as available for sale and are carried
at fair value. Fair value is generally based upon quoted market value. Equity
securities (common stocks and non-redeemable preferred stocks) are carried at
fair value. Short-term investments are carried at cost which approximates fair
value.
Realized investment gains and losses (determined on the basis of
specific identified cost), also include any declines in value which are
considered to be other than temporary. Unrealized appreciation or depreciation
of investments, net of related deferred income taxes, is reflected in
shareholders' equity.
<PAGE>
NYMAGIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
Premium and policy acquisition cost recognition
Premiums and policy acquisition costs are reflected in income and
expense on a monthly pro rata basis over the terms of the respective policies.
Accordingly, unearned premium reserves are established for the portion of
premiums written applicable to unexpired policies in force, and acquisition
costs, consisting mainly of net brokerage commissions and premium taxes,
relating to these unearned premiums are deferred to the extent recoverable. The
determination of acquisition costs to be deferred considers historical and
current loss and loss adjustment expense experience. Consideration is also given
to anticipated investment income in measuring the carrying value of deferred
policy acquisition costs.
Revenue recognition
Management commission income on policies written by the MMO insurance
pools is recognized primarily as of the effective date of the policies issued.
Adjustments to the policies, resulting principally from changes in coverage and
audit adjustments, are recorded in the period reported.
Contingent profit commission revenue derived from the reinsurance
transactions of the insurance pools is recognized when such amount becomes
reasonably estimable.
Reinsurance
The Company's insurance subsidiaries participate in various reinsurance
agreements on both an assumed and ceded basis through the MMO insurance pools.
The Company uses various types of reinsurance including quota-share, excess of
loss and facultative agreements to spread the risk of loss among several
reinsurers and to limit its exposure from losses on any one occurrence. Any
recoverable due from reinsurers is recorded in the period in which the related
gross liability is established.
Depreciation
Property, equipment and leasehold improvements are depreciated using
both straightline and accelerated methods over their useful lives.
Income Taxes
The Company provides deferred income taxes on temporary differences
between the financial reporting basis and the tax basis of the Company's assets
and liabilities.
Fair Values of Financial Instruments
The fair value of the Company's fixed maturity investments is disclosed
in Note 2. The Company's other financial instruments include short-term
receivables, notes payable and other payables which are recorded at the
underlying transaction value and approximate fair value.
<PAGE>
NYMAGIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
Effects of recent accounting pronouncements
In 1993, the Financial Accounting Standards Board ("FASB") issued its
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" (SFAS 115). SFAS 115 was effective
for years beginning after December 15, 1993 and required companies to report
debt and equity securities into one of three categories. The held to maturity
category is valued at amortized cost and includes those securities where the
company has both the intent and ability to hold those securities to maturity.
The trading category is valued at fair value and includes those securities
purchased with the intent of selling them shortly thereafter. The available for
sale category is valued at fair value and includes those securities not
categorized as held to maturity nor as trading. Unrealized gains and losses for
trading securities are recorded in the income statement and unrealized gains and
losses for available for sale securities are recorded in shareholders' equity.
The Company adopted SFAS 115 as of January 1, 1994. The effect on the
Company's financial statements was to increase shareholders' equity by the
unrealized gain in the available for sale account net of applicable income taxes
which amounted to $4,640,331.
In November, 1995, the FASB issued a report entitled "A Guide to
Implementation of Statement 115 on Accounting for Certain Investments in Debt
and Equity Securities," which allowed companies to reassess the classifications
of all securities held and permitted transfers among classifications, prior to
December 31, 1995, without tainting the securities' previous classification.
Accordingly, the Company transferred the entire fixed maturities held for
investment portfolio at December 1, 1995 at a fair value of $89.6 million into
the available for sale account. The effect of the transfer at December 1, 1995
was to increase shareholders' equity by $2.7 million without an effect on net
income.
In October, 1995, the FASB issued its Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation." SFAS 123 is
effective for years beginning after December 15, 1995 and establishes new
accounting standards and reporting requirements for Stock-Based Compensation
arrangements. SFAS 123 allows companies to choose between a valuation method
based on fair value or the existing accounting may be used under the Accounting
Principles Board's (APB) Opinion No. 25. The Company has elected to remain under
the existing accounting requirements of APB Opinion No. 25., however, the
necessary disclosure requirements under SFAS 123 are included in footnote 12,
Stock Options.
Incurred losses
Unpaid losses are based on individual case estimates for losses
reported. A provision is also included, based on past experience, for losses
incurred but not reported, salvage and subrogation recoveries and for loss
adjustment expenses. The method of making such estimates and for establishing
the resulting reserves is continually reviewed and updated and any changes
resulting therefrom are reflected in operating results currently.
Net income per share
Net income per share is based on the weighted average number of common
shares outstanding during the year and common stock equivalents.
<PAGE>
NYMAGIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
(2) Investments:
A summary of investment components at December 31, 1996 consists of the
following:
<TABLE>
Amount at which
Fair shown in the
Type of Investment Cost Value balance sheet
- ------------------ ---- ----- ---------------
<S> <C> <C> <C>
Fixed maturities available for sale
Bonds:
United States Government and
government agencies and
authorities .............................. $ 91,871,356 $ 91,552,024 $ 91,552,024
States, municipalities and
political subdivisions ................... 188,150,708 192,309,500 192,309,500
Public utilities ............................. 28,607,218 28,816,150 28,816,150
All other corporate bonds .................... 32,501,010 32,805,455 32,805,455
------------ ------------ ------------
Total fixed maturities
available for sale .................. 341,130,292 345,483,129 345,483,129
------------ ------------ ------------
Equity securities:
Common stocks:
Public utilities ............................. 2,218,763 2,347,180 2,347,180
Banks, trusts and insurance
companies ................................ 4,437,836 5,770,115 5,770,115
Industrial, miscellaneous and
all other ................................ 30,326,510 37,052,841 37,052,841
Non-redeemable preferred stock ............... 178,600 178,600 178,600
------------ ------------ ------------
Total equity securities .................. 37,161,709 45,348,736 45,348,736
------------ ------------ ------------
Short term investments ............................ 18,377,180 18,377,180 18,377,180
------------ ------------ ------------
Total investments ........................ $396,669,181 $409,209,045 $409,209,045
============ ============ ============
</TABLE>
Unrealized depreciation or appreciation of investments (before
applicable income taxes) at December 31, 1996 and 1995 included gross unrealized
gains on equity securities of $8,754,704 and $6,158,237, respectively; and gross
unrealized losses on equity securities of $567,677 and $350,518, respectively;
and gross unrealized gains on fixed maturities available for sale of $5,537,330
and $9,607,383 at December 31, 1996 and 1995, respectively; and gross unrealized
losses on fixed maturities available for sale of $1,184,493 and $237,428 as of
December 31, 1996 and 1995, respectively.
Included in investments at December 31, 1996 are bonds on deposit with
various regulatory authorities as required by law with a fair value of
$8,383,750.
There were no non-income producing fixed maturity investments for each
of the years ended December 31, 1996, 1995 and 1994.
All mortgage backed securities held as of December 31, 1996 and 1995
are obligations of various U.S. Government agencies and consist of GNMA, FHLMC
or FNMA pass through securities. These securities are readily marketable.
<PAGE>
NYMAGIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
The gross unrealized gains and losses on debt securities as of December
31, 1996 and 1995 are as follows:
<TABLE>
1996
--------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------- -------------- -------------- ------------
<S> <C> <C> <C> <C>
Fixed maturities available for sale:
US Treasury securities and
obligations of US government
corporations and agencies ............. $ 91,871,356 $ 314,995 $ (634,327) $ 91,552,024
Obligations of states and
political subdivisions ................ 188,150,708 4,458,433 (299,641) 192,309,500
Corporate securities ..................... 61,108,228 763,902 (250,525) 61,621,605
---------- ------- -------- ----------
Totals .......................... $341,130,292 $ 5,537,330 $ (1,184,493) $345,483,129
============ ============ ============ ============
1995
--------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------- -------------- -------------- ------------
<S> <C> <C> <C> <C>
Fixed maturities available for sale:
US Treasury securities and
obligations of US government
corporations and agencies ............ $102,411,229 $ 1,802,616 $ (41,038) $104,172,807
Obligations of states and
political subdivisions ............... 155,606,844 6,301,839 (196,390) 161,712,293
Corporate securities .................... 61,261,337 1,502,928 -0- 62,764,265
---------- --------- --------- ----------
Totals ......................... $ 319,279,410 $ 9,607,383 $ (237,428) $328,649,365
============= =========== ============ ============
</TABLE>
<PAGE>
NYMAGIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
The amortized cost and fair value of debt securities at December 31,
1996, by contractual maturity, are shown below. Expected maturities will differ
from contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
Fixed maturities available
for sale
----------------------------------------
Amortized Fair
Cost Value
----------------------------------------
Due in one year or less ......... $ 12,236,656 $ 12,306,960
Due after one year
through five years ......... 124,394,664 126,605,945
Due after five years
through ten years .......... 84,055,847 86,070,650
Due after ten years ............. 56,716,006 56,982,500
---------- ----------
$277,403,173 $281,966,055
Mortgage backed securities ...... 63,727,119 63,517,074
---------- ----------
Totals.................... $341,130,292 $345,483,129
============ ============
<PAGE>
NYMAGIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
Proceeds from sales of investments in debt securities during 1996, 1995
and 1994 were $171,112,392, $209,230,556 and $13,053,400, respectively. Gross
gains of $1,121,305, $2,324,039 and $409,990 and gross losses of $1,437,369,
$1,330,386 and $117,644 were realized on those sales in 1996, 1995 and 1994,
respectively.
Realized and unrealized investment appreciation (depreciation) on fixed
maturities and equity securities for the years ended December 31, 1996, 1995 and
1994 are as follows:
<TABLE>
Year ended December 31,
--------------------------------------------------------------
1996 1995 1994
--------------------------------------------------------------
<S> <C> <C> <C>
Realized gains (losses) on sale of investments:
Fixed maturities .................................... $ (316,064) $ 993,653 $ 292,346
Equity securities ................................... 4,931,909 3,089,104 2,699,913
Short-term investments .............................. (26,712) 27,758 --
---------- ---------- ----------
Realized investments gains .......................... 4,589,133 4,110,515 2,992,259
Less: applicable income taxes ....................... (1,606,197) (1,438,680) (1,017,368)
---------- ---------- ----------
Net realized investment gains .............................. $ 2,982,936 $ 2,671,835 $ 1,974,891
=========== =========== ===========
Change in unrealized investment appreciation (depreciation) of securities:
Fixed maturities ......................................... $(5,017,118) $15,368,821 $(21,372,055)
Equity securities ........................................ 2,379,308 5,059,901 (3,264,978)
---------- ---------- ----------
Net unrealized investment
gains (losses) ......................................... $(2,637,810) $20,428,722 $(24,637,033)
=========== =========== ===========
Net investment income from each major category of investments for the years
indicated is as follows:
Year ended December 31,
--------------------------------------------------------------
1996 1995 1994
--------------------------------------------------------------
<S> <C> <C> <C>
Fixed maturities ........................................... $19,938,840 $19,933,777 $17,454,307
Short-term investments ..................................... 1,316,992 1,779,497 1,476,386
Equity securities .......................................... 734,939 678,038 604,346
---------- ---------- ----------
Total investment income ........................... 21,990,771 22,391,312 19,535,039
Investment expenses ........................................ (720,577) (732,381) (680,972)
---------- ---------- ----------
Net investment income ............................. $21,270,194 $21,658,931 $18,854,067
=========== =========== ===========
</TABLE>
<PAGE>
NYMAGIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
(3) Fiduciary Funds:
The Company's insurance agency subsidiaries maintain separate
underwriting accounts which record all the underlying insurance transactions of
the insurance pools which they manage. These transactions primarily include
collecting premiums from the insured, collecting paid recoverables from
reinsurers, paying claims as losses become payable, paying reinsurance premiums
to reinsurers and remitting net account balances to member insurance companies
in the pools which MMO manages. Unremitted amounts to members of the insurance
pools are held in a fiduciary capacity and interest income earned on such funds
inure to the benefit of the members of the insurance pools based on their
pro-rata participation in the pool.
A summary of the underwriting accounts as of December 31, 1996 and 1995
is as follows:
December 31,
-----------------------------
1996 1995
---------- ----------
Cash and short-term investments ............ $ 3,554,109 $10,880,183
Premiums receivable ........................ 50,372,575 54,317,375
Reinsurance and other recoverables ......... 34,366,554 23,308,691
---------- ----------
Total Assets ............................... $88,293,238 $88,506,249
=========== ===========
Due to insurance pool members .............. $69,698,410 $70,890,247
Reinsurance payable ........................ 11,108,853 8,952,834
Funds withheld from reinsurers ............. 2,756,157 3,521,286
Other liabilities .......................... 4,729,818 5,141,882
---------- ----------
Total Liabilities .......................... $88,293,238 $88,506,249
=========== ===========
The underwriting accounts above were not included in the accompanying
consolidated balance sheets.
<PAGE>
NYMAGIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
(4) Insurance Operations:
Reinsurance Transactions
Approximately 42%, 47% and 50% of the Company's insurance subsidiaries'
direct and assumed gross premiums written for the years ended December 31, 1996,
1995 and 1994, respectively, have been reinsured by the pools with other
companies on both a treaty and a facultative basis.
In the event that all or any of the pool companies might be unable to
meet their obligations to the pools, the remaining companies would be liable for
such defaulted amounts on a pro rata pool participation basis. A contingent
liability also exists with respect to reinsurance ceded since such transactions
generally do not relieve the Company of its primary obligation to the
policyholder and such reinsurance ceded would become a liability of the
Company's insurance subsidiaries in the event that any reinsurer might be unable
to meet the obligations assumed under the reinsurance agreements. All reinsurers
must meet certain minimum standards of financial condition as established by the
pools. The Company's largest reinsurers at December 31, 1996, were Arkwright
Mutual Insurance Company ("Arkwright"), Lloyd's of London ("Lloyd's") and Utica
Mutual Insurance Company ("Utica Mutual"), with aggregate recoverables of $55
million, $17 million and $21 million, respectively. The 1996 A.M. Best ratings
for Arkwright and Utica Mutual are A+ and A, respectively. Lloyd's of London
maintains a trust fund which was established for the benefit of all United
States ceding companies. Lloyd's has reported substantial losses over the past
several years; however, the Company has not experienced difficulty in collecting
amounts due from Lloyd's and the settlement of recoverables due the Company has
not materially impacted its liquidity. The Company's exposure to reinsurers,
other than Arkwright, Lloyds and Utica Mutual include reinsurance recoverables
collectively from approximately 700 reinsurers or syndicates, and as of December
31, 1996, no single one of which was liable to the Company for an unsecured
amount in excess of approximately $3.0 million.
Funds withheld and letters of credit obtained under various reinsurance
treaties amounted to approximately $50 million as of December 31, 1996.
Reinsurance receivables as of December 31, 1996 and 1995 included an allowance
for bad debts of $4,075,000 and $2,250,000 respectively.
Unpaid losses are based on individual case estimates for losses
reported and include a provision for losses incurred but not reported and for
loss adjustment expenses.
<PAGE>
NYMAGIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
Reinsurance ceded and assumed relating to premiums written were as
follows:
<TABLE>
Gross Ceded Assumed
(direct) to other from other
Year Ended amount companies companies Net amount
- ---------- ------ --------- --------- ----------
<S> <C> <C> <C> <C>
December 31, 1996 $113,566,184 $64,752,583 $41,699,626 $90,513,227
December 31, 1995 150,647,712 87,527,861 34,697,354 97,817,205
December 31, 1994 169,101,502 99,208,294 31,013,401 100,906,609
</TABLE>
Reinsurance ceded and assumed relating to premiums earned were as
follows:
<TABLE>
Gross Ceded Assumed Percentage
(direct) to other from other of assumed
Year Ended amount companies companies Net amount to net
- ---------- ------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
December 31, 1996 $128,483,112 $ 71,146,813 $ 39,699,722 $ 97,036,021 41%
December 31, 1995 164,713,618 93,730,801 32,478,682 103,461,499 31
December 31, 1994 156,631,239 100,777,505 23,401,656 79,255,390 30
</TABLE>
Losses and loss adjustment expenses incurred are net of ceded
reinsurance recoveries amounting to $62,516,373, $22,138,211 and $119,827,995
for the years ended December 31, 1996, 1995 and 1994, respectively. Ceded
reinsurance payable at December 31, 1996 and 1995 included in premiums and other
receivables, net amounted to $19,753,943 and $16,426,347, respectively.
Unpaid Losses
The following table provides a reconciliation of the consolidated
liability for losses and loss adjustment expenses at the beginning and end of
1996, 1995 and 1994:
<TABLE>
Year ended December 31,
-----------------------
1996 1995 1994
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Net liability for losses and loss adjustment
expenses at beginning of year ................... $ 229,916 $ 212,377 $ 208,366
------------ ------------ ------------
Provision for losses and loss adjustment
expenses occurring in current year ............... 71,731 75,618 64,061
Decrease in estimated losses and loss
adjustment expenses for claims occurring
in prior years (1) .............................. ( 12,753) ( 6,360) ( 2,694)
Deferred income-loss portfolio
assumption(2) ................................... 381 458 533
------------ ------------ ------------
Total losses and loss adjustment expenses incurred 59,359 69,716 61,900
------------ ------------ ------------
Less:
Losses and loss adjustment expense payments for claims occurring during:
current year ................................ 15,012 10,043 11,185
prior years ................................. 46,512 41,676 46,171
------------ ------------ ------------
61,524 51,719 57,356
Add:
Deferred income-loss portfolio assumption (2) ..... ( 381) ( 458) ( 533)
------------ ------------ ------------
Net liability for losses and loss adjustment
expenses at year end ............................ 227,370 229,916 212,377
------------ ------------ ------------
Ceded unpaid loss and loss adjustment
expenses ......................................... 184,467 187,879 222,695
------------ ------------ ------------
Gross unpaid losses and loss adjustment
expenses at year end ............................ $ 411,837 $ 417,795 $ 435,072
============ ============ ============
</TABLE>
<PAGE>
NYMAGIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
(1) The adjustment to the consolidated liability for losses and loss
adjustment expenses for losses occurring in prior years reflects the net effect
of the resolution of losses for other than full reserve value and subsequent
readjustments of loss values.
(2) Deferred income loss portfolio assumption represents the difference
between cash received and unpaid loss reserves assumed as a result of the buyout
of Pennsylvania National's and Lumber Mutual's net pool obligations which was
initially capitalized and will be amortized over the payout period of the
related losses.
Substantially all of the Company's exposure to umbrella losses result
from the insurance pools participating in the issuance of umbrella casualty
insurance for various Fortune 1000 companies in the period from 1978 to 1983.
Depending on the accident year, the insurance pools' maximum 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 December
31, 1996 and 1995, the Company's gross, ceded and net loss and loss adjustment
expense reserves for Asbestos/Pollution policies amounted to $23.5 million,
$15.0 million and $8.5 million, and $20.6 million, $13.6 million and $7.0
million, respectively. Net paid losses resulting from Asbestos/Pollution losses
during 1996, 1995 and 1994 amounted to $811,000, $545,000 and $600,000,
respectively. As of December 31, 1996, the Company had approximately 1,000
policies which had at least one claim relating to Asbestos/Pollution exposures.
Unpaid losses and loss adjustment expenses are recorded for reported claims
regarding Asbestos/Pollution exposures, including the cost of litigation
expenses, when sufficient information is present to indicate the involvement of
a specific insurance policy and the Company can reasonably estimate this
liability. 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. 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 December 31, 1996. Under such
circumstances, it is difficult to determine the ultimate loss for
Asbestos/Pollution related claims. However, as of December 31, 1996, the Company
believes that, in aggregate, the net unpaid loss and loss adjustment expense
reserves as of December 31, 1996, allow for an adequate provision and that the
ultimate resolution of the Asbestos/Pollution claims will not have a material
impact on the Company's financial position.
Salvage and Subrogation
Estimates of salvage and subrogation recoveries on paid and unpaid
losses have been recorded as a reduction of unpaid losses amounting to
$6,888,733 and $6,910,449 at December 31, 1996 and 1995, respectively.
Deferred Policy Acquisition Costs
Deferrable acquisition costs amortized to income amounted to
$18,827,794, $21,017,503, and $14,260,494 for the years ended December 31, 1996,
1995 and 1994, respectively.
<PAGE>
NYMAGIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
(5) Property, Improvements and Equipment, Net:
Property improvements and equipment, net at December 31, 1996 and 1995
include the following.
1996 1995
---- ----
Office furniture and equipment ............... $ 1,335,519 $ 1,268,027
Computer equipment ........................... 1,346,960 1,137,958
Leasehold improvements ....................... 2,255,928 2,255,928
---------- ----------
4,938,407 4,661,913
Less: accumulated depreciation
and amortization ........................ (2,831,320) (2,388,375)
---------- ----------
Property, improvements and equipment, net .... $ 2,107,087 $ 2,273,538
=========== ===========
Depreciation and amortization expense for the years ended December 31,
1996, 1995 and 1994 amounted to $442,945, $520,011 and $547,686, respectively.
(6) Income Taxes:
The components of deferred tax assets and liabilities as of December
31, 1996 and 1995 are as follows:
December 31,
---------------------------
1996 1995
---------------------------
Deferred Tax Assets:
Loss reserve discounting ....................... $14,390,810 $14,775,310
Unearned premiums .............................. 3,926,280 4,382,876
State and local income tax carryforward ........ 68,748 48,187
Deferred rent liability ........................ 446,258 462,841
Bad debt reserve ............................... 1,688,750 1,058,750
Alternative minimum tax credit carryforward .... -- 267,132
Other .......................................... 331,643 470,722
----------- -----------
Total deferred tax assets ...................... 20,852,489 21,465,818
=========== ===========
<PAGE>
NYMAGIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
Deferred Tax Liabilities: December 31,
--------------------------
1996 1995
--------------------------
Deferred policy acquisition costs .............. 3,816,484 4,081,316
Unrealized appreciation of investments ......... 4,388,952 5,312,186
Deferred income-loss portfolio assumption ...... 352,409 485,898
Discount on accrued salvage and subrogation .... 376,987 386,525
Other .......................................... 269,338 222,279
----------- -----------
Total deferred tax liabilities ................. 9,204,170 10,488,204
----------- -----------
11,648,319 10,977,614
Less: Valuation allowance ..................... 516,716 712,706
----------- -----------
Net deferred tax assets ........................ $11,131,603 $10,264,908
=========== ===========
The state and local income tax carryforward of $68,748 as of December
31, 1996 can be carried forward against future state and local tax liabilities
until the year 2011.
The Company's valuation allowance account with respect to deferred tax
assets and the change in the account is as follows:
1996 1995
-------- -------
Balance, beginning of year $ 712,706 $ 767,083
Change in valuation allowance (195,990) (54,377)
-------- -------
Balance, end of year $ 516,716 $ 712,706
========= =========
The Company believes that the total deferred tax asset net of the
recorded valuation allowance account as of December 31, 1996 will more likely
than not be fully realized.
Income tax provisions differ from the amounts computed by applying the
Federal statutory rate to income before income taxes as follows:
Year ended December 31
----------------------
1996 1995 1994
---- ---- ----
Income taxes at the Federal statutory rate ...... 35.0% 35.0% 34.0%
Tax exempt interest ............................. (12.8) (15.2) (41.4)
State income taxes .............................. 0.2 1.3 1.9
Net bond amortization ........................... 1.8 1.7 5.1
Investment income proration ..................... 1.7 2.1 5.4
Effect of change in tax rates ................... -- (1.7) --
Other, net ...................................... (0.9) (0.8) (0.3)
---- ---- ----
Income tax provisions ........................... 25.0% 22.4% 4.7%
==== ==== ===
<PAGE>
NYMAGIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
The Company's Federal statutory income tax rate increased to 35% in
1996 and 1995 as a result of an increase in taxable income.
Federal income tax payments amounted to $7,339,913, $4,332,559 and
$1,200,000 for the years ended December 31, 1996, 1995 and 1994, respectively.
Federal income taxes payable at December 31, 1996 and 1995 included in
other liabilities amounted to $640,336 and $820,088, respectively.
(7) Statutory Income and Surplus:
The Company's insurance subsidiaries are limited, based on the lesser
of 10% of statutory basis surplus or 100% of net investment income, as defined
under New York Insurance Law, in the amount of dividends they could pay without
regulatory approval. The maximum amount which may be paid to the holding company
out of December 31, 1996 surplus is approximately $16,093,000.
Consolidated statutory net income and surplus of the Company's
insurance subsidiaries were as follows for the years indicated:
Consolidated Consolidated
Statutory Statutory
net income surplus
------------ ------------
December 31, 1996 $ 26,541,561 $160,929,000
December 31, 1995 20,476,000 148,785,000
December 31, 1994 7,902,000 133,813,000
<PAGE>
NYMAGIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
(8) Employee Retirement Plans:
The Company maintains two retirement plans for the benefit of
substantially all employees. Both plans provide for 100% vesting upon completion
of three years of service. The Money Purchase Plan provides for a contribution
equal to 7-1/2% of an employee's cash compensation, including bonuses, for each
year of service during which the employee has completed 1000 hours of service
and is employed on the last day of the plan year. The Profit Sharing plan does
not require any specific contribution but any contribution made is subject to
the restrictions set forth above for the Money Purchase Plan. Contribution and
related administration expenses for the years ended December 31, 1996, 1995 and
1994 amounted to $991,469, $1,038,633 and $1,019,913, respectively.
(9) Debt:
In 1994 the Company and a bank entered into a $10,000,000 credit
agreement which was subsequently amended in 1996 to $25,000,000. The interest
rate on the loan is fixed, at the Company's option, for a period of one to six
months. The Company has elected to pay interest at an effective rate of 6.30625%
on the outstanding principal balance of the loan at December 31, 1996 of
$20,438,413. The interest rate was equal to the bank's Adjusted London Interbank
Offered Rate at the time of the interest rate adjustment period, plus .65 of 1%.
Principal repayments are required to be paid quarterly in equal installments of
$1,250,000 commencing on September 30, 1997 and ending on June 30, 2002. The
Company has the option to prepay amounts in excess of the required repayments.
At the Company's option, the interest rate may be based on either the rate
chosen above or (a) the higher of the bank's prime rate or the applicable
Federal Funds Rate, plus 1/2 of 1% or (b) the bank's adjusted certificate of
deposit rate, plus .775 of 1%.
The bank loan agreement requires the Company to maintain a minimum net
worth of $125,000,000 plus 50% of net profits earned during each year on a
cumulative basis. In addition, other significant covenants include limitations
on total indebtedness, investment purchases, pledging and sales of assets and
requires the Company's insurance subsidiaries to maintain a certain statutory
surplus, gross and net premiums written to surplus ratios and total liabilities
to surplus ratio. The Company was in compliance with all financial covenants as
stipulated in the bank loan agreement as of December 31, 1996. The credit
agreement provides for a facility fee of .15 of 1% on the outstanding balance.
The Company has an unsecured credit facility with the same bank that
allows the Company to borrow up to $10,000,000. Interest is based on the bank's
international short-term lending rate. The credit facility provides for a
commitment fee of 1/8 of 1% on the average unused available credit balance. No
amounts were outstanding under this credit facility as of December 31, 1996 and
1995, respectively.
Interest paid amounted to $1,020,737, $437,653 and $531,413 for the
years ended December 31, 1996, 1995 and 1994.
<PAGE>
NYMAGIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
(10) Commitments:
The Company maintains various non-cancelable operating leases to occupy
office space. The lease terms expire on various dates through December 30, 2003.
The aggregate minimum annual rental payments under various operating
leases for office facilities as of December 31, 1996 are as follows:
1997............................................................ 1,182,247
1998............................................................ 1,139,247
1999............................................................ 1,205,122
2000............................................................ 1,184,832
2001............................................................ 1,184,832
thereafter through December 30, 2003............................ 2,369,664
-----------
Total $ 8,265,944
===========
The operating leases also include provisions for additional payments
based on certain annual cost increases. Rent expense for the years ended
December 31, 1996, 1995 and 1994 amounted to $1,001,295, $1,017,380 and
$1,028,963.
As of December 31, 1996, the Company is not involved in any litigation,
except in the ordinary course of business in connection with insurance, which
would require disclosure in the financial statements or would have a material
effect on the Company's financial statements.
<PAGE>
NYMAGIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
(11) Common Stock Repurchase Plan and Shareholders' Equity:
The Company has a common stock repurchase plan which authorizes the
repurchase of up to $45,000,000, at prevailing market prices, of the Company's
issued and outstanding shares of common stock on the open market. As of December
31, 1996, the Company had repurchased a total of 1,552,982 shares of common
stock under this plan at a total cost of $27,639,768 at market prices ranging
from $16.50 to $24.25 per share.
In connection with the acquisition of MMO in 1991, the Company also
acquired 3,215,958 shares of its own common stock held by MMO and recorded such
shares as treasury stock at MMO's original cost of $3,919,129.
(12) Stock Option Plans:
The Company has two stock option plans.
The first plan, approved by shareholders in 1986, and the second plan,
approved by shareholders in 1991, provide a means whereby the Company, through
the grant of non-qualified stock options to key officers, may attract and retain
persons of ability as officers to exert their best efforts on behalf of the
Company. Each plan authorizes the issuance of options to purchase up to 500,000
shares of the Company's common stock at not less than 95 percent of the fair
market value at the date of grant. Options are exercisable over a period as
determined in each option agreement and expire at a maximum term of ten years.
<PAGE>
NYMAGIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
A summary of activity under the stock option plans for the years ended
December 31, 1996 1995 and 1994 follows:
<TABLE>
1996 1995 1994
--------------------------------------------------------------------------------------------
Number Option Number Option Number Option
Shares Under of Price of Price of Price
Option Shares Per Share Shares Per Share Shares Per Share
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding,
beginning of
year .................. 528,500 $13.00-$22.92 623,400 $13.00-$23.87 557,500 $ 4.00-$23.87
Granted .................... 20,000 $17.22-$17.58 210,500 $15.79 81,000 $15.56-$17.34
Exercised .................. (162,800) $13.00-$15.56 (1,900) $13.00-$13.78 (5,100) $ 4.00-$13.00
(Forfeited) ................ (12,500) $15.79-$22.33 (303,500) $22.92-$23.87 (10,000) $22.33
------- -------- -------
Outstanding,
end of year ........... 373,200 $13.78-$22.92 528,500 $13.00-$22.92 623,400 $ 13.00-$23.87
======= ======= =======
Exercisable,
end of year ........... 135,389 $13.78-$22.92 240,533 $13.00-$22.92 300,061 $ 13.00-$23.87
======= ======= =======
</TABLE>
In 1995, certain options granted in prior years with option prices
ranging from $22.33 to $23.87 were repriced at $15.79.
The Company has elected to measure compensation expense for employee
stock options under APB No. 25 as permitted by SFAS 123, "Accounting for Stock
Based Compensation." Under SFAS 123, the Company is required to disclose the pro
forma effects on net income of applying a fair value method of measuring
compensation expense.
The pro forma effect for the years ended December 31, 1996 and 1995 is
as follows:
1996 1995
---- ----
Net income - as reported $ 22,624,618 $ 22,119,862
Net income - pro forma $ 22,513,184 $ 20,114,511
Net income per share - as reported $ 2.15 $ 1.77
Net income per share - pro forma $ 2.14 $ 1.77
In determining the pro forma effect on net income, the fair value of
options granted in 1996 and 1995 was estimated at the grant date using the
Black-Scholes option-pricing model with the following weighted average
assumptions in 1996 and 1995, respectively; dividend yield of 2.2% and 2.4%;
expected volatility of 25% and 28%; expected lives of 5 years for each year and
a risk-free interest rate of 6% and 5.38%.
The full impact of calculating compensation expense for stock options
under SFAS 123 is not reflected in the pro forma net income amounts presented
above because options granted prior to January 1, 1995 are not considered in the
determination of the compensation expense.
<PAGE>
FINANCIAL STATEMENT SCHEDULES
SCHEDULE II-CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NYMAGIC, INC.
Balance Sheets
(Parent Company)
<TABLE>
December 31,
--------------------------------
1996 1995
--------------------------------
<S> <C> <C>
Assets:
Cash .............................................. $ 17,000 $ 19,203
Short Term Investments ............................ 5,000,000 --
Investment in subsidiaries ........................ 201,367,648 192,416,574
Due from subsidiaries ............................. 2,227,007 2,754,875
Other assets ...................................... 1,829,191 1,469,788
------------- -------------
Total assets ............................. $ 210,440,846 $ 196,660,440
============= =============
Liabilities:
Notes payable ..................................... $ 20,438,413 $ 12,726,941
Dividends payable ................................. 1,014,305 1,069,181
Other liabilities ................................. 136,402 147,714
------------- -------------
Total Liabilities ............................. 21,589,120 13,943,836
------------- -------------
Shareholders' equity:
Common stock ...................................... 14,911,992 14,749,192
Paid in capital ................................... 26,258,259 23,933,587
Unrealized appreciation of investments
(net of deferred income taxes) .................. 8,150,910 9,865,486
Retained earnings ................................. 171,089,462 152,646,915
Treasury stock .................................... (31,558,897) (18,478,576)
------------- -------------
Total shareholders' equity ............... 188,851,726 182,716,604
------------- -------------
Total liabilities and shareholders' equity $ 210,440,846 $ 196,660,440
============= =============
Statements of Income
(Parent Company)
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Income:
Cash dividends from subsidiary $ 12,950,071 $ 12,357,008 $ 5,650,527
Net investment income ........ 676 -- 129
Expenses:
Operating expenses ........... 1,552,852 2,604,577 778,026
Income tax benefit ........... (561,073) (955,981) (187,222)
------------ ------------ ------------
991,779 1,648,596 590,804
------------ ------------ ------------
Income before equity income ....... 11,958,968 10,708,412 5,059,852
Equity in undistributed earnings
of subsidiaries .............. 10,665,650 9,411,450 4,637,401
------------ ------------ ------------
Net income ........................ $ 22,624,618 $ 20,119,862 $ 9,697,253
============ ============ ============
<PAGE>
SCHEDULE II-CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NYMAGIC, INC.
Statements of Cash Flows
(Parent Company)
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income ........................................ $ 22,624,618 $ 20,119,862 $ 9,697,253
------------ ------------ ------------
Adjustments to reconcile net income
to cash provided by operating activities:
Equity in undistributed earnings of
subsidiaries ............................. (10,665,650) (9,411,450) (4,637,401)
(Increase) in other assets ................... (359,403) (222,715) (293,087)
(Increase)decrease in due from subsidiaries .. 527,868 (429,902) 3,497,833
(Decrease) Increase in other liabilities ..... (11,312) 6,586 18,374
------------ ------------ ------------
Net cash provided by operating activities ......... 12,116,121 10,062,381 8,282,972
------------ ------------ ------------
Cash flows from investing activities:
Short term investments acquired .............. (5,000,000) -- --
----------
Cash flows from financing activities:
Proceeds from stock options exercised ........ 2,487,472 199,463 118,011
Cash dividends paid to stockholders .......... (4,236,947) (4,542,123) (4,557,814)
Repurchase of common stock ................... (13,080,321) (11,440,936) (648,535)
Proceeds from borrowings ..................... 14,211,472 15,118,449 7,608,491
Loan principal payments ...................... (6,500,000) (9,411,764) (10,882,353)
------------ ------------ ------------
Net cash used in
financing activities .......................... (7,118,324) (10,076,911) (8,362,200)
------------ ------------ ------------
Net (decrease) in cash ............................ (2,203) (14,530) (79,228)
Cash at beginning of year ......................... 19,203 33,733 112,961
------------ ------------ ------------
Cash at end of year ............................... $ 17,000 $ 19,203 $ 33,733
============== ============ ============
<PAGE>
NYMAGIC, INC.
SCHEDULE V-VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1996 AND 1995
- --------------------------------------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- --------------------------------------------------------------------------------------------------------------
DESCRIPTION Balance at Balance
beginning close of
of year Additions Deductions year
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
December 31, 1996:
Allowance for
doubtful accounts..... $3,025,000 $2,155,271 ($355,271) $4,825,000
December 31, 1995:
Allowance for
doubtful accounts....... 3,845,000 1,540,006 (2,360,006) 3,025,000
<PAGE>
74
NYMAGIC, INC.
SCHEDULE VI - SUPPLEMENTARY INFORMATION CONCERNING PROPERTY/CASUALTY INSURANCE OPERATIONS.
(In Thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
RESERVE FOR CLAIMS AND CLAIMS AMORTIZATION
DEFERRED UNPAID EXPENSES INCURRED OF DEFERRED
POLICY CLAIMS UNEARNED NET NET RELATED TO POLICY PAID CLAIMS
AFFILIATION WITH ACQUISITION AND CLAIMS PREMIUM EARNED INVESTMENT CURRENT PRIOR ACQUISITION AND CLAIMS PREMIUMS
REGISTRANT COSTS EXPENSES DISCOUNT RESERVE PREMIUMS INCOME YEAR YEAR COSTS EXPENSES WRITTEN
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
DECEMBER 31, 1996 $10,904 $411,837 ---- $66,652 $ 97,036 $21,270 $71,731 ($12,753) $18,828 $61,524 $90,513
CONSOLIDATED
SUBSIDIARIES
DECEMBER 31, 1995 11,661 417,795 ---- 79,569 103,461 21,659 75,618 (6,360) 21,018 51,719 97,817
CONSOLIDATED
SUBSIDIARIES
DECEMBER 31, 1994 13,458 435,072 ---- 91,416 79,255 18,854 64,061 (2,694) 14,260 57,356 100,907
CONSOLIDATED
SUBSIDIARIES
</TABLE>
<PAGE>
NYMAGIC, INC.
FORM 10-K
For Fiscal Year Ended December 31, 1996
Exhibit Index
Exhibit Document
Number Description In Sequence
------- ----------- -----------
3.1 Charter Incorporated herein
by reference
3.3 By-laws Incorporated herein
by reference
4.0 Specimen Certificate of Common Stock Incorporated herein
by reference
10.2 Restated Management Agreement dated as Incorporated herein
of January 1, 1986, by and among by reference
Mutual Marine Office, Inc. and
Arkwright-Boston Manufacturers
Mutual Insurance Company, Utica
Mutual Insurance Company, Lumber
Mutual Insurance Company, the
Registrant and Pennsylvania
National Mutual Casualty Insurance
Company
10.2.2 Amendment to Restated Management Incorporated herein
Agreement, dated as of December by reference
30, 1988, and among Mutual Marine
Office, Inc. and Arkwright Mutual
Insurance Company, Utica Mutual
Insurance Company, Lumber Mutual
Insurance Company, the Registrant
and Pennsylvania National Mutual
Casualty Insurance Company
10.2.3 Amendment to Restated Management Incorporated herein
Agreement, dated as of December by reference
31, 1990, and among Mutual Marine
Office, Inc. and Arkwright Mutual
Insurance Company, Utica Mutual
Insurance Company, the Registrant
and Pennsylvania National Mutual
Casualty Insurance Company
10.4 Restated Management Agreement dated Incorporated herein
as of January 1, 1986, by and among by reference
Mutual Inland Marine Office, Inc. and
Arkwright-Boston Manufacturers Mutual
Insurance Company, Utica Mutual Insurance
Company, Lumber Mutual Insurance Company,
the Registrant and Pennsylvania National
Mutual Casualty Insurance Company
<PAGE>
10.4.2 Amendment to Restated Management Incorporated herein
Agreement, dated as of December 30, 1988, by reference
and among Mutual Inland Marine Office,
Inc. and Arkwright Mutual Insurance
Company, Utica Mutual Insurance Company,
Lumber Mutual Insurance Company, the
Registrant and Pennsylvania National
Mutual Casualty Insurance Company
10.4.3 Amendment to Restated Management Incorporated herein
Agreement, dated as of December 31, 1990, by reference
by and among Mutual Inland Marine Office,
Inc. and Arkwright Mutual Insurance
Company, Utica Mutual Insurance Company,
the Registrant and Pennsylvania National
Mutual Casualty Insurance Company
10.6 Restated Management Agreement dated Incorporated herein
as of January 1, 1986, by and among by reference
Mutual Marine Office of the Midwest, Inc.
and Arkwright-Boston Manufacturers Mutual
Insurance Company, Utica Mutual Insurance
Company, Lumber Mutual Insurance
10.6.2 Amendment to Restated Management Incorporated herein
Agreement dated as of December 30, 1988, by reference
by and among Mutual Marine Office of the
Midwest, Inc. and Arkwright Mutual
Insurance Company, Utica Mutual
Insurance Company, Lumber Mutual
Insurance Company, the Registrant
and Pennsylvania National Mutual
Casualty Insurance Company
10.6.3 Amendment to Restated Management Incorporated herein
Agreement dated as of December 31, 1990, by reference
by and among Mutual Marine Office of
the Midwest, Inc. and Arkwright Mutual
Insurance Company, Utica Mutual
Insurance Company, the Registrant and
Pennsylvania National Mutual Casualty
Insurance Company
10.8 Restated Management Agreement Incorporated herein
dated as of January 1, 1986, by and by reference
among Pacific Mutual Marine Office,
Inc. and Arkwright-Boston Manufacturers
Mutual Insurance Company, Lumber Mutual
Insurance Company, Utica Mutual
Insurance Company, the Registrant and
Pennsylvania National Mutual Casualty
Insurance Company
<PAGE>
10.8.2 Amendment to Restated Management Incorporated herein
Agreement dated as of December 30, 1988, by reference
by and among Pacific Mutual Marine
Office, Inc. and Arkwright Mutual
Insurance Company, Lumber Mutual
Insurance Company, Utica Mutual Insurance
Company, the Registrant and Pennsylvania
National Mutual Casualty Insurance
Company.
10.8.3 Amendment to Restated Management Incorporated herein
Agreement dated as of December 31, 1990, by reference
by and among Pacific Mutual Marine
Office, Inc. and Arkwright Mutual
Insurance Company, Utica Mutual Insurance
Company, the Registrant and Pennsylvania
National Mutual Casualty Insurance
Company
21 Subsidiaries of the Registrant. 2
23 Consent of KPMG Peat Marwick LLP. 3
28 Schedule P as of December 31, 1996. 4
27 Article 7 Financial Date Schedule 5
SUBSIDIARIES
NEW YORK MARINE AND GENERAL INSURANCE COMPANY
GOTHAM INSURANCE COMPANY
MUTUAL MARINE OFFICE, INC.
PACIFIC MUTUAL MARINE OFFICE, INC.
MUTUAL MARINE OFFICE OF THE MIDWEST, INC.
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors NYMAGIC, INC.:
We consent to incorporation by reference in Registration Statements No. 3310780,
2-94924 and 33-88342 on Form S-8 of NYMAGIC, INC. of our report dated February
14, 1997 relating to the consolidated balance sheets of NYMAGIC, INC. and
subsidiaries as of December 31, 1996 and 1995, and the related consolidated
statements of income, shareholders' equity and cash flows for each of the years
in the three-year period ended December 31 1996, and related schedules, which
report appears in the December 31, 1996 Annual Report on Form 10-K of NYMAGIC,
INC. Our report refers to the adoption of the provisions of Financial Accounting
Standards Board's Statement of Financial Accounting Standards No. 115
"Accounting for Certain Investments in Debt and Equity Securities," effective
January 1, 1994.
/s/ KPMG Peat Marwick LLP
New York, New York
March 25, 1997
SCHEDULE P - ANALYSIS OF LOSSES AND LOSS EXPENSES
Notes to Schedule P
1. The Parts of Schedule P:
Part 1 - detailed information on losses and loss expenses Part 2
- history of incurred losses and allocated expenses Part 3 -
history of loss and allocated expense payments. Part 4 - history
of bulk and incurred but not reported reserves.
Part 5 - history of claims.
Part 6 - history of premiums earned.
Part 7 - history of loss sensitive contracts.
Schedule P Interrogatories
2. Lines of Business A through M, R and S are groupings of the lines of
business used on the state page.
3. Reinsurance A, B, C, and D (Lines N to Q) are:
Reinsurance A - nonproportional property (1988 and subsequent)
Reinsurance B - nonproportional liability (1988 and subsequent)
Reinsurance C - financial lines (1988 and subsequent) Reinsurance
D - old Schedule O, Line 30 (1987 and prior)
4. Parts 2 and 4 are gross of all discounting, including tabular
discounting. Part 1 is gross of only non-tabular discounting, which is
reported in Columns 31 and 32 of part 1. The tabular discount, if any,
is reported in the Notes to Financial Statements which will reconcile
Part 1 with Parts 3 and 4.
SUMMARIES
---------
<TABLE>
SCHEDULE P - PART 1 - SUMMARY
($000 Omitted)
====================================================================================================================================
(1) PREMIUMS EARNED LOSS AND LOSS EXPENSE PAYMENTS (12)
Years in
which ---------------------------------------------------------------------------------------------------------- Number
Premiums (2) (3) (4) LOSS PAYMENTS ALLOCATED LOSS (9) (10) (11) of
Were EXPENSE PAYMENTS Claims
Earned and Direct Ceded Net -------------------------------------- Salvage Unal- Total Reported
Losses and (Cols. (5) (6) (7) (8) and located Net -
Were Assumed 2 - 3) Direct Direct Subro- Loss Paid Direct
Incurred and Ceded and Ceded gation Expense (Cols. and
Assumed Assumed Received Payments 5-6+7 Assumed
-8+10)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1. Prior ..... xxx xxx xxx 1342 615 907 181 170 0 1453 xxx
2. 1987 ...... 141236 75165 66071 54243 27494 4988 1614 2009 0 30123 xxx
3. 1988 ...... 157648 86659 70989 77251 43330 10325 4303 3117 0 39943 xxx
4. 1989 ...... 165195 93434 71761 177088 135908 15627 7313 2630 0 49494 xxx
5. 1990 ...... 166056 101563 64493 104308 74391 11314 4193 2531 0 37038 xxx
6. 1991 ...... 179573 115157 64416 63760 39145 8383 2582 1765 0 30416 xxx
7. 1992 ...... 161162 102887 58275 66970 46323 4311 1373 760 0 23585 xxx
8. 1993 ...... 165180 99903 65277 78677 51353 3768 1765 768 1799 31126 xxx
9. 1994 ...... 180033 100778 79255 114218 86618 3808 2471 1651 2189 31126 xxx
10. 1995 ...... 197192 93731 103461 142694 18434 1104 370 557 2111 27105 xxx
11. 1996 ...... 168183 71146 97037 23851 9364 607 82 31 1860 16872 xxx
---
12. TOTALS .... xxx xxx xxx 804,402 532,975 65,142 26,247 15,989 7,959 318,281 xxx
====================================================================================================================================
<PAGE>
====================================================================================================================================
LOSSES UNPAID ALLOCATED LOSS EXPENSES UNPAID (21) (22) (23) (24)
-------------------------------------------------------------------------- SALVAGE & UNAL- TOTAL NET NUMBER
CASE BASIS BULK + IBNR CASE BASIS BULK + IBNR SUBRO- LOCATED LOSSES AND OF
-------------------------------------------------------------------------- GATION LOSS EXPENSES CLAIMS
(13) (14) (15) (16) (17) (18) (19) (20) ANTICI- EXPENSES UNPAID OUTSTAND-
PATED UNPAID ING
Direct Ceded Direct Ceded Direct Ceded Direct Cede DIRECT
and and and and AND
Assumed Assumed Assumed Assumed ASSUMED
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1. Prior ..... 16712 10003 7937 4417 xxx xxx 552 228 211 xxx 10553 xxx
2. 1987 ...... 2439 736 1000 302 xxx xxx 239 85 78 xxx 2555 xxx
3. 1988 ...... 5328 2308 2492 751 xxx xxx 361 123 113 xxx 4999 xxx
4. 1989 ...... 13058 9303 5142 1522 xxx xxx 598 194 212 xxx 7779 xxx
5. 1990 ...... 14808 7416 7352 2126 xxx xxx 762 208 319 xxx 13172 xxx
6. 1991 ...... 11274 4802 11640 3101 xxx xxx 903 195 275 xxx 15719 xxx
7. 1992 ...... 10765 5092 13107 3776 xxx xxx 1904 395 372 xxx 16513 xxx
8. 1993 ...... 13780 6469 16371 4796 xxx xxx 2512 502 562 xxx 20896 xxx
9. 1994 ...... 42199 32194 25125 7501 xxx xxx 4480 729 1012 xxx 31380 xxx
10. 1995 ...... 20801 13591 41225 11919 xxx xxx 6769 790 1510 xxx 42495 xxx
11. 1996 ...... 29024 17819 54223 15785 xxx xxx 8065 967 2223 151 56892 xxx
12. TOTALS .... 180188 109733 185614 55996 xxx xxx 27145 4416 6887 151 222953 xxx
====================================================================================================================================
====================================================================================================================================
TOTAL LOSSES AND LOSS EXPENSES LOSS AND LOSS EXPENSE PERCENTAGE NONTABULAR (33) NET BALANCE SHEET
INCURRED (Incurred/Premiums Earned) DISCOUNT RESERVES AFTER DISCOUNT
------------------------------------------------------------------------------------- Inter- ----------------------
(25) (26) (27) (28) (29) (30) (31) (32) Company (34) (35)
Pooling
Direct and Ceded Net Direct and Ceded Net Loss Loss Participat Losses Loss
Assumed Assumed Expense ion Paid Expenses
Percentage Unpaid
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1. Prior ..... xxx xxx xxx xxx xxx xxx 0 0 xxx 10229 324
2. 1987 ...... 62909 30231 32678 44.5 40.2 49.5 0 0 50.0 2401 154
3. 1988 ...... 95757 50815 44942 60.7 58.6 63.3 0 0 50.0 4761 238
4. 1989 ...... 211513 154240 57273 128.0 165.1 79.8 0 0 58.9 7375 404
5. 1990 ...... 138545 88335 50210 83.4 87.0 77.9 0 0 66.9 12618 554
6. 1991 ...... 95960 49825 46135 53.4 43.3 71.6 0 0 77.3 15011 708
7. 1992 ...... 97057 56959 40098 60.2 55.4 68.8 0 0 81.5 15004 1509
8. 1993 ...... 116703 64681 52022 70.7 64.7 79.7 0 0 84.0 18886 2010
9. 1994 ...... 191762 129256 62506 106.5 128.3 78.9 0 0 90.7 27629 3751
10. 1995 ...... 114429 44829 69600 58.0 47.8 67.3 0 0 95.0 36516 5979
11. 1996 ...... 117524 43760 73764 69.9 61.5 76.0 0 0 95.0 49643 7249
12. TOTALS ... xxx xxx xxx xxx xxx xxx 0 0 xxx 200073 22880
====================================================================================================================================
<PAGE>
SCHEDULE P - PART 2 - SUMMARY
====================================================================================================================================
(1) INCURRED LOSSES AND ALLOCATED EXPENSES REPORTED AT YEAR END ($000 OMITTED) DEVELOPMENT
Years in ----------------------------------------------------------------------------------------------------------------
Which (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) (13)
Losses
Were 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 One Two
Incurred Year Year
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1. Prior .............. 55176 52042 50507 47139 45465 41839 38837 36714 36472 38934 2462 2220
2. 1987 ............... 45261 43418 41081 38540 36739 35557 35899 34278 33410 32678 -732 -1600
3. 1988 ............... xxx 50472 48745 46671 48177 47602 46244 45167 44662 44942 280 -225
4. 1989 ............... xxx xxx 53563 54047 58399 59626 60030 58538 58683 57273 -1410 -1265
5. 1990 ............... xxx xxx xxx 50795 47279 49348 49352 51990 50500 50210 -290 -1780
6. 1991 ............... xxx xxx xxx xxx 45344 43866 45953 46206 45467 46135 668 -71
7. 1992 ............... xxx xxx xxx xxx xxx 48868 46024 42127 40235 40098 -137 -2029
8. 1993 ............... xxx xxx xxx xxx xxx xxx 54969 52929 52621 50223 -2398 -2706
9. 1994 ............... xxx xxx xxx xxx xxx xxx xxx 64065 63601 60317 -3284 -3748
10. 1995 ............... xxx xxx xxx xxx xxx xxx xxx xxx 75620 67489 -8131 xxx
11. 1996 ............... xxx xxx xxx xxx xxx xxx xxx xxx xxx 71753 xxx xxx
- ------------------------------------------------------------------------------------------------------------------------------------
12. TOTALS -12972 -11204
====================================================================================================================================
SCHEDULE P - PART 3 - SUMMARY
====================================================================================================================================
(1) CUMULATIVE PAID LOSSES AND ALLOCATED EXPENSES AT YEAR END ($000 OMITTED) (12) (13)
Year in ------------------------------------------------------------------------------------------------ Number of Number of
Which (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) Claims Claims
Losses Closed Closed
Were 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 With Loss Without
Incurred Payment Loss
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1. Prior ...... xxx 8869 15618 19097 22460 21633 23267 25374 26928 28381 xxx xxx
2. 1987 ....... 4470 11487 16482 19551 22740 23775 26594 27811 30108 30123 xxx xxx
3. 1988 ....... xxx 4336 11663 16855 24451 28017 31112 35705 38073 39943 xxx xxx
4. 1989 ....... xxx xxx 5299 16469 23496 29398 38031 44021 47018 49494 xxx xxx
5. 1990 ....... xxx xxx xxx 2184 8747 13360 21530 29030 33343 37038 xxx xxx
6. 1991 ....... xxx xxx xxx xxx 2047 5055 13818 20500 24862 30416 xxx xxx
7. 1992 ....... xxx xxx xxx xxx xxx 2756 9790 14140 19226 23585 xxx xxx
8. 1993 ....... xxx xxx xxx xxx xxx xxx 4431 17339 24714 29327 xxx xxx
9. 1994 ....... xxx xxx xxx xxx xxx xxx xxx 11186 21765 28937 xxx xxx
10. 1995 ....... xxx xxx xxx xxx xxx xxx xxx xxx 10044 24994 xxx xxx
11. 1996 ....... xxx xxx xxx xxx xxx xxx xxx xxx xxx 15012 xxx xxx
====================================================================================================================================
<PAGE>
SCHEDULE P - PART 4 - SUMMARY
====================================================================================================================================
(1) BULK AND INCURRED BUT NOT REPORTED RESERVES ON LOSSES AND ALLOCATED EXPENSES AT YEAR END ($000 OMITTED)
Years in ----------------------------------------------------------------------------------------------------------------
Which (2) (3) (4) (5) (6) (7) (8) (9) (10) (11)
Losses Were
Incurred 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1. Prior ............ 27434 19551 14733 9408 5785 3885 2444 2113 2371 3844
2. 1987 ............. 32591 20985 15436 10346 6866 4313 2965 1425 1147 852
3. 1988 ............. xxx 35531 24459 15625 10917 7873 5700 3588 2698 1979
4. 1989 ............. xxx xxx 38132 24234 16024 11451 8506 6589 5465 4024
5. 1990 ............. xxx xxx xxx 39863 26182 17966 13671 9935 8107 5780
6. 1991 ............. xxx xxx xxx xxx 34420 25773 18745 14270 12104 9247
7. 1992 ............. xxx xxx xxx xxx xxx 38440 26128 18334 14054 10840
8. 1993 ............. xxx xxx xxx xxx xxx xxx 39236 24199 18552 13585
9. 1994 ............. xxx xxx xxx xxx xxx xxx xxx 43640 30938 21375
10. 1995 ............. xxx xxx xxx xxx xxx xxx xxx xxx 52032 35285
11. 1996 ............. xxx xxx xxx xxx xxx xxx xxx xxx xxx 45536
====================================================================================================================================
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<DEBT-HELD-FOR-SALE> 345,483
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 45,349
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 409,209
<CASH> 701
<RECOVER-REINSURE> 197,988
<DEFERRED-ACQUISITION> 10,904
<TOTAL-ASSETS> 695,195
<POLICY-LOSSES> 0
<UNEARNED-PREMIUMS> 66,652
<POLICY-OTHER> 411,837
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 20,438
0
0
<COMMON> 14,912
<OTHER-SE> 173,940
<TOTAL-LIABILITY-AND-EQUITY> 695,195
97,036
<INVESTMENT-INCOME> 21,270
<INVESTMENT-GAINS> 4,589
<OTHER-INCOME> 690
<BENEFITS> 59,359
<UNDERWRITING-AMORTIZATION> 18,828
<UNDERWRITING-OTHER> 16,168
<INCOME-PRETAX> 30,176
<INCOME-TAX> 7,551
<INCOME-CONTINUING> 22,625
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 22,625
<EPS-PRIMARY> 2.15
<EPS-DILUTED> 2.15
<RESERVE-OPEN> 229,916
<PROVISION-CURRENT> 71,731
<PROVISION-PRIOR> (12,753)
<PAYMENTS-CURRENT> 15,012
<PAYMENTS-PRIOR> 46,512
<RESERVE-CLOSE> 227,370
<CUMULATIVE-DEFICIENCY> (12,753)
</TABLE>
