FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended March 31, 1997
Commission file number 33-27665
NYMAGIC, INC.
(Exact name of registrant as specified in its charter)
New York 13-3534162
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
330 Madison Avenue, New York, New York 10017
(Address of principal executive offices) (zip code)
(212) 551-0600
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal years,
if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
requiredto be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
On April 1, 1997 there were 10,143,052 shares of common stock, $1.00 par
value outstanding.
NYMAGIC, INC.
INDEX
Part I. FINANCIAL INFORMATION: PAGE NO.
Consolidated Balance Sheets
March 31, 1997 and December 31, 1996 2
Consolidated Statements of Income
March 31, 1997 and March 31, 1996 3
Consolidated Statements of Cash Flows
March 31, 1997 and March 31, 1996 4
Notes to Consolidated Financial Statements 5
Management's Discussion And Analysis of Financial
Condition and Results of Operations 6
Part II. OTHER INFORMATION 9
1
NYMAGIC, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
March 31, December 31,
1997 1996
ASSETS
Investments:
Fixed maturities available for sale,
at fair value (amortized cost
$346,739,545 and $341,130,292) $346,091,639 $345,483,129
Equity securities at fair value (cost
$38,004,981 and $37,161,709) 44,557,289 45,348,736
Short-term investments 18,242,004 18,377,180
Total investments 408,890,932 409,209,045
Cash 203,798 701,086
Accrued investment income 5,551,428 5,960,197
Premiums and other receivables, net 35,771,753 43,285,450
Reinsurance receivables 191,936,830 197,988,073
Deferred policy acquisition costs 10,188,824 10,904,241
Prepaid reinsurance premiums 9,536,737 10,562,213
Deferred income taxes 13,659,645 11,131,603
Property, improvements and equipment, net 2,189,442 2,107,087
Other assets 3,621,083 3,345,826
Total assets $681,550,472 $695,194,821
LIABILITIES
Unpaid losses and loss adjustment expenses $406,333,965 $411,836,981
Reserve for unearned premiums 61,238,085 66,651,933
Notes payable 15,438,413 20,438,413
Other liabilities 8,160,055 6,401,463
Dividends payable 1,014,305 1,014,305
Total liabilities 492,184,823 506,343,095
SHAREHOLDERS' EQUITY
Common stock 14,920,992 14,911,992
Paid-in capital 26,399,129 26,258,259
Unrealized appreciation
of investments (net of deferred income taxes) 3,837,859 8,150,910
Retained earnings 175,946,253 171,089,462
221,104,233 220,410,623
Treasury stock, at cost,
4,777,940 and 4,768,940,shares (31,738,584) (31,558,897)
Total shareholders' equity 189,356,649 188,851,726
Total liabilities and shareholders' equity $681,550,472 $695,194,821
The accompanying notes are an integral part of these consolidated financial
statements.
2
NYMAGIC, INC.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
Three months ended
March 31,
1997 1996
Revenues:
Net premiums earned $21,409,018 $22,974,399
Net investment income 5,376,297 5,377,174
Realized investment gains 2,010,278 1,509,676
Commission and other income 91,810 394,567
Total revenues 28,887,403 30,255,816
Expenses:
Losses and loss adjustment expenses incurred 12,048,098 14,013,934
Policy acquisition expenses 4,665,386 4,116,457
General and administrative expenses 4,034,937 3,937,759
Interest expense 258,127 212,695
Total expenses 21,006,548 22,280,845
Income before income taxes 7,880,855 7,974,971
Income taxes:
Current 2,215,390 1,690,675
Deferred (205,631) 491,709
Total income taxes 2,009,759 2,182,384
Net income $ 5,871,096 $5,792,587
Net income per share $ .58 $ .54
Weighted average shares of common stock outstanding 10,168,836 10,752,348
Dividends declared per share $ .10 $ .10
The accompanying notes are an integral part of these consolidated financial
statements.
3
NYMAGIC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Three months ended
March 31,
1997 1996
Cash flows from operating activities:
Net income $ 5,871,096 $ 5,792,587
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for deferred taxes (205,631) 491,709
Realized investment gains (2,010,278) (1,509,676)
Net bond amortization 407,412 505,995
Depreciation 115,944 105,313
Changes in:
Premiums and other receivables 7,513,697 19,448,700
Reinsurance receivables 6,051,243 (8,074,593)
Accrued investment income 408,769 (269,144)
Deferred policy acquisition costs 715,417 94,605
Prepaid reinsurance premiums 1,025,476 1,840,371
Other assets (275,257) (256,161)
Unpaid losses and loss adjustment expenses (5,503,016) (3,404,384)
Reserve for unearned premiums (5,413,848) (6,391,729)
Other liabilities 1,758,592 (3,071,158)
Total adjustments 4,588,520 (490,152)
Net cash provided by operating activities 10,459,616 5,302,435
Cash flows from investing activities:
Fixed maturities acquired (70,466,361) (80,271,609)
Equity securities acquired (12,588,032) (5,948,355)
Fixed maturities matured 7,569,293 3,209,067
Fixed maturities sold 56,738,192 47,388,582
Equity securities sold 13,926,382 6,094,817
Net sale of short-term investments 106,043 25,594,337
Acquisition of property, equipment
and improvements (198,299) (57,223)
Net cash used in investing activities (4,912,782) (3,990,384)
Cash flows from financing activities:
Proceeds from stock options exercised 149,870 156,772
Cash dividends paid (1,014,305) (1,069,181)
Net repurchase of common stock (179,687) (146,625)
Loan principal repayments (5,000,000) (1,250,000)
Net cash used in financing activities (6,044,122) (2,309,034)
Net decrease in cash (497,288) (996,983)
Cash at beginning of period 701,086 1,175,024
Cash at end of period $ 203,798 $ 178,041
The accompanying notes are an integral part of these consolidated financial
statements.
4
NYMAGIC, INC.
Notes to Consolidated financial Statements
1) The interim consolidated financial statements are unaudited but, in the
opinion of management, reflect all material adjustments necessary for a fair
presentation of results for such periods. Adjustments to financial
statements consist of normal recurring items. The results of operations for
any interim period are not necessarily indicative of results for the full
year. These financial statements should be read in conjunction with the
financial statements and notes thereto contained in the Company's An
2) In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Accounting Standards No. 128, "Earnings Per Share" (SFAS 128).
SFAS 128 specifies the computation, presentation and disclosure requirements
of earnings per share(EPS) for companies with publicly owned common stock or
potential common stock and supersedes the accounting requirements of APB
Opinion No. 15, "Earnings Per Share." The Company's stock option plans are
considered potential common stock under SFAS 128. SFAS 1
SFAS 128 is effective for financial statements for both interim and annual
periods ending after December 31, 1997. Earlier application is not permitted.
After adoption, all prior period EPS data reported shall be restated to
conform with SFAS 128. The adoption of SFAS 128 by the Company is not
expected to have a significant impact on the EPS data presented.
5
NYMAGIC, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Net premiums earned decreased 7% to $21,409,018 in the first quarter ended
March 31, 1997 from $22,974,399 for the first quarter of 1996. The decrease
in premiums earned resulted mainly from declines in the other liability and
inland marine lines of business. Inland marine premium decreased 90% in 1997
which is consistent with the Company's plan to withdraw from writing property
risks of the larger multilocation assureds. The other liability line
decreased as a result of the soft casualty market which allocates
ns intense. Although net aviation premiums written decreased approximately
29% mainly due to a softening of rates, net premiums earned increased 7%.
Premiums earned also benefited from the Company's increased pool
participation in the Mutual Marine Office, Inc. ocean marine and aviation
pool from 90% to 100% effective for policies incepting on or after January 1,
1997.
Losses and loss adjustment expenses incurred as a percentage of net premiums
earned were 56.3% for the three months ended March 31, 1997 as compared to
61.0% for the first quarter of 1996. Favorable net loss experience in the
Company's core ocean and aviation lines and improved net loss experience in
the other liability line contributed to the overall decline in the loss
ratio. The inland marine loss ratio in 1996 was beset by storm losses
resulting from the severe weather occurring in the prior year.
Policy acquisition costs as a percentage of net premiums earned for the three
months ended March 31, 1997 were 21.8% as compared with 17.9% for the same
period of the prior year. The increase in the ratio reflects a decline in
aviation gross premiums without a corresponding reduction in ceded premiums
that had the effect of increasing the ratio.
Interest expense increased to $258,127 for the three months ended March 31,
1997 from $212,695 for the same period of the prior year as a result of an
increase in loan principal outstanding.
Net investment income for the three months ended March 31, 1997 of $5,376,297
remained flat with the same period of 1996 as a result of a larger invested
asset base offset by a decrease in investment yield in the Company's fixed
maturity portfolio resulting from additional purchases of tax exempt securities.
General and administrative expenses increased by 2% in 1997 over the first
quarter of 1996 primarily as a result of efforts to contain personnel and
administrative costs.
Realized investment gains of $2,010,278 for the three months ended March 31,
1997 result mainly from the sale of appreciated equity securities.
The Company reported net income of $5,871,096 or $.58 per share for the three
months ended March 31, 1997 as compared to net income of $5,792,587 or $.54
per share for the same period of 1996.
6
NYMAGIC, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS CONTINUED
The Company believes that short-term investments of $18,242,004 together with
its available line of credit will enable the Company to meet its current cash
requirements.
Premiums and other receivables, net decreased to $35,771,753 as of March 31,
1997. Improved cash flows at the MMO pool level and declines in premium
writings contributed to the overall decline in receivables.
Unrealized appreciation of investments, net of deferred income taxes, at
March 31, 1997 decreased to $3,837,859 from $8,150,910 at December 31, 1996.
Declines were recorded in both fixed maturities available for sale and equity
securities primarily as a result of rising interest rates in 1997.
The Company adheres to investment guidelines as prescribed by the finance
committee of the board of directors. Such guidelines were conservatively
designed to provide the Company with adequate capital growth and sufficient
liquidity to meet existing obligations. In addition, the guidelines provide
for a portfolio of investment grade securities.
The Company repurchased 9,000 shares of common stock, pursuant to the
Company's common stock repurchase plan, during the first quarter of 1997 at
market prices ranging from $18.25 and $20.63.
Positive cash flow from operations enabled the Company to pay down its
existing note payable by $5,000,000 in the first quarter of 1997.
In February 1997, the FASB issued SFAS 128 which specifies the computation,
presentation and disclosure requirements of earnings per share(EPS) for
companies with publicly owned common stock or potential common stock and
supersedes the accounting requirements of APB Opinion No. 15, "Earnings Per
Share." The Company's stock option plans are considered potential common
stock under SFAS 128. SFAS 128 also requires the dual presentation of "basic
EPS" and "diluted EPS."
SFAS 128 is effective for financial statements for both interim and annual
periods ending after December 31, 1997. Earlier application is not permitted.
After adoption, all prior period EPS data reported shall be restated to
conform with SFAS 128. The adoption of SFAS 128 by the Company is not
expected to have a significant impact on the EPS data presented.
The insurance pools participated in the issuance of umbrella casualty insurance
for various Fortune 1,000 companies in the period from 1978 to 1983. Depending
on the accident year, the insurance pools' maximum net retention per occurrence
ranged from $250,000 to $500,000. The Company's effective pool participation
on such risks varied from 11% in 1978 to 30% in 1983. At March 31, 1997 and
December 31, 1996, the Company's net loss and loss adjustment expense
reserves for Asbestos/Pollution policies for ea
imately 1,000 policies which had at least one claim relating to
Asbestos/Pollution exposures with an insignificant number of claims filed or
resolved in 1997. Net loss and loss adjustment expense payments on
Asbestos/Pollution policies amounted to $73,000 and $127,000 for the three
months ended March 31, 1997 and March 31, 1996, respectively. The Company
believes that the uncertainty surrounding Asbestos/Pollution
7
NYMAGIC, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS CONTINUED
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 as of March 31, 1997. Given the uncertainty in this area, losses from
Asbestos/Pollution related claims are likely to adversely impact
d as of March 31, 1997. However, as of March 31, 1997, the Company believes
that, in aggregate, the unpaid loss and loss adjustment expense reserves as
of March 31, 1997, allow for an adequate provision and that the ultimate
resolution of Asbestos/Pollution claims will not have a material impact on
the Company's financial position.
8
PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
There were no reports on Form 8-K filed for the three months ended March 31,
1997.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NYMAGIC, INC.
(Registrant)
Date: May 13, 1997 /s/ Mark W. Blackman
Mark W. Blackman
(Chief Executive Officer)
/s/ Thomas J. Iacopelli
Thomas J. Iacopelli
(Chief Financial Officer)
9
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