FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended September 30, 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 (Registrants telephone number, including area code)
(Former name, former address and former fiscal years, if changed since
last report.)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuers
classes of common stock, as of the latest practicable date.
On October 1, 1997 there were 9,647,606 shares of common stock, $1.00
par value outstanding.
NYMAGIC, INC.
INDEX
Part I. FINANCIAL INFORMATION: PAGE NO.
Consolidated Balance Sheets September 30, 1997 and December 31, 1996 2
Consolidated Statements of Income September 30, 1997 and September 30,
1996 3
Consolidated Statements of Cash Flows September 30, 1997 and September
30, 1996 5
Notes to Consolidated Financial Statements 6
Managements Discussion And Analysis of Financial Condition and
Results of Operations 7
Part II. OTHER INFORMATION 11
1
NYMAGIC, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
September 30, December 31, 1997 1996 ASSETS Investments: Fixed
maturities available for sale, at fair value (amortized cost $355,751,689
and $341,130,292) $362,695,920 $345,483,129 Equity securities at fair value
(cost $44,389,965 and $37,161,709) 58,003,460 45,348,736 Short-term
investments 15,409,389 18,377,180 Total investments 436,108,769 409,209,045
Cash 379,448 701,086 Accrued investment income 5,288,898 5,960,197 Premiums
and other receivables, net 20,128,767 43,285,450 Reinsurance receivables
193,559,176 197,988,073 Deferred policy acquisition costs 7,651,091
10,904,241 Prepaid reinsurance premiums 8,925,892 10,562,213 Deferred
income taxes 8,510,093 11,131,603 Property, improvements and equipment, net
2,438,966 2,107,087 Other assets 5,266,760 3,345,826 Total assets
$688,257,860 $695,194,821
LIABILITIES Unpaid losses and loss adjustment expenses $407,324,879
$411,836,981 Reserve for unearned premiums 49,580,944 66,651,933 Notes
payable 23,708,413 20,438,413 Other liabilities 6,211,033 6,401,463
Dividends payable 964,761 1,014,305 Total liabilities 487,790,030
506,343,095
SHAREHOLDERS EQUITY Common stock 14,969,792 14,911,992 Paid-in
capital 27,180,142 26,258,259 Unrealized appreciation of investments (net
of deferred income taxes) 13,362,520 8,150,910 Retained earnings
187,184,596 171,089,462 242,697,050 220,410,623 Treasury stock, at cost,
5,322,186 and 4,768,940 shares (42,229,220) (31,558,897)
Total shareholders equity 200,467,830 188,851,726 Total liabilities
and shareholders equity $688,257,860 $695,194,821
The accompanying notes are an integral part of these consolidated
financial statements.
2
NYMAGIC, INC. CONSOLIDATED STATEMENTS OF INCOME (unaudited) Nine
months ended September 30, 1997 1996 Revenues:
Net premiums earned $64,104,717 $73,973,258 Net investment income
15,979,351 15,982,959 Realized investment gains 7,756,085 2,623,115
Commission and other income 1,026,648 1,417,838
Total revenues 88,866,801 93,997,170
Expenses:
Net losses and loss adjustment expenses incurred 36,548,191 45,487,523
Policy acquisition expenses 13,098,879 15,021,954 General and
administrative expenses 12,615,842 11,774,130 Interest expense 1,003,255
741,474
Total expenses 63,266,167 73,025,081
Income before income taxes 25,600,634 20,972,089 Income taxes: Current
6,746,416 5,244,134 Deferred (184,742) (185,784) Total income taxes
6,561,674 5,058,350
Net income $ 19,038,960 $15,913,739
Net income per share $ 1.92 $ 1.50
Weighted average shares of common stock outstanding 9,932,583
10,608,104
Dividends declared per share $ .30 $ .30
ThE accompanying notes are an integral part of these consolidated
financial statements.
3
NYMAGIC, INC. CONSOLIDATED STATEMENTS OF INCOME (unaudited) Three
months ended September 30, 1997 1996 Revenues: Net premiums earned
$22,335,632 $24,415,176 Net investment income 5,298,691 5,471,471 Realized
investment gains 4,232,715 583,419 Commission and other income 861,408
798,936 Total revenues 32,728,446 31,269,002 Expenses: Net losses and loss
adjustment expenses incurred 13,884,900 15,552,840 Policy acquisition
expenses 3,958,131 5,102,772 General and administrative expenses 4,290,952
4,086,009 Interest expense 403,432 296,113 Total expenses 22,537,415
25,037,734 Income before income taxes 10,191,031 6,231,268 Income taxes:
Current 2,693,341 1,743,370 Deferred 45,256 (468,534) Total income taxes
2,738,597 1,274,836 Net income $ 7,452,434 $ 4,956,432 Net income per share
$ .77 $ .48 Weighted average shares of common stock outstanding 9,665,921
10,419,725 Dividends declared per share $ .10 $ .10 The accompanying notes
are an integral part of these consolidated financial statements. 4
NYMAGIC, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) Nine
months ended September 30, 1997 1996 Cash flows from operating activities:
Net income $ 19,038,960$ 15,913,739 Adjustments to reconcile net income to
net cash provided by operating activities: Provision for deferred taxes
(184,742) (185,784) Realized investment gains (7,756,085) (2,623,115) Net
bond amortization 1,356,858 1,434,448 Depreciation 409,131 337,819 Changes
in: Premiums and other receivables, net 23,156,683 18,551,858 Reinsurance
receivables 4,428,897 (21,857,307) Accrued investment income 671,299
308,348 Deferred policy acquisition costs 3,253,150 2,646,909 Other assets
(1,920,934) 62,695 Prepaid reinsurance premiums 1,636,321 17,146,997 Unpaid
losses and loss adjustment expenses (4,512,102) 6,828,196 Reserve for
unearned premiums (17,070,989)(23,273,558) Other liabilities (190,430)
(4,717,014) Total adjustments 3,277,057 (5,339,508) Net cash provided by
operating activities 22,316,017 10,574,231 Cash flows from investing
activities: Fixed maturities acquired (183,626,670)(164,173,362) Equity
securities acquired (37,818,295)(27,085,562) Fixed maturities, matured
11,969,044 28,656,035 Fixed maturities, sold 155,774,645 119,234,369 Equity
securities sold 38,366,994 22,788,587 Net sale of short-term investments
2,851,647 15,289,354 Acquisition of property, equipment and improvements
(741,010) (236,737) Net cash used in investing activities (13,223,645)
(5,527,316) Cash flows from financing activities: Proceeds from stock
options exercised 979,683 2,432,036 Cash dividends paid (2,993,370)
(3,198,262) Net repurchase of common stock (10,670,323) (8,840,719)
Proceeds from borrowings 9,520,000 10,000,000 Loan principal repayments
(6,250,000) (6,500,000) Net cash used in financing activities (9,414,010)
(6,106,945) Net decrease in cash (321,638) (1,060,030) Cash at beginning of
period 701,086 1,175,024 Cash at end of period $ 379,448$ 114,994 The
accompanying notes are an integral part of these consolidated financial
statements.
5
NYMAGIC, INC.
Notes to Consolidated financial Statements
1) The interim consolidated financial statements are unaudited but, in
the opinion of management, reflect all material adjustments necessary for a
fair presentation of results for such periods. Adjustments to financial
statements consist of normal recurring items. The results of operations for
any interim period are not necessarily indicative of results for the full
year. These financial statements should be read in conjunction with the
financial statements and notes thereto contained in the Companys Annual
Report on Form 10-K for the year ended December 31, 1996.
6
NYMAGIC, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Net premiums earned were $22,335,632 for the three months ended
September 30, 1997 or a decrease of approximately 9% when compared to the
third quarter of 1996. For the nine months ended September 30, 1997, net
premiums earned decreased 13% when compared to the prior year. The decrease
in premiums earned for the nine months in 1997 occurred in all lines of
business. Inland marine premiums decreased by 77% in 1997 which is
consistent with the Companys decision in the prior year to withdraw from
writing property risks of the larger assureds with multiple locations. The
other liability line decreased by 33% in 1997 as a direct result of the
soft casualty market which allowed for a decline in premium production. A
softening of rates accounted for an overall 19% reduction in gross aviation
premiums written in 1997, however, additional accounts were written in the
third quarter of 1997 that contributed to both a 53% increase in gross
aviation premiums written and a 7% increase in net earned premiums during
the quarter. Ocean marine premiums fell approximately 9% in 1997 due to
rate reductions as competition remains intense.
Losses and loss adjustment expenses incurred as a percentage of net
premiums earned were 62.2% for the three months ended September 30, 1997 as
compared to 63.7% for the third quarter of 1996. For the nine months ended
September 30, 1997, such ratio was 57.0% as compared to 61.5% for the same
period of the prior year. Improved net loss experience in the other
liability and inland lines accounted for the overall decline in the loss
ratios. An increase in the frequency of losses in the aviation line and an
increase in severity losses in the ocean marine line contributed to higher
loss ratios in these lines in the current year.
Commission and other income for the nine months ended September 30,
1997 was $1,026,648 as compared to $1,417,838 for the same period of 1996
and was $861,408 for the third quarter of 1997 as compared to $798,936 for
the same period of the prior year. Commission income includes management
and contingent commissions charged by Mutual Marine Office, Inc. for
operating the insurance pools. As the Company increased its MMO pool
participation in the ocean marine and aviation pools from 90% to 100%,
effective for policies incepting on or after January 1, 1997, management
commission from non-affiliated members of the insurance pools declined
proportionately. The third quarter of 1997 included larger reinsurance
profit commissions from the aviation line of business.
Interest expense increased to $1,003,255 for the nine months ended
September 30, 1997 from $741,474 for the same period of the prior year
primarily as a result of an increase in loan principal outstanding.
Net investment income for the nine months ended September 30, 1997 was
flat with the prior year. Net investment income for the three months ended
September 30, 1997 decreased by 3% from the same period of 1996. A larger
invested asset base was offset by a decrease in investment yield in the
Companys fixed maturity portfolio, which resulted from additional
purchases of tax-exempt securities.
7
NYMAGIC, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS CONTINUED
Policy acquisition expenses as a percentage of net premiums earned for
the nine months ended September 30, 1997 were 20.4% as compared with 20.3%
for the same period of the prior year. This ratio was 17.7% and 20.9% for
the three months ended September 30, 1997 and 1996, respectively. Although
the year to date ratio is comparable to the prior year, the current quarter
decline reflects the benefit of lower reinsurance costs in the aviation
line of business.
General and administrative expenses increased by 7% in 1997 over the
first nine months of 1996 primarily as a result of increased personnel and
administrative costs to further strengthen support services.
Realized investment gains of $7,756,085 for the nine months ended
September 30, 1997 mainly resulted from the sale of appreciated equity
securities.
The Company reported net income of $19,038,960 or $1.92 per share for
the nine months ended September 30, 1997 as compared to net income of
$15,913,739 or $1.50 per share for the same period of 1996. Net income was
$7,452,434 or $.77 per share for the three months ended September 30, 1997
as compared with $4,956,432 or $.48 per share for the same period of the
prior year.
The Company believes that short-term investments of $15,409,389
together with its available line of credit will enable the Company to meet
its current cash requirements.
The Company borrowed $9,520,000 in the second quarter of 1997 to
repurchase approximately 500,000 shares of common stock, pursuant to the
Companys common stock repurchase plan, at $19.00 per share. The Company
repurchased an additional 53,246 shares during the first nine months of
1997 at market prices ranging from $18.25 to $24.75.
Increases in cash flow from operations enabled the Company to pay down
its existing note payable by $6,250,000 during 1997.
Premiums and other receivables, net decreased to $20,128,767 as of
September 30, 1997. Improved cash flows at the MMO pool level and a 15%
reduction in net premium writings contributed to the overall decline in
receivables.
Unrealized appreciation of investments, net of deferred income taxes,
at September 30, 1997 increased to $13,362,520 from $8,150,910 at December
31, 1996. Increases were recorded in both fixed maturities and equity
securities as a result of both the strong bond and stock markets in 1997.
8
NYMAGIC, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS CONTINUED
In February 1997, the FASB issued SFAS 128, Earnings Per Share which
specifies the computation, presentation and disclosure requirements of
earnings per share (EPS) for companies with publicly owned common stock or
potential common stock and supersedes the accounting requirements of APB
Opinion No. 15, Earnings Per Share." The Companys stock options are
considered potential common stock under SFAS 128. SFAS 128 also requires
the dual presentation of basic EPS and diluted EPS.
SFAS 128 is effective for financial statements for both interim and
annual periods ending after December 15, 1997. Earlier application is not
permitted. After adoption, all prior period EPS data reported shall be
restated to conform with SFAS 128. Based upon preliminary calculations, the
adoption of SFAS 128 by the Company is not expected to have a significant
impact on the EPS data presented.
The FASB issued SFAS 130, Reporting Comprehensive Income, in June
1997 which establishes standards for the reporting and presentation of
comprehensive income and its components. Comprehensive income encompasses
all changes in shareholders equity, except those arising from transactions
with owners, and includes net income, net unrealized capital gains or
losses on available for sale securities and foreign currency translation
adjustments. SFAS 130 is effective for fiscal years beginning after
December 15, 1997, with earlier application permitted. The Company is
currently evaluating the presentation alternatives permitted by the
statement. The adoption of SFAS 130 is not expected to affect the Companys
financial position or results of operations.
The FASB issued SFAS 131, Disclosures about Segments of an Enterprise
and Related Information, in June 1997 which establishes standards for the
reporting of information relating to operating segments in annual financial
statements, as well as disclosure of selected information in interim
financial reports. Operating segments are defined as components of a
company for which separate financial information is available and is used
by management to allocate resources and assess performance. The statement
supersedes SFAS 14, Financial Reporting for Segments of a Business
Enterprise, which requires reporting segment information by industry and
geographic area. This statement is effective for year-end 1998 financial
statements and interim financial information will be required beginning in
1999. The Company is currently evaluating the segment information
disclosure pursuant to SFAS 131.
9
NYMAGIC, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS CONTINUED
The insurance pools participated in the issuance of umbrella casualty
insurance for various Fortune 1,000 companies in the period from 1978 to 1983.
Depending on the accident year, the insurance pools maximum net retention per
occurrence ranged from $250,000 to $500,000. The Companys effective pool
participation on such risks varied from 11% in 1978 to 30% in 1983. At September
30, 1997 and December 31, 1996, the Companys net loss and loss adjustment
expense reserves for Asbestos/Pollution policies amounted to $8.6 million and
$8.5 million, respectively. As of September 30, 1997, the Company had
approximately 430 policies which had at least one claim relating to
Asbestos/Pollution exposures. In 1997, the Company effected a change in the
methodology employed for tracking the attachment point of insureds losses. As a
result, the Company closed a significant number of claim files which,
collectively, resulted in an amount which was immaterial to the financial
statements. Net loss and loss adjustment expense payments on Asbestos/Pollution
policies amounted to $440,000 and $665,000 for the nine months ended September
30, 1997 and September 30, 1996, respectively. The Company believes that the
uncertainty surrounding Asbestos/Pollution exposures, including issues as to
insureds liabilities, ascertainment of loss date, definitions of occurrence,
scope of coverage, policy limits and application and interpretation of policy
terms, including exclusions, all affect the estimation of ultimate losses. Under
such circumstances, it is difficult to determine the ultimate loss for
Asbestos/Pollution related claims as of September 30, 1997. Given the
uncertainty in this area, losses from Asbestos/Pollution related claims are
likely to adversely impact the Companys results from operations in future years
and may vary materially from such reserves reported as of September 30, 1997.
However, the Company believes that, in aggregate, the unpaid loss and loss
adjustment expense reserves, as of September 30, 1997, allow for an adequate
provision and that the ultimate resolution of Asbestos/Pollution claims will not
have a material impact on the Companys financial position.
10
PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Reports on Form 8-K There were no reports on Form 8-K filed for
the three months ended September 30, 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: November 12, 1997
/s/ Mark W. Blackman
Mark W. Blackman (ChiefExecutive Officer)
/s/ Thomas J. Iacopelli Thomas J. Iacopelli (Chief Financial
Officer)
11
<TABLE> <S> <C>
<ARTICLE> 7
<CIK> 0000847431
<NAME> NYMAGIC
<MULTIPLIER> 1,000
<CURRENCY> U.S.Dollars
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<DEBT-HELD-FOR-SALE> 362,695
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 58,003
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 436,109
<CASH> 379
<RECOVER-REINSURE> 193,559
<DEFERRED-ACQUISITION> 7,651
<TOTAL-ASSETS> 688,258
<POLICY-LOSSES> 0
<UNEARNED-PREMIUMS> 49,581
<POLICY-OTHER> 407,325
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 23,708
0
0
<COMMON> 14,490
<OTHER-SE> 185,498
<TOTAL-LIABILITY-AND-EQUITY> 688,258
64,105
<INVESTMENT-INCOME> 15,980
<INVESTMENT-GAINS> 7,756
<OTHER-INCOME> 1,027
<BENEFITS> 36,548
<UNDERWRITING-AMORTIZATION> 13,099
<UNDERWRITING-OTHER> 13,619
<INCOME-PRETAX> 25,601
<INCOME-TAX> 6,562
<INCOME-CONTINUING> 19,039
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,039
<EPS-PRIMARY> 1.92
<EPS-DILUTED> 1.92
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
