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, 1998
Commission file number 33-27665
NYMAGIC, INC.
(Exact name of registrant as specified in its charter)
New York 13-3534162
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
330 Madison Avenue, New York, New York
10017 (Address of principal executive offices) (zip
code)
(212) 551-0600
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal
years, if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
On April 1, 1998 there were 9,673,406 shares of common stock, $1.00 par value
outstanding.
<PAGE>
NYMAGIC, INC.
INDEX
Part I. FINANCIAL INFORMATION: PAGE NO.
Consolidated Balance Sheets
March 31, 1998 and December 31, 1997 2
Consolidated Statements of Income
March 31, 1998 and March 31, 1997 3
Consolidated Statements of Cash Flows
March 31, 1998 and March 31, 1997 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
<PAGE>
NYMAGIC, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
March 31, December 31,
1998 1997
---- ----
ASSETS
Investments:
Fixed maturities available for sale,
at fair value (amortized cost
$354,885,903 and $352,696,745) $362,845,683 $361,249,758
Equity securities at fair value (cost
$48,071,814 and $47,925,798) 64,032,353 59,258,608
Short-term investments 29,291,801 18,082,540
------------- -------------
Total investments 456,169,837 438,590,906
------------ ------------
Cash 1,197,500 1,042,310
Accrued investment income 5,331,478 6,322,370
Premiums and other receivables, net 30,054,926 40,635,164
Reinsurance receivables 185,736,165 175,657,952
Deferred policy acquisition costs 4,603,403 5,567,488
Prepaid reinsurance premiums 21,766,362 24,414,620
Deferred income taxes 7,156,198 8,436,768
Property, improvements and equipment, net 2,727,350 2,365,653
Other assets 5,800,956 4,869,609
--------------- ---------------
Total assets $720,544,175 $707,902,840
============ ============
LIABILITIES
Unpaid losses and loss adjustment expenses $391,022,918 $388,401,548
Reserve for unearned premiums 49,983,694 55,188,281
Ceded reinsurance payable 25,294,233 27,307,129
Notes payable 21,208,413 22,458,413
Other liabilities 18,253,884 7,062,095
Dividends payable 967,341 966,031
------------- -------------
Total liabilities 506,730,483 501,383,497
------------- -----------
SHAREHOLDERS' EQUITY
Common stock 15,008,992 14,991,992
Paid-in capital 27,855,039 27,529,877
Accumulated other comprehensive income 15,587,207 12,931,785
Retained earnings 197,956,480 193,547,346
------------- -------------
256,407,718 249,001,000
Treasury stock, at cost,
5,335,586 and 5,331,686 shares (42,594,026) (42,481,657)
---------------- ----------------
Total shareholders' equity 213,813,692 206,519,343
------------- -------------
Total liabilities and shareholders'equity $720,544,175 $707,902,840
============ ============
The accompanying notes are an integral part of these
consolidated financial statements.
2
<PAGE>
NYMAGIC, INC.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
Three months ended
March 31,
1998 1997
---- ----
Revenues:
Net premiums earned $27,501,492 $21,409,018
Net investment income 5,384,363 5,376,297
Realized investment gains 3,730,564 2,010,278
Commission and other income 340,782 91,810
------------ ----------------
Total revenues 36,957,201 28,887,403
------------ ------------
Expenses:
Losses and loss adjustment expenses incurred 20,879,655 12,048,098
Policy acquisition expenses 2,874,114 4,665,386
General and administrative expenses 5,873,262 4,034,937
Interest expense 377,811 258,127
------------- ------------
Total expenses 30,004,842 21,006,548
----------- ----------
Income before income taxes 6,952,359 7,880,855
Income taxes:
Current 1,707,388 2,215,390
Deferred (131,504) (205,631)
--------- ---------
Total income taxes 1,575,884 2,009,759
---------- ----------
Net income $5,376,475 $5,871,096
========== ==========
Weighted average shares of
common stock outstanding-basic 9,669,102 10,143,052
Basic earnings per share $ .56 $ .58
================ ===============
Weighted average shares of common 9,702,134 10,168,836
stock outstanding-diluted
Diluted earnings per share $ .55 $ .58
================ ===============
Dividends declared per shares $ .10 $ .10
================ ===============
The accompanying notes are an integral part of these
consolidated financial statements.
3
<PAGE>
NYMAGIC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Three months ended
March 31,
1998 1997
---- ----
Cash flows from operating activities:
Net income $ 5,376,475 $ 5,871,096
------------ -------------
Adjustments to reconcile net income to net cash provided by operating
activities:
Provision for deferred taxes (131,504) (205,631)
Realized investment gains (3,730,564) (2,010,278)
Net bond amortization 546,274 407,412
Depreciation and other, net 152,560 115,944
Changes in:
Premiums and other receivables 10,580,238 10,321,257
Reinsurance receivables (10,078,213) 6,051,243
Ceded reinsurance payable (2,012,896) (2,807,560)
Accrued investment income 990,892 408,769
Deferred policy acquisition costs 964,085 715,417
Prepaid reinsurance premiums 2,648,258 1,025,476
Other assets (931,347) (275,257)
Unpaid losses and loss adjustment expenses 2,621,370 (5,503,016)
Reserve for unearned premiums (5,204,587) (5,413,848)
Other liabilities 11,191,789 1,758,592
Other 33,000 ------
------ ---------------
Total adjustments 7,639,355 4,588,520
------------ --------------
Net cash provided by operating activities 13,015,830 10,459,616
---------- ----------
Cash flows from investing activities:
Fixed maturities acquired (36,035,087) (70,466,361)
Equity securities acquired (11,146,410) (12,588,032)
Net (purchase) sale of short-term investments 1,208,656) 106,043
Fixed maturities matured 4,626,118 7,569,293
Fixed maturities sold 29,214,047 56,738,192
Equity securities sold 14,189,843 13,926,382
Acquisition of property & equipment, net (514,257) (198,299)
----------- -------------
Net cash used in investing activities (10,874,402) (4,912,782)
------------ ------------
Cash flows from financing activities:
Proceeds from stock issuance 342,162 149,870
Cash dividends paid to stockholders (966,031) (1,014,305)
Net repurchase of common stock (112,369) (179,687)
Loan principal repayments (1,250,000) (5,000,000)
------------- -------------
Net cash used in financing activities (1,986,238) (6,044,122)
----------- -----------
Net increase (decrease) in cash 155,190 (497,288)
Cash at beginning of period 1,042,310 701,086
-------------- ---------------
Cash at end of period $ 1,197,500 $ 203,798
============== ==============
The accompanying notes are an integral part of these
consolidated financial statements.
4
<PAGE>
NYMAGIC, INC.
Notes to Consolidated Financial Statements
1) The interim consolidated financial statements are unaudited but, in the
opinion of management, reflect all material adjustments necessary for a fair
presentation of results for such periods. Adjustments to financial statements
consist of normal recurring items. The results of operations for any interim
period are not necessarily indicative of results for the full year. These
financial statements should be read in conjunction with the financial statements
and notes thereto contained in the Company's Annual Report on Form 10-K for the
year ended December 31, 1997.
2) Statement of Financial Accounting Standard No. 130, "Reporting
Comprehensive Income", ("SFAS 130"), became effective for fiscal years
beginning after December 15, 1997. SFAS 130 establishes standards for the
reporting and presentation of comprehensive income and its components.
Comprehensive income encompasses all changes in shareholders' equity,
except for those arising from transactions with owners, and includes net
income, net unrealized capital gains or losses on securities and foreign
currency translation adjustments.
The Company's comparative comprehensive income follows:
Three months ended
March 31,
1998 1997
(in thousands)
Net income $5,376 $5,871
Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on securities
($4,034 and ($6,635) pretax) 2,622 (4,313)
Foreign currency translation adjustment33 ---
-------------------- -------------
Other comprehensive income (loss) 2,655 (4,313)
- ----- ------------ -----------
Total comprehensive income $8,031 $1,558
========= ===========
Amounts reported in net income and other comprehensive income:
Three months ended
March 31,
1998 1997
(in thousands)
Net change in unrealized gain (loss) $2,622 $(4,313)
Net change in foreign currency translation adjustment 33 ---
Realized gains, net of tax 2,425 1,307
------- -----------
Holding gains (losses) arising during period, net of tax 5,080 (3,006)
Reclassification adjustment for realized gains, net of tax
recorded in income statement (2,425) (1,307)
---------- ----------
Other comprehensive income (loss) for the period,
net of reclassification adjustment $2,655 $(4,313)
========= =========
5
<PAGE>
NYMAGIC, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Net premiums earned increased 28% to $27,501,492 in the first quarter ended
March 31, 1998 from $21,409,018 for the first quarter of 1997. Included in 1998
premiums earned was a one time assumption of premiums, of approximately
$14,200,000 of ocean marine business, that emanated from the Company's Lloyd's
of London syndicate which commenced operations in the current year. The domestic
insurance companies recorded reductions in premiums earned in all major lines of
business. An 8% decline in ocean marine premium earned was recorded as
competition remains intense and adversely affected premium rates. Aviation
premiums earned decreased by 84% in 1998 mainly due to the effects of purchasing
additional reinsurance protection. This is consistent with the Company's
strategy of minimizing risk as the underwriting climate for gross premiums
remain soft. The other liability line decreased 32% as a result of the soft
casualty market which allowed for a decline in premium production.
Losses and loss adjustment expenses incurred as a percentage of net premiums
earned were 75.9% for the three months ended March 31, 1998 as compared to 56.3%
for the first quarter of 1997. The loss ratio for the assumption of premiums, in
the Company's Lloyd's syndicate in 1998, was equal to approximately 100% and had
the effect of increasing this ratio significantly. Absent this business, the
loss ratio would have been approximately 50%. The domestic insurance companies
recorded favorable net loss experience in the Company's core ocean marine line
due to lower retention levels per loss. This benefit was offset partially by
increases in the aviation loss ratio which was brought by premium rate
reductions.
Policy acquisition costs as a percentage of net premiums earned for the three
months ended March 31, 1998 were 10.5% as compared with 21.8% for the same
period of the prior year. The reduction in the ratio is primarily attributable
to the one time assumption of premiums in 1998 which was written without
commission expense. Also, contributing to the overall decline were ceded
override commissions in our aviation line. This resulted in reducing net
commissions at a greater rate than the decline in premiums.
Interest expense increased to $377,811 for the three months ended March 31,
1998 from $258,127 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, 1998 of $5,384,363
remained flat with the same period of 1997 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
and lower overall interest rates.
General and administrative expenses increased by 46% in 1998 over the first
quarter of 1997.The increase includes operating expenses for our recently
acquired Lloyd's of London agency and syndicate. Also, certain one time expenses
were incurred in connection with the assumption of premiums in our Lloyd's
syndicate. Lastly, contributing to the overall increase were expenses associated
with two employee benefit plans adopted by the Board of Directors in the first
quarter of 1998.
6
<PAGE>
NYMAGIC, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS CONTINUED
Realized investment gains of $3,730,564 for the three months ended March 31,
1998 result mainly from the sale of appreciated equity securities.
The Company reported net income of $5,376,475 or $.55 per share for the three
months ended March 31, 1998 as compared to net income of $5,871,096 or $.58 per
share for the same period of 1997.
The Company believes that short-term investments of $29,291,801 together with
its available line of credit will enable the Company to meet its current cash
requirements.
Premiums and other receivables, net decreased to $30,054,926 as of March 31,
1998. Declines in premium writings from the domestic insurance companies
contributed to the overall decline in receivables.
The increase in accumulated other comprehensive income, at March 31, 1998 is
mainly attributable to increases in unrealized appreciation of investments, net
of deferred income taxes. The favorable stock market in 1998 accounted for most
of the increase.
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 3,900 shares of common stock, pursuant to the
Company's common stock repurchase plan, during the first quarter of 1998, at a
market price of approximately $28.81.
In the first quarter of 1998, the Company entered into an interest rate swap
agreement (the "agreement") with a bank for purposes of hedging its interest
rate risk on its bank loan. The agreement requires the Company to pay interest
to the bank at a rate of 6.50% on the notional amount outstanding of $22,500,000
which is adjusted quarterly by notional reductions of $1,250,000. The bank is
required to pay the Company, on the same notional amounts outstanding, an amount
equal to the three month US Dollar London Interbank Offered Rate plus .65% which
is reset on a quarterly basis.
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,
1998 and December 31, 1997, the Company's net loss and loss adjustment expense
reserves for Asbestos/Pollution policies amounted to $8.9 million and $9.0
million, respectively. As of March 31, 1998, the Company had approximately 430
policies which had at least one claim relating to Asbestos/Pollution exposures
with an insignificant number of claims filed or resolved in 1998. Net loss and
loss adjustment expense payments on Asbestos/Pollution policies amounted to
$730,000 and $73,000 for the three months ended March 31, 1998 and March 31,
1997, respectively. The Company believes that the uncertainty surrounding
Asbestos/Pollution
7
<PAGE>
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. 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 March 31, 1998.
However , the Company believes that, in aggregate, the unpaid loss and loss
adjustment expense reserves as of March 31, 1998, 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.
This Form 10-Q contains certain forward-looking statements concerning the
Company's operations, economic performance and financial condition, including,
in particular the likelihood of the Company's success in developing and
expanding its business. These statements are based upon a number of assumptions
and estimates which are inherently subject to significant uncertainties and
contingencies, many of which are beyond the control of the Company, and reflect
future business decisions which are subject to change. Some of these assumptions
inevitably will not materialize, and unanticipated events will occur which will
affect the Company's results.
Such statements may include, but are not limited to, projections of premium
revenue, investment income, other revenue, losses, expenses, earnings, cash
flows, plans for future operations, common stockholders' equity, investments,
capital plans, dividends, plans relating to products or services of and
estimates concerning the effects of litigation or other disputes, as well as
assumptions of any of the foregoing and are generally expressed with the words
such as "believes," "estimates," "anticipates," "plans," "projects,"
"forecasts," "goals," "could have," "may have" and similar expressions.
8
<PAGE>
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, 1998.
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 14, 1998 /s/ Mark W. Blackman
--------------------- ------------------------
Mark W. Blackman
(Chief Executive Officer)
/s/ Thomas J. Iacopelli
Thomas J. Iacopelli
(Chief Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<DEBT-HELD-FOR-SALE> 362,446
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 64,032
<MORTGAGE> 400
<REAL-ESTATE> 0
<TOTAL-INVEST> 456,170
<CASH> 1,198
<RECOVER-REINSURE> 185,736
<DEFERRED-ACQUISITION> 4,603
<TOTAL-ASSETS> 720,544
<POLICY-LOSSES> 0
<UNEARNED-PREMIUMS> 49,984
<POLICY-OTHER> 391,023
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 21,208
0
0
<COMMON> 15,009
<OTHER-SE> 198,805
<TOTAL-LIABILITY-AND-EQUITY> 720,544
27,501
<INVESTMENT-INCOME> 5,384
<INVESTMENT-GAINS> 3,731
<OTHER-INCOME> 341
<BENEFITS> 20,880
<UNDERWRITING-AMORTIZATION> 2,874
<UNDERWRITING-OTHER> 6,251
<INCOME-PRETAX> 6,952
<INCOME-TAX> 1,576
<INCOME-CONTINUING> 5,871
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,376
<EPS-DILUTED> .56
<EPS-PRIMARY> .55
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
