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, 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 October 1, 1998 there were 9,684,592 shares of common stock, $1.00 par
value outstanding.
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NYMAGIC, INC.
INDEX
Part I. FINANCIAL INFORMATION: PAGE NO.
Consolidated Balance Sheets
September 30, 1998 and December 31, 1997 2
Consolidated Statements of Income
Nine Months Ended September 30, 1998
and September 30, 1997 3
Consolidated Statements of Income
Three Months Ended September 30, 1998
and September 30, 1997 4
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1998
and September 30, 1997 5
Notes to Consolidated Financial Statements 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Part II. OTHER INFORMATION 14
1
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NYMAGIC, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
September 30, December 31,
1998 1997
---- ----
ASSETS
Investments:
Fixed maturities available for sale,
at fair value (amortized cost
$345,701,585 and $352,696,745) $358,032,985 $361,249,758
Equity securities at fair value (cost
$51,263,657 and $47,925,798) 58,240,659 59,258,608
Short-term investments 21,304,849 18,082,540
------------- -------------
Total investments 437,578,493 438,590,906
------------ ------------
Cash 1,518,267 1,042,310
Accrued investment income 5,411,978 6,322,370
Premiums and other receivables, net 27,183,654 40,635,164
Reinsurance receivables 225,080,299 175,657,952
Deferred policy acquisition costs 4,462,825 5,567,488
Prepaid reinsurance premiums 12,937,481 24,414,620
Deferred income taxes 9,238,660 8,436,768
Property, improvements and equipment, net 2,509,413 2,365,653
Other assets 6,244,692 4,869,609
------------ ---------------
Total assets $732,165,762 $707,902,840
============ ============
LIABILITIES
Unpaid losses and loss adjustment expenses $433,838,286 $388,401,548
Reserve for unearned premiums 38,771,151 55,188,281
Ceded reinsurance payable 12,781,454 27,307,129
Notes payable 18,708,413 22,458,413
Other liabilities 9,643,520 7,062,095
Dividends payable 968,459 966,031
----------------- --------------
Total liabilities 514,711,283 501,383,497
-------------- -----------
SHAREHOLDERS' EQUITY
Common stock 15,016,992 14,991,992
Paid-in capital 28,014,304 27,529,877
Accumulated other comprehensive income 12,652,029 12,931,785
Retained earnings 204,273,384 193,547,346
------------- -------------
259,956,709 249,001,000
Treasury stock, at cost,
5,332,400 and 5,331,686 shares (42,502,230) (42,481,657)
----------------- ----------------
Total shareholders' equity 217,454,479 206,519,343
------------- -------------
Total liabilities and shareholders' equity$732,165,762 $707,902,840
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
2
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NYMAGIC, INC.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
Nine months ended
September 30,
1998 1997
---- ----
Revenues:
Net premiums earned $63,605,255 $64,104,717
Net investment income 15,712,648 15,979,351
Realized investment gains 7,244,240 7,756,085
Commission and other income 950,516 1,026,648
----------- --------------
Total revenues 87,512,659 88,866,801
------------ ------------
Expenses:
Net losses and loss adjustment expenses
incurred 45,771,922 36,548,191
Policy acquisition expenses 7,975,969 13,098,879
General and administrative expenses 15,900,733 12,615,842
Interest expense 1,064,038 1,003,255
------------- ------------
Total expenses 70,712,662 63,266,167
------------ ----------
Income before income taxes 16,799,997 25,600,634
---------- ----------
Income taxes:
Current 3,769,746 6,746,416
Deferred (599,795) (184,742)
-------------- -------------
Total income taxes 3,169,951 6,561,674
------------ -----------
Net income $ 13,630,046 $19,038,960
============ ===========
Weighted average shares of common
stock outstanding-basic 9,676,749 9,914,268
Basic earnings per share $ 1.41 $ 1.92
=============== ==============
Weighted average shares of common
stock outstanding-diluted 9,704,296 9,932,583
Diluted earnings per share $ 1.40 $ 1.92
=============== ==============
Dividends declared per share $ .30 $ .30
================= ===============
The accompanying notes are an integral part of these consolidated financial
statements.
3
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NYMAGIC, INC.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
Three months ended
September 30,
1998 1997
---- ----
Revenues:
Net premiums earned $10,794,455 $22,335,632
Net investment income 5,234,275 5,298,691
Realized investment gains 306,610 4,232,715
Commission and other income 226,623 861,408
--------------- --------------
Total revenues 16,561,963 32,728,446
------------ ------------
Expenses:
Net losses and loss adjustment expenses
incurred 6,022,182 13,884,900
Policy acquisition expenses 2,513,268 3,958,131
General and administrative expenses 4,549,531 4,290,952
Interest expense 332,676 403,432
------------- ------------
Total expenses 13,417,657 22,537,415
----------- ----------
Income before income taxes 3,144,306 10,191,031
--------- -------------
Income taxes:
Current 688,200 2,693,341
Deferred (622,687) 45,256
---------------- --------------
Total income taxes 65,513 2,738,597
------ ------------
Net income $ 3,078,793 $ 7,452,434
============ ============
Weighted average shares of common
stock outstanding-basic 9,683,869 9,647,606
Basic earnings per share $ .32 $ .77
============== =============
Weighted average shares of common
stock outstanding-diluted 9,706,841 9,665,921
Diluted earnings per share $ .32 $ .77
============== =============
Dividends declared per share $ .10 $ .10
============== =============
The accompanying notes are an integral part of these consolidated financial
statements.
4
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NYMAGIC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Nine months ended
September 30,
1998 1997
---- ----
Cash flows from operating activities:
Net income $ 13,630,046 $ 19,038,960
------------ -------------
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for deferred taxes (599,795) (184,742)
Realized investment gains (7,244,240) (7,756,085)
Net bond amortization 1,630,352 1,356,858
Depreciation and other, net 478,427 409,131
Changes in:
Premiums and other receivables 13,451,510 27,174,025
Reinsurance receivables (49,422,347) 4,428,897
Ceded reinsurance payable (14,525,675) (4,017,342)
Accrued investment income 910,392 671,299
Deferred policy acquisition costs 1,104,663 3,253,150
Other assets (1,375,083) (1,920,934)
Prepaid reinsurance premiums 11,477,139 1,636,321
Unpaid losses and loss adjustment expenses 45,436,738 (4,512,102)
Reserve for unearned premiums (16,417,130) (17,070,989)
Other liabilities 2,581,425 (190,430)
Other 95,568 --------
------ ---------
Total adjustments (12,418,056) 3,277,057
--------------- -------------
Net cash provided by operating activities 1,211,990 22,316,017
------------ ------------
Cash flows from investing activities:
Fixed maturities acquired (68,036,963) (183,626,670)
Equity securities acquired (36,636,310) (37,818,295)
Fixed maturities matured 22,466,653 11,969,044
Fixed maturities sold 51,892,323 155,774,645
Equity securities sold 39,576,265 38,366,994
Net (purchase) sale of
short-term investments (3,213,088) 2,851,647
Acquisition of property
& equipment, net (622,187) (741,010)
--------------- ---------------
Net cash provided from (used in)
investing activities 5,426,693 (13,223,645)
--------------- ----------
Cash flows from financing activities:
Proceeds from stock issuance 509,427 979,683
Cash dividends paid to stockholders (2,901,580) (2,993,370)
Net repurchase of common stock (20,573) (10,670,323)
Proceeds from borrowings 5,000,000 9,520,000
Loan principal repayments (8,750,000) (6,250,000)
------------- -------------
Net cash used in financing activities (6,162,726) (9,414,010)
------------- -------------
Net increase (decrease) in cash 475,957 (321,638)
Cash at beginning of period 1,042,310 701,086
------------- ----------
Cash at end of period $ 1,518,267 $ 379,448
=========== ============
The accompanying notes are an integral part of these consolidated financial
statements.
5
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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:
Nine months ended Three months ended
September 30, September 30,
---------------------------------------------------
1998 1997 1998 1997
---- ---- ---- ----
(in thousands)
Net income $13,630 $19,039 $3,079 $7,452
Other comprehensive income
(loss), net of tax:
Unrealized gains (losses) on securities
(($577), $8,018 and
($2,972), $5,432 pretax) (375) 5,212 (1,932) 3,531
Foreign currency translation
adjustment 95_ --- 62 ---
------ ----- ------ ------
Other comprehensive income (loss) (280) 5,212 (1,870) 3,531
------ ----- ------- -----
Total comprehensive income $13,350 $24,251 $1,209 $10,983
======= ======== ====== =======
Amounts reported in net income and other comprehensive income:
Nine months ended
September 30,
1998 1997
(in thousands)
Net change in unrealized gain $ (375) $5,212
Net change in foreign currency translation adjustment 95 ---
Realized gains, net of tax 4,709 5,041
-------- ---------
Holding gains arising during period, net of tax 4,429 10,253
Reclassification adjustment for realized gains,
net of tax recorded in income statement (4,709) (5,041)
-------- ---------
Other comprehensive income (loss) for the period,
net of reclassification adjustment $(280) $5,212
======== =========
6
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NYMAGIC, INC.
Notes to Consolidated Financial Statements
3) Earnings per share data for 1997 has been restated to reflect the
changes required by Statement of Financial Accounting Standards No. 128,
"Earnings per Share" ("SFAS 128"). SFAS 128 requires presentation of
both basic earnings per share and diluted earnings per share in the
financial statements.
4) Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities " ("SFAS 133"), was
issued by the Financial Accounting Standards Board in June 1998. SFAS
133 requires derivatives to be recorded on the balance sheet at fair
value. Derivatives not considered as hedges must be recorded at fair
value with adjustments recorded in the income statement. For derivatives
that qualify as hedges, changes in the fair value of the derivative are
offset against changes in the fair value of the hedged assets or
liabilities and are recognized in the income statement or in other
comprehensive income depending on the nature of the hedge. SFAS 133 is
effective for years beginning after June 15, 1999.
The Company uses derivatives, in the form of an interest rate swap, for
hedging purposes as part of its interest rate management. The Company
has not yet determined the effect of SFAS 133 on its financial statements.
7
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NYMAGIC, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
Net premiums earned were $63,605,255 for the nine months ended September 30,
1998 or a decrease of approximately 1% when compared to the prior year. For the
three months ended September 30, 1998, net premiums earned decreased 52% when
compared to the third quarter of the prior year. Premiums earned in 1998 reflect
very competitive markets across all lines of business and the effects of two
transactions involving the assumption of premiums. The first transaction, which
occurred in the first quarter of 1998, included a one time assumption of
approximately $14,200,000 of ocean marine premiums from the Company's Lloyd's of
London syndicate which commenced operations in the current year. The second
transaction occurred in the second quarter of 1998 and also included a one time
assumption of approximately $10,500,000 of miscellaneous casualty net premiums.
Absent these two assumption of premium transactions, premiums earned would have
decreased approximately 40% in 1998. Overall, a 6% decline in ocean marine
premiums earned was recorded as competition remained intense and adversely
affected premium rates. The aviation line of business was most affected by the
competitive market, with gross writings down by 29%. Coupled with the purchase
of additional reinsurance protection, this resulted in premiums earned
decreasing by 90% in 1998. Obtaining additional reinsurance protection is
consistent with the Company's strategy of minimizing risk as the underwriting
climate for gross premiums remains soft. In addition, several large aviation
gross losses resulted in additional reinsurance reinstatement costs and
contributed to the decline in premiums. The other liability line decreased 22%
as a result of the soft casualty market, which led to a decline in premium
production.
Losses and loss adjustment expenses incurred as a percentage of net premiums
earned were 55.8% for the three months ended September 30, 1998 as compared to
62.2% for the third quarter of 1997. For the nine months ended September 30,
1998, such ratio was 72.0% as compared to 57.0% for the same period of the prior
year. The loss ratio for the aforementioned two assumption of premium
transactions was approximately 100% and had the effect of increasing the
nine-month loss ratio significantly. Absent such business, the loss ratio would
have been approximately 56.7% for the nine months ended September 30, 1998. The
domestic insurance companies recorded favorable net loss experience in the
Company's core ocean marine line largely due to lower retention levels per loss.
In addition, favorable net loss development occurred in both the ocean marine
and aviation lines.
Commission and other income for the nine months ended September 30, 1998 were
$950,516 as compared to $1,026,648 for the same period of 1997 and were $226,623
for the third quarter of 1998 as compared to $861,408 for the same period of the
prior year. The third quarter of the prior year included larger profit
commissions from reinsurance transactions in the aviation line of business.
Net investment income for the nine months and quarter ended September 30,
1998 decreased by 2% and 1%, respectively, from the same periods of 1997 as a
result of a larger average invested asset base in 1998 offset slightly by a
decrease in investment yield in the Company's fixed maturity portfolio caused by
additional purchases of tax-exempt securities and lower overall interest rates.
8
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NYMAGIC, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS CONTINUED
Policy acquisition costs as a percentage of net premiums earned for the nine
months ended September 30, 1998 were 12.5% as compared with 20.4% for the same
period of the prior year. Such ratio was 23.3% and 17.7% for the three months
ended September 30, 1998 and 1997, respectively. The reduction in the nine-month
ratio is due in large part to the two assumption of premium transactions
referred to above. Absent such business, such ratio would have been
approximately 20.5% for the nine months ended September 30, 1998. Contributing
to the increase in such ratio in the third quarter of 1998 were additional
reinsurance reinstatement costs in the aviation line.
General and administrative expenses increased by 26% in 1998 over the first
nine months of 1997. The increase included operating expenses from the Company's
recently acquired Lloyd's of London agency and syndicate. In addition, certain
one time expenses were incurred in connection with the assumption of premiums
and the formation of the Lloyd's syndicate. Also, 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.
Realized investment gains of $7,244,240 for the nine months ended September
30, 1998 mainly resulted from the sale of appreciated equity securities.
The Company reported net income of $13,630,046, or $1.40 diluted income per
share for the nine months ended September 30, 1998, as compared to net income of
$19,038,960, or $1.92 diluted income per share for the same period of 1997. Net
income was $3,078,793, or $.32 diluted income per share for the three months
ended September 30, 1998 as compared with $7,452,434, or $.77 per share for the
same period of the prior year.
Unpaid losses and loss adjustment expenses at September 30, 1998 increased to
$433,838,286 due in part to the aforementioned two assumption of premium
transactions, as well as an increase in gross severity losses in the aviation
line. Reinsurance recoverables increased to $225,080,299 due in large part to
recoveries on the gross severity losses in the aviation line.
Declines in gross premium writings in the aviation line contributed to the
reduction of both the reserve for unearned premiums and prepaid reinsurance
premiums as of September 30, 1998 to $38,771,151 and $12,937,481, respectively.
Liquidity and Capital Resources
Cash flow from operations has decreased to $1,211,990 for the nine months
ended September 30, 1998 as a result of premiums decreasing due to competitive
market pressures.
The Company believes that short-term investments of $21,304,849 as of
September 30, 1998 together with its available line of credit will enable the
Company to meet its current cash requirements.
The Company borrowed $5,000,000 under its line of credit facility in the
second quarter of 1998 to assist in the payment of gross losses and reinsurance
premium payments. The amount was fully repaid during the second quarter.
9
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NYMAGIC, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS CONTINUED
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 maintaining 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
an average market price of $28.81. In addition, 3,186 treasury shares were
issued in the second quarter of 1998 to various members of the Board of
Directors.
Other Accounting Matters
In the first quarter of 1998, the Company entered into an interest rate swap
agreement (the "agreement") with a bank for purposes of hedging the interest
rate risk on its existing 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 amount is adjusted quarterly by national 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 rate is reset on a quarterly basis.
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 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 September
30, 1998 and December 31, 1997, the Company's net loss and loss adjustment
expense reserves for Asbestos/Pollution policies amounted to $9.2 million and
$9.0, respectively. As of September 30, 1998, the Company had approximately 400
policies each of which had at least one claim relating to Asbestos/Pollution
exposures. Net loss and loss adjustment expense payments on Asbestos/Pollution
policies amounted to $650,000 and $440,000 for the nine month periods ended
September 30, 1998 and September 30, 1997, respectively. The Company believes
that the uncertainty surrounding Asbestos/Pollution exposures, including issues
as to insureds' liabilities, ascertainment of loss date, definitions of
occurrence, scope of coverage, policy limits and application and interpretation
of policy terms, including exclusions, all affect the estimation of ultimate
losses. Under such circumstances, it is difficult to determine the ultimate loss
for Asbestos/Pollution related claims. Given the uncertainty in this area,
losses from Asbestos/Pollution related claims are likely to adversely impact the
Company's results from operations in future years and may vary materially from
such reserves reported as of September 30, 1998. However, the Company believes
that, in aggregate, the unpaid loss and loss adjustment expense reserves as of
September 30, 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.
10
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NYMAGIC, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS CONTINUED
Impact of Year 2000
The Company's computer systems and electronic devices which are based on
software programs which process dates with two digits rather than four to define
the applicable year may assume that all years occur only in the 20th century.
This could cause a system failure or miscalculation causing disruptions of
operations controlled by such systems or devices, including, among other things,
an inability to process transactions, send invoices, engage in actuarial
analyses, compute and track payment schedules, control equipment or engage in
similar normal business activities. The Company's exposure to this potential
phenomenon is concentrated principally in its legacy hardware system, insurance
business operations software, financial applications software (accounts payable,
general ledger and other packages), business relations, and potential
underwriting losses arising from claims by insureds under the Company's
insurance policies for relief for losses resulting from the Year 2000
phenomenon.
The following discussion is based on management's best estimates, which were
derived using numerous assumptions of future events, including, without
limitation, the continuing availability of basic utilities and other resources,
the availability of trained personnel at reasonable cost, and the ability of
third parties to replace or upgrade noncompliant software and hardware at
reasonable cost. There can be no guarantee that these assumptions will prove
accurate, and, accordingly, actual results may
materially differ from those anticipated.
Evaluation Efforts
The Company is well along in its assessment of all its systems that could be
significantly affected by the Year 2000 problem, including the Company's legacy
hardware system, insurance business operations software, and financial
applications software. Additionally, the Company is gathering information about
the Year 2000 compliance efforts of the Company's significant business relations
and continues to monitor their compliance. Lastly, the Company is evaluating
its potential underwriting losses arising from claims by insureds under
insurance policies written by the Company for alleged coverage of losses
arising from Year 2000 problems, as well as considering the Year 2000
phenomenon when making underwriting decisions.
Readiness and Compliance Plan
The Company separated its Year 2000 compliance efforts into three major
segments: (1) Information Technology; (2) Compliance by Vendors and Business
Relations; and (3) Potential Underwriting Losses.
Information Technology
In 1996, the Company commenced overhauling its existing legacy mainframe
computer hardware and software systems in order to improve employee productivity
and financial reporting. The Company extended the project to cover Year 2000
concerns.
11
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NYMAGIC, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS CONTINUED
As of September 30, 1998, the Company switched its computer hardware system to a
client-server architecture which is Year 2000 compliant. The Company also
successfully upgraded its insurance business operations software so that such
software now functions with the new Year 2000 compliant operating system.
However, the upgraded operations software is not currently Year 2000 compliant.
The Company obtained a Year 2000 compliant version of most of the software used
in its insurance business operations. There are costs involved to test and
implement this operating system. The Company expects its insurance business
operations software to be Year 2000 compliant by December 31, 1998.
The Company expects that its remaining software (which includes financial
applications for accounts payable, general ledger and other packages) will be
Year 2000 compliant by June 30, 1999. In the event such systems cannot be
upgraded or remedied, the Company would purchase and/or license replacement
software which is Year 2000 compliant.
Compliance by Vendors and Business Relations
In connection with the Company's Year 2000 plan, the Company is in the process
of communicating with its various business relationships and vendors to
determine the extent of their Year 2000 compliance. The Company mailed
questionnaires to approximately 300 companies which the Company considers to
have an important relationship with the Company. To date, the Company received
responses from approximately 130 of such companies indicating that they are in
the process of becoming Year 2000 compliant before January 1, 2000. The Company
is soliciting the non-responding companies to determine the extent of their
compliance. The Company believes that it will complete analyzing the Year 2000
compliance of its business relationships by July 1999. In the event that a
business relationship does not respond to the Company or does not demonstrate
that its own systems are Year 2000 compliant, then such business relationships
may need to be terminated which may result in a material and adverse effect on
the Company' business, assets, prospects and financial condition.
Potential Underwriting Losses
Property/casualty insurance companies may have an underwriting exposure related
to the Year 2000 phenomenon. Although the Company has not received any claims
for coverage from insureds based on losses resulting from Year 2000 issues,
there can be no assurance that insureds will be free from losses of this type
or that the Company will be free from claims made under the Company's insurance
policies. If any claims are made, coverage, if any, will depend on the facts
and circumstances of the claim and the provisions of the subject insurance
policy. At this time, the Company is unable to determine whether the adverse
impact and/or extent of underwriting losses, if any, in connection with the
foregoing circumstances would be material to the Company.
12
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NYMAGIC, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS CONTINUED
Cost of Year 2000 Compliance
The Company estimates, based on its evaluations and actions taken to date, that
the aggregate cost of its information technology project, including the cost of
achieving Year 2000 compliance, will be approximately $1,400,000 of which
approximately $1,000,000 has been expended to date. These costs (excluding
internal personnel expenses) are comprised of outside consulting service costs
for evaluation and upgrade of systems, acquisition costs for new equipment and
componentry, and licensing and purchase fees for new and upgraded software.
Contingency Plan; Actual Results May Differ
Since, assuming that the Company's business relations will themselves timely
achieve Year 2000 compliance, the Company believes that its information
technology systems will be Year 2000 compliant, it has not developed and does
not plan on developing a contingency plan for noncompliant information
technology systems (other than purchasing or licensing further Year 2000
hardware and/or software as may be cost efficient and needed).
Actual results may differ materially from those anticipated. Specific factors
that might cause such material differences include, but are not limited to, the
availability and cost of a personnel trained in this area, the ability to locate
suitable cost efficient replacements (or upgrades to) computer hardware and
software which are Year 2000 compliant, and the ability to correct all relevant
computer codes and similar uncertainties. There can be no assurance that the
Company will be immune from underwriting losses arising from Year 2000; and such
losses may result in a material and adverse effect on the Company's business,
assets, prospects, and financial condition.
Forward-Looking Statements
This Quarterly Report on 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 and Year 2000 compliance. 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 are made under the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. These 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,
plans for year 2000 compliance, 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.
13
<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 September 30, 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: November 12, 1998 /s/ Sergio B. Tobia
------------------------------ ------------------------
Sergio B. Tobia
(Chief Executive Officer)
/s/ Thomas J. Iacopelli
------------------------
Thomas J. Iacopelli
(Chief Financial Officer)
14
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<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
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