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 June 30, 1999
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 July 1, 1999 there were 9,696,052 shares of common stock, $1.00 par
value outstanding.
<PAGE>
NYMAGIC, INC.
INDEX
Part I. FINANCIAL INFORMATION: PAGE NO.
--------
Consolidated Balance Sheets
June 30, 1999 and December 31, 1998 2
Consolidated Statements of Income
June 30, 1999 and June 30, 1998 3
Consolidated Statements of Cash Flows
June 30, 1999 and June 30, 1998 5
Notes to Consolidated Financial Statements 6
Management's Discussion And Analysis of Financial
Condition and Results of Operations 8
Part II. OTHER INFORMATION 15
1
<PAGE>
NYMAGIC, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
June 30, December 31,
1999 1998
---- ----
ASSETS
Investments:
Fixed maturities available for sale,
at fair value (amortized cost
$326,522,802 and $342,583,525) $327,945,809 $353,403,303
Equity securities at fair value (cost
$57,078,591 and $54,368,172) 78,035,533 73,418,473
Short-term investments 9,193,696 16,200,606
------------ ------------
Total investments 415,175,038 443,022,382
------------ ------------
Cash 1,880,842 1,583,390
Accrued investment income 5,896,863 6,189,866
Premiums and other receivables, net 38,243,100 41,422,913
Reinsurance receivables 203,901,068 199,730,802
Deferred policy acquisition costs 4,708,200 4,277,430
Prepaid reinsurance premiums 14,789,328 19,393,546
Deferred income taxes 7,687,895 5,811,741
Property, improvements and equipment, net 2,157,222 2,341,021
Other assets 8,226,850 6,547,403
------------ ------------
Total assets $702,666,406 $730,320,494
============ ============
LIABILITIES & SHAREHOLDERS' EQUITY
Unpaid losses and loss adjustment expenses $389,167,746 $401,584,146
Reserve for unearned premiums 40,167,809 46,878,550
Ceded reinsurance payable 19,172,357 23,795,992
Notes payable 14,958,413 17,458,413
Other liabilities 8,416,398 11,454,977
Dividends payable 969,605 968,549
------------ ------------
Total liabilities 472,852,328 502,140,627
------------ ------------
Common stock 15,017,892 15,017,892
Paid-in capital 27,896,907 28,029,410
Accumulated other comprehensive income 14,423,584 19,436,591
Retained earnings 214,695,601 208,198,204
------------ ------------
272,033,984 270,682,097
Treasury stock, at cost, 5,321,840 and
5,332,400 shares (42,219,906) (42,502,230)
------------ ------------
Total shareholders' equity 229,814,078 228,179,867
------------ ------------
Total liabilities and shareholders' equity $702,666,406 $730,320,494
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
2
<PAGE>
NYMAGIC, INC.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
<TABLE>
<CAPTION>
Six months ended
June 30,
1999 1998
---- ----
<S> <C> <C>
Revenues:
Net premiums earned $26,297,810 $52,810,800
Net investment income 9,311,579 10,478,373
Realized investment gains 6,463,698 6,937,630
Commission and other income 306,240 723,893
----------- -----------
Total revenues 42,379,327 70,950,696
----------- -----------
Expenses:
Losses and loss adjustment expenses incurred 15,862,723 39,749,740
Policy acquisition expenses 5,376,623 5,462,701
General and administrative expenses 10,371,714 11,351,202
Interest expense 598,686 731,362
----------- -----------
Total expenses 32,209,746 57,295,005
----------- -----------
Income before income taxes 10,169,581 13,655,691
----------- -----------
Income taxes:
Current 988,639 3,081,546
Deferred 745,391 22,892
----------- -----------
Total income taxes 1,734,030 3,104,438
----------- -----------
Net income $ 8,435,551 $10,551,253
=========== ===========
Weighted average shares of common stock outstanding-basic 9,694,768 9,673,130
Basic earnings per share $ .87 $ 1.09
=========== ===========
Weighted average shares of common stock outstanding-diluted 9,694,768 9,702,965
Diluted earnings per share $ .87 $ 1.09
=========== ===========
Dividends declared per share $ .20 $ .20
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
NYMAGIC, INC.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
<TABLE>
<CAPTION>
Three months ended
June 30,
1999 1998
---- ----
<S> <C> <C>
Revenues:
Net premiums earned $ 12,755,669 $ 25,309,308
Net investment income 4,619,157 5,094,010
Realized investment gains 1,969,631 3,207,066
Commission and other income 253,280 383,111
------------ ------------
Total revenues 19,597,737 33,993,495
------------ ------------
Expenses:
Losses and loss adjustment expenses incurred 8,363,676 18,870,085
Policy acquisition expenses 2,630,060 2,588,587
General and administrative expenses 4,626,156 5,477,940
Interest expense 309,093 353,551
------------ ------------
Total expenses 15,928,985 27,290,163
------------ ------------
Income before income taxes 3,668,752 6,703,332
------------ ------------
Income taxes:
Current (168,716) 1,374,158
Deferred 553,992 154,396
------------ ------------
Total income taxes 385,276 1,528,554
------------ ------------
Net income $ 3,283,476 $ 5,174,778
============ ============
Weighted average shares of common stock outstanding-basic 9,693,499 9,677,114
Basic earnings per share $ .34 $ .53
============ ============
Weighted average shares of common stock outstanding-diluted 9,693,499 9,707,742
Diluted earnings per share $ .34 $ .53
============ ============
Dividends declared per share $ .10 $ .10
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
NYMAGIC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Six months ended
June 30,
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 8,435,551 $ 10,551,253
------------ ------------
Adjustments to reconcile net income to
net cash (used in ) provided by operating activities:
Provision for deferred taxes 745,391 22,892
Realized investment gains (6,463,698) (6,937,630)
Net bond amortization 1,169,256 1,080,306
Depreciation and other, net 326,893 309,730
Changes in:
Premiums and other receivables 3,179,813 7,327,409
Reinsurance receivables (4,170,266) (9,793,890)
Ceded reinsurance payable (4,623,635) (10,154,556)
Accrued investment income 293,003 142,732
Deferred policy acquisition costs (430,770) 815,692
Prepaid reinsurance premiums 4,604,218 7,761,333
Other assets (1,679,447) (777,322)
Unpaid losses and loss adjustment expenses (12,416,400) 15,880,772
Reserve for unearned premiums (6,710,741) (10,536,469)
Other liabilities (3,038,579) 3,192,275
Other (144,422) 33,090
------------ ------------
Total adjustments (29,359,384) (1,633,636)
------------ ------------
Net cash (used in) provided by operating activities (20,923,833) 8,917,617
------------ ------------
Cash flows from investing activities:
Fixed maturities acquired (36,157,918) (47,651,361)
Equity securities acquired (29,412,646) (24,790,478)
Net sale (purchase) of short-term investments 7,003,732 (23,721,827)
Fixed maturities matured 16,146,577 16,417,078
Fixed maturities sold 35,193,375 50,747,197
Equity securities sold 32,878,536 25,307,468
Acquisition of property & equipment, net (143,094) (559,643)
------------ ------------
Net cash provided by (used in) investing activities 25,508,562 (4,251,566)
------------ ------------
Cash flows from financing activities:
Proceeds from stock issuance -- 458,127
Cash dividends paid to stockholders (1,937,098) (1,933,371)
Net sale (repurchase) of common stock 149,821 (20,573)
Proceeds from borrowings -- 5,000,000
Loan principal repayments (2,500,000) (7,500,000)
------------ ------------
Net cash used in financing activities (4,287,277) (3,995,817)
------------ ------------
Net increase in cash 297,452 670,234
Cash at beginning of period 1,583,390 1,042,310
------------ ------------
Cash at end of period $ 1,880,842 $ 1,712,544
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<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, 1998.
2) The insurance company and agency subsidiaries underwrite commercial
insurance in four major lines of business. The Company considers ocean
marine, aviation, other liability and inland marine as appropriate segments
for purposes of evaluating the Company's overall performance. The Company
evaluates revenues and income or loss by line of business. Revenues include
premiums earned and commission income. Income or loss includes premiums
earned and commission income less the sum of losses incurred, policy
acquisition costs and other expenses.
The financial information by segment is as follows:
(in thousands)
Six months ended
----------------
June 30, 1999 June 30, 1998
-------------------- ---------------------
Income Income
Segments: Revenues (Loss) Revenues (Loss)
Ocean marine(a) $ 22,791 $ 1,703 $ 37,146 $ 2,354
Aviation 1,900 (4,297) 4,249 (3,042)
Other liability 1,676 (678) 12,219 (658)
Inland marine 159 (186) (368) (178)
-------- -------- -------- --------
Subtotal 26,526 (3,458) 53,246 (1,524)
Other income 77 77 289 289
Net investment income 9,312 9,312 10,478 10,478
Realized investment gains 6,464 6,464 6,938 6,938
Corporate expenses -- (1,626) -- (1,795)
Interest expense -- (599) -- (731)
Income taxes -- (1,734) -- (3,104)
-------- -------- -------- --------
Total $ 42,379 $ 8,436 $ 70,951 $ 10,551
======== ======== ======== ========
(a) 1999 and 1998 include revenues of approximately $3,486 and $14,105 ,
respectively, and income (loss) of $(1,179) and $(828), respectively, from the
Company's Syndicate 1265.
6
<PAGE>
NYMAGIC, INC.
Notes to Consolidated Financial Statements
(in thousands)
Three months ended
June 30, 1999 June 30, 1998
------------------- --------------------
Income Income
Segments: Revenues (Loss) Revenues (Loss)
-------- ------- -------- -------
Ocean marine(a) $11,371 $ 972 $11,131 $ 391
Aviation 806 (2,013) 3,024 (537)
Other liability 667 (407) 11,340 (356)
Inland marine 140 (36) 55 234
------- ------- ------- -------
Subtotal 12,984 (1,484) 25,550 (268)
Other income 24 24 143 143
Net investment income 4,620 4,620 5,094 5,094
Realized investment gains 1,970 1,970 3,207 3,207
Corporate expenses -- (1,153) -- (1,119)
Interest expense -- (309) -- (353)
Income taxes -- (385) -- (1,529)
------- ------- ------- -------
Total $19,598 $ 3,283 $33,994 $ 5,175
======= ======= ======= =======
a) 1999 and 1998 include revenues of approximately $2,351 and $(154),
respectively, and income (loss) of $(682) and $(50), respectively, from the
Company's Syndicate 1265.
3) Statement of Financial Accounting Standard No. 130, "Reporting
Comprehensive Income", ("SFAS 130"),was adopted by the Company as of
January 1, 1998. 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 disclosure is as follows:
<TABLE>
<CAPTION>
Six months ended Three months ended
June 30, June 30,
------------------ ------------------
1999 1998 1999 1998
------- ------- ------- -------
(in thousands)
<S> <C> <C> <C> <C>
Net income $ 8,436 $10,551 $ 3,283 $ 5,175
Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on securities
(($7,490), $2,395 and ($3,289), ($1,639) pretax) (4,869) 1,557 (2,139) (1,065)
Foreign currency translation adjustment (144) 33 (49) --
------- ------- ------- -------
Other comprehensive income (loss) (5,013) 1,590 (2,188) (1,065)
------- ------- ------- -------
Total comprehensive income $ 3,423 $12,141 $ 1,095 $ 4,110
======= ======= ======= =======
</TABLE>
7
<PAGE>
NYMAGIC, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
Net income for the three months ended June 30, 1999, was $3,283,476, or
$.34 per share, compared with $5,174,778, or $.53 per share, for the second
quarter of 1998. Net income for the six months ended June 30, 1999, was
$8,435,551, or $.87 per share, compared with net income of $10,551,253, or $1.09
per share for the six months ended June 30, 1998. Operating income, which
excludes the effects of realized investment gains after taxes, was $2,003,216,
or $.21 per share, for the second quarter of 1999, versus $3,090,185, or $.32
per share, for the same period of the prior year. Operating income, was
$4,234,147, or $.44 per share, for the six months ended June 30, 1999, compared
to $6,041,793, or $.62 per share, for the same period of the prior year.
For the six months ended June 30, 1999, total revenues and net premiums
written were $42,379,327 and $24,191,287, respectively. This compares with total
revenues and net premiums written of $70,950,696 and $50,035,667, respectively,
in last year's first six months, both of which include approximately $24.8
million relating to two transactions involving the assumption of premiums. The
transactions involved a one-time assumption of $14.2 million of ocean marine
premiums in the first quarter of 1998 to the Company's Lloyd's of London
Syndicate #1265 and $10.6 million of miscellaneous casualty net premiums in the
second quarter of 1998 to the Company's domestic insurance company. Excluding
these one-time items, total revenues and net written premiums for the six months
ended June 30, 1999 decreased 8% and 4%, respectively. Total revenues and net
premiums written for the second quarter of 1999 were $19,597,737 and
$13,329,238, respectively. This compares with total revenues and net premiums
written of $23,430,495 and $14,527,500, respectively, for the second quarter of
1998 after excluding the one-time transfer of miscellaneous casualty business.
Net premiums earned recorded an overall decrease of 6% and 13% for the six
months ended and three months ended 1999, respectively, when compared to the
same periods of the prior year, after adjusting for the two transactions
involving one-time assumption of premiums in 1998. Decreases were recorded in
both the ocean marine and aviation segments as competition remained intense and
adversely affected premium rates. Syndicate 1265 also contributed approximately
$3.4 million in ocean marine net premiums earned in 1999. The Company maintains
an adequate level of reinsurance to protect its exposure to any one loss as the
underwriting climate for gross premiums remains soft. In particular, the
aviation segment maintains substantial reinsurance to minimize risk and
additional increases in the cost of providing this protection further
contributed to the decline in premiums in the second quarter of 1999. The other
liability line remained flat in 1999 as compared to 1998 due to additional
premium development on prior policy year's writings which was offset by
competitive pricing.
Losses and loss adjustment expenses incurred as a percentage of net
premiums earned were 65.6% for the three months ended June 30, 1999 as compared
to 74.6% for the second quarter of 1998. For the six months ended June 30, 1999,
such ratio was 60.3% as compared to 75.3% for the same period of the prior year.
The loss ratio for the two assumption of premiums in 1998 was approximately 100%
and had the effect of increasing
8
<PAGE>
NYMAGIC, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
this ratio significantly. Absent such business, the loss ratios would have been
approximately 56.3% and 53.5% for the second quarter and six months ended June
30 1998, respectively. The Company recorded higher loss ratios in the aviation
segment of business in 1999 due to increases in both the frequency and severity
of losses. In addition, in 1999, the other liability segment recorded adverse
development in prior year losses in the umbrella classes. The Company's core
ocean marine segment recorded favorable net loss experience comparable to the
prior year's periods.
Commission and other income for the six months ended June 30, 1999 was
$306,240 as compared to $723,893 for the same period of 1998 and was $253,280
for the second quarter of 1999 as compared to $383,111 for the same period of
the prior year. Larger amounts of contingent profit commissions from reinsurance
transactions in the Company's aviation and ocean marine segments were recorded
in 1998.
Interest expense decreased to $598,686 for the six months ended June 30,
1999 from $731,362 for the same period of the prior year primarily as a result
of a decrease in loan principal outstanding.
Net investment income for the second quarter and six months ended June 30,
1999 decreased by 9% and 11%, respectively, from the level of net investment
income achieved in the same periods of 1998. Contributing to the decline were
lower investment yields and a reduction in invested assets brought about by the
payments of both a large number of aviation losses on a gross basis and
reinsurance premiums in 1999.
Policy acquisition costs as a percentage of net premiums earned for the six
months ended June 30, 1999 were 20.4% as compared with 10.3% for the same period
of the prior year. The same ratio was 20.6% and 10.2% for the three months ended
June 30, 1999 and 1998, respectively. The increase in the ratios is due in large
part to the two transactions involving assumptions of premiums in 1998. Absent
such business, the ratios would have been approximately 19.4% and 17.6% for the
six months and second quarter ended June 30 1998, respectively. Further
contributing to the overall increase in 1999 were acquisition costs on business
produced from the Company's Syndicate 1265.
General and administrative expenses decreased by 8.6% in 1999 from the
first six months of 1998. The prior year's amounts included certain
non-recurring expenses incurred in connection with the assumption of premiums
and the formation of the Company's Lloyd's syndicate. In addition, larger
expenses were recorded for two employee benefit plans in 1998.
Realized investment gains of $6,463,698 for the six months ended June 30,
1999 result mainly from the sale of appreciated equity securities in addition to
sales resulting from monitoring the Company's overall exposure to equities in
compliance with the Company's investment guidelines.
9
<PAGE>
NYMAGIC, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS CONTINUED
Liquidity and Capital Resources
Total investments decreased to $415.2 million at June 30, 1999 primarily
due to both reductions in unrealized gains on fixed maturities and reductions in
the investment portfolio to fund both payments of aviation losses on a gross
basis and reinsurance premiums in 1999. These payments contributed to cash flow
used in operations in 1999 of $20.9 million. The Company maintains an adequate
level of reinsurance in the aviation line to prevent any one loss from
significantly affecting net income. However, timing differences between the
payment of gross losses by the Company and cash collections received from
reinsurers may adversely impact cash flow in any one period.
The decrease in accumulated other comprehensive income at June 30, 1999 is
mainly attributable to decreases in unrealized appreciation of investments, net
of deferred income taxes. Interest rate increases in 1999 had the adverse effect
of reducing unrealized gains on fixed maturities.
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 protection and sufficient
liquidity to meet existing obligations. The Company believes that it has
adequate resources to meet its liquidity requirements.
The Company issued 10,560 shares of common stock held in treasury to
members of the Board of Directors as part of the Board's annual compensation
program. The Company did not repurchase shares of common stock in 1999.
Other Accounting Matters
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 June 30,
1999 and December 31, 1998, 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 June 30, 1999, the Company had approximately 400 policies
which had at least one claim relating to Asbestos/Pollution exposures. Net loss
and loss adjustment expense payments on Asbestos/Pollution policies amounted to
$638,000 and $555,000 for the six month periods ended June 30, 1999 and June 30,
1998, respectively. The Company believes that the uncertainty surrounding
Asbestos/Pollution exposures, including issues as to insureds' liabilities,
ascertainment of loss
10
<PAGE>
NYMAGIC, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS CONTINUED
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 June 30, 1999.
However, the Company believes that, in the aggregate, the unpaid loss and loss
adjustment expense reserves as of June 30, 1999, allow for an adequate provision
and that the ultimate resolution of Asbestos/Pollution claims will not have a
material adverse impact on the Company's financial position.
Impact of Year 2000
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.
There can be no guarantee that these assumptions will prove accurate, and,
accordingly, actual results may materially differ from those anticipated.
Readiness and Compliance Plan
The Company separated its Year 2000 compliance plan into three major phases: (1)
Information Technology; (2) Compliance by Vendors and Business Relations; and
(3) Potential Underwriting Losses. These three phases are considered the most
critical components of the Year 2000 efforts for the Company.
Information Technology
In 1998, the Company replaced its computer hardware system with a
client-server architecture which is Year 2000 compliant. As of June 30, 1999,
the Company also successfully upgraded its insurance business operations
software to be Year 2000 compliant to function with the client-server's Year
2000 compliant operating system.
Recently, the Company completed conversions to Year 2000 compliant systems
for its remaining software (which includes financial applications for accounts
payable, general ledger and other packages).
11
<PAGE>
NYMAGIC, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS CONTINUED
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. In 1998, 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 267 of such companies who responded that they are in the process
of becoming Year 2000 compliant before January 1, 2000. In 1999, the Company
selected the 10 largest producers for the Company, which account for
approximately 64% of the Company's 1998 gross writings for the domestic
insurance companies, and requested additional information to evidence their Year
2000 Compliance. Also, the Company is soliciting the non-responding companies to
determine the extent of their compliance. The Company is slightly behind its
timetable on this phase of its compliance plan but believes that it will
complete analyzing the Year 2000 compliance of its vendors and business
relationships by October 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 adverse effect on the Company's business, assets,
prospects, liquidity 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. The Company, in certain instances, has been able to include Year 2000
exclusions in its policy forms. Also, the Company is requesting information from
certain insureds as to the extent of their Year 2000 compliance. The Company
will continue to monitor policies issued throughout the 1999 year as a result of
compliance under this phase of its Year 2000 evaluation efforts. 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
<PAGE>
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 $1,350,000 of
which approximately $1,300,000 has been expended through June 30, 1999. 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. This process has not had a material impact on the status
of other internal technology projects.
Contingency Plan; Actual Results May Differ
The Company is in the process of developing a contingency plan that
addresses Year 2000 issues relating to environmental concerns which includes,
among other items, telephone and security systems, copiers, electrical
availability, etc. In addition, a disaster recovery plan is being formulated to
address environmental concerns in the event of any non-compliance. These plans
are expected to be completed by December 31, 1999.
Actual results may differ materially from those anticipated. 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, liquidity and financial condition.
Market Risks
The investment portfolio has exposure to market risks which includes the
effect of adverse changes in interest rates, credit quality, equity prices and
foreign exchange rates on the portfolio. Interest rate risk includes the changes
in the fair value of fixed maturities based upon changes in interest rates.
Credit quality risk includes the risk of default by issuers of debt securities.
Foreign currency risk includes exposure to changes in foreign exchange rates on
the market value and interest income of foreign denominated investments. Equity
risk includes the potential loss from changes in the fair value of equity
securities. Other than the effect of adverse changes in interest rates on the
Company's unrealized gain on fixed maturities at June 30, 1999, there have been
no material changes to the Company's exposure to market risks in 1999 as
compared to those disclosed in the Company's financial statements for the year
ended December 31, 1998.
13
<PAGE>
NYMAGIC, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS CONTINUED
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,
common stockholders' equity, investments, capital plans, dividends, plans
relating to products or services, plans for Year 2000 compliance, and estimates
concerning the effects of litigation or other disputes, as well as assumptions
of any of the foregoing and are generally expressed with words such as
"believes," "estimates", "expects," "anticipates," "plans," "projects,"
"forecasts," "goals", "could have," "may have" and similar expressions.
14
<PAGE>
PART II - OTHER INFORMATION
ITEM 4 - Submission of Matters to a Vote of Security Holders
The Company held its Annual Meeting of Shareholders on June 8, 1999. The
following matters were voted upon by the Company's shareholders:
(1) Directors. The following persons were elected as Class I directors of the
Board of Directors, each to hold office for the following three years:
John R. Anderson
Robert W. Bailey
John N. Blackman, Jr.
Costa N. Kensington
William A. Thorne
Bennet Tollefson
Jonathan Bannett was elected a Class II director of the Board of Directors,
to hold office for the following year.
The following persons were elected as Class III directors of the Board of
Directors, each to hold office for the following two years:
Edward J. Waite, III
Glenn R. Yanoff
The following is a list of the other directors whose terms of office as
directors continued after the meeting:
Mark W. Blackman
Jean H. Goulding
John Kean, Jr.
Charles A. Mitchell
William R. Scarbrough
Richard T. Soper
Louise B. Tollefson
(2) Election of Independent Public Accountants. KPMG LLP were elected as the
Company's independent public accountants for the current fiscal year of the
Company.
15
<PAGE>
PART II - OTHER INFORMATION
ITEM 5 - OTHER INFORMATION
Mr. Vincent T. Papa is no longer serving in the capacity of President and
Chief Executive Officer of the Company. Management is currently evaluating
the financial impact, if any, on the Company of this development.
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 June 30,
1999.
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: August 13, 1999 /s/ Robert W. Bailey
-------------------------------
Robert W. Bailey
(Chairman of the Board)
/s/ Thomas J. Iacopelli
-------------------------------
Thomas J. Iacopelli
(Chief Financial Officer)
16
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