UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended
March 31,2000
Commission file number 1-11238
------------------------------------------
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, 2000 there were 9,204,652 shares of common stock, $1.00 par
value, outstanding.
NYMAGIC, INC.
INDEX
Part I. FINANCIAL INFORMATION PAGE NO.
--------
Consolidated Balance Sheets
March 31, 2000 and December 31, 1999 2
Consolidated Statements of Income
March 31, 2000 and March 31, 1999 3
Consolidated Statements of Cash Flows
March 31, 2000 and March 31, 1999 4
Notes to Consolidated Financial Statements 5
Management's Discussion And Analysis of Financial
Condition and Results of Operations 8
Quantitative and Qualitative Disclosures About
Market Risk 10
Part II. OTHER INFORMATION 11
<PAGE>
NYMAGIC, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
March 31, December 31,
2000 1999
ASSETS
Investments:
Fixed maturities available for sale,
at fair value (amortized cost
$292,615,637 and $300,687,622) $289,015,246 $297,293,353
Equity securities at fair value (cost
$52,223,626 and $52,922,679) 72,740,252 71,681,895
Short-term investments 17,932,694 27,734,786
------------- -------------
Total investments 379,688,192 396,710,034
------------ ------------
Cash 1,432,974 1,016,945
Accrued investment income 4,351,891 5,195,227
Premiums and other receivables, net 55,789,525 56,003,308
Reinsurance receivables 280,292,508 255,761,760
Deferred policy acquisition costs 5,409,693 4,850,587
Prepaid reinsurance premiums 29,603,824 28,597,355
Deferred income taxes 7,783,600 9,311,335
Property, improvements and equipment, net 1,689,303 1,792,876
Other assets 6,217,144 5,064,631
--------------- ---------------
Total assets $772,258,654 $764,304,058
============ ============
LIABILITIES
Unpaid losses and loss adjustment expenses $433,717,809 $425,469,125
Reserve for unearned premiums 52,853,397 56,033,281
Ceded reinsurance payable 34,688,545 29,445,275
Notes payable 11,208,413 12,458,413
Other liabilities 11,038,152 8,787,820
Dividends payable 922,465 967,785
------------- -------------
Total liabilities 544,428,781 533,161,699
------------- -----------
SHAREHOLDERS' EQUITY
Common stock 15,017,892 15,017,892
Paid-in capital 27,935,907 27,935,907
Accumulated other comprehensive income 11,090,169 9,931,438
Retained earnings 222,309,573 220,736,910
------------- ------------
276,353,541 273,622,147
Treasury stock, at cost,
5,813,240 and 5,340,040 shares (48,523,668) (42,479,788)
---------------------------------
Total shareholders' equity 227,829,873 231,142,359
------------- -------------
Total liabilities and shareholders' equity $772,258,654 $764,304,058
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
2
NYMAGIC, INC.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
Three months ended
March 31,
2000 1999
---- ----
Revenues:
Net premiums earned $20,069,680 $13,542,141
Net investment income 4,581,325 4,692,422
Realized investment gains 2,431,525 4,494,067
Commission and other income 48,992 52,960
-----------------------------
Total revenues 27,131,522 22,781,590
------------ ------------
Expenses:
Net losses and loss adjustment expenses incurred 15,306,917 7,499,047
Policy acquisition expenses 3,198,278 2,746,563
General and administrative expenses 4,957,925 5,745,558
Interest expense 209,577 289,593
------------- ------------
Total expenses 23,672,697 16,280,761
----------- ----------
Income before income taxes 3,458,825 6,500,829
--------- ---------
Income taxes:
Current 63,940 1,157,355
Deferred 899,757 191,399
------- -------
Total income taxes 963,697 1,348,754
-------- ----------
Net income $ 2,495,128 $5,152,075
============ ==========
Weighted average shares of common stock
outstanding-basic 9,471,844 9,685,492
Basic income per share $ .26 $ . 53
================ ===============
Weighted average shares of common
stock outstanding-diluted 9,471,844 9,685,492
Diluted income per share $ .26 $ . 53
================ ===============
Dividends declared per share $ .10 $ .10
=============== ==============
The accompanying notes are an integral part of these consolidated financial
statements.
3
NYMAGIC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Three months ended
March 31,
2000 1999
---- ----
Cash flows from operating activities:
Net income $ 2,495,128 $ 5,152,075
------------ -------------
Adjustments to reconcile net income to net cash used in operating activities:
Provision for deferred taxes 899,757 191,399
Realized investment gains (2,431,525) (4,494,067)
Net bond amortization 370,456 592,207
Depreciation and other, net 136,432 162,568
Changes in:
Premiums and other receivables 213,783 5,836,684
Reinsurance receivables (24,530,748) (4,677,697)
Ceded reinsurance payable 5,243,270 (6,973,813)
Accrued investment income 843,336 984,835
Deferred policy acquisition costs (559,106) (100,061)
Prepaid reinsurance premiums (1,006,469) 1,842,224
Other assets (1,152,513) 411,538
Unpaid losses and loss adjustment expenses 8,248,684 (6,710,195)
Reserve for unearned premiums (3,179,884) (4,582,564)
Other liabilities 2,250,332 (2,281,190)
Other (7,514) (95,523)
------ -------
Total adjustments (14,661,709) (19,893,655)
--------------- ------------
Net cash used in operating activities (12,166,581) (14,741,580)
----------- -----------
Cash flows from investing activities:
Fixed maturities acquired (4,887,652) (20,958,403)
Equity securities acquired (14,042,323) (16,838,238)
Fixed maturities matured 10,546,615 13,169,208
Fixed maturities sold 2,133,686 17,622,860
Equity securities sold 17,309,806 18,698,744
Net sale of short-term investments 9,817,002 5,446,391
Acquisition of property, equipment
and improvements (32,859) (119,573)
------------ -------------
Net cash provided by investing activities 20,844,275 17,020,989
---------- ----------
Cash flows from financing activities:
Cash dividends paid (967,785) (968,549)
Net repurchase of common stock (6,043,880) -------
Loan principal repayments (1,250,000) (1,250,000)
------------- -------------
Net cash used in financing activities (8,261,665) (2,218,549)
----------- -----------
Net increase in cash 416,029 60,860
Cash at beginning of period 1,016,945 1,583,390
------------------ ---------
Cash at end of period $ 1,432,974 $ 1,644,250
================ =============
The accompanying notes are an integral part of these consolidated financial
statements.
4
NYMAGIC, INC.
Notes to Consolidated Financial Statements
1) The interim consolidated financial statements are unaudited but, in the
opinion of management, reflect all material adjustments necessary for a fair
presentation of results for such periods. Adjustments to financial statements
consist of normal recurring items. The results of operations for any interim
period are not necessarily indicative of results for the full year. These
financial statements should be read in conjunction with the financial
statements and notes thereto contained in the Company's Annual Report on Form
10-K for the year ended December 31, 1999.
2) The Company's subsidiaries include two domestic insurance companies, three
domestic agency subsidiaries, and Syndicate 1265. The Company considers these
operating companies as appropriate segments for purposes of evaluating the
Company's overall performance. The Company evaluates revenues and income or
loss by these segments. Revenues include premiums earned, commissions income,
and investment income. Net income or loss includes total revenues, less the
sum of losses incurred, policy acquisition costs, other expenses, and income
taxes.
The prior year's segment disclosure has been restated to conform to the
current year's presentation as a result of management's reassessment of its
main business segments.
The financial information by segment is as follows:
Three months ended
March 31,
2000 1999
------ ----
(in thousands)
Revenues, excluding net investment income and realized gains:
Domestic Insurance Companies/Agencies $11,214 $ 14,017
Syndicate 1265 10,091 1,180
Other (includes corporate operations and
consolidating adjustments) (1,186) (1,602)
------ -------
Total $20,119 $13,595
======= ======
Net investment income:
Domestic Insurance Companies/Agencies $ 4,300 $ 4,500
Syndicate 1265 257 192
Other (includes corporate operations and
consolidating adjustments) 24 -----
------- -------
Total $ 4,581 $ 4,692
====== =====
5
NYMAGIC, INC.
Notes to Consolidated Financial Statements
Three months ended
March 31,
2000 1999
----- ----
(in thousands)
Realized gains (losses) on investments:
Domestic Insurance Companies/Agencies $ 2,512 $ 4,494
Syndicate 1265 (80) -----
----- -----
Total $ 2,432 $ 4,494
====== =====
Income (loss) before tax expense:
Domestic Insurance Companies/Agencies $ 5,639 $ 7,450
Syndicate 1265 (1,388) (261)
Other (includes corporate operations and
consolidating adjustments) (792) (688)
------ -----
Total $ 3,459 $ 6,501
===== =====
Income tax expense (benefit):
Domestic Insurance Companies/Agencies $ 1,406 $ 1,669
Syndicate 1265 (176) (85)
Other (includes corporate operations and
consolidating adjustments) (266) (235)
------ ------
Total $ 964 $ 1,349
===== =====
Net income (loss):
Domestic Insurance Companies/Agencies $ 4,233 $ 5,781
Syndicate 1265 (1,212) (175)
Other (includes corporate operations and
consolidating adjustments) (526) (454)
------- --------
Total $ 2,495 $ 5,152
====== ======
6
NYMAGIC, INC.
Notes to Consolidated Financial Statements
3) The Company's comparative comprehensive income is as follows:
Three months ended
March 31,
2000 1999
(in thousands)
Net income $ 2,495 $5,152
Other comprehensive income (loss), net of tax:
Unrealized gains on securities, net of
deferred tax expense of $(1,479) and $(103) 2,747 191
Less: reclassification adjustment for
gains realized in net income, net of
tax expense of $(851) and $(1,573) 1,580 2,921
Foreign currency translation adjustment (8) (96)
------ ------
Other comprehensive income (loss) 1,159 (2,826)
------ ------
Total comprehensive income $3,654 $2,326
===== =====
7
NYMAGIC, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
Net income for the three months ended March 31, 2000, was $2,495,000 or $.26
per share on a diluted basis compared with $5,152,000 or $.53 per share for the
first quarter of 1999. Operating income, which excludes the effects of realized
investment gains after taxes, was $915,000, or $.10 per share, for the first
quarter of 2000, versus $2,231,000, or $.23 per share, for the same period of
the prior year. The decline in operating income largely reflects the loss
activity derived from the Company's interest in Lloyd's Syndicate 1265. Diluted
income per share was reduced in 2000 by $.13 resulting from net losses
attributable to Syndicate 1265 as compared to net losses of $.02 per share in
1999.
Net premiums earned grew by 48% for the first quarter of 2000 when compared
to the prior year's comparable period. The current year's premiums include
approximately $7.4 million relating to a one-time assumption of ocean marine and
casualty premiums emanating from the participation in Syndicate 1265. Overall,
premiums earned from Syndicate 1265 grew to $10.1 million in 2000 from $1.1
million in the prior year's comparable period. The domestic insurance companies
segment reported a 20% decrease in earned premium and reflected very competitive
underwriting conditions in the ocean marine and aviation lines of business
caused by excess industry capacity. Consequently, ocean marine premiums
decreased by 24% as a result of the competitive rate environment. However,
aviation net premiums earned increased by 77% in 2000 and largely reflects the
earnings resulting from rate increases and line size increases obtained during
the 1999 calendar year. In addition, the Company's net loss retention in the
aviation line increased from $225,000 in 1999 to a maximum of $3,000,000 per
loss or occurrence effective with policies incepting January 1, 2000 and
subsequent. The increase in net loss retention will also have the impact of
increasing net premiums earned throughout 2000. The other liability line
decreased in 2000 due to declines in premium production.
Net losses and loss adjustment expenses incurred as a percentage of net
premiums earned were 76.3% for the three months ended March 31, 2000 as compared
to 55.4% for the first quarter of 1999. The transaction involving the assumption
of premiums in 2000 was recorded at a loss ratio of approximately 100% and had
the effect of increasing the overall loss ratio. In addition, larger losses from
the underwriting operations of Syndicate 1265 further contributed to an overall
increase. Despite increases in both the frequency and severity of losses in the
aviation line of business, a lower aviation loss ratio was recorded in 2000
which reflected the impact of the increase in earned premiums. The Company's
domestic insurance companies recorded favorable net loss experience in the ocean
marine line comparable to the prior year's first quarter.
Policy acquisition costs as a percentage of net premiums earned for the three
months ended March 31, 2000 were 15.9% as compared with 20.3% for the same
period of the prior year. The decrease in the ratio is primarily attributable to
the effect of the one time assumption of premiums in 2000 which was written for
a nominal expense. Absent this one time item, such ratio would have increased to
approximately 23.8% and reflects higher acquisition costs derived from Syndicate
1265 business as well as larger expenses in the aviation line which do not have
the benefit of ceded override commissions for business incepting in 2000.
8
NYMAGIC, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS CONTINUED
Interest expense decreased to $210,000 for the three months ended March 31,
2000 from $290,000 for the same period of the prior year as a result of a
decrease in average loan principal outstanding.
Net investment income for the three months ended March 31, 2000 decreased
slightly to $4,581,000 from $4,692,000 for the prior year's comparable period.
The decline was principally caused by a reduction in invested assets offset by
higher yields on investments.
General and administrative expenses decreased by 14% in 2000 when compared to
the first quarter of 1999. The prior year's first quarter included higher
expenses incurred in connection with employee benefit plans.
Realized investment gains were $2,432,000 and $4,494,000 for the three months
ended March 31, 2000 and 1999, respectively, and each resulted mainly from the
sale of appreciated equity securities.
Total income taxes as a percentage of income before taxes increased to 27.9%
in 2000 from 20.7% in 1999 and is largely the result of increases in the
valuation account for deferred income taxes with respect to income tax
carryforwards.
Liquidity and Capital Resources
Total investments decreased to $379.7 million at March 31, 2000 primarily due
to reductions in the investment portfolio to fund both the payment of various
underwriting losses on a gross basis and the repurchase of shares of common
stock. These payments of funds in 2000 contributed to cash flow used in
operations of $12.2 million. During the first quarter of 2000, the Company
repurchased 473,200 shares of common stock, under the Company's Common Stock
Repurchase Plan, for a total cost of approximately $6.0 million.
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.
9
NYMAGIC, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS CONTINUED
Quantitative and Qualitative Disclosures About Market Risk
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. There have been no material changes to the Company's exposure to
market risks during the quarter as compared to those disclosed in the Company's
financial statements for the year ended December 31, 1999.
Other Matters
As of March 31, 2000, there have been no material changes to the
litigation matters disclosed in the Company's financial statements for the year
ended December 31, 1999.
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. 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, 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.
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 March
31, 2000.
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 15, 2000 /s/ Robert W. Bailey
------------ ----------------------
Robert W. Bailey
(Chief Executive Officer)
/s/ Thomas J. Iacopelli
----------------------
Thomas J. Iacopelli
(Chief Financial Officer)
11
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<ARTICLE> 7
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<DEBT-HELD-FOR-SALE> 289,015
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 72,740
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 379,688
<CASH> 1,433
<RECOVER-REINSURE> 204,408
<DEFERRED-ACQUISITION> 4,377
<TOTAL-ASSETS> 709,880
<POLICY-LOSSES> 0
<UNEARNED-PREMIUMS> 42,296
<POLICY-OTHER> 394,874
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 16,208
0
0
<COMMON> 15,018
<OTHER-SE> 214,520
<TOTAL-LIABILITY-AND-EQUITY> 709,880
13,542
<INVESTMENT-INCOME> 4,581
<INVESTMENT-GAINS> 2,432
<OTHER-INCOME> 49
<BENEFITS> 15,307
<UNDERWRITING-AMORTIZATION> 3,198
<UNDERWRITING-OTHER> 4,958
<INCOME-PRETAX> 3,459
<INCOME-TAX> 964
<INCOME-CONTINUING> 2,495
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,495
<EPS-BASIC> .26
<EPS-DILUTED> .26
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
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</TABLE>
