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
September 30,2000
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 October 1, 2000 there were 9,157,526 shares of common stock, $1.00 par
value outstanding.
NYMAGIC, INC.
INDEX
Part I. FINANCIAL INFORMATION PAGE NO.
--------
Consolidated Balance Sheets
September 30, 2000 and December 31, 1999 2
Consolidated Statements of Income
Nine months ended September 30, 2000 and
September 30, 1999 3
Consolidated Statements of Income
Three months ended September 30, 2000 and 4
September 30, 1999
Consolidated Statements of Cash Flows
Nine months ended September 30, 2000 and
September 30, 1999 5
Notes to Consolidated Financial Statements 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Part II. OTHER INFORMATION 12
1
<PAGE>
NYMAGIC, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
September 30, December 31,
2000 1999
---- ----
ASSETS
Investments:
Fixed maturities available for sale,
at fair value (amortized cost
$248,718,785 and $300,687,622) $248,669,874 $297,293,353
Equity securities at fair value (cost
$49,091,340 and $52,922,679) 65,897,138 71,681,895
Short-term investments 54,459,972 27,734,786
------------- -------------
Total investments 369,026,984 396,710,034
------------ ------------
Cash 1,868,894 1,016,945
Accrued investment income 4,712,320 5,195,227
Premiums and other receivables, net 39,274,199 56,003,308
Reinsurance receivables 276,141,811 255,761,760
Deferred policy acquisition costs 4,735,696 4,850,587
Prepaid reinsurance premiums 20,259,874 28,597,355
Deferred income taxes 9,159,038 9,311,335
Property, improvements and equipment, net 1,609,222 1,792,876
Other assets 6,507,982 5,064,631
--------------- ---------------
Total assets $733,296,020 $764,304,058
============ ============
LIABILITIES & SHAREHOLDERS' EQUITY
Unpaid losses and loss adjustment expenses $415,692,303 $425,469,125
Reserve for unearned premiums 48,558,950 56,033,281
Ceded reinsurance payable 14,099,573 29,445,275
Notes payable 8,708,413 12,458,413
Other liabilities 21,663,995 8,787,820
Dividends payable 915,753 967,785
---------------- -----------
Total liabilities 509,638,987 533,161,699
------------- -----------
Common stock 15,017,892 15,017,892
Paid-in capital 27,984,959 27,935,907
Accumulated other comprehensive income 11,074,884 9,931,438
Retained earnings 218,784,008 220,736,910
------------- -------------
272,861,743 273,622,147
Treasury stock, at cost, 5,860,366 and
5,340,040 shares (49,204,710) (42,479,788)
---------------------------------
Total shareholders' equity 223,657,033 231,142,359
------------- -------------
Total liabilities and shareholders' equity $733,296,020 $764,304,058
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
2
NYMAGIC, INC.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
Nine months ended September 30,
2000 1999
---- ----
Revenues:
Net premiums earned $49,996,092 $42,794,986
Net investment income 13,437,562 13,869,435
Realized investment gains 4,163,065 8,872,368
Commission and other income 350,605 517,125
----------- -----------
Total revenues 67,947,324 66,053,914
----------- -----------
Expenses:
Net losses and loss adjustment expenses incurred 40,826,231 27,550,500
Policy acquisition expenses 11,794,625 9,166,152
General and administrative expenses 13,985,309 14,603,560
Interest expense 549,921 829,844
----------- ----------
Total expenses 67,156,086 52,150,056
----------- ----------
Income before income taxes 791,238 13,903,858
-------- ----------
Income taxes:
Current 325,050 818,793
Deferred (334,881) 1,535,045
--------- ---------
Total income tax expense (benefit) (9,831) 2,353,838
--------- ---------
Net income $ 801,069 $11,550,020
========= ===========
Weighted average shares of common stock 9,272,582 9,689,247
outstanding-basic
Basic earnings per share $ .09 $ 1.19
========== ===========
Weighted average shares of common stock
outstanding-diluted 9,272,582 9,689,247
Diluted earnings per share $ .09 $ 1.19
========== ===========
Dividends declared per share $ .30 $ .30
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
3
NYMAGIC, INC.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
Three months ended September 30,
2000 1999
---- ----
Revenues:
Net premiums earned $14,621,669 $16,497,176
Net investment income 4,504,667 4,557,856
Realized investment gains 1,156,996 2,408,670
Commission and other income 77,051 210,885
----------- -----------
Total revenues 20,360,383 23,674,587
----------- -----------
Expenses:
Net losses and loss adjustment expenses incurred 14,321,713 11,687,777
Policy acquisition expenses 5,251,458 3,789,529
General and administrative expenses 4,434,925 4,231,846
Interest expense 151,906 231,158
----------- -----------
Total expenses 24,160,002 19,940,310
----------- -----------
Income before income taxes (3,799,619) 3,734,277
--------------- ---------
Income taxes:
Current 262,982 (169,846)
Deferred (1,281,413) 789,654
------------------ -------
Total income tax expense (benefit) (1,018,431) 619,808
-------------- -------
Net income (loss) $ (2,781,188) $ 3,114,469
============== ============
Weighted average shares of common stock
outstanding-basic 9,157,526 9,694,223
Basic earnings (loss) per share $ (.30) $ .32
================= =============
Weighted average shares of common stock
outstanding-diluted 9,157,526 9,694,223
Diluted earnings (loss) per share $ (.30) $ .32
================= =============
Dividends declared per share $ .10 $ .10
============== =============
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
NYMAGIC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Nine months ended September 30,
2000 1999
---- ----
Cash flows from operating activities:
Net income $ 801,069 $ 11,550,020
--------- -----------
Adjustments to reconcile net income to net cash used in operating activities:
Provision for deferred taxes (334,881) 1,535,045
Realized investment gains (4,163,065) (8,872,368)
Net bond amortization 956,305 1,729,333
Depreciation and other, net 440,487 491,810
Changes in:
Premiums and other receivables 16,729,109 (2,375,635)
Reinsurance receivables (20,380,051) (11,125,965)
Ceded reinsurance payable (15,345,702) (8,563,239)
Accrued investment income 482,907 1,444,061
Deferred policy acquisition costs 114,891 (338,198)
Prepaid reinsurance premiums 8,337,481 (1,623,854)
Other assets (1,443,351) (1,492,333)
Unpaid losses and loss adjustment expenses (9,776,822) (7,527,129)
Reserve for unearned premiums (7,474,331) 3,841,117
Other liabilities 12,876,175 (3,220,368)
Other 238,685 (17,295)
-------- ---------
Total adjustments (18,742,163) (36,115,018)
------------ ------------
Net cash used in operating activities (17,941,094) (24,564,998)
------------ ------------
Cash flows from investing activities:
Fixed maturities acquired (114,632,186) (51,782,945)
Equity securities acquired (39,178,000) (40,429,204)
Net purchase of short-term investments (26,715,483) (10,622,257)
Fixed maturities matured 15,381,066 21,567,879
Fixed maturities sold 149,681,097 65,476,183
Equity securities sold 47,745,255 47,030,268
Acquisition of property, equipment
and improvements (256,833) (150,961)
------------ -----------
Net cash provided by investing activities 32,024,916 31,088,963
------------ ----------
Cash flows from financing activities:
Proceeds from stock issuance and other 49,052 ------
Cash dividends paid to stockholders (2,806,003) (2,906,704)
Net sale (repurchase) of common stock (6,724,922) 13,818
Loan principal repayments (3,750,000) (3,750,000)
------------- -----------
Net cash used in financing activities (13,231,873) (6,642,886)
-------------- -----------
Net increase (decrease) in cash 851,949 (118,921)
Cash at beginning of period 1,016,945 1,583,390
------------ ---------
Cash at end of period $ 1,868,894 $1,464,469
=========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
5
NYMAGIC, INC.
Notes to Consolidated Financial Statements
September 30, 2000 and 1999
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 agencies and Syndicate 1265. Syndicate 1265 includes the operations
of MMO EU, MMO UK and MMO Underwriting Agency Ltd. The Company considers the
domestic insurance companies/agencies and Syndicate 1265 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:
Nine months ended Three months ended
September 30, September 30,
2000 1999 2000 1999
---- ---- ---- ----
(in thousands)
Revenues, excluding net investment income and realized gains:
Domestic Insurance Companies/Agencies $36,867 $37,532 $12,482 $11,695
Syndicate 1265 17,915 10,292 3,778 6,733
Other (includes corporate operations
and consolidating adjustments) (4,435) (4,512) (1,561) (1,720)
------ ------- ------ -------
Total $50,347 $43,312 $14,699 $16,708
======= ======= ======= =======
Net investment income:
Domestic Insurance Companies/Agencies $12,547 $13,327 $ 4,157 $ 4,387
Syndicate 1265 851 532 340 161
Other (includes corporate operations
and consolidating adjustments) 40 10 8 10
------ ------ ------- ------
Total $13,438 $13,869 $ 4,505 $ 4,558
======= ======= ======= ========
6
NYMAGIC, INC.
Notes to Consolidated Financial Statements
September 30, 2000 and 1999
Nine months ended Three months ended
September 30, September 30,
2000 1999 2000 1999
---- ---- ---- ----
(in thousands)
Realized gains (losses) on investments:
Domestic Insurance Companies/Agencies $ 4,267 $ 8,955 $ 1,204 $2,446
Syndicate 1265 (104) (83) (47) (37)
------- ------ ------ ------
Total $ 4,163 $ 8,872 $ 1,157 $2,409
====== ===== ===== ======
Income (loss) before tax expense:
Domestic Insurance Companies/Agencies $11,967 $17,491 $ 3,026 $4,896
Syndicate 1265 (8,940) (1,282) (6,259) (501)
Other (includes corporate operations
and consolidating adjustments) (2,236) (2,305) (567) (661)
------- ------- ------ -------
Total $ 791 $13,904 $ (3,800) $3,734
====== ======= ====== =======
Income tax expense (benefit):
Domestic Insurance Companies/Agencies $ 2,528 $ 3,259 $ 539 $ 716
Syndicate 1265 (1,803) (680) (1,373) (413)
Other (includes corporate operations
and consolidating adjustments) (735) (225) (185) 317
------ ------ ----- ------
Total $ (10) $ 2,354 $ (1,019) $ 620
====== ====== ====== =======
Net income (loss):
Domestic Insurance Companies/Agencies $ 9,439 $14,232 $2,487 $ 4,180
Syndicate 1265 (7,137) (602) (4,886) (88)
Other (includes corporate operations
and consolidating adjustments) (1,501) (2,080) (382) (978)
------- -------- ------- -------
Total $ 801 $11,550 $(2,781) $ 3,114
====== ======= ====== =======
7
NYMAGIC, INC.
Notes to Consolidated Financial Statements
September 30, 2000 and 1999
3) The Company's comparative comprehensive income is as follows:
Nine months ended Three months ended
September 30, September 30,
2000 1999 2000 1999
---- ---- ---- ----
(in thousands)
Net income (loss) $ 801 $11,550 $ (2,781) $ 3,114
Other comprehensive (loss), net of tax:
Unrealized gains (losses) on securities, net of
deferred tax benefit (expense) of
$1,944, $(2,959) and $1,431,$(2,600) 3,611 (5,496) 2,657 (4,829)
Less: reclassification adjustment for
gains realized in net income, net of
tax expense of $(1,457), $(3,105)
and $(405), $(843) 2,706 5,767 752 1,565
Foreign currency translation adjustment 239 (17) 258 127
------ ------ ------- -------
Other comprehensive income(loss) 1,144 (11,280) 2,163 (6,267)
------- ------ ------- -------
Total comprehensive income (loss) $ 1,945 $ 270 $ (618) $(3,153)
===== ====== ======= =======
4) Subsequent Event. The Company sold its U.K. underwriting agency, MMO
Underwriting Agency, Ltd., in the fourth quarter of 2000, in exchange for
a minority share interest in another company. The sale of the agency is
not expected to materially affect the financial position of the Company.
8
NYMAGIC, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
Net income for the nine months ended September 30, 2000, was $801,000, or
$.09 per diluted share, compared with $11.6 million, or $1.19 per diluted share
for the nine months ended September 30, 1999. The Company reported a net loss
for the three months ended September 30, 2000 of $2.8 million, or $.30 per
diluted share, compared with net income of $3.1 million, or $.32 per diluted
share, for the third quarter of 1999.
The Company reported an operating loss, which excludes the effects of
realized investment gains after taxes, for the nine months ended September 30,
2000, of $1.9 million, or $.21 per diluted share, compared with operating income
of $5.8 million, or $.60 per diluted share, for the same period of the prior
year. For the third quarter of 2000, the operating loss was $3.5 million, or
$.39 per diluted share compared with operating income of $1.5 million, or $.16
per diluted share, for the same period of the prior year. The decline in
operating income largely reflects the loss activity from underwriting operations
derived from the Company's interest in Lloyd's Syndicate 1265. Results of
operations were reduced by losses from Syndicate 1265 for the nine months and
third quarter ended September 30, 2000 by $.77 per diluted share and $.53 per
diluted share, respectively. This compares with operating losses from Syndicate
1265 of $.06 per diluted share and $.01 per diluted share, respectively, for the
same periods in 1999. The Company ceased underwriting in Syndicate 1265 in the
third quarter of 2000 which resulted in a one time charge for policy acquisition
costs and net losses and loss adjustment expenses which collectively amounted to
approximately $2.4 million after taxes, or $.27 per diluted share.
Net premiums earned increased by 17% for the nine months ended September 30,
2000 when compared to the same period of the prior year. Much of the increase in
the current year's first nine months premiums is attributable to a transaction
involving a one-time assumption of approximately $7.4 million of ocean marine
and casualty premiums emanating from the participation in Syndicate 1265. Net
premiums earned decreased in the third quarter of 2000 by 11% when compared to
the same period of the prior year primarily as a result of reduced net
premiums in Syndicate 1265 due in part by ceasing all future underwriting.
The domestic insurance companies reported a 7% increase in net premiums
earned for the third quarter ended September 30, 2000 when compared to the prior
year's third quarter and largely reflects the earnings process resulting from
rate increases and line size increases in the aviation line. In addition,
aviation ceded reinsurance premiums have decreased in the current year as a
result of the Company's net loss retention increasing 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. Ocean marine
premiums earned have decreased 9% in the third quarter reflecting competitive
markets in the marine liability classes, although, increases were recorded in
the hull and cargo classes due to additional production and rates firming. The
other liability line decreased in 2000 when compared to the same period of the
prior year due to declines in premium production.
Net losses and loss adjustment expenses incurred as a percentage of net
premiums earned were 97.9% for the three months ended September 30, 2000 as
compared to 70.8% for the third quarter of 1999. For the nine months ended
September 30, 2000, such ratio was 81.7% as compared to 64.4% for the same
period of the prior year. 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 nine month overall loss ratio. In addition, larger losses from
the underwriting operations of Syndicate 1265 further contributed to the overall
higher loss ratios in the three and nine months periods ending September 30,
2000. 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 beneficial impact of the increase in aviation earned
premiums. The Company's domestic insurance companies recorded favorable net loss
experience in the ocean marine line compared to the prior year period.
9
NYMAGIC, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Policy acquisition costs as a percentage of net premiums earned for the three
months ended September 30, 2000 were 35.9% as compared with 23.0% for the same
period of the prior year. The same ratio was 23.6% for the nine months ended
September 30, 2000 as compared with 21.4% for the same period in 1999. Excluding
one time items occurring in Syndicate 1265 through nine months ended September
30, 2000, such ratios would have been 22.7% and 23.1% for the three months and
nine months ending September 30, 2000, respectively. The increase in the
adjusted ratio through the first nine months in 2000 is primarily attributable
to larger expenses in the current year's aviation line which do not have the
benefit of ceded override commissions for business incepting in 2000.
Net investment income for the third quarter and nine months ended September
30, 2000 decreased by 1% and 3%, respectively, from the level of net investment
income achieved in the same periods of 1999. The decline was principally caused
by a reduction in invested assets, however, offset by higher yields on
investments due to a higher interest rate environment in 2000 and increased
investments in taxable securities.
General and administrative expenses decreased by 4% in 2000 when compared to
the first nine months of 1999. The prior year's amounts included larger expenses
incurred in connection with employee benefit plans.
Realized investment gains were $4,163,000 and $8,872,000 for the nine months
ended September 30, 2000 and 1999, respectively, and each resulted mainly from
the sale of appreciated equity securities.
Interest expense decreased to $550,000 for the nine months ended September
30, 2000 from $830,000 for the same period of the prior year primarily as a
result of a decrease in loan principal outstanding.
Reinsurance receivables increased to $276.1 million as of September 30, 2000
due to additional reinsurance receivables generated from large severity losses
in the aviation and ocean marine lines of business during the first nine months
of 2000.
Other liabilities as of September 30, 2000 include approximately $14.7
million in payables for securities purchased but not settled.
Liquidity and Capital Resources
Total investments decreased to $369.0 million at September 30, 2000 from
December 31, 1999 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. Such gross loss payments contributed to
cash flow used in operations of $17.9 million in 2000.
During 2000, the Company repurchased 529,400 shares of common stock, under
the Company's Common Stock Repurchase Plan, for a total cost of approximately
$6.9 million. In connection with the Board of Directors annual compensation
program in 2000, the Company issued 9,074 shares of common stock held in
treasury to its members.
10
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 protection and sufficient
liquidity to meet existing obligations. The Company believes that it has
adequate resources to meet its liquidity requirements.
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 September 30, 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.
11
PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
No. Description
27 Financial Data Schedule
(b) Reports on Form 8-K
There were no reports on Form 8-K filed for the three months ended
September 30, 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: November 15, 2000 /s/ Robert W. Bailey
-------------------- ---------------------------
Robert W. Bailey
(Chief Executive Officer)
/s/ Thomas J. Iacopelli
---------------------------------
Thomas J. Iacopelli
(Chief Financial Officer)
12
