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, 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 July 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
June 30, 2000 and December 31, 1999 2
Consolidated Statements of Income
Six months ended June 30, 2000 and
June 30, 1999 3
Consolidated Statements of Income
Three months ended June 30, 2000 and 4
June 30, 1999
Consolidated Statements of Cash Flows
Six months ended June 30, 2000 and
June 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)
June 30, December 31,
2000 1999
---- ----
ASSETS
Investments:
Fixed maturities available for sale,
at fair value (amortized cost
$275,113,500 and $300,687,622) $271,917,252 $297,293,353
Equity securities at fair value (cost
$50,205,538 and $52,922,679) 67,328,120 71,681,895
Short-term investments 20,932,645 27,734,786
------------- -------------
Total investments 360,178,017 396,710,034
------------ ------------
Cash 1,863,806 1,016,945
Accrued investment income 4,886,397 5,195,227
Premiums and other receivables, net 52,840,511 56,003,308
Reinsurance receivables 287,482,750 255,761,760
Deferred policy acquisition costs 6,443,924 4,850,587
Prepaid reinsurance premiums 25,097,685 28,597,355
Deferred income taxes 8,903,569 9,311,335
Property, improvements and equipment, net 1,703,681 1,792,876
Other assets 6,920,665 5,064,631
------------- ------------
Total assets $756,321,005 $764,304,058
============ ============
LIABILITIES & SHAREHOLDERS' EQUITY
Unpaid losses and loss adjustment expenses $429,462,258 $425,469,125
Reserve for unearned premiums 51,327,796 56,033,281
Ceded reinsurance payable 32,195,481 29,445,275
Notes payable 9,958,413 12,458,413
Other liabilities 7,278,220 8,787,820
Dividends payable 915,753 967,785
------------- -----------
Total liabilities 531,137,921 533,161,699
------------- -----------
Common stock 15,017,892 15,017,892
Paid-in capital 27,977,509 27,935,907
Accumulated other comprehensive income 8,911,444 9,931,438
Retained earnings 222,480,949 220,736,910
------------- -------------
274,387,794 273,622,147
Treasury stock, at cost, 5,860,366 and
5,340,040 shares (49,204,710) (42,479,788)
-------------- ------------
Total shareholders' equity 225,183,084 231,142,359
------------- -------------
Total liabilities and shareholders' equity $756,321,005 $764,304,058
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
2
NYMAGIC, INC.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
Six months ended June 30,
2000 1999
---- ----
Revenues:
Net premiums earned $35,374,423 $26,297,810
Net investment income 8,932,895 9,311,579
Realized investment gains 3,006,069 6,463,698
Commission and other income 273,554 306,240
------- -----------
Total revenues 47,586,941 42,379,327
------------ ----------
Expenses:
Net losses and loss adjustment expenses incurred 26,504,518 15,862,723
Policy acquisition expenses 6,543,167 5,376,623
General and administrative expenses 9,550,384 10,371,714
Interest expense 398,015 598,686
------------- -------
Total expenses 42,996,084 32,209,746
----------- ----------
Income before income taxes 4,590,857 10,169,581
--------- ----------
Income taxes:
Current 62,068 988,639
Deferred 946,532 745,391
----------- -------
Total income taxes 1,008,600 1,734,030
----------- ---------
Net income $ 3,582,257 $ 8,435,551
=========== ===========
Weighted average shares of common stock
outstanding-basic 9,330,742 9,694,768
Basic earnings per share $ .38 $ .87
=========== ===========
Weighted average shares of common stock
outstanding-diluted 9,330,742 9,694,768
Diluted earnings per share $ .38 $ .87
=========== ============
Dividends declared per share $ .20 $ .20
=========== ============
The accompanying notes are an integral part of these consolidated financial
statements.
3
NYMAGIC, INC.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
Three months ended June 30,
2000 1999
---- ----
Revenues:
Net premiums earned $15,304,743 $12,755,669
Net investment income 4,351,570 4,619,157
Realized investment gains 574,544 1,969,631
Commission and other income 224,562 253,280
------------- ------------
Total revenues 20,455,419 19,597,737
------------ ------------
Expenses:
Net losses and loss adjustment expenses incurred 11,197,601 8,363,676
Policy acquisition expenses 3,344,889 2,630,060
General and administrative expenses 4,592,459 4,626,156
Interest expense 188,438 309,093
------------- ------------
Total expenses 19,323,387 15,928,985
------------ ----------
Income before income taxes 1,132,032 3,668,752
------------- -----------
Income taxes:
Current (1,872) (168,716)
Deferred 46,775 553,992
------------- -------
Total income taxes 44,903 385,276
--------- ---------
Net income $ 1,087,129 $ 3,283,476
============ ===========
Weighted average shares of common stock
outstanding-basic 9,189,639 9,693,499
Basic earnings per share $ .12 $ .34
============ ===========
Weighted average shares of common stock
outstanding-diluted 9,189,639 9,693,499
Diluted earnings per share $ .12 $ .34
============ ===========
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)
Six months ended June 30,
2000 1999
---- ----
Cash flows from operating activities:
Net income $ 3,582,257 $ 8,435,551
----------- -----------
Adjustments to reconcile net income to net cash used in operating activities:
Provision for deferred taxes 946,532 745,391
Realized investment gains (3,006,069) (6,463,698)
Net bond amortization 716,695 1,169,256
Depreciation and other, net 290,485 326,893
Changes in:
Premiums and other receivables 3,162,797 3,179,813
Reinsurance receivables (31,720,990) (4,170,266)
Ceded reinsurance payable 2,750,206 (4,623,635)
Accrued investment income 308,830 293,003
Deferred policy acquisition costs (1,593,337) (430,770)
Prepaid reinsurance premiums 3,499,670 4,604,218
Other assets (1,856,034) (1,679,447)
Unpaid losses and loss adjustment expenses 3,993,133 (12,416,400)
Reserve for unearned premiums (4,705,485) (6,710,741)
Other liabilities (1,509,600) (3,038,579)
Other (19,429) (144,422)
------------ ------------
Total adjustments (28,742,596) (29,359,384)
------------ ------------
Net cash used in operating activities (25,160,339) (20,923,833)
------------ ------------
Cash flows from investing activities:
Fixed maturities acquired (6,032,786) (36,157,918)
Equity securities acquired (23,077,126) (29,412,646)
Net sale of short-term investments 6,810,797 7,003,732
Fixed maturities matured 13,413,713 16,146,577
Fixed maturities sold 17,161,649 35,193,375
Equity securities sold 29,005,813 32,878,536
Acquisition of property, improvements and
equipment (201,290) (143,094)
------------ ----------
Net cash provided by investing activities 37,080,770 25,508,562
------------ ----------
Cash flows from financing activities:
Proceeds from stock issuance and other 41,602 ------
Cash dividends paid to stockholders (1,890,250) (1,937,098)
Net sale (repurchase) of common stock (6,724,922) 149,821
Loan principal repayments (2,500,000) (2,500,000)
------------- -----------
Net cash used in financing activities (11,073,570) (4,287,277)
-------------- -----------
Net increase in cash 846,861 297,452
Cash at beginning of period 1,016,945 1,583,390
------------ ---------
Cash at end of period $ 1,863,806 $ 1,880,842
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
5
NYMAGIC, INC.
Notes to Consolidated Financial Statements
June 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. 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:
Six months ended Three months ended
June 30, June 30,
2000 1999 2000 1999
---- ---- ---- ----
(in thousands)
Revenues, excluding net investment income and realized gains:
Domestic Insurance Companies/Agencies $24,385 $25,836 $13,171 $11,820
Syndicate 1265 14,137 3,559 4,047 2,379
Other (includes corporate operations
and consolidating adjustments) (2,874) (2,791) (1,689) (1,190)
------ ------- ------ -------
Total $35,648 $26,604 $15,529 $13,009
======= ======= ======= =======
Net investment income:
Domestic Insurance Companies/Agencies $ 8,390 $ 8,940 $ 4,090 $ 4,440
Syndicate 1265 512 372 255 179
Other (includes corporate operations
and consolidating adjustments) 31 ---- 7 -----
------ ------ ------- ------
Total $ 8,933 $ 9,312 $ 4,352 $ 4,619
======= ======= ======= =======
6
NYMAGIC, INC.
Notes to Consolidated Financial Statements
June 30, 2000 and 1999
Six months ended Three months ended
June 30, June 30,
2000 1999 2000 1999
---- ---- ---- ----
(in thousands)
Realized gains (losses) on investments:
Domestic Insurance Companies/Agencies $ 3,063 $ 6,509 $ 552 $ 2,015
Syndicate 1265 (57) (45) 23 (45)
------- ------ ------ ------
Total $ 3,006 $ 6,464 $ 575 $ 1,970
====== ===== ===== ======
Income (loss) before tax expense:
Domestic Insurance Companies/Agencies $ 8,940 $12,595 $3,302 $ 5,145
Syndicate 1265 (2,681) (781) (1,293) (521)
Other (includes corporate operations
and consolidating adjustments) (1,668) (1,644) (877) (956)
------- ------- ------ -------
Total $ 4,591 $10,170 $1,132 $ 3,668
====== ======= ====== =======
Income tax expense (benefit):
Domestic Insurance Companies/Agencies $ 1,988 $ 2,543 $ 583 $ 874
Syndicate 1265 (430) (267) (254) (182)
Other (includes corporate operations
and consolidating adjustments) (549) (542) (284) (307)
------ ------ ----- ------
Total $ 1,009 $ 1,734 $ 45 $ 385
====== ====== ====== =======
Net income (loss):
Domestic Insurance Companies/Agencies $ 6,952 $10,052 $2,719 $ 4,271
Syndicate 1265 (2,251) (514) (1,039) (339)
Other (includes corporate operations
and consolidating adjustments) (1,119) (1,102) (593) (649)
------- -------- ------- -------
Total $ 3,582 $ 8,436 $1,087 $ 3,283
====== ======= ====== =======
7
NYMAGIC, INC.
Notes to Consolidated Financial Statements
June 30, 2000 and 1999
3) The Company's comparative comprehensive income is as follows:
Six months ended Three months ended
June 30, June 30,
2000 1999 2000 1999
---- ---- ---- ----
(in thousands)
Net income $ 3,582 $8,436 $ 1,087 $ 3,283
Other comprehensive loss, net of tax:
Unrealized gains (losses) on securities, net of
deferred tax benefit (expense) of
$513, $(359) and $(966), $(462) 953 (667) (1,793) (858)
Less: reclassification adjustment for
gains realized in net income, net of
tax expense of $(1,052), $(2,262)
and $(201), $(690) 1,954 4,202 374 1,281
Foreign currency translation adjustment (19) (144) (12) (49)
------ ------ ------- -------
Other comprehensive loss (1,020) (5,013) (2,179) (2,188)
------- ------ ------- -------
Total comprehensive income (loss) $2,562 $3,423 $(1,092) $ 1,095
===== ===== ======= ======
8
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, 2000, was $1.1 million, or
$.12 per diluted share, compared with $3.3 million, or $.34 per diluted share,
for the second quarter of 1999. Net income for the six months ended June 30,
2000, was $3.6 million, or $.38 per diluted share, compared with $8.4 million,
or $.87 per share for the six months ended June 30, 1999.
Operating income, which excludes the effects of realized investment gains
after taxes, was $714,000, or $.08 per diluted share, for the second quarter of
2000, compared with $2,003,000, or $.21 per diluted share, for the same period
of the prior year. For the first six months of 2000, operating income was
$1,628,000, or $.17 per diluted share compared with $4,234,000, or $.44 per
diluted share, for the first half of 1999. The decline in operating income
largely reflects the loss activity derived from the Company's interest in
Lloyd's Syndicate 1265. Net earnings were reduced by Syndicate 1265 losses for
the six months and second quarter ended June 30, 2000 by $.24 per diluted share
and $.11 per diluted share, respectively. This compares with $.05 per diluted
share and $.03 per diluted share, respectively, for the same periods in 1999.
Net premiums earned increased by 35% and 20% for the six months ended and
three months ended June 30, 2000, respectively, when compared to the same
periods of the prior year. The current year's first six months 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,
net premiums earned from Syndicate 1265 grew to $14.1 million for the six months
ended June 30, 2000 from $3.4 million in the prior year's comparable period.
Further contributing to premiums earned in the second quarter of 2000 were
increases in both the aviation and ocean marine lines of business derived from
the domestic insurance companies segment. Overall, the domestic insurance
companies reported an 8% increase for the second quarter ended June 30, 2000
when compared to the prior year's second quarter. The increase in aviation net
premiums earned in 2000 largely reflects the earnings process resulting from
rate increases and line size increases obtained during the latter half of 1999.
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. Ocean marine premiums increased as a result of
additional production in the hull and cargo classes and rates firming. 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 73.2% for the three months ended June 30, 2000 as compared
to 65.6% for the second quarter of 1999. For the six months ended June 30, 2000,
such ratio was 74.9% as compared to 60.3% 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 six month
overall loss ratio. In addition, larger losses from the underwriting operations
of Syndicate 1265 further contributed to the overall higher loss ratio in 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 comparable to the prior year's 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 June 30, 2000 were 21.9% as compared with 20.6% for the same period
of the prior year. The same ratio was 18.5% for the six months ended June 30,
2000 as compared with 20.4% for the same period in 1999. The decrease in the
ratio for the first six months in 2000 is primarily attributable to the effect
of the one time assumption of premiums which was written for a nominal expense.
Absent this one time item, such ratio would have increased to approximately
22.9% 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.
Net investment income for the second quarter and six months ended June 30,
2000 decreased by 6% and 4%, 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.
General and administrative expenses decreased by 8% in 2000 when compared to
the first six months of 1999. The prior year's amounts included larger expenses
incurred in connection with employee benefit plans.
Realized investment gains were $3,006,000 and $6,464,000 for the six months
ended June 30, 2000 and 1999, respectively, and each resulted mainly from the
sale of appreciated equity securities.
Interest expense decreased to $398,000 for the six months ended June 30, 2000
from $599,000 for the same period of the prior year primarily as a result of a
decrease in loan principal outstanding.
Total income taxes as a percentage of income before taxes increased to 22.0%
for the six months ended June 30, 2000 from 17.1% for the same period of the
prior year and is largely the result of increases in the valuation account for
deferred income taxes with respect to income tax carryforwards.
Reinsurance receivables increased to $287.5 million as of June 30, 2000 due
to additional reinsurance receivables generated from large severity losses in
the aviation and ocean marine lines of business during the first half of 2000.
Liquidity and Capital Resources
Total investments decreased to $360.2 million at June 30, 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. Such gross loss payments contributed to cash flow used in
operations of $25.2 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, 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 June 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 4 - Submission of Matters to a Vote of Security Holders
The Company held its Annual Meeting of Shareholders on May 16, 2000. The
following matters were voted upon by the Company's shareholders:
(1) Directors. The following persons were elected as Class II Directors of the
Board of Directors, each to hold office for the following three years (the
term of which was subsequently amended in proposal 2):
Total votes for Total votes withheld
each Director for each Director
--------------- --------------------
Jonathan S. Bannett 6,432,228 626,915
Mark W. Blackman 6,433,088 626,055
Charles A. Mitchell 6,433,088 626,055
William R. Scarbrough 6,433,088 626,055
Louise B. Tollefson 6,432,888 626,255
The following is a list of the other Directors whose terms of office as
directors continued after the meeting:
John R. Anderson
Robert W. Bailey
John N. Blackman, Jr.
Jean H. Goulding
John Kean, Jr.
Costa N. Kensington
William A. Thorne
Louise B. Tollefson
Edward J. Waite, III
Glenn R. Yanoff
(2) Amendment of the Certificate of Incorporation. An amendment to the
Company's Certificate of Incorporation to eliminate the requirement that
the Directors be divided into three classes was approved.
FOR AGAINST ABSTAIN NON-VOTE
--- ------- ------- --------
5,726,875 604,485 1,275 2,872,017
The term of office for all Directors listed above will expire at the Annual
Meeting of Shareholders to be held in 2001.
(3) Election of Independent Public Accountants. KPMG LLP were elected as
the Company's independent public accountants for the current fiscal year
of the Company.
FOR AGAINST ABSTAIN NON-VOTE
--- ------- ------- --------
7,055,008 3,135 1,000 2,145,509
12
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 June 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: August 15, 2000
-------------------
/s/ Robert W. Bailey
---------------------------
Robert W. Bailey
(Chief Executive Officer)
/s/ Thomas J. Iacopelli
---------------------------
Thomas J. Iacopelli
(Chief Financial Officer)
13
