UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED SEPTEMBER 30, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From _________ to ________
Commission File Number 1-10545
---------
TRANSATLANTIC HOLDINGS, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 13-3355897
- ---------------------------------------- --------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
80 Pine Street, New York, New York 10005
- ---------------------------------------- --------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 770-2000
------------------------
NONE
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year, 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 September 30, 1996 23,005,762
------------
<PAGE>
TRANSATLANTIC HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of September 30, 1996 and December 31, 1995
<TABLE>
<CAPTION>
(Unaudited)
1996 1995
----------- -----------
ASSETS (in thousands, except share data)
<S> <C> <C>
Investments and cash:
Fixed maturities:
Bonds held to maturity, at amortized cost
(market value: 1996-$1,093,555; 1995-$951,497) $ 1,042,444 $ 878,068
Bonds available for sale, at market value
(amortized cost: 1996-$1,842,700; 1995-$1,700,599) 1,882,600 1,788,000
Equities:
Common stocks available for sale, at market
value (cost: 1996-$267,006; 1995-$197,704) 340,884 255,116
Nonredeemable preferred stocks available for sale,
at market value (cost: 1996-$6,691; 1995-$6,953) 6,019 6,025
Short-term investments, at cost which approximates market value 14,536 12,874
Cash and cash equivalents 112,300 47,832
----------- -----------
Total investments and cash 3,398,783 2,987,915
Accrued investment income 56,801 56,806
Premium balances receivable, net of losses payable:
Affiliates 17,678 27,104
Other 38,113 34,740
Reinsurance recoverable on paid and unpaid
losses and loss adjustment expenses:
Affiliates 122,919 134,326
Other 265,618 277,352
Funds held under reinsurance treaties:
Affiliates 2,848 1,058
Other 146,544 193,550
Deferred acquisition costs 62,472 47,200
Prepaid reinsurance premiums 37,822 39,716
Deferred income taxes 102,972 87,914
Other assets 34,345 11,286
----------- -----------
Total assets $ 4,286,915 $ 3,898,967
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Unpaid losses and loss adjustment expenses $ 2,668,072 $ 2,388,155
Unearned premiums 378,710 291,568
Contingent commissions, expenses and taxes 13,587 6,764
Reinsurance balances payable:
Affiliates 4,738 14,791
Other 20,306 9,004
Funds held under reinsurance treaties:
Affiliates 160 312
Other 77,068 165,831
Current income taxes payable 15,805 12,256
Payable for securities in course of settlement 5,997 3,996
Other liabilities 30,783 17,788
----------- -----------
Total liabilities 3,215,226 2,910,465
----------- -----------
Commitments and contingent liabilities
Preferred Stock, $1.00 par value; shares authorized: 5,000,000 - -
Common Stock, $1.00 par value; shares authorized: 50,000,000;
shares issued: 1996-23,805,762; 1995-23,749,582 23,806 23,750
Additional paid-in capital 201,637 199,243
Net unrealized appreciation of investments, net of deferred
income taxes (1996-$39,587; 1995-$50,359) 73,520 93,525
Net unrealized foreign currency translation (loss) gain (2,131) 2,392
Retained earnings 784,857 679,592
Treasury Stock, at cost; 800,000 shares (10,000) (10,000)
----------- -----------
Total stockholders' equity 1,071,689 988,502
----------- -----------
Total liabilities and stockholders' equity $ 4,286,915 $ 3,898,967
=========== ===========
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
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<PAGE>
TRANSATLANTIC HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
--------- --------- --------- ---------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Income:
Net premiums written $ 321,708 $ 278,815 $ 830,636 $ 737,218
Increase in net unearned premiums (7,352) (26,370) (36,891) (26,810)
--------- --------- --------- ---------
Net premiums earned 314,356 252,445 793,745 710,408
Net investment income 51,291 43,652 142,136 128,037
--------- --------- --------- ---------
365,647 296,097 935,881 838,445
--------- --------- --------- ---------
Expenses:
Net losses and loss adjustment expenses 234,859 193,449 590,362 544,572
Net commissions 77,529 62,165 197,130 169,800
Other operating expenses 9,650 6,851 25,708 20,806
Increase in deferred acquisition costs (2,534) (7,100) (7,459) (9,800)
--------- --------- --------- ---------
319,504 255,365 805,741 725,378
--------- --------- --------- ---------
46,143 40,732 130,140 113,067
Realized net capital gains 4,311 2,708 13,405 8,029
--------- --------- --------- ---------
Operating income 50,454 43,440 143,545 121,096
Other income (deductions) 192 (464) (448) (1,165)
--------- --------- --------- ---------
Income before income taxes 50,646 42,976 143,097 119,931
Income taxes 11,085 8,492 29,547 22,344
--------- --------- --------- ---------
Net income $ 39,561 $ 34,484 $ 113,550 $ 97,587
========= ========= ========= =========
Net income per common share $ 1.72 $ 1.50 $ 4.94 $ 4.25
========= ========= ========= =========
Dividends per common share $ 0.12 $ 0.10 $ 0.36 $ 0.30
========= ========= ========= =========
Weighted average common shares outstanding 22,995 22,945 22,975 22,936
========= ========= ========= =========
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
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<PAGE>
TRANSATLANTIC HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
--------- ---------
(in thousands)
<S> <C> <C>
Net cash provided by operating activities $ 254,411 $ 267,828
--------- ---------
Cash flows from investing activities:
Proceeds of bonds available for sale sold 418,442 72,404
Proceeds of bonds held to maturity redeemed 12,766 6,263
Proceeds of bonds available for sale redeemed or matured 90,881 59,218
Proceeds of equities sold 103,859 77,808
Purchase of bonds held to maturity (176,747) (171,911)
Purchase of bonds available for sale (421,435) (200,377)
Purchase of equities (142,114) (110,671)
Net purchase of short-term investments (1,662) (2,755)
Change in payable for securities in course of settlement 2,001 8,396
Investment in Guardian Re, net of cash acquired (66,479) -
Other, net 903 (2,505)
--------- ---------
Net cash used in investing activities (179,585) (264,130)
--------- ---------
Cash flows from financing activities:
Dividends to stockholders (8,285) (6,882)
Proceeds from common stock issued 2,450 607
--------- ---------
Net cash used in financing activities (5,835) (6,275)
--------- ---------
Change in net unrealized foreign currency translation (loss) gain (4,523) 3,885
--------- ---------
Change in cash and cash equivalents 64,468 1,308
Cash and cash equivalents, beginning of period 47,832 62,789
--------- ---------
Cash and cash equivalents, end of period $ 112,300 $ 64,097
========= =========
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
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<PAGE>
TRANSATLANTIC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(Unaudited)
1. General
The interim consolidated financial statements are unaudited, but have been
prepared on the basis of generally accepted accounting principles and, in the
opinion of management, reflect all adjustments (consisting of normal accruals)
necessary for a fair presentation of results for such periods. The results of
operations and cash flows for any interim period are not necessarily indicative
of results for the full year.
2. Reinsurance
Premiums written and earned and losses and loss adjustment expenses
incurred were comprised of the following:
Three Months Ended Nine Months Ended
--------------------- ---------------------
September 30, September 30,
--------------------- ---------------------
1996 1995 1996 1995
--------- --------- --------- ---------
(in thousands)
Gross premiums written $ 371,955 $ 323,231 $ 987,516 $ 849,732
Reinsurance ceded (50,247) (44,416) (156,880) (112,514)
--------- --------- --------- ---------
Net premiums written $ 321,708 $ 278,815 $ 830,636 $ 737,218
========= ========= ========= =========
Gross premiums earned $ 359,099 $ 283,176 $ 952,519 $ 795,896
Reinsurance ceded (44,743) (30,731) (158,774) (85,488)
--------- --------- --------- ---------
Net premiums earned $ 314,356 $ 252,445 $ 793,745 $ 710,408
========= ========= ========= =========
Gross incurred losses and loss
adjustment expenses $ 252,553 $ 203,697 $ 586,726 $ 577,540
Reinsurance ceded (17,694) (10,248) 3,636 (32,968)
--------- --------- --------- ---------
Net losses and loss adjustment
expenses $ 234,859 $ 193,449 $ 590,362 $ 544,572
========= ========= ========= =========
3. Dividends
During the third quarter of 1996, the Board of Directors of Transatlantic
Holdings, Inc. (the "Company") declared a dividend of $2,763,000, or $0.12 per
common share.
4. Income Taxes
Income taxes paid, net, in the third quarter totaled $17,352,000 and
$10,797,000 in 1996 and 1995, respectively. For the 1996 and 1995 nine month
periods, income taxes paid, net, totaled $30,950,000 and $23,152,000,
respectively.
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<PAGE>
5. Acquisition
In the third quarter of 1996, the Company, through its wholly-owned
subsidiary, Transatlantic Reinsurance Company, acquired all of the outstanding
shares of Guardian Ruckversicherungs-Gesellschaft ("Guardian Re"), an
international reinsurance company based in Zurich, Switzerland, for $105 million
in cash. This acquisition was accounted for as a purchase. Accordingly, Guardian
Re's results are included in the consolidated results of the Company for the
first time in this quarter. This acquisition has not had a material effect on
net income.
6. Additional Information
For further information, refer to the Transatlantic Holdings, Inc. Form
10-K filing for the year ended December 31, 1995 and Form 10-Q filings for the
first two quarters of 1996.
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<PAGE>
TRANSATLANTIC HOLDINGS, INC. AND SUBSIDIARIES
---------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
-------------------------------------------------------------
AND FINANCIAL CONDITION
-----------------------
SEPTEMBER 30, 1996
------------------
OPERATIONAL REVIEW. The following table presents net premiums written, net
premiums earned and net investment income for the periods indicated:
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- ---------------------------
1996 1995 % Change 1996 1995 % Change
------------------------- ---------------------------
(dollars in millions)
Net premiums written $321.7 $278.8 15.4% $830.6 $737.2 12.7%
Net premiums earned 314.4 252.4 24.5 793.7 710.4 11.7
Net investment income 51.3 43.7 17.5 142.1 128.0 11.0
Net premiums written for the third quarter and first nine months of 1996
were higher than in the comparable prior year periods. Newly-acquired subsidiary
Guardian Re (see "Acquisition of Guardian Re" below) added $40.7 million of net
premiums written to both 1996 periods, contributing to growth in property and
casualty lines.
With respect to the third quarter, the increase in net premiums written in
1996 was principally due to growth in non-U.S. premiums, particularly in the
property, auto liability and fidelity lines. Due to competitive market
conditions, domestic premiums decreased in the current quarter compared to last
year's third quarter, principally in specialty casualty and property lines,
partially offset by an increase in workers' compensation. For the nine month
periods, domestic premiums were level, with significant increases reported in
ocean marine, workers' compensation and surety, offset by decreases in specialty
and general casualty classes. With respect to non-U.S. net premiums written,
significant increases were reported in property lines and in the auto liability
line. Non-U.S. business represented 47.7 percent and 40.6 percent of net
premiums written in the third quarter and first nine months of 1996 compared to
32.9 percent and 33.1 percent for the same 1995 periods, respectively.
The increase in net investment income in 1996 versus the comparable 1995
periods resulted from positive cash flow offset, in part, by generally lower
available yields on bonds purchased as compared to yields on bonds disposed of
in recent periods. Guardian Re contributed $4.2 million to net investment income
of both 1996 periods.
The combined ratio was 101.8 for the third quarter of 1996 versus 101.4
for the third quarter of 1995. The third quarter loss and loss adjustment
expense ratios for 1996 and 1995 were 74.7 and 76.6, respectively. The
underwriting expense ratios for the third quarters of 1996 and 1995 were 27.1
and 24.8, respectively. This increase in the underwriting expense ratio in 1996
was caused primarily by an increase in the ratio of net commissions to net
premiums written. For the first nine months of 1996, the combined ratio was
101.2 versus 102.5 for the same prior year period. The loss ratios were 74.4 and
76.7, respectively. The combined and loss ratios for the first nine months of
1995 include $4.5 million of incurred losses from the Kobe, Japan earthquake,
recorded in the first quarter. The first nine months underwriting expense ratio
was 26.8 versus 25.8 for the comparable prior year period.
Realized net capital gains on the disposition of investments for the third
quarter totaled $4.3 million in 1996 compared with $2.7 million for the same
period of 1995. For the first nine months of 1996 and 1995, realized net capital
gains totaled $13.4 million and $8.0 million, respectively.
- 6 -
<PAGE>
TRANSATLANTIC HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS - CONT'D
SEPTEMBER 30, 1996
Income before income taxes in the third quarter of 1996 increased 17.8
percent to $50.6 million from $43.0 million recorded in the same 1995 quarter.
For the first nine months of 1996, income before income taxes totaled $143.1
million versus $119.9 million in the comparable prior year period, an increase
of 19.3 percent. The increases in income before income taxes in 1996 versus
comparable 1995 periods are primarily due to improved underwriting results,
increased net investment income and increased realized net capital gains in the
1996 periods.
The effective tax rates for the third quarter and first nine months of
1996 were 21.9 percent and 20.6 percent, respectively, versus 19.8 percent and
18.6 percent for the comparable 1995 periods. The effective tax rate for the
full year of 1995 was 19.5 percent. The higher 1996 rates are due, in large
part, to a lower proportion of tax-exempt investment income to income before
income taxes in 1996.
Net income in the third quarter of 1996 increased 14.7 percent to $39.6
million, or $1.72 per common share, compared with $34.5 million, or $1.50 per
common share, in the same period of 1995. For the first nine months of 1996, net
income was $113.6 million, or $4.94 per common share, versus $97.6 million, or
$4.25 per common share, for the comparable 1995 period. Reasons for the
increases are as discussed above.
In the third quarter of 1996, a dividend of $0.12 per common share was
declared by the Board of Directors to stockholders of record as of December 6,
1996, payable on December 20, 1996.
FINANCIAL CONDITION AND LIQUIDITY. Stockholders' equity totaled $1,071.7
million at September 30, 1996, an increase of $83.2 million from year-end 1995.
The increase in stockholders' equity is primarily composed of net income of
$113.6 million, offset by a decrease in net unrealized appreciation of
investments, net of deferred income taxes, of $20.0 million, a decrease in net
unrealized foreign currency translation gain (loss) of $4.5 million, and
dividends of $8.3 million. Management believes that the liquidity of the Company
has not materially changed since the end of 1995.
Operating cash flow for the third quarter and first nine months of 1996
decreased compared to the same prior year periods as a result of decreases in
underwriting cash flow partially offset by an increase in cash flow from net
investment income. The decrease in underwriting cash flow is due, in large part,
to increased paid losses in the 1996 periods.
ACQUISITION OF GUARDIAN RE. In the third quarter of 1996, the Company,
through its wholly-owned subsidiary, Transatlantic Reinsurance Company, acquired
all of the outstanding shares of Guardian Ruckversicherungs-Gesellschaft
("Guardian Re"), an international reinsurance company based in Zurich,
Switzerland. This acquisition, which is being accounted for as a purchase, is
more fully described in Note 5 to these Interim Consolidated Financial
Statements and in a Current Report on Form 8-K filed on August 22, 1996. In
addition, this acquisition has not had a material effect on net income for the
periods reported.
- 7 -
<PAGE>
PART II - OTHER INFORMATION
---------------------------
ITEM #6 - EXHIBITS AND REPORTS ON FORM 8-K
- ------------------------------------------
(a) Exhibits
See accompanying Exhibit index
(b) In a Current Report on Form 8-K filed on August 22, 1996,
Transatlantic Holdings, Inc. reported the acquisition of all of the
outstanding shares of Guardian Ruckversicherungs-Gesellschaft
("Guardian Re") through its wholly-owned subsidiary, Transatlantic
Reinsurance Company.
Omitted from this Part II are items which are inapplicable or to which the
answer is negative for the period covered.
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.
TRANSATLANTIC HOLDINGS, INC.
----------------------------
(Registrant)
STEVEN S. SKALICKY
----------------------------
Steven S. Skalicky
On behalf of the registrant and in his capacity as
Senior Vice President - Controller
(Chief Accounting Officer)
Dated November 12, 1996
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<PAGE>
EXHIBIT INDEX
-------------
Exhibit
Number Description Location
- ------ ----------- --------
11.1 Statement re computation of per share earnings Filed herewith.
27.0 Financial data schedule Provided herewith.
- 9 -
EXHIBIT 11.1
TRANSATLANTIC HOLDINGS, INC. AND SUBSIDIARIES
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
-------- -------- -------- --------
(in thousands, except per common share data)
<S> <C> <C> <C> <C>
Weighted average common shares outstanding used
in the computation of per common share earnings:
Common shares issued 23,795 23,745 23,775 23,736
Common shares in treasury 800 800 800 800
-------- -------- -------- --------
Weighted average common shares outstanding (1) 22,995 22,945 22,975 22,936
======== ======== ======== ========
Net income (applicable to common stock) $ 39,561 $ 34,484 $113,550 $ 97,587
======== ======== ======== ========
Net income per common share (1) $ 1.72 $ 1.50 $ 4.94 $ 4.25
======== ======== ======== ========
</TABLE>
(1) The effect of all other common stock equivalents is not significant;
therefore, this information is not presented.
- 10 -
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
TRANSATLANTIC HOLDINGS, INC. AND SUBSIDIARIES
FINANCIAL DATA SCHEDULE
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
TRANSATLANTIC HOLDINGS, INC.'S FORM 10-Q FOR THE PERIOD ENDED SEPTEMBER 30, 1996
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. (IN
THOUSANDS, EXCEPT PER SHARE AMOUNTS)
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<DEBT-HELD-FOR-SALE> 1,882,600
<DEBT-CARRYING-VALUE> 1,042,444
<DEBT-MARKET-VALUE> 1,093,555
<EQUITIES> 346,903
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 3,286,483
<CASH> 112,300
<RECOVER-REINSURE> 388,537
<DEFERRED-ACQUISITION> 62,472
<TOTAL-ASSETS> 4,286,915
<POLICY-LOSSES> 2,668,072
<UNEARNED-PREMIUMS> 378,710
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
0
0
<COMMON> 23,806
<OTHER-SE> 1,047,883
<TOTAL-LIABILITY-AND-EQUITY> 4,286,915
793,745
<INVESTMENT-INCOME> 142,136
<INVESTMENT-GAINS> 13,405
<OTHER-INCOME> (448)
<BENEFITS> 590,362
<UNDERWRITING-AMORTIZATION> (7,459)
<UNDERWRITING-OTHER> 222,838
<INCOME-PRETAX> 143,097
<INCOME-TAX> 29,547
<INCOME-CONTINUING> 113,550
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 113,550
<EPS-PRIMARY> 4.94
<EPS-DILUTED> 4.94
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
