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, 1997
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, 1997 34,555,580.
----------
<PAGE>
TRANSATLANTIC HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of September 30, 1997 and December 31, 1996
<TABLE>
<CAPTION>
(Unaudited)
1997 1996
----------- -----------
ASSETS (in thousands, except share data)
<S> <C> <C>
Investments and cash:
Fixed maturities:
Bonds held to maturity, at amortized cost
(market value: 1997-$1,327,532; 1996-$1,182,713) $ 1,253,929 $ 1,125,133
Bonds available for sale, at market value
(amortized cost: 1997-$2,037,597; 1996-$1,884,274) 2,092,549 1,935,677
Equities:
Common stocks available for sale, at market value
(cost: 1997-$312,588; 1996-$289,938) 487,140 386,723
Nonredeemable preferred stocks available for sale,
at market value (cost: 1997-$5,015; 1996-$6,276) 5,755 5,642
Short-term investments, at cost which approximates
market value 16,699 59,191
Cash and cash equivalents 72,640 77,523
----------- -----------
Total investments and cash 3,928,712 3,589,889
Accrued investment income 73,909 63,213
Premium balances receivable, net 166,162 160,259
Reinsurance recoverable on paid and unpaid losses and
loss adjustment expenses:
Affiliates 169,820 162,739
Other 253,052 205,105
Deferred acquisition costs 66,489 58,700
Prepaid reinsurance premiums 26,829 26,617
Deferred income taxes 76,660 93,782
Other assets 29,162 18,837
----------- -----------
Total assets $ 4,790,795 $ 4,379,141
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Unpaid losses and loss adjustment expenses $ 2,849,381 $ 2,733,055
Unearned premiums 380,267 343,936
Reinsurance balances payable 162,869 62,534
Current income taxes payable 20,786 20,356
Payable for securities in course of settlement 23,126 32,224
Other liabilities 46,878 49,730
----------- -----------
Total liabilities 3,483,307 3,241,835
----------- -----------
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: 1997-35,355,580; 1996-23,812,796 35,356 23,813
Additional paid-in capital 195,337 201,930
Net unrealized appreciation of investments, net of deferred
income taxes (1997-$80,586; 1996-$51,644) 149,659 95,910
Net unrealized currency translation (loss) gain (8,621) 2,596
Retained earnings 945,757 823,057
Treasury Stock, at cost; 800,000 shares (10,000) (10,000)
----------- -----------
Total stockholders' equity 1,307,488 1,137,306
----------- -----------
Total liabilities and stockholders' equity $ 4,790,795 $ 4,379,141
=========== ===========
The accompanying notes are an integral part of the condensed consolidated
financial statements.
</TABLE>
- 1 -
<PAGE>
TRANSATLANTIC HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
-------- -------- ---------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Income:
Net premiums written $352,912 $321,708 $ 965,808 $830,636
Increase in net unearned premiums (19,733) (7,352) (42,418) (36,891)
-------- -------- ---------- --------
Net premiums earned 333,179 314,356 923,390 793,745
Net investment income 53,025 51,291 154,060 142,136
-------- -------- ---------- --------
386,204 365,647 1,077,450 935,881
-------- -------- ---------- --------
Expenses:
Net losses and loss adjustment expenses 249,118 234,859 684,705 590,362
Net commissions 77,840 77,529 217,265 197,130
Other operating expenses 10,785 9,650 31,314 25,708
Increase in deferred acquisition costs (3,391) (2,534) (7,759) (7,459)
-------- -------- ---------- --------
334,352 319,504 925,525 805,741
-------- -------- ---------- --------
51,852 46,143 151,925 130,140
Realized net capital gains 9,183 4,311 17,560 13,405
-------- -------- ---------- --------
Operating income 61,035 50,454 169,485 143,545
Other (deductions) income (330) 192 (1,289) (448)
-------- -------- ---------- --------
Income before income taxes 60,705 50,646 168,196 143,097
Income taxes 12,749 11,085 35,475 29,547
-------- -------- ---------- --------
Net income $ 47,956 $ 39,561 $ 132,721 $113,550
======== ======== ========== ========
Net income per common share (a) $ 1.39 $ 1.14 $ 3.84 $ 3.29
======== ======== ========== ========
Dividends per common share (a) $ 0.10 $ 0.08 $ 0.29 $ 0.24
======== ======== ========== ========
Weighted average common shares outstanding (a) 34,551 34,493 34,542 34,462
======== ======== ========== ========
(a) Share and per share information reflect a 3-for-2 split of the common
stock, paid July 18, 1997.
The accompanying notes are an integral part of the condensed consolidated
financial statements.
</TABLE>
- 2 -
<PAGE>
TRANSATLANTIC HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
--------- ---------
(in thousands)
<S> <C> <C>
Net cash provided by operating activities $ 241,995 $ 254,411
--------- ---------
Cash flows from investing activities:
Proceeds of bonds available for sale sold 262,853 418,442
Proceeds of bonds held to maturity redeemed or matured 48,024 12,766
Proceeds of bonds available for sale redeemed or matured 188,640 90,881
Proceeds of equities sold 91,483 103,859
Purchase of bonds held to maturity (175,834) (176,747)
Purchase of bonds available for sale (635,289) (421,435)
Purchase of equities (100,310) (142,114)
Net proceeds (purchase) of short-term investments 42,492 (1,662)
Change in payable for securities in course of settlement (9,098) 2,001
Investment in Trans Re Zurich, net of cash received -- (66,479)
Other, net (75) (2,286)
--------- ---------
Net cash used in investing activities (287,114) (182,774)
--------- ---------
Cash flows from financing activities:
Dividends to stockholders (10,020) (8,285)
Proceeds from common stock issued 850 2,450
Net proceeds from reinsurance deposits 49,881 --
Other 4,100 --
--------- ---------
Net cash from financing activities 44,811 (5,835)
--------- ---------
Effect of exchange rate changes on cash and cash equivalents (4,575) (1,334)
--------- ---------
Change in cash and cash equivalents (4,883) 64,468
Cash and cash equivalents, beginning of period 77,523 47,832
--------- ---------
Cash and cash equivalents, end of period $ 72,640 $ 112,300
========= =========
The accompanying notes are an integral part of the condensed consolidated
financial statements.
</TABLE>
- 3 -
<PAGE>
TRANSATLANTIC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(Unaudited)
1. General
The condensed 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. Certain
reclassifications have been made to conform the prior year's presentations with
1997. The results of operations and cash flows for any interim period are not
necessarily indicative of results for the full year.
2. Per Common Share Information
Net income per common share and dividends per common share for the periods
presented are based on the weighted average number of common shares outstanding,
and reflect a 3-for-2 common stock split that was paid on July 18, 1997 to
stockholders of record on June 27, 1997.
3. 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,
------------- -------------
1997 1996 1997 1996
--------- --------- ----------- ---------
(in thousands)
Gross premiums written $ 380,841 $ 371,955 $ 1,069,273 $ 987,516
Reinsurance ceded (27,929) (50,247) (103,465) (156,880)
--------- --------- ----------- ---------
Net premiums written $ 352,912 $ 321,708 $ 965,808 $ 830,636
========= ========= =========== =========
Gross premiums earned $ 364,871 $ 359,099 $ 1,026,643 $ 952,519
Reinsurance ceded (31,692) (44,743) (103,253) (158,774)
--------- --------- ----------- ---------
Net premiums earned $ 333,179 $ 314,356 $ 923,390 $ 793,745
========= ========= =========== =========
Gross incurred losses and loss
adjustment expenses $ 265,922 $ 252,553 $ 755,376 $ 586,726
Reinsurance ceded (16,804) (17,694) (70,671) 3,636
--------- --------- ----------- ---------
Net losses and loss adjustment
expenses $ 249,118 $ 234,859 $ 684,705 $ 590,362
========= ========= =========== =========
4. Dividends
During the third quarter of 1997, the Board of Directors of Transatlantic
Holdings, Inc. (the "Company") declared a cash dividend of $3,458,000 or $0.10
per common share.
- 4 -
<PAGE>
5. Income Taxes
Income taxes paid, net, in the third quarter totaled $19,147,000 and
$17,352,000 in 1997 and 1996, respectively. For the 1997 and 1996 nine month
periods, income taxes paid, net, totaled $36,526,000 and $30,950,000,
respectively.
6. New Accounting Standard
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share". A
brief summary of this standard was presented in the first quarter 1997 Form
10-Q. Based upon the Company's interpretation of this standard, basic and
diluted EPS would not differ materially from primary EPS as reported by the
Company for the third quarters and first nine months of 1997 and 1996 nor for
any of the interim or annual periods presented in the Company's Form 10-K for
the year ended December 31, 1996.
7. Additional Information
For further information, refer to the Transatlantic Holdings, Inc. Form
10-K filing for the year ended December 31, 1996 and Form 10-Q filings for the
first two quarters of 1997.
- 5 -
<PAGE>
TRANSATLANTIC HOLDINGS, INC. AND SUBSIDIARIES
---------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
-------------------------------------------------------------
AND FINANCIAL CONDITION
-----------------------
SEPTEMBER 30, 1997
------------------
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,
------------------------ ------------------------
1997 1996 % Change 1997 1996 % Change
------------------------ ------------------------
(dollars in millions)
Net premiums written $352.9 $321.7 9.7% $965.8 $830.6 16.3%
Net premiums earned 333.2 314.4 6.0 923.4 793.7 16.3
Net investment income 53.0 51.3 3.4 154.1 142.1 8.4
With respect to net premiums written, third quarter 1997 exceeded the same
1996 quarter as a result of comparable increases in domestic and international
business. The most significant domestic increases were recorded in homeowners
multi-peril, specialty casualty classes (particularly medical malpractice and
accident and health lines) and surety, while international increases were most
significant in automobile liability and automobile physical damage lines. On an
overall basis, the large majority of the increase related to property lines. The
reinsurance market worldwide remains highly competitive.
In comparing the nine month periods, growth generally emanated from our
international operations in both property and casualty lines, particularly from
fire, allied lines, automobile liability, automobile physical damage and ocean
marine lines. A large majority of the nine month international growth in net
premiums written originated from Trans Re Zurich (TRZ). Acquired in the third
quarter of 1996, TRZ added $141.6 million to net premiums written for the first
nine months of 1997 compared to $40.7 million for the same prior year period.
While domestic total net premiums written for the 1997 and 1996 nine month
periods were level, the 1997 period reflected significant increases in
homeowners multi-peril and specialty casualty classes (particularly medical
malpractice and accident and health lines) and decreases in workers'
compensation and automobile liability lines.
International operations generated 48 percent and 49 percent of net
premiums written in the third quarter and first nine months of 1997,
respectively, compared to 47 percent and 40 percent for the same 1996 periods.
The increase in net investment income in 1997 versus the comparable 1996
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. As a regular tax basis taxpayer, Transatlantic Holdings, Inc.
(the "Company") continues to increase the percentage of tax-exempt investments
in its fixed income portfolio to benefit the Company's after-tax results. The
lower rate of increase in net investment income for the third quarter of 1997 as
compared to the nine month period resulted, in part, from the fact that TRZ's
results are reflected in comparative quarters for the first time since its
acquisition. TRZ contributed $12.6 million to net investment income for the
first nine months of 1997 compared to $4.2 million for the first nine months of
1996.
The combined ratio was 99.9 for the third quarter of 1997 versus 101.8 for
the third quarter of 1996. The third quarter loss and loss adjustment expense
ratios for 1997 and 1996 were 74.8 and 74.7, respectively. The underwriting
expense ratios for the third quarters of 1997 and 1996 were 25.1 and 27.1,
respectively. For the first nine months of 1997, the combined ratio was 99.9
versus 101.2 for the same prior year period. The loss ratios were 74.2 and 74.4,
respectively. The first nine months underwriting expense ratio was 25.7 in 1997
versus 26.8 for the comparable prior year period. The decrease in the
underwriting expense ratio for the quarter
- 6 -
<PAGE>
TRANSATLANTIC HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS - CONT'D
SEPTEMBER 30, 1997
and nine month periods was caused by a decrease in the ratio of net commissions
to net premiums written which resulted primarily from a slight change in the mix
of business between periods.
Realized net capital gains on the disposition of investments for the third
quarter totaled $9.2 million in 1997 compared with $4.3 million for the same
period of 1996. For the first nine months of 1997 and 1996, realized net capital
gains totaled $17.6 million and $13.4 million, respectively.
Income before income taxes in the third quarter of 1997 increased 19.9
percent to $60.7 million from $50.6 million recorded in the same 1996 quarter.
For the first nine months of 1997, income before income taxes totaled $168.2
million versus $143.1 million in the comparable prior year period, an increase
of 17.5 percent. The increases in income before income taxes in 1997 versus
comparable 1996 periods are primarily due to improved underwriting results and
increased net investment income and realized net capital gains in the 1997
periods.
The effective tax rates for the third quarter and first nine months of
1997 were 21.0 percent and 21.1 percent, respectively, versus 21.9 percent and
20.6 percent for the comparable 1996 periods. The effective tax rate for the
full year of 1996 was 21.1 percent.
Net income in the third quarter of 1997 increased 21.2 percent to $48.0
million, or $1.39 per common share, compared with $39.6 million, or $1.14 per
common share, in the same period of 1996. For the first nine months of 1997, net
income increased 16.9 percent to $132.7 million, or $3.84 per common share,
versus $113.6 million, or $3.29 per common share, for the first nine months of
1996. Reasons for the increases are as discussed above.
In the third quarter of 1997, a dividend of $0.10 per common share was
declared by the Board of Directors to stockholders of record as of December 5,
1997 payable on December 19, 1997.
The per common share amounts discussed above reflect the 3-for-2 common
stock split paid on July 18, 1997.
FINANCIAL CONDITION AND LIQUIDITY. Stockholders' equity totaled $1,307.5
million at September 30, 1997, an increase of $170.2 million from year-end 1996.
The increase in stockholders' equity is primarily composed of net income of
$132.7 million, an increase in net unrealized appreciation of investments, net
of deferred income taxes, of $53.7 million, partially offset by a net unrealized
currency translation loss of $11.2 million and cash dividends of $10.0 million.
The increase in net unrealized appreciation of investments, net of deferred
income taxes, was comprised of an increase of $51.4 million from equity
investments and an increase of $2.3 million from bonds available for sale.
Management believes that the liquidity of the Company has not materially changed
since the end of 1996.
Operating cash flow for the third quarter and first nine months of 1997
decreased compared to the comparable 1996 periods due principally to decreases
in underwriting cash flow partially offset by increases in net investment income
received. A significant increase in paid losses due, in large part, to increased
premium volume and a shift in the business mix towards lines with shorter loss
payment patterns in recent years contributed significantly to the decreased
underwriting cash flow.
NEW ACCOUNTING STANDARD. In February 1997, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 128,
"Earnings Per Share". A brief summary of this standard was presented in the
first quarter 1997 Form 10-Q. Based upon the Company's interpretation of this
standard, basic and diluted EPS would not differ materially from primary EPS as
reported by the Company for the third quarters and first nine months of 1997 and
1996 nor for any of the interim or annual periods presented in the Company's
Form 10-K for the year ended December 31, 1996.
- 7 -
<PAGE>
PART II - OTHER INFORMATION
---------------------------
ITEM #6 - EXHIBITS AND REPORTS ON FORM 8-K
- ------------------------------------------
(a) Exhibits
See accompanying Exhibit index.
(b) There were no reports on Form 8-K for the three months ended
September 30, 1997.
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)
/s/ 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, 1997
- 8 -
<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 -
TRANSATLANTIC HOLDINGS, INC. AND SUBSIDIARIES Exhibit 11.1
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
------- ------- -------- --------
(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 (a) 33,751 33,693 33,742 33,662
Common shares in treasury 800 800 800 800
------- ------- -------- --------
Weighted average common shares
outstanding (b) 34,551 34,493 34,542 34,462
======= ======= ======== ========
Net income (applicable to
common stock) $47,956 $39,561 $132,721 $113,550
======= ======= ======== ========
Net income per common share (b) $ 1.39 $ 1.14 $ 3.84 $ 3.29
======= ======= ======== ========
(a) All share information reflects a 3-for-2 split of the common stock, paid
July 18, 1997.
(b) The effect of all other common stock equivalents is not significant;
therefore, this information is not presented.
</TABLE>
-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, 1997
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-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<DEBT-HELD-FOR-SALE> 2,092,549
<DEBT-CARRYING-VALUE> 1,253,929
<DEBT-MARKET-VALUE> 1,327,532
<EQUITIES> 492,895
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 3,856,072
<CASH> 72,640
<RECOVER-REINSURE> 422,872
<DEFERRED-ACQUISITION> 66,489
<TOTAL-ASSETS> 4,790,795
<POLICY-LOSSES> 2,849,381
<UNEARNED-PREMIUMS> 380,267
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
0
0
<COMMON> 35,356
<OTHER-SE> 1,272,132
<TOTAL-LIABILITY-AND-EQUITY> 4,790,795
923,390
<INVESTMENT-INCOME> 154,060
<INVESTMENT-GAINS> 17,560
<OTHER-INCOME> (1,289)
<BENEFITS> 684,705
<UNDERWRITING-AMORTIZATION> (7,759)
<UNDERWRITING-OTHER> 248,579
<INCOME-PRETAX> 168,196
<INCOME-TAX> 35,475
<INCOME-CONTINUING> 132,721
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 132,721
<EPS-PRIMARY> 3.84
<EPS-DILUTED> 3.84
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
