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 MARCH 31, 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
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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 March 31, 1997 23,027,462
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<PAGE>
TRANSATLANTIC HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of March 31, 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-$1,313,471;
1996-$1,182,713) $ 1,273,006 $ 1,125,133
Bonds available for sale, at market value (amortized cost: 1997-$1,868,297;
1996-$1,884,274) 1,896,956 1,935,677
Equities:
Common stocks available for sale, at market value (cost: 1997-$289,285;
1996-$289,938) 385,375 386,723
Nonredeemable preferred stocks available for sale, at market value
(cost: 1997-$6,266; 1996-$6,276) 5,608 5,642
Short-term investments, at cost which approximates market value 22,785 59,191
Cash and cash equivalents 134,086 77,523
----------- -----------
Total investments and cash 3,717,816 3,589,889
Accrued investment income 67,051 63,213
Premium balances receivable, net 148,057 160,259
Reinsurance recoverable on paid and unpaid losses and loss adjustment expenses:
Affiliates 157,137 162,739
Other 227,333 205,105
Deferred acquisition costs 62,619 58,700
Prepaid reinsurance premiums 28,438 26,617
Deferred income taxes 109,224 93,782
Other assets 32,117 18,837
----------- -----------
Total assets $ 4,549,792 $ 4,379,141
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Unpaid losses and loss adjustment expenses $ 2,750,666 $ 2,733,055
Unearned premiums 361,459 343,936
Reinsurance balances payable 149,979 62,534
Current income taxes payable 29,057 20,356
Payable for securities in course of settlement 63,889 32,224
Other liabilities 47,037 49,730
----------- -----------
Total liabilities 3,402,087 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: 1997-23,827,462; 1996-23,812,796 23,833 23,813
Additional paid-in capital 202,319 201,930
Net unrealized appreciation of investments, net of deferred
income taxes (1997-$43,432; 1996-$51,644) 80,659 95,910
Net unrealized currency translation (loss) gain (10,672) 2,596
Retained earnings 861,566 823,057
Treasury Stock, at cost; 800,000 shares (10,000) (10,000)
----------- -----------
Total stockholders' equity 1,147,705 1,137,306
----------- -----------
Total liabilities and stockholders' equity $ 4,549,792 $ 4,379,141
=========== ===========
The accompanying notes are an integral part of the condensed consolidated financial statements.
</TABLE>
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<PAGE>
TRANSATLANTIC HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1997 1996
---------- ----------
(in thousands, except per share data)
<S> <C> <C>
Income:
Net premiums written $ 303,108 $ 251,932
Increase in net unearned premiums (18,927) (29,671)
--------- ---------
Net premiums earned 284,181 222,261
Net investment income 50,020 44,859
--------- ---------
334,201 267,120
--------- ---------
Expenses:
Net losses and loss adjustment expenses 211,928 169,523
Net commissions 67,654 54,195
Other operating expenses 9,804 7,937
Increase in deferred acquisition costs (3,919) (5,000)
--------- ---------
285,467 226,655
--------- ---------
48,734 40,465
Realized net capital gains 4,179 5,274
--------- ---------
Operating income 52,913 45,739
Other deductions (445) (451)
--------- ---------
Income before income taxes 52,468 45,288
Income taxes 10,847 9,058
--------- ---------
Net income $ 41,621 $ 36,230
========= =========
Net income per common share $ 1.81 $ 1.58
========= =========
Dividends per common share $ 0.135 $ 0.12
========= =========
Weighted average common shares outstanding 23,022 22,959
========= =========
The accompanying notes are an integral part of the condensed consolidated financial statements.
</TABLE>
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<PAGE>
TRANSATLANTIC HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
--------- ---------
(in thousands)
<S> <C> <C>
Net cash provided by operating activities $ 88,542 $ 96,814
--------- ---------
Cash flows from investing activities:
Proceeds of bonds available for sale sold 144,218 104,146
Proceeds of bonds held to maturity redeemed 14,193 10,992
Proceeds of bonds available for sale redeemed or matured 67,386 25,432
Proceeds of equities sold 22,399 19,078
Purchase of bonds held to maturity (161,697) (91,712)
Purchase of bonds available for sale (234,109) (128,562)
Purchase of equities (19,282) (16,268)
Net proceeds (purchase) of short-term investments 36,406 (15,745)
Change in payable for securities in course of settlement 31,665 34,112
Other, net 13,346 2,281
--------- ---------
Net cash used in investing activities (85,475) (56,246)
--------- ---------
Cash flows from financing activities:
Dividends to stockholders (3,112) (2,758)
Proceeds from common stock issued 409 571
Proceeds from reinsurance deposits 58,858 --
--------- ---------
Net cash from financing activities 56,155 (2,187)
--------- ---------
Effect of exchange rate changes on cash and cash equivalents (2,659) (5)
--------- ---------
Change in cash and cash equivalents 56,563 38,376
Cash and cash equivalents, beginning of period 77,523 47,832
--------- ---------
Cash and cash equivalents, end of period $ 134,086 $ 86,208
========= =========
The accompanying notes are an integral part of the condensed consolidated financial statements.
</TABLE>
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<PAGE>
TRANSATLANTIC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 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. Reinsurance
Premiums written and earned and losses and loss adjustment expenses
incurred were comprised of the following:
Three Months Ended
------------------
March 31,
---------
1997 1996
---------- -----------
(in thousands)
Gross premiums written $ 337,381 $ 276,782
Reinsurance ceded (34,273) (24,850)
--------- ---------
Net premiums written $ 303,108 $ 251,932
========= =========
Gross premiums earned $ 316,633 $ 255,657
Reinsurance ceded (32,452) (33,396)
--------- ---------
Net premiums earned $ 284,181 $ 222,261
========= =========
Gross incurred losses and loss
adjustment expenses $ 236,149 $ 181,964
Reinsurance ceded (24,221) (12,441)
--------- ---------
Net losses and loss adjustment
expenses $ 211,928 $ 169,523
========= =========
3. Reinsurance deposits
Amounts received pursuant to reinsurance contracts that are not expected
to indemnify the ceding company against loss or liability are recorded as
deposits and included in the Balance Sheet as "Reinsurance balances payable".
These deposits are treated as financing transactions and are credited with
interest according to contract terms.
4. Dividends
During the first quarter of 1997, the Board of Directors of Transatlantic
Holdings, Inc. (the "Company") declared a dividend of $3,112,000, or $0.135 per
common share.
- 4 -
<PAGE>
5. Income Taxes
Income taxes paid, net, in the first quarter totaled $4,246,000. In the
same prior year quarter, income tax refunds, net, totaled $591,000.
6. 1997 Accounting Standard
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per
Share". This standard simplifies the existing computational guidelines, revises
the disclosure requirements and increases earnings per share (EPS) comparability
on an international basis. SFAS No. 128 also replaces the presentation of
primary EPS with a presentation of basic EPS. Basic EPS is calculated by
dividing net income by the number of weighted average common shares outstanding.
In addition, a dual presentation of basic and diluted EPS must be shown on the
face of the income statement for all entities with complex capital structures,
which the Company is considered to have. Upon adoption of this standard,
required at December 31, 1997 (with earlier adoption not permitted), all prior
period information must be restated.
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 first quarters 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.
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<PAGE>
TRANSATLANTIC HOLDINGS, INC. AND SUBSIDIARIES
---------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
-------------------------------------------------------------
AND FINANCIAL CONDITION
-----------------------
MARCH 31, 1997
--------------
OPERATIONAL REVIEW. The following table presents net premiums written, net
premiums earned and net investment income for the periods indicated:
Three Months Ended
March 31,
--------------------------------
1997 1996 % Change
--------------------------------
(dollars in millions)
Net premiums written $ 303.1 $ 251.9 20.3%
Net premiums earned 284.2 222.3 27.9
Net investment income 50.0 44.9 11.5
Net premiums written for the first quarter of 1997 were higher than in
the comparable 1996 quarter. International net premiums written grew very
significantly, aided by $47.4 million from Trans Re Zurich, acquired in the
third quarter of 1996, and increases in each of the other international
locations. Increases were reported in both property and casualty lines.
International locations generated 49 percent of net premiums written in the
first quarter of 1997 compared to 40 percent for the 1996 year and 33 percent
for the 1996 first quarter. Domestic net premiums written declined modestly in
both property and casualty lines. The reinsurance marketplace worldwide remains
highly competitive.
The increase in net investment income in the first quarter of 1997
versus the comparable 1996 period resulted from positive operating cash flow
offset, in part, by generally lower available yields on bonds purchased as
compared to yields on bonds disposed of in recent periods. 1997 first quarter
net investment income includes $3.5 million attributable to Trans Re Zurich. The
lower investment yields are due, in part, to the fact that in recent periods,
the Company has primarily purchased tax-exempt bonds for its domestic bond
portfolio. Tax-exempt bonds carry lower pre-tax yields than taxable bonds which
are comparable in risk and term to maturity due to their tax-advantaged status.
Net investment income in the first quarter of 1997 was slightly lower than the
fourth quarter of 1996 due, in part, to the reasons mentioned immediately above
and to the impact of a strengthening U.S. dollar against the foreign currencies
in which the investment income was generated.
The combined ratio was 100.1 for the first quarter of 1997 versus 100.9
for the first quarter of 1996. The first quarter loss and loss adjustment
expense ratios for 1997 and 1996 were 74.6 and 76.3, respectively. The
underwriting expense ratios for the first quarters of 1997 and 1996 were 25.5
and 24.6, respectively. The increase in the underwriting expense ratio was
caused primarily by an increase in the ratio of net commissions to net premiums
written.
Realized net capital gains on the disposition of investments for the
first quarter totaled $4.2 million in the first quarter of 1997 compared with
$5.3 million for the same period of 1996.
Income before income taxes in the first quarter of 1997 increased 15.9
percent to $52.5 million from $45.3 million recorded in the same 1996 period.
The increase in income before income taxes is due to improved underwriting
results and increased net investment income in the 1997 first quarter offset, in
part, by a reduction in realized net capital gains.
- 6 -
<PAGE>
TRANSATLANTIC HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS - CONT'D
MARCH 31, 1997
The effective tax rate for the first quarter of 1997 was 20.7 percent
compared to 20.0 percent for the comparable 1996 period. The effective tax rate
for the full year of 1996 was 21.1 percent.
Net income in the first quarter of 1997 increased 14.9 percent to $41.6
million, or $1.81 per common share, compared with $36.2 million, or $1.58 per
common share, in the same period of 1996. Reasons for the increases are as
discussed above.
In the first quarter of 1997, a dividend of $0.135 per common share was
declared by the Board of Directors to stockholders of record as of June 6, 1997,
payable on June 20, 1997.
FINANCIAL CONDITION AND LIQUIDITY. Stockholders' equity totaled
$1,147.7 million at March 31, 1997, an increase of $10.4 million from year-end
1996. The increase in stockholders' equity is primarily composed of net income
of $41.6 million, partially offset by a decrease in net unrealized appreciation
of investments, net of deferred income taxes, of $15.3 million, net unrealized
currency translation loss of $13.3 million and dividends of $3.1 million.
Management believes that the liquidity of the Company has not materially changed
since the end of 1996.
Operating cash flow for the first quarter of 1997 decreased slightly
compared to the same 1996 period primarily as a result of a decrease in
underwriting cash flow from both domestic and international operations in the
1997 period.
1997 ACCOUNTING STANDARD. In February 1997, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards (SFAS) No.
128, "Earnings Per Share". This standard simplifies the existing computational
guidelines, revises the disclosure requirements and increases earnings per share
(EPS) comparability on an international basis. SFAS No. 128 also replaces the
presentation of primary EPS with a presentation of basic EPS. Basic EPS is
calculated by dividing net income by the number of weighted average common
shares outstanding. In addition, a dual presentation of basic and diluted EPS
must be shown on the face of the income statement for all entities with complex
capital structures, which the Company is considered to have. Upon adoption of
this standard, required at December 31, 1997 (with earlier adoption not
permitted), all prior period information must be restated.
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 first quarters 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
March 31, 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 May 14, 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 -
EXHIBIT 11.1
TRANSATLANTIC HOLDINGS, INC. AND SUBSIDIARIES
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1997 1996
---- ----
(in thousands, except per
common share data)
<S> <C> <C>
Weighted average common shares outstanding used in the
computation of per common share earnings:
Common shares issued 23,822 23,759
Common shares in treasury 800 800
------- -------
Weighted average common shares outstanding (1) 23,022 22,959
======= =======
Net income (applicable to common stock) $41,621 $36,230
======= =======
Net income per common share (1) $ 1.81 $ 1.58
======= =======
(1) 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 MARCH 31, 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<DEBT-HELD-FOR-SALE> 1,896,956
<DEBT-CARRYING-VALUE> 1,273,006
<DEBT-MARKET-VALUE> 1,313,471
<EQUITIES> 390,983
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 3,583,730
<CASH> 134,086
<RECOVER-REINSURE> 384,470
<DEFERRED-ACQUISITION> 62,619
<TOTAL-ASSETS> 4,549,792
<POLICY-LOSSES> 2,750,666
<UNEARNED-PREMIUMS> 361,459
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
0
0
<COMMON> 23,833
<OTHER-SE> 1,123,872
<TOTAL-LIABILITY-AND-EQUITY> 4,549,792
284,181
<INVESTMENT-INCOME> 50,020
<INVESTMENT-GAINS> 4,179
<OTHER-INCOME> (445)
<BENEFITS> 211,928
<UNDERWRITING-AMORTIZATION> (3,919)
<UNDERWRITING-OTHER> 77,458
<INCOME-PRETAX> 52,468
<INCOME-TAX> 10,847
<INCOME-CONTINUING> 41,621
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 41,621
<EPS-PRIMARY> 1.81
<EPS-DILUTED> 1.81
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
