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, 1998
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 March 31, 1998 34,622,055
----------
<PAGE>
TRANSATLANTIC HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of March 31, 1998 and December 31, 1997
<TABLE>
<CAPTION>
(Unaudited)
1998 1997
---- ----
ASSETS (in thousands, except share data)
<S> <C> <C>
Investments and cash:
Fixed maturities:
Bonds held to maturity, at amortized cost (market value: 1998-$1,280,174;
1997-$1,313,382) $ 1,201,490 $ 1,230,015
Bonds available for sale, at market value (amortized cost: 1998-$2,193,475;
1997-$2,145,717) 2,255,041 2,210,910
Equities:
Common stocks available for sale, at market value (cost: 1998-$291,695;
1997-$289,701) 503,168 458,153
Nonredeemable preferred stocks available for sale, at market value
(cost: 1998-$5,014; 1997-$5,014) 5,973 5,973
Short-term investments, at cost which approximates market value 11,717 16,731
Cash and cash equivalents 99,161 70,737
----------- -----------
Total investments and cash 4,076,550 3,992,519
Accrued investment income 67,511 70,799
Premium balances receivable, net 180,639 188,816
Reinsurance recoverable on paid and unpaid losses and loss adjustment expenses:
Affiliates 186,183 189,690
Other 233,904 212,475
Deferred acquisition costs 67,429 64,752
Prepaid reinsurance premiums 33,580 22,056
Deferred income taxes 54,565 71,981
Other assets 70,600 21,892
----------- -----------
Total assets $ 4,970,961 $ 4,834,980
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Unpaid losses and loss adjustment expenses $ 2,937,213 $ 2,918,782
Unearned premiums 391,590 366,640
Reinsurance balances payable 130,148 124,365
Current income taxes payable 21,291 19,531
Other liabilities 53,224 49,003
----------- -----------
Total liabilities 3,533,466 3,478,321
----------- -----------
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: 1998-35,422,055; 1997-35,362,870 35,422 35,363
Additional paid-in capital 197,405 195,494
Accumulated other comprehensive income 175,260 140,724
Retained earnings 1,039,408 995,078
Treasury Stock, at cost; 800,000 shares (10,000) (10,000)
----------- -----------
Total stockholders' equity 1,437,495 1,356,659
----------- -----------
Total liabilities and stockholders' equity $ 4,970,961 $ 4,834,980
=========== ===========
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
March 31,
1998 1997
-------- -------
(in thousands, except per share data)
<S> <C> <C>
Income:
Net premiums written $332,528 $303,108
Increase in net unearned premiums (18,131) (18,927)
-------- --------
Net premiums earned 314,397 284,181
Net investment income 53,674 50,020
-------- --------
368,071 334,201
-------- --------
Expenses:
Net losses and loss adjustment expenses 232,833 211,928
Net commissions 74,145 67,654
Other operating expenses 10,902 9,804
Increase in deferred acquisition costs (2,676) (3,919)
-------- --------
315,204 285,467
-------- --------
52,867 48,734
Realized net capital gains 7,277 4,179
-------- --------
Operating income 60,144 52,913
Other deductions (325) (445)
-------- --------
Income before income taxes 59,819 52,468
Income taxes 11,989 10,847
-------- --------
Net income $ 47,830 $ 41,621
======== ========
Net income per common share:
Basic $1.38 $1.20
Diluted 1.37 1.20
Dividends per common share 0.10 0.09
Weighted average common shares outstanding:
Basic 34,601 34,533
Diluted 34,829 34,685
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 Three Months Ended March 31, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
---------- ----------
(in thousands)
<S> <C> <C>
Net cash provided by operating activities $ 85,042 $ 88,542
--------- ---------
Cash flows from investing activities:
Proceeds of bonds available for sale sold 78,257 144,218
Proceeds of bonds held to maturity redeemed 29,235 14,193
Proceeds of bonds available for sale redeemed or matured 100,887 67,386
Proceeds of equities sold 30,427 22,399
Purchase of bonds held to maturity - (161,697)
Purchase of bonds available for sale (228,229) (234,109)
Purchase of equities (27,165) (19,282)
Net proceeds of short-term investments 4,854 36,406
Change in payable for securities in course of settlement 9,663 31,665
Other, net (50,000) 13,346
--------- ---------
Net cash used in investing activities (52,071) (85,475)
--------- ---------
Cash flows from financing activities:
Dividends to stockholders (3,461) (3,112)
Proceeds from common stock issued 1,970 409
Net (disbursements) proceeds from reinsurance deposits (1,529) 58,858
--------- ---------
Net cash from financing activities (3,020) 56,155
--------- ---------
Effect of exchange rate changes on cash and cash equivalents (1,527) (2,659)
--------- ---------
Change in cash and cash equivalents 28,424 56,563
Cash and cash equivalents, beginning of period 70,737 77,523
--------- ---------
Cash and cash equivalents, end of period $ 99,161 $ 134,086
========= =========
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
MARCH 31, 1998
(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
1998. 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 for the periods presented has been computed
below in accordance with Statement of Financial Accounting Standards (SFAS) No.
128, "Earnings Per Share" and is based on the weighted average number of common
shares outstanding.
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1998 1997
---- ----
(in thousands, except per share data)
<S> <C> <C>
Net income (numerator) $47,830 $41,621
======= =======
Weighted average common shares outstanding used in the
computation of net income per share:
Average shares issued 35,401 35,333
Less: Average shares in treasury 800 800
------- -------
Average outstanding shares - basic (denominator) 34,601 34,533
Average potential shares, principally stock options 228 152
------- -------
Average outstanding shares - diluted (denominator) 34,829 34,685
======= =======
Net income per common share:
Basic $1.38 $1.20
Diluted 1.37 1.20
</TABLE>
Net income per common share and dividends per common share reflect a
3-for-2 split of the common stock, in the form of a 50 percent stock dividend,
paid in July 1997.
- 4 -
<PAGE>
3. Reinsurance
Premiums written and earned and losses and loss adjustment expenses
incurred were comprised of the following:
Three Months Ended March 31,
----------------------------
1998 1997
---- ----
(in thousands)
Gross premiums written $373,108 $337,381
Reinsurance ceded (40,580) (34,273)
--------- ---------
Net premiums written $332,528 $303,108
========= =========
Gross premiums earned $343,453 $316,633
Reinsurance ceded (29,056) (32,452)
--------- ---------
Net premiums earned $314,397 $284,181
========= =========
Gross incurred losses and loss
adjustment expenses $258,451 $236,149
Reinsurance ceded (25,618) (24,221)
--------- ---------
Net losses and loss adjustment
expenses $232,833 $211,928
========= =========
4. Dividends
During the first quarter of 1998, the Board of Directors of Transatlantic
Holdings, Inc. (the "Company") declared a dividend of $3,500,000, or $0.10 per
common share.
5. Income Taxes
Income taxes paid, net, in the first quarter totaled $5,370,000 and
$4,246,000 in 1998 and 1997, respectively.
6. Adoption of New Accounting Standards
i. In June 1997, the Financial Accounting Standards Board (FASB) adopted
SFAS No. 130, "Reporting Comprehensive Income." The statement established
standards for reporting and displaying comprehensive income and its components
(revenues, expenses, gains and losses) in a full set of general-purpose
financial statements. Comprehensive income is defined as the change in
stockholders' equity during a period from transactions and other events and
circumstances from non-owner sources and includes net income and all changes in
stockholders' equity except those resulting from investments by owners and
distributions to owners. The standard requires that an enterprise (a) classify
items of other comprehensive income by their nature in a financial statement and
(b) display the accumulated balance of other comprehensive income separately
from retained earnings and additional paid-in capital in the equity section of a
balance sheet.
Pursuant to the standard, Transatlantic Holdings, Inc. and subsidiaries
(TRH) adopted SFAS No. 130 in the first quarter of 1998 and has reclassified
certain 1997 data to also reflect its provisions. Amounts previously reported
separately for net unrealized appreciation of investments, net of taxes, and net
unrealized currency translation (loss) gain, net of taxes, are now included as
components of accumulated other comprehensive income in the stockholders' equity
section of the balance sheet. The calculation of comprehensive income, including
the change in accumulated other comprehensive income follows:
- 5 -
<PAGE>
Three Months Ended March 31,
----------------------------
1998 1997
---- ----
(in thousands)
Net income $47,830 $41,621
--------- ---------
Add: Change in accumulated other
comprehensive income:
Net unrealized appreciation of investments,
net of taxes (1998-$82,111; 1997-$51,644),
beginning of period 152,493 95,910
Net unrealized currency translation (loss) gain,
net of taxes (1998-$(6,054); 1997-$1,679),
beginning of period (11,769) 2,596
--------- ---------
Accumulated other comprehensive income,
net of taxes, beginning of period 140,724 98,506
--------- ---------
Net unrealized appreciation of investments,
net of taxes (1998-$95,899; 1997-$43,432),
end of period 178,099 80,659
Net unrealized currency translation loss,
net of taxes (1998-$(1,248); 1997-$(5,466)),
end of period (2,839) (10,672)
--------- ---------
Accumulated other comprehensive income,
net of taxes, end of period 175,260 69,987
--------- ---------
Change in accumulated other
comprehensive income 34,536 (28,519)
--------- ---------
Comprehensive income $82,366 $13,102
========= =========
ii. In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities," which
provides accounting and reporting standards for transfers and servicing of
financial assets and extinguishments of liabilities. In addition, the statement
provides consistent standards for distinguishing transfers of financial assets
that are sales from transfers that are secured borrowings. SFAS No. 127,
deferred for one year, until January 1, 1998, implementation of certain
provisions of this standard, including those that affect repurchase agreements,
dollar-rolls, securities lending and similar transactions. Retroactive
application is not permitted.
TRH adopted these standards in the first quarter of 1998. Their
implementation did not have a material impact on results of operations,
financial position or liquidity.
7. Additional Information
For further information, refer to the Transatlantic Holdings, Inc. Form
10-K filing for the year ended December 31, 1997.
- 6 -
<PAGE>
TRANSATLANTIC HOLDINGS, INC. AND SUBSIDIARIES
---------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
-------------------------------------------------------------
AND FINANCIAL CONDITION
-----------------------
MARCH 31, 1998
` --------------
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,
-------------------------------
1998 1997 % Change
-------------------------------
(dollars in millions)
Net premiums written $332.5 $303.1 9.7%
Net premiums earned 314.4 284.2 10.6
Net investment income 53.7 50.0 7.3
With respect to net premiums written, the first quarter of 1998 exceeded
the same 1997 quarter as a result of increases in domestic and international
treaty business. The most significant domestic increases were recorded in
certain specialty casualty classes and the surety line. Internationally,
significant increases were recorded in certain specialty casualty classes and
the aircraft line offset, in part, by a decrease in the automobile liability
line. The reinsurance marketplace worldwide remained highly competitive.
The increase in net investment income in the first quarter of 1998 versus
the comparable 1997 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.
The combined ratio was 99.6 for the first quarter of 1998 versus 100.1 for
the first quarter of 1997. The first quarter loss and loss adjustment expense
ratios for 1998 and 1997 were 74.0 and 74.6, respectively. The underwriting
expense ratios for the first quarters of 1998 and 1997 were 25.6 and 25.5,
respectively.
Realized net capital gains on the disposition of investments totaled $7.3
million in the first quarter of 1998 compared with $4.2 million for the same
period of 1997.
Income before income taxes in the first quarter of 1998 increased 14.0
percent to $59.8 million from $52.5 million recorded in the same 1997 period.
The increase in income before income taxes is due to improved underwriting
results and increased net investment income and realized net capital gains in
the 1998 first quarter.
The effective tax rate for the first quarter of 1998 was 20.0 percent
compared to 20.7 percent for the comparable 1997 period. The effective tax rate
for the full year of 1997 was 21.0 percent.
Net income in the first quarter of 1998 increased 14.9 percent to $47.8
million compared with $41.6 million in the same period of 1997. On a diluted per
common share basis, net income for the first quarters of 1998 and 1997 were
$1.37 and $1.20, respectively. Reasons for the increases are as discussed above.
In the first quarter of 1998, a dividend of $0.10 per common share was
declared by the Board of Directors to stockholders of record as of June 5, 1998,
payable on June 19, 1998.
- 7 -
<PAGE>
TRANSATLANTIC HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS - CONT'D
MARCH 31, 1998
FINANCIAL CONDITION AND LIQUIDITY. Stockholders' equity totaled $1,437.5
million at March 31, 1998, an increase of $80.8 million from year-end 1997. The
increase in stockholders' equity is primarily composed of net income of $47.8
million, an increase in accumulated other comprehensive income of $34.5 million
(consisting of net unrealized appreciation of investments, net of taxes, of
$25.6 million, and a reduction of net unrealized currency translation loss, net
of taxes, of $8.9 million) less dividends of $3.5 million. Comprehensive income
in the first quarter of 1998 significantly exceeded the same prior year quarter
amount as the increase in accumulated other comprehensive income, particularly
from unrealized appreciation of common stocks available for sale, and the amount
of net income exceeded 1997 first quarter amounts. (See Note 6 of Notes to
Condensed Consolidated Financial Statements.) Management believes that the
liquidity of the Company has not materially changed since the end of 1997.
ADOPTION OF NEW ACCOUNTING STANDARDS. In June 1997, the Financial
Accounting Standards Board (FASB) adopted Statement of Financial Accounting
Standards (SFAS) No. 130, "Reporting Comprehensive Income." The statement
established standards for reporting and displaying of comprehensive income and
its components (revenues, expenses, gains and losses) in a full set of
general-purpose financial statements. Comprehensive income is defined as the
change in stockholders' equity during a period from transactions and other
events and circumstances from non-owner sources and includes net income and all
changes in stockholders' equity except those resulting from investments by
owners and distributions to owners. The standard requires that an enterprise (a)
classify items of other comprehensive income by their nature in a financial
statement and (b) display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in capital in the equity
section of a balance sheet.
Pursuant to the standard, Transatlantic Holdings, Inc. and subsidiaries
(TRH) adopted SFAS No. 130 in the first quarter of 1998. (See Note 6 of Notes to
Condensed Consolidated Financial Statements.)
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities," which
provides accounting and reporting standards for transfers and servicing of
financial assets and extinguishments of liabilities. In addition, the statement
provides consistent standards for distinguishing transfers of financial assets
that are sales from transfers that are secured borrowings. SFAS No. 127,
deferred for one year, until January 1, 1998, implementation of certain
provisions of this standard, including those that affect repurchase agreements,
dollar-rolls, securities lending and similar transactions. Retroactive
application is not permitted.
TRH adopted these standards in the first quarter of 1998. Their
implementation did not have a material impact on results of operations,
financial position or liquidity.
-8-
<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, 1998.
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 - Chief Financial Officer
(Principal Financial and Accounting Officer)
Dated May 11, 1998
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<PAGE>
EXHIBIT INDEX
-------------
Exhibit
Number Description Location
------ ----------- --------
27.0 Financial data schedule Provided herewith.
- 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, 1998 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-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<DEBT-HELD-FOR-SALE> 2,255,041
<DEBT-CARRYING-VALUE> 1,201,490
<DEBT-MARKET-VALUE> 1,280,174
<EQUITIES> 509,141
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 3,977,389
<CASH> 99,161
<RECOVER-REINSURE> 420,087
<DEFERRED-ACQUISITION> 67,429
<TOTAL-ASSETS> 4,970,961
<POLICY-LOSSES> 2,937,213
<UNEARNED-PREMIUMS> 391,590
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
0
0
<COMMON> 35,422
<OTHER-SE> 1,402,073
<TOTAL-LIABILITY-AND-EQUITY> 4,970,961
314,397
<INVESTMENT-INCOME> 53,674
<INVESTMENT-GAINS> 7,277
<OTHER-INCOME> (325)
<BENEFITS> 232,833
<UNDERWRITING-AMORTIZATION> (2,676)
<UNDERWRITING-OTHER> 85,047
<INCOME-PRETAX> 59,819
<INCOME-TAX> 11,989
<INCOME-CONTINUING> 47,830
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 47,830
<EPS-PRIMARY> 1.38
<EPS-DILUTED> 1.37
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
