<PAGE>
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, 1999
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)
<TABLE>
<S> <C>
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
------------------
</TABLE>
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, 1999 34,715,549
----------------
<PAGE>
TRANSATLANTIC HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of September 30, 1999 and December 31, 1998
<TABLE>
<CAPTION>
(Unaudited)
1999 1998
-------------- ---------------
(in thousands, except share data)
<S> <C> <C>
ASSETS
Investments and cash:
Fixed maturities:
Bonds held to maturity, at amortized cost (market value: 1999-$1,106,603;
1998-$1,210,534) $ 1,071,103 $1,124,455
Bonds available for sale, at market value (amortized cost: 1999-$2,512,336;
1998-$2,322,704) 2,462,920 2,409,054
Equities:
Common stocks available for sale, at market value (cost: 1999-$375,487;
1998-$358,223) 471,188 511,431
Nonredeemable preferred stocks available for sale, at market value
(cost: 1999-$54,853; 1998-$62,214) 52,155 62,967
Other invested assets 169,217 125,285
Short-term investments, at cost which approximates market value 9,856 25,052
Cash and cash equivalents 101,601 70,589
-------------- ---------------
Total investments and cash 4,338,040 4,328,833
Accrued investment income 76,636 65,503
Premium balances receivable, net 205,379 193,868
Reinsurance recoverable on paid and unpaid losses and loss adjustment expenses:
Affiliates 208,542 231,043
Other 277,351 233,116
Deferred acquisition costs 76,175 67,578
Prepaid reinsurance premiums 44,863 30,596
Deferred income taxes 142,262 71,166
Other assets 44,542 31,546
-------------- ---------------
Total assets $ 5,413,790 $5,253,249
============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Unpaid losses and loss adjustment expenses $ 3,128,853 $3,116,038
Unearned premiums 439,080 386,652
Reinsurance balances payable 116,756 89,521
Current income taxes payable - 224
Other liabilities 85,189 50,675
-------------- ---------------
Total liabilities 3,769,878 3,643,110
-------------- ---------------
Commitments and contingent liabilities
Preferred Stock, $1.00 par value; shares authorized: 5,000,000 - -
Common Stock, $1.00 par value; shares authorized: 100,000,000;
shares issued: 1999-35,515,549; 1998-35,466,836 35,516 35,467
Additional paid-in capital 200,411 198,425
Accumulated other comprehensive income 28,752 158,552
Retained earnings 1,389,233 1,227,695
Treasury Stock, at cost; 800,000 shares (10,000) (10,000)
-------------- ---------------
Total stockholders' equity 1,643,912 1,610,139
-------------- ---------------
Total liabilities and stockholders' equity $ 5,413,790 $5,253,249
============== ===============
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
- 1 -
<PAGE>
TRANSATLANTIC HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
---------------- -------------- -------------- --------------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Income:
Net premiums written $401,473 $379,094 $1,118,734 $1,041,830
Increase in net unearned premiums (18,054) (16,179) (40,958) (24,271)
---------------- -------------- -------------- --------------
Net premiums earned 383,419 362,915 1,077,776 1,017,559
Net investment income 58,465 56,324 172,273 165,598
---------------- -------------- -------------- --------------
441,884 419,239 1,250,049 1,183,157
---------------- -------------- -------------- --------------
Expenses:
Net losses and loss adjustment expenses 298,986 283,862 800,875 761,812
Net commissions 99,304 90,297 269,390 245,694
Other operating expenses 12,583 12,069 38,325 34,784
Increase in deferred acquisition costs (5,232) (3,334) (8,597) (4,237)
---------------- -------------- -------------- --------------
405,641 382,894 1,099,993 1,038,053
---------------- -------------- -------------- --------------
36,243 36,345 150,056 145,104
Realized net capital gains 8,519 69,414 68,262 106,030
---------------- -------------- -------------- --------------
Operating income 44,762 105,759 218,318 251,134
Other income (deductions) 368 (71) 361 (503)
---------------- -------------- -------------- --------------
Income before income taxes 45,130 105,688 218,679 250,631
Income taxes 8,942 27,002 48,984 59,447
---------------- -------------- -------------- --------------
Net income $36,188 $78,686 $169,695 $191,184
================ ============== ============== ==============
Net income per common share:
Basic $1.04 $2.27 $4.89 $5.52
Diluted 1.04 2.25 4.87 5.48
Dividends per common share - - 0.235 0.21
Weighted average common shares outstanding:
Basic 34,714 34,650 34,699 34,629
Diluted 34,882 34,895 34,879 34,860
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
- 2 -
<PAGE>
TRANSATLANTIC HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
-------------- -------------
(in thousands)
<S> <C> <C>
Net cash provided by operating activities $128,966 $ 199,476
-------------- -------------
Cash flows from investing activities:
Proceeds of bonds available for sale sold 354,757 266,449
Proceeds of bonds held to maturity redeemed 59,122 81,573
Proceeds of bonds available for sale redeemed or matured 167,814 176,342
Proceeds of equities sold 358,261 299,136
Purchase of bonds held to maturity (3,683) -
Purchase of bonds available for sale (734,796) (613,401)
Purchase of equities (302,883) (306,739)
Net purchase of other invested assets (40,810) (76,513)
Net proceeds of short-term investments 13,993 2,005
Change in other liabilities for securities in course of settlement 46,265 18,139
Other, net 10,625 -
-------------- -------------
Net cash used in investing activities (71,335) (153,009)
-------------- -------------
Cash flows from financing activities:
Dividends to stockholders (11,972) (10,737)
Proceeds from common stock issued 2,035 2,638
Net disbursements from reinsurance deposits (19,802) (6,914)
-------------- -------------
Net cash from financing activities (29,739) (15,013)
-------------- -------------
Effect of exchange rate changes on cash and cash equivalents 3,120 (1,873)
-------------- -------------
Change in cash and cash equivalents 31,012 29,581
Cash and cash equivalents, beginning of period 70,589 70,737
-------------- -------------
Cash and cash equivalents, end of period $101,601 $ 100,318
============== =============
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
- 3 -
<PAGE>
TRANSATLANTIC HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
--------- --------- ---------- ----------
(in thousands)
<S> <C> <C> <C> <C>
Net income $36,188 $78,686 $169,695 $191,184
--------- --------- ---------- ----------
Other comprehensive loss:
Net unrealized depreciation of investments:
Net unrealized holding (losses) gains arising during period (80,901) 4,443 (125,341) 53,863
Related income tax effect 28,314 (1,555) 43,868 (18,853)
Reclassification adjustment for gains included in net income (8,519) (69,414) (68,262) (106,030)
Related income tax effect 2,982 24,295 23,892 37,111
--------- --------- ---------- ----------
(58,124) (42,231) (125,843) (33,909)
--------- --------- ---------- ----------
Net unrealized currency translation gain (loss) 21,949 21,250 (6,086) 30,022
Related income tax effect (7,684) (7,437) 2,129 (10,506)
--------- --------- ---------- ----------
14,265 13,813 (3,957) 19,516
--------- --------- ---------- ----------
Other comprehensive loss (43,859) (28,418) (129,800) (14,393)
--------- --------- ---------- ----------
Comprehensive (loss) income ($7,671) $50,268 $39,895 $176,791
========= ========= ========== ==========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
- 4 -
<PAGE>
TRANSATLANTIC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(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
1999. 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 Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
--------- --------- ---------- -----------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Net income (numerator) $36,188 $78,686 $169,695 $191,184
========= ========= ========== ===========
Weighted average common shares outstanding
used in the computation of net income per share:
Average shares issued 35,514 35,450 35,499 35,429
Less: Average shares in treasury 800 800 800 800
--------- --------- ---------- -----------
Average outstanding shares - basic (denominator) 34,714 34,650 34,699 34,629
Average potential shares, principally stock options 168 245 180 231
--------- --------- ---------- -----------
Average outstanding shares - diluted (denominator) 34,882 34,895 34,879 34,860
========= ========= ========== ===========
Net income per common share:
Basic $ 1.04 $ 2.27 $ 4.89 $ 5.52
Diluted 1.04 2.25 4.87 5.48
</TABLE>
- 5 -
<PAGE>
3. Reinsurance
Premiums written and earned and losses and loss adjustment expenses
incurred were comprised of the following:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
---------- ---------- ------------ ------------
(in thousands)
<S> <C> <C> <C> <C>
Gross premiums written $459,975 $440,772 $1,266,643 $1,173,235
Reinsurance ceded (58,502) (61,678) (147,909) (131,405)
---------- ---------- ------------ ------------
Net premiums written $401,473 $379,094 $1,118,734 $1,041,830
========== ========== ============ ============
Gross premiums earned $429,597 $416,481 $1,211,417 $1,137,810
Reinsurance ceded (46,178) (53,566) (133,641) (120,251)
---------- ---------- ------------ ------------
Net premiums earned $383,419 $362,915 $1,077,776 $1,017,559
========== ========== ============ ============
Gross incurred losses and
loss adjustment expenses $318,887 $357,092 $ 888,448 $ 880,093
Reinsurance ceded (19,901) (73,230) (87,573) (118,281)
---------- ---------- ------------ ------------
Net losses and loss
adjustment expenses $298,986 $283,862 $ 800,875 $ 761,812
========== ========== ============ ============
</TABLE>
4. Income Taxes
Income taxes paid, net, in the third quarter totaled $15,823,000 and
$31,394,000 in 1999 and 1998, respectively. For the 1999 and 1998 nine month
periods, income taxes paid, net, totaled $58,770,000 and $66,611,000,
respectively.
- 6 -
<PAGE>
5. Segment Information
The following table presents a summary of comparative financial data by
segment:
<TABLE>
<CAPTION>
International
----------------------------
Domestic Europe(3) Other Consolidated
------------ ------------- ------------ --------------
(in thousands)
<S> <C> <C> <C> <C>
Three Months Ended September 30, 1999:
Revenues(1)(2) $260,132 $148,519 $41,752 $450,403
Income before income taxes(2) 54,818 (8,264) (1,424) 45,130
Three Months Ended September 30, 1998:
Revenues(1)(2) $300,834 $155,317 $32,502 $488,653
Income before income taxes(2) 111,727 2,130 (8,169) 105,688
<CAPTION>
International
----------------------------
Domestic Europe(3) Other Consolidated
------------ ------------- ------------ --------------
(in thousands)
<S> <C> <C> <C> <C>
Nine Months Ended September 30, 1999:
Revenues(1)(2) $751,649 $439,028 $127,634 $1,318,311
Income before income taxes(2) 207,745 7,903 3,031 218,679
Nine Months Ended September 30, 1998:
Revenues(1)(2) $761,060 $430,874 $97,253 $1,289,187
Income before income taxes(2) 231,631 24,148 (5,148) 250,631
</TABLE>
- --------------------------------
(1) Revenues represent the sum of net premiums earned, net investment income
and realized net capital gains.
(2) Domestic revenues and income before income taxes include realized net
capital gains of $8,390 and $68,987 for the three months ended September
30, 1999 and 1998, respectively, and $67,414 and $104,460 for the nine
months ended September 30, 1999 and 1998, respectively. Realized net
capital gains for other segmants in each of the periods presented is not
material.
(3) Includes revenues from the London, England office of $82,357 and $82,073
for the three months ended September 30, 1999 and 1998, respectively, and
$258,349 and $240,174 for the nine months ended September 30, 1999 and
1998, respectively, and revenues from the Zurich, Switzerland office of
$28,739 and $41,738 for the three months ended September 30, 1999 and 1998,
respectively and $87,624 and $119,463 for the nine months ended September
30, 1999 and 1998, respectively.
6. Additional Information
For further information, refer to the Transatlantic Holdings, Inc. Form
10-K filing for the year ended December 31, 1998 and Form 10-Q filings for the
first two quarters of 1999.
- 7 -
<PAGE>
TRANSATLANTIC HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
SEPTEMBER 30, 1999
OPERATIONAL REVIEW. The following table presents net premiums written, net
premiums earned and net investment income for the periods indicated:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------------- --------------------------------------
1999 1998 % Change 1999 1998 % Change
---------------------------------- --------------------------------------
(dollars in millions)
<S> <C> <C> <C> <C> <C> <C>
Net premiums written $ 401.5 $ 379.1 5.9% $ 1,118.7 $ 1,041.8 7.4%
Net premiums earned 383.4 362.9 5.6 1,077.8 1,017.6 5.9
Net investment income 58.5 56.3 3.8 172.3 165.6 4.0
</TABLE>
Net premiums written for the third quarter of 1999 exceeded the comparable
1998 quarter due to an increase in domestic treaty business, primarily in
certain specialty casualty classes (namely, accident and health and medical
malpractice) and the homeowners multiple peril line. These increases were
partially offset by a decrease in the domestic aircraft line of business. For
the nine month periods, the increases in net premiums written were caused by
increases in both international and domestic treaty business. Internationally,
net premiums written increased significantly in the automobile liability and
accident and health lines. Domestic increases resulted primarily from certain
specialty casualty classes (namely, accident and health and medical malpractice
lines), and from the homeowners multiple peril and automobile liability lines.
These increases were partially offset by a decrease in the ocean marine line.
International business represented 49 percent of worldwide net premiums written
for the first nine months of 1999 compared to 48 percent for the same 1998
period. The reinsurance marketplace worldwide remained highly competitive.
The increase in net investment income for the third quarter and first nine
months of 1999 versus the comparable 1998 periods resulted from continued
investment of positive operating cash flow. The percentage increase in
year-to-date investment income is less than the 1998 versus 1997 increase for
comparable periods due, in large part, to the continued reduction in interest
rates of investments purchased versus investments disposed of and the reduced
level of operating cash flow in recent periods.
The following table presents loss and loss adjustment expense ratios,
underwriting expense ratios and combined ratios for the periods indicated:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- ----------------------
1999 1998 1999 1998
-------------------- ----------------------
<S> <C> <C> <C> <C>
Loss and loss adjustment
expense ratio 78.0 78.2 74.3 74.9
Underwriting expense ratio 27.8 27.0 27.5 26.9
Combined ratio 105.8 105.2 101.8 101.8
</TABLE>
The loss and loss adjustment expense ratio and the combined ratio for the
1999 periods include the impact of third quarter pre-tax catastrophe losses of
$25 million. Excluding the impact of pre-tax catastrophe losses, the third
quarter and nine months 1999 combined ratios would have been 99.3 and 99.5,
respectively. For the third quarter and first nine months of 1998, the combined
ratios would have been 99.7 and 99.8, respectively, excluding the impact of $20
million of pre-tax catastrophe losses. For the third quarter and nine month
periods, the increase in the underwriting expense ratio in 1999 versus 1998 is
primarily due to an increase in the ratio of net commissions to net premiums
written.
- 8 -
<PAGE>
TRANSATLANTIC HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS - CONT'D
SEPTEMBER 30, 1999
Realized net capital gains on the disposition of investments totaled $8.5
million in the third quarter of 1999 compared with $69.4 million for the same
period of 1998. For the first nine months of 1999 and 1998, realized net capital
gains totaled $68.3 million and $106.0 million, respectively. For the nine month
periods, the high levels of realized net capital gains were caused by the
redeployment of a portion of the equity portfolio generally into fixed income
investments in 1999 and the strategic realignment of the equity portfolio in
1998.
For the third quarter of 1999, income before income taxes decreased 57.3
percent to $45.1 million from $105.7 million recorded in the same period of
1998. For the first nine months of 1999, income before income taxes totaled
$218.7 million versus $250.6 million in the comparable prior year period, a
decrease of 12.7 percent. Income before income taxes in the third quarter and
first nine months of 1999 decreased compared to the same prior year periods
principally due to a reduction in realized net capital gains offset, in part,
by increases in net investment income in 1999 compared to 1998. Excluding
pre-tax realized capital gains and catastrophe losses, income before income
taxes in the third quarter and first nine months of 1999 increased 9.5 percent
to $61.6 million and 6.6 percent to $175.4 million, respectively, over
comparable prior year periods.
The effective tax rates for the third quarter and first nine months of 1999
were 19.8 percent and 22.4 percent, respectively, versus 25.5 percent and 23.7
percent for the comparable 1998 periods. The higher effective tax rates in the
third quarter and first nine months of 1998 resulted, in large part, from higher
realized net capital gains in those periods compared to the comparable periods
presented herein.
Net income excluding after-tax realized capital gains and catastrophe
losses increased to $46.9 million, or $1.34 per common share (diluted), from
$46.6 million, or $1.33 per common share (diluted), in the same prior year
quarter. For the first nine months of 1999, net income excluding after-tax
realized capital gains and catastrophe losses totaled $141.6 million, or $4.06
per common share (diluted), a 4.7 percent increase over the nine month 1998
amount of $135.3 million, or $3.88 per common share (diluted). This increase in
the nine month 1999 period is due, in large part, to the higher amount of net
investment income, net of tax, in 1999 versus the comparable 1998 period.
Net income for the third quarter of 1999 decreased 54.0 percent and totaled
$36.2 million compared to $78.7 million for the comparable prior year period. On
a diluted per common share basis, net income for the third quarters of 1999 and
1998 was $1.04 and $2.25, respectively. For the first nine months of 1999, net
income was $169.7 million versus $191.2 million in the same 1998 period, a
decrease of 11.2 percent. On a diluted per common share basis, net income was
$4.87 and $5.48 for the first nine months of 1999 and 1998, respectively.
Reasons for these fluctuations are as discussed above.
In October 1999, the Board of Directors declared a quarterly dividend of
$0.125 per common share to stockholders of record as of December 3, 1999,
payable on December 17, 1999.
FINANCIAL CONDITION AND LIQUIDITY. Stockholders' equity totaled $1,643.9
million at September 30, 1999, an increase of $33.8 million from year-end 1998.
The increase in stockholders' equity is primarily composed of net income of
$169.7 million, partially offset by a decrease in accumulated other
comprehensive income of $129.8 million (consisting of a reduction in net
unrealized appreciation of investments, net of taxes, of $125.8 million and a
net unrealized currency translation loss, net of taxes, of $4.0 million) less
dividends of $8.2 million.
The reduction in net unrealized appreciation of investments, net of taxes,
during the first nine months of 1999 resulted, in large part, from unrealized
depreciation of bonds available for sale due to increasing market interest rates
during the period and a reclassification adjustment for capital gains included
in net income in the current period (principally from common stocks available
for sale). Unrealized appreciation (depreciation) of investments, net of taxes,
a component of accumulated other comprehensive income, is subject to significant
volatility resulting from changes in the market value of bonds and equities
available for sale and other invested assets. Market values may fluctuate due to
changes in general economic conditions, market interest rates and other factors.
- 9 -
<PAGE>
TRANSATLANTIC HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS - CONT'D
SEPTEMBER 30, 1999
Operating cash flow in the third quarter and first nine months of 1999
declined compared to the comparable 1998 periods, principally as a result of a
reduction in domestic underwriting cash flow (due largely to increased paid
losses) partially offset by decreases in taxes paid. Management believes that
the liquidity of Transatlantic Holdings, Inc. and subsidiaries (hereinafter TRH
or the Company) has not materially changed since the end of 1998.
TRH's operations are exposed to market risk. Market risk is the risk of
loss of fair market value resulting from adverse fluctuations in interest and
foreign currency exchange rates and equity prices.
Measuring potential losses in fair values has recently become the focus of
risk management efforts by many companies. Such measurements are performed
through the application of various statistical techniques. One such technique is
Value at Risk (VaR). VaR is a summary statistical measure that uses historical
interest and foreign currency exchange rates and equity prices and estimates the
volatility and correlation of each of these rates and prices to calculate the
maximum loss that could occur over a defined period of time given a certain
probability.
TRH believes that statistical models alone do not provide a reliable method
of monitoring and controlling market risk. While VaR models are relatively
sophisticated, the quantitative market risk information generated is limited by
the assumptions and parameters established in creating the related models.
Therefore, such models are tools and do not substitute for the experience or
judgment of senior management.
TRH has performed a VaR analysis to estimate the maximum potential loss of
fair value for financial instruments for each type of market risk. In this
analysis, financial instrument assets include all investments and cash and
accrued investment income. Financial instrument liabilities include unpaid
losses and loss adjustment expenses, net of reinsurance, and unearned premiums.
TRH calculated the VaR as of December 31, 1998. Through September 30, 1999,
the economic facts and circumstances have not significantly changed. Therefore,
the VaR at December 31, 1998 is representative of a VaR which could be
calculated at September 30, 1999. The VaR calculation as of December 31, 1998
used the variance-covariance (delta-normal) methodology. The calculation also
used daily historical interest and foreign currency exchange rates and equity
prices in the two years ended December 31, 1998. The VaR model estimated the
volatility of each of these rates and equity prices and the correlation among
them. For interest rates, each country's yield curve was constructed using
eleven separate points on this curve to model possible curve movements.
Inter-country correlations were also used. The redemption experience of
municipal and corporate fixed maturities as well as the use of financial
modeling were employed in the analysis process. Thus, the VaR measured the
sensitivity of the asset and the liability portfolios to each of the
aforementioned market risk exposures. Each sensitivity was estimated separately
to capture the market risk. The following table presents the VaR of each
component of market risk as of December 31, 1998:
<TABLE>
<CAPTION>
MARKET RISK AMOUNT
- ----------- ------
(in millions)
<S> <C>
Interest rate $24
Currency 8
Equity 62
</TABLE>
Each sensitivity was then applied to a database which contained both
historical ranges of movements in all market factors and the correlations among
them. The results were aggregated to provide a single amount that depicts the
maximum potential loss in fair value at a confidence level of 95 percent for a
time period of one month. VaR with respect to the aggregate of the three
components of market risk cannot be derived by summing the individual risk
amounts in the table above. At December 31, 1998, the VaR for TRH's financial
instruments was approximately $69 million.
- 10 -
<PAGE>
TRANSATLANTIC HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS - CONT'D
SEPTEMBER 30, 1999
OTHER MATTERS. The Year 2000 (Y2K) issue arises from the historic usage of
two, rather than four, digit date fields in computer equipment, software
packages and other devices using embedded chip technology, causing a date field
"00" to be recognized as the year 1900, rather than the year 2000. Failure to
recognize, repair or replace affected devices and systems could cause systems
failures or other disruptions resulting in, among other things, an inability to
process transactions, collect premiums, pay invoices or engage in similar normal
business activities.
Most TRH systems and software packages were installed or purchased within
the last five years, when the Y2K issue had already been identified and was
usually a consideration in the development process. TRH has taken steps to
identify its significant systems and programs, new and existing, hardware and
software information technology (IT) as well as non-IT (e.g., telephone systems,
fax machines and copiers), where Y2K failures could surface, and has effected
remedial changes and conducted appropriate testing. This process is essentially
complete for all critical systems. The costs associated with this process, which
are expensed as incurred, have not had and are not expected to have a material
effect on net income, financial position, cash flows or other non-Y2K IT
projects and initiatives.
In addition, TRH has identified those ceding companies, brokers,
reinsurers, banks, vendors and other business partners (collectively "third
parties") that are significant to its business and has asked each to advise on
the steps they are taking to address the Y2K issue. Responses have been received
from most and follow-up requests have been sent to those who failed to respond
or whose responses were not satisfactory. To date, no respondent has reported
significant potential problems in becoming Y2K compliant. The completion of
these activities is continuing during 1999.
TRH does not presently believe that Y2K issues related to its internal IT
and non-IT systems pose significant operational problems. Although TRH continues
to monitor third party readiness, it cannot provide assurance that unresolved
Y2K issues of such parties will not have a material adverse impact on TRH's
operations or financial results. TRH has considered the effects of potential
unresolved Y2K issues of third parties on its business and developed contingency
plans, as necessary. Such plans may include the selection of alternate third
parties, instituting alternative processes on a temporary basis or other actions
designed to mitigate the effects of a third party's lack of preparedness. In
addition, TRH has established an administrative process to direct Y2K problem
resolution activities, should the need arise, led by an internal senior
management team.
Any statements contained in this discussion that are not historical facts,
or that might be considered an opinion or projection, whether expressed or
implied, are meant as, and should be considered, forward-looking statements as
that term is defined in the Private Securities Litigation Reform Act of 1995.
Forward-looking statements are based on assumptions and opinions concerning a
variety of known and unknown risks. If any assumptions or opinions prove
incorrect, any forward-looking statements made on that basis may also prove
materially incorrect.
- 11 -
<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, 1999.
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
Executive Vice President - Chief Financial Officer
(Principal Financial and Accounting Officer)
Dated November 5, 1999
- 12 -
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description Location
------- ----------- --------
<S> <C> <C>
27.0 Financial data schedule Provided herewith.
</TABLE>
- 13 -
<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, 1999
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-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<DEBT-HELD-FOR-SALE> 2,462,920
<DEBT-CARRYING-VALUE> 1,071,103
<DEBT-MARKET-VALUE> 1,106,603
<EQUITIES> 523,343
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 4,236,439
<CASH> 101,601
<RECOVER-REINSURE> 485,893
<DEFERRED-ACQUISITION> 76,175
<TOTAL-ASSETS> 5,413,790
<POLICY-LOSSES> 3,128,853
<UNEARNED-PREMIUMS> 439,080
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
0
0
<COMMON> 35,516
<OTHER-SE> 1,608,396
<TOTAL-LIABILITY-AND-EQUITY> 5,413,790
1,077,776
<INVESTMENT-INCOME> 172,273
<INVESTMENT-GAINS> 68,262
<OTHER-INCOME> 361
<BENEFITS> 800,875
<UNDERWRITING-AMORTIZATION> (8,597)
<UNDERWRITING-OTHER> 307,715
<INCOME-PRETAX> 218,679
<INCOME-TAX> 48,984
<INCOME-CONTINUING> 169,695
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 169,695
<EPS-BASIC> 4.89
<EPS-DILUTED> 4.87
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
