<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, 2000
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, 2000 34,760,952
-----------------
<PAGE>
TRANSATLANTIC HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2000 AND DECEMBER 31, 1999
<TABLE>
<CAPTION>
(Unaudited)
2000 1999
---------- ----------
ASSETS (in thousands, except share data)
<S> <C> <C>
Investments and cash:
Fixed maturities:
Bonds held to maturity, at amortized cost (market value: 2000-$978,721;
1999-$1,083,740) $ 946,406 $ 1,062,968
Bonds available for sale, at market value (amortized cost: 2000-$2,475,939;
1999-$2,479,930) 2,454,391 2,399,158
Equities:
Common stocks available for sale, at market value (cost: 2000-$398,857;
1999-$408,465) 489,789 537,149
Nonredeemable preferred stocks available for sale, at market value
(cost: 2000-$27,084; 1999-$52,324) 25,259 51,192
Other invested assets 191,614 173,043
Short-term investments, at cost which approximates market value 9,991 5,935
Cash and cash equivalents 126,540 104,017
----------- ----------
Total investments and cash 4,243,990 4,333,462
Accrued investment income 75,651 73,578
Premium balances receivable, net 232,341 208,525
Reinsurance recoverable on paid and unpaid losses and loss adjustment expenses:
Affiliates 262,216 294,147
Other 296,418 274,414
Deferred acquisition costs 75,423 71,022
Prepaid reinsurance premiums 41,822 32,188
Deferred income taxes 157,584 153,548
Other assets 33,045 39,314
----------- -----------
Total assets $ 5,418,490 $ 5,480,198
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Unpaid losses and loss adjustment expenses $ 3,084,849 $ 3,304,931
Unearned premiums 426,042 397,783
Reinsurance balances payable 63,374 82,942
Other liabilities 49,119 52,025
----------- -----------
Total liabilities 3,623,384 3,837,681
----------- -----------
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: 2000-35,560,952; 1999-35,527,822 35,561 35,528
Additional paid-in capital 201,993 200,567
Accumulated other comprehensive income 22,332 18,212
Retained earnings 1,545,220 1,398,210
Treasury Stock, at cost; 800,000 shares (10,000) (10,000)
----------- -----------
Total stockholders' equity 1,795,106 1,642,517
----------- -----------
Total liabilities and stockholders' equity $ 5,418,490 $ 5,480,198
=========== ===========
</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,
2000 1999 2000 1999
---------------- -------------- -------------- --------------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Income:
Net premiums written $450,929 $401,473 $1,246,212 $1,118,734
Increase in net unearned premiums (22,731) (18,054) (24,082) (40,958)
---------------- -------------- -------------- --------------
Net premiums earned 428,198 383,419 1,222,130 1,077,776
Net investment income 58,369 58,465 174,826 172,273
---------------- -------------- -------------- --------------
486,567 441,884 1,396,956 1,250,049
---------------- -------------- -------------- --------------
Expenses:
Net losses and loss adjustment expenses 310,290 298,986 894,076 800,875
Net commissions 109,474 99,304 292,784 269,390
Other operating expenses 13,139 12,583 39,216 38,325
Increase in deferred acquisition costs (4,656) (5,232) (4,401) (8,597)
---------------- -------------- -------------- --------------
428,247 405,641 1,221,675 1,099,993
---------------- -------------- -------------- --------------
58,320 36,243 175,281 150,056
Realized net capital gains 9,241 8,519 29,046 68,262
---------------- -------------- -------------- --------------
Operating income 67,561 44,762 204,327 218,318
Other income (deductions) 103 368 (634) 361
---------------- -------------- -------------- --------------
Income before income taxes 67,664 45,130 203,693 218,679
Income taxes 14,269 8,942 42,955 48,984
---------------- -------------- -------------- --------------
Net income $53,395 $36,188 $160,738 $169,695
================ ============== ============== ==============
Net income per common share:
Basic $1.54 $1.04 $4.63 $4.89
Diluted 1.53 1.04 4.60 4.87
Dividends per common share 0.135 - 0.395 0.235
Weighted average common shares outstanding:
Basic 34,759 34,714 34,746 34,699
Diluted 34,996 34,882 34,962 34,879
</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, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
---------- ---------
(in thousands)
<S> <C> <C>
Net cash (used in) provided by operating activities $ (72,495) $ 128,966
--------- ---------
Cash flows from investing activities:
Proceeds of bonds available for sale sold 237,550 354,757
Proceeds of bonds held to maturity redeemed 123,807 59,122
Proceeds of bonds available for sale redeemed or matured 263,102 167,814
Proceeds of equities sold 533,350 358,261
Purchase of bonds held to maturity (5,989) (3,683)
Purchase of bonds available for sale (565,190) (734,796)
Purchase of equities (449,015) (302,883)
Net purchase of other invested assets (21,213) (40,810)
Net (purchase) proceeds of short-term investments (7,145) 13,993
Change in other liabilities for securities in course of settlement 7,386 46,265
Other, net 823 10,625
--------- ---------
Net cash provided by (used in) investing activities 117,466 (71,335)
--------- ---------
Cash flows from financing activities:
Dividends to stockholders (13,378) (11,972)
Proceeds from common stock issued 1,459 2,035
Net disbursements from reinsurance deposits (3,637) (19,802)
--------- ---------
Net cash from financing activities (15,556) (29,739)
--------- ---------
Effect of exchange rate changes on cash and cash equivalents (6,892) 3,120
--------- ---------
Change in cash and cash equivalents 22,523 31,012
Cash and cash equivalents, beginning of period 104,017 70,589
--------- ---------
Cash and cash equivalents, end of period $ 126,540 $ 101,601
========= =========
</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 (LOSS)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
-------- -------- --------- ---------
(in thousands)
<S> <C> <C> <C> <C>
Net income $ 53,395 $ 36,188 $ 160,738 $ 169,695
-------- -------- --------- ---------
Other comprehensive (loss) income:
Net unrealized appreciation (depreciation) of investments:
Net unrealized holding gains (losses) arising during period 22,083 (80,901) 47,182 (125,341)
Related income tax effect (7,729) 28,314 (16,514) 43,868
Reclassification adjustment for gains included in net income (9,241) (8,519) (29,046) (68,262)
Related income tax effect 3,234 2,982 10,166 23,892
-------- -------- --------- ---------
8,347 (58,124) 11,788 (125,843)
-------- -------- --------- ---------
Net unrealized currency translation (loss) gain (14,840) 21,949 (11,798) (6,086)
Related income tax effect 5,195 (7,684) 4,130 2,129
-------- -------- --------- ---------
(9,645) 14,265 (7,668) (3,957)
-------- -------- --------- ---------
Other comprehensive (loss) income (1,298) (43,859) 4,120 (129,800)
-------- -------- --------- ---------
Comprehensive income (loss) $ 52,097 $ (7,671) $ 164,858 $ 39,895
======== ======== ========= =========
</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, 2000
(Unaudited)
1. General
The condensed consolidated financial statements are unaudited, but have
been prepared on the basis of accounting principles generally accepted in the
United States and, in the opinion of management, reflect all adjustments
(consisting of normal accruals) necessary for a fair presentation of results for
such periods. The results of operations and cash flows for any interim period
are not necessarily indicative of results for the full year.
2. 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,
2000 1999 2000 1999
------- ------- -------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Net income (numerator) $53,395 $36,188 $160,738 $169,695
======= ======= ======== ========
Weighted average common shares outstanding
used in the computation of net income per share:
Average shares issued 35,559 35,514 35,546 35,499
Less: Average shares in treasury 800 800 800 800
------- ------- -------- --------
Average outstanding shares - basic (denominator) 34,759 34,714 34,746 34,699
Average potential shares, principally stock options 237 168 216 180
------- ------- -------- --------
Average outstanding shares - diluted (denominator) 34,996 34,882 34,962 34,879
======= ======= ======== ========
Net income per common share:
Basic $ 1.54 $ 1.04 $ 4.63 $ 4.89
Diluted 1.53 1.04 4.60 4.87
</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,
2000 1999 2000 1999
-------- -------- ---------- ----------
(in thousands)
<S> <C> <C> <C> <C>
Gross premiums written $514,128 $459,975 $1,407,596 $1,266,643
Reinsurance ceded (63,199) (58,502) (161,384) (147,909)
-------- -------- ---------- ----------
Net premiums written $450,929 $401,473 $1,246,212 $1,118,734
======== ======== ========== ==========
Gross premiums earned $488,500 $429,597 $1,373,880 $1,211,417
Reinsurance ceded (60,302) (46,178) (151,750) (133,641)
-------- -------- ---------- ----------
Net premiums earned $428,198 $383,419 $1,222,130 $1,077,776
======== ======== ========== ==========
Gross incurred losses and
loss adjustment expenses $340,480 $318,887 $1,030,056 $ 888,448
Reinsurance ceded (30,190) (19,901) (135,980) (87,573)
-------- -------- ---------- ----------
Net losses and loss
adjustment expenses $310,290 $298,986 $ 894,076 $ 800,875
======== ======== ========== ==========
</TABLE>
4. Dividends
During the third quarter of 2000, the Board of Directors of Transatlantic
Holdings, Inc. declared a dividend of $4,700,000 or $0.135 per common share.
5. Income Taxes
Income taxes paid, net, in the third quarter totaled $20,493,000 and
$15,823,000 in 2000 and 1999, respectively. For the 2000 and 1999 nine month
periods, income taxes paid, net, totaled $46,546,000 and $58,770,000,
respectively.
- 6 -
<PAGE>
6. 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, 2000:
Revenues(1)(2) $282,162 $160,757 $52,889 $ 495,808
Income before income taxes(2) 62,549 (1,558) 6,673 67,664
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
</TABLE>
<TABLE>
<CAPTION>
International
-------------------------
Domestic Europe(3) Other Consolidated
---------- ----------- -------- --------------
(in thousands)
<S> <C> <C> <C> <C>
Nine Months Ended September 30, 2000:
Revenues(1)(2) $782,578 $484,558 $158,866 $ 1,426,002
Income before income taxes(2) 188,673 3,023 11,997 203,693
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
</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 $7,399 and $8,390 for the three months ended September 30,
2000 and 1999, respectively, and $25,816 and $67,414 for the nine months
ended September 30, 2000 and 1999, respectively. Realized net capital gains
(losses) for other segments in each of the periods presented is not
material.
(3) Includes revenues from the London, England office of $90,114 and $82,357
for the three months ended September 30, 2000 and 1999, respectively, and
$278,998 and $258,349 for the nine months ended September 30, 2000 and
1999, respectively.
7. Additional Information
For further information, refer to the Transatlantic Holdings, Inc. Form
10-K filing for the year ended December 31, 1999 and Form 10-Q filings for the
first two quarters of 2000.
- 7 -
<PAGE>
TRANSATLANTIC HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
SEPTEMBER 30, 2000
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,
------------------------------- ---------------------------------
2000 1999 Change 2000 1999 Change
------------------------------- ---------------------------------
(dollars in millions)
<S> <C> <C> <C> <C> <C> <C>
Net premiums written $450.9 $401.5 12.3% $1,246.2 $1,118.7 11.4%
Net premiums earned 428.2 383.4 11.7 1,222.1 1,077.8 13.4
Net investment income 58.4 58.5 (0.2) 174.8 172.3 1.5
</TABLE>
Net premiums written for the third quarter of 2000 exceeded the
comparable 1999 quarter principally as a result of increases in international
and domestic treaty business. The increase in international business was
primarily caused by significant increases in the automobile liability and
accident and health lines. Significant domestic net premiums written growth
occurred in the property and aircraft lines of business. For the nine month
periods, the increase in net premiums written was caused by increases in
international and domestic treaty business. Internationally, net premiums
written increased significantly in the accident and health and property lines.
Significant domestic increases occurred in the aircraft and accident and health
lines. International business represented 48.4 percent of worldwide net premiums
written for the first nine months of 2000 compared to 49.2 percent for the same
1999 period. While the pricing environment is generally improving, the
reinsurance marketplace worldwide remains competitive.
The slight decrease in net investment income in the current quarter
compared to the same 1999 quarter was due to the negative impact of foreign
exchange on investment income earned by certain of our international locations
in the current period and the reduction in investments and cash caused by
negative operating cash flow in the first and second quarters of 2000, partially
offset by the impact of a slightly improved investment yield. The increase in
net investment income for the first nine months of 2000 versus the comparable
1999 period resulted from slightly improved investment yield, partially offset
by the negative impact of foreign exchange and negative cash flow for the first
nine months of 2000.
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,
---------------- ------------------
2000 1999 2000 1999
---------------- ------------------
<S> <C> <C> <C> <C>
Loss and loss adjustment
expense ratio 72.5 78.0 73.2 74.3
Underwriting expense ratio 27.2 27.8 26.6 27.5
Combined ratio 99.7 105.8 99.8 101.8
</TABLE>
-8-
<PAGE>
TRANSATLANTIC HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS - CONT'D
SEPTEMBER 30, 2000
There were no significant catastrophe losses in the third quarter or
first nine months of 2000. The loss and loss adjustment expense ratios and the
combined ratios for the third quarter and first nine months of 1999 include the
impact of pre-tax catastrophe losses of $25 million. Excluding the impact of
pre-tax catastrophe losses, the third quarter and first nine months 1999
combined ratios would have been 99.3 and 99.5, respectively.
The decrease in the underwriting expense ratio in the third quarter of
2000 compared to the same prior year period reflects a decrease of 0.4 in the
ratio of net commissions to net premiums written and a reduction of 0.2 to the
ratio of other operating expenses to net premiums written. The decrease in the
underwriting expense ratio for the first nine months of 2000 reflects a decrease
of 0.6 in the commission ratio and a decrease of 0.3 in the other operating
expense ratio.
Pre-tax realized net capital gains on the disposition of investments
totaled $9.2 million in the third quarter of 2000 compared with $8.5 million for
the same period of 1999. For the first nine months of 2000 and 1999, pre-tax
realized net capital gains totaled $29.0 million and $68.3 million,
respectively. For the 1999 nine month period, the high level of realized net
capital gains were caused by the redeployment of a portion of the equity
portfolio generally into fixed income investments.
For the third quarter of 2000, income before income taxes increased
49.9 percent to $67.7 million from $45.1 million recorded in the same period of
1999 due primarily to the impact of catastrophe losses in the 1999 period. For
the first nine months of 2000, income before income taxes totaled $203.7 million
versus $218.7 million in the comparable prior year period, a decrease of 6.9
percent. Income before income taxes in the first nine months of 2000 decreased
compared to the same prior year period principally due to a reduction in pre-tax
realized net capital gains offset, in part, by improved underwriting results due
to the absence of catastrophe losses and an increase in net investment income in
2000 compared to 1999.
The effective tax rate for both the third quarter and first nine months
of 2000 was 21.1 percent, versus 19.8 percent and 22.4 percent for the third
quarter and first nine months of 1999, respectively. Tax exempt interest income
remained relatively level in 1999 and 2000 and represented a smaller portion of
pre-tax income in the higher effective tax rate periods.
Income excluding after-tax realized capital gains for the 2000 third
quarter increased 54.6 percent to $47.4 million, or $1.35 per common share
(diluted), from $30.6 million, or $0.88 per common share (diluted), in the same
prior year quarter. For the first nine months of 2000, income excluding
after-tax realized capital gains increased 13.2 percent to $141.9 million, or
$4.06 per common share (diluted), compared to $125.3 million, or $3.60 per
common share (diluted), in the first nine months of 1999. The third quarter and
nine months 1999 results each include catastrophe losses, net of taxes, of $16.3
million, or $0.46 per common share (diluted).
Net income for the third quarter of 2000 increased 47.5 percent to
$53.4 million compared to $36.2 million for the comparable prior year period. On
a diluted per common share basis, net income for the third quarters of 2000 and
1999 was $1.53 and $1.04, respectively. For the first nine months of 2000, net
income was $160.7 million versus $169.7 million in the same 1999 period, a
decrease of 5.3 percent. On a diluted per common share basis, net income was
$4.60 and $4.87 for the first nine months of 2000 and 1999, respectively.
Reasons for these fluctuations are as discussed above.
In the third quarter of 2000, the Board of Directors declared a
quarterly dividend of $0.135 per common share to stockholders of record as of
November 30, 2000, payable on December 14, 2000.
FINANCIAL CONDITION AND LIQUIDITY. Unpaid losses and loss adjustment
expenses, net of reinsurance recoverable thereon, declined $42.5 million
and $107.6 million for the third quarter and first nine months of 2000,
respectively. The decline in such net reserves was due, in large part, to
the payment of previously reserved claims, including 1999 catastrophe losses,
in the 2000 periods.
-9-
<PAGE>
TRANSATLANTIC HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS - CONT'D
SEPTEMBER 30, 2000
Stockholders' equity totaled $1,795.1 million at September 30, 2000, an
increase of $152.6 million from year-end 1999. The increase in stockholders'
equity is primarily composed of net income of $160.7 million and an increase in
accumulated other comprehensive income of $4.1 million (consisting of an
increase in net unrealized appreciation of investments, net of taxes, of $11.8
million offset in part by a net unrealized currency translation loss, net of
taxes, of $7.7 million) less dividends of $13.8 million.
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.
For the first nine months of 2000, operating cash flow was negative,
a substantial reduction from the positive amounts reported in the comparable
1999 period. The reduction in cash flow for the first nine months of 2000 was
caused largely by a significant increase in paid losses. Paid loss levels
in 2000 were significantly elevated due, in part, to payments related to 1999
catastrophe losses and other previously reserved claims. Management believes
that the liquidity of Transatlantic Holdings, Inc. and subsidiaries (TRH) has
not materially changed since the end of 1999.
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 rates,
equity prices and foreign currency exchange rates.
Measuring potential losses in fair values is 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 VaR analyses to estimate the maximum potential loss
of fair value for financial instruments for each type of market risk. In these
analyses, 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, 1999 and 1998. Through
September 30, 2000 and 1999, the economic facts and circumstances have not
significantly changed from the respective prior year end. Therefore, the VaR
amounts at December 31, 1999 and 1998 are representative of the VaRs which could
be calculated at September 30, 2000 and 1999, respectively. The VaR calculations
as of December 31, 1999 and 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,
1999 and 1998, as applicable. 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, 1999 and 1998:
-10-
<PAGE>
TRANSATLANTIC HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS - CONT'D
SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
MARKET RISK 1999 1998
----------- ---- ----
(in millions)
<S> <C> <C>
Interest rate $38 $24
Equity 65 62
Currency 8 8
</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% 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, 1999 and 1998, the VaR for TRH's financial
instruments were approximately $76 million and $69 million, respectively.
ACCOUNTING STANDARDS. Statement of Financial Accounting Standards
(SFAS) No.133, "Accounting for Derivative Instruments and Hedging Activities",
issued by the Financial Accounting Standards Board in June 1998, as amended by
SFAS No. 137 and SFAS No. 138 in June 1999 and June 2000, respectively,
established accounting and reporting standards related to derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. These standards are effective for
TRH on January 1, 2001 and may not be applied retroactively. As of
September 30, 2000, TRH had no derivative instruments.
In December 1999, the Securities and Exchange Commission (SEC) issued
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements"
(SAB 101). SAB 101 provides guidance on the recognition, presentation and
disclosure of revenue in financial statements. TRH believes that the impact of
SAB 101 on its results of operations, financial position or cash flows will not
be significant. SAB 101 is effective in the fourth quarter of 2000.
OTHER MATTERS. The preceding "Management's Discussion" may include
forward-looking statements. Any statements contained herein 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. Please refer to TRH's Annual Report on Form 10-K for
the year ended December 31, 1999 for a description of the business environment
in which TRH operates and the important factors that may affect its business.
TRH is under no obligation to (and expressly disclaims any such obligations to)
update or alter its forward-looking statements whether as a result of new
information, future events or otherwise.
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<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, 2000.
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 13, 2000
- 12 -
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description Location
------ ----------- --------
<S> <C> <C>
27.0 Financial data schedule Provided herewith.
</TABLE>
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