<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
------------------------
FORM 10-Q
---------------
<TABLE>
<C> <S>
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
</TABLE>
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
OR
<TABLE>
<C> <S>
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
</TABLE>
FOR THE TRANSITION PERIOD FROM ______________ TO ______________.
FOR THE QUARTER ENDED JUNE 30, 2000
COMMISSION FILE NUMBER 1-11688
------------------------
AMERICAN RE CORPORATION
(Exact name of registrant as specified in its charter)
------------------------
<TABLE>
<S> <C>
DELAWARE 13-3672116
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
555 COLLEGE ROAD EAST 08543-5241
PRINCETON, NEW JERSEY (zip code)
(Address of principal executive offices)
</TABLE>
------------------------
Registrant's telephone number, including area code: (609) 243-4200
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 THE LATEST PRACTICABLE DATE.
<TABLE>
<S> <C>
COMMON STOCK -$.01 PAR VALUE 149.49712
--------------------------------------------- ---------------------------------------------
Description of Class Shares Outstanding as of May 13, 2000
</TABLE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
AMERICAN RE CORPORATION
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
PART I FINANCIAL INFORMATION
Item 1 -
Consolidated balance sheets at June 30, 2000
(unaudited), and December 31, 1999.................. 1
Consolidated statements of income for the
three-month periods ended June 30, 2000, and 1999
(unaudited)......................................... 2
Consolidated statements of cash flows for the
three-month periods ended June 30, 2000, and 1999
(unaudited)......................................... 3
Notes to consolidated interim financial
statements.......................................... 4
Item 2 -
Management's discussion and analysis of the
Company's Results of Operations and Financial
Condition........................................... 10
PART II OTHER INFORMATION.................................. 15
</TABLE>
<PAGE>
AMERICAN RE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN MILLIONS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
JUNE 30, 2000 DECEMBER 31, 1999
------------- -----------------
(UNAUDITED)
<S> <C> <C>
ASSETS:
Investments
Fixed Maturities
Bonds available for sale, at fair value (amortized
cost: June 30, 2000--$6,543.8; December 31,
1999--$6,511.6)..................................... $ 6,377.6 $ 6,315.2
Preferred stock available for sale, at fair value
(amortized cost: June 30, 2000--$85.2; December 31,
1999--$84.4)........................................ 84.1 84.6
Equity securities available for sale, at fair value (cost:
June 30, 2000--$421.7; December 31, 1999--$367.1)....... 409.1 402.1
Other invested assets..................................... 12.6 40.5
Cash and cash equivalents................................... 698.6 597.5
--------- ---------
Total investments and cash........................ 7,582.0 7,439.9
Accrued investment income................................... 80.7 83.5
Premiums and other receivables.............................. 1,168.3 1,181.2
Deferred policy acquisition costs........................... 325.2 324.5
Reinsurance recoverables on paid and unpaid losses.......... 3,132.6 3,034.9
Funds held by ceding companies.............................. 636.8 609.7
Prepaid reinsurance premiums................................ 123.0 138.8
Deferred federal income taxes............................... 427.3 376.0
Other assets................................................ 1,040.2 1,090.3
--------- ---------
Total assets...................................... $14,516.1 $14,278.8
========= =========
LIABILITIES:
Loss and loss adjustment expense reserves................... $ 8,591.0 $ 8,369.0
Unearned premium reserve.................................... 1,228.5 1,223.4
--------- ---------
Total insurance reserves.......................... 9,819.5 9,592.4
Loss balances payable....................................... 314.8 421.3
Funds held under reinsurance treaties....................... 461.1 322.6
Senior bank debt............................................ 75.0 75.0
Senior notes................................................ 498.5 498.5
Other liabilities........................................... 638.2 642.5
--------- ---------
Total liabilities................................. 11,807.1 11,552.3
--------- ---------
Company-obligated mandatorily redeemable preferred
securities of subsidiary trust holding as all of its
assets Junior Subordinated Debentures..................... 237.5 237.5
--------- ---------
STOCKHOLDER'S EQUITY:
Common stock, par value: $0.01 per share; authorized: 1,000
shares; issued and outstanding: June 30, 2000, and
December 31, 1999--149.49712 shares....................... -- --
Additional paid-in capital.................................. 1,332.4 1,332.4
Retained earnings........................................... 1,259.9 1,296.6
Accumulated other comprehensive income...................... (120.8) (140.0)
--------- ---------
Total stockholder's equity........................ 2,471.5 2,489.0
--------- ---------
Total liabilities, Company-obligated mandatorily
redeemable preferred securities of subsidiary
trust and stockholder's equity.................. $14,516.1 $14,278.8
========= =========
</TABLE>
See accompanying notes to consolidated interim financial statements.
1
<PAGE>
AMERICAN RE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE-MONTH
PERIOD SIX-MONTH PERIOD
ENDED JUNE 30, ENDED JUNE 30,
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUE:
Premiums written....................................... $770.4 $667.2 $1,518.1 $1,424.7
Change in unearned premium reserve..................... (9.4) 9.6 (6.6) (168.1)
------ ------ -------- --------
Premiums earned...................................... 761.0 676.8 1,511.5 1,256.6
Net investment income.................................. 111.4 101.7 218.7 208.7
Net realized capital gains............................. 17.6 37.5 31.3 58.2
Other income........................................... 6.5 2.3 16.1 16.8
------ ------ -------- --------
Total revenue........................................ 896.5 818.3 1,777.6 1,540.3
------ ------ -------- --------
LOSSES AND EXPENSES:
Losses and loss adjustment expenses.................... 600.6 511.3 1,286.9 908.0
Commission expense..................................... 172.5 148.3 373.8 299.2
Operating expense...................................... 60.3 65.7 116.9 124.9
Interest expense....................................... 10.7 10.0 21.3 20.5
Other expense.......................................... 20.1 16.5 41.8 42.0
------ ------ -------- --------
Total losses and expenses............................ 864.2 751.8 1,840.7 1,394.6
------ ------ -------- --------
Income (loss) before income taxes and distributions
on preferred securities of subsidiary trust........ 32.3 66.5 (63.1) 145.7
Federal and foreign income taxes....................... 6.8 17.5 (33.0) 36.4
------ ------ -------- --------
Income (loss) before distributions on preferred
securities of subsidiary trust..................... 25.5 49.0 (30.1) 109.3
Distributions on preferred securities of subsidiary
trust, net of applicable income tax of $1.7 and $3.5,
respectively......................................... (3.3) (3.3) (6.6) (6.6)
------ ------ -------- --------
Net income (loss) to common stockholders............. $ 22.2 $ 45.7 $ (36.7) $ 102.7
====== ====== ======== ========
</TABLE>
See accompanying notes to consolidated interim financial statements.
2
<PAGE>
AMERICAN RE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX-MONTH PERIOD
ENDED JUNE 30,
-------------------
2000 1999
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................................... $ (36.7) $ 102.7
Adjustments to reconcile net income to net cash provided
by operating activities:
Decrease (increase) in accrued investment income........ 2.8 (1.1)
Decrease (increase) in premiums and other receivables... 12.9 69.7
Decrease (increase) in deferred policy acquisition
costs................................................. (0.7) (42.2)
Increase in reinsurance recoverables.................... (97.6) (200.3)
Increase in insurance reserves.......................... 227.1 172.3
Decrease (increase) in current and deferred federal and
foreign income tax assets............................. (4.1) (15.9)
Change in other assets and liabilities, net............. (17.0) (62.4)
Depreciation expense on property and equipment.......... 2.6 4.8
Net realized capital gains.............................. (31.3) (58.2)
Change in other, net.................................... 65.8 12.4
-------- --------
Net cash provided by (used in) operating activities... 123.8 (18.2)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments available for sale:
Purchases............................................... (1,834.4) (1,707.1)
Maturities.............................................. 188.4 240.5
Sales................................................... 1,600.3 1,826.4
Other investments:
Purchases............................................... (1.1) (11.8)
Sales................................................... 28.3 1.6
Cost of additions to property and equipment............... 0.2 (4.8)
-------- --------
Net cash provided by (used in) investing activities... (18.3) 344.8
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH
EQUIVALENTS............................................... (4.4) (0.3)
-------- --------
Net increase in cash and cash equivalents............. 101.1 326.3
Cash and cash equivalents, beginning of period.............. 597.5 274.9
-------- --------
Cash and cash equivalents, end of period.................... $ 698.6 $ 601.2
======== ========
</TABLE>
See accompanying notes to consolidated interim financial statements.
3
<PAGE>
AMERICAN RE CORPORATION
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
JUNE 30, 2000
(DOLLARS IN MILLIONS)
(UNAUDITED)
1. BASIS OF PRESENTATION
American Re Corporation ("American Re" or the "Company") primarily acts as
the holding company for American Re-Insurance Company ("American Re-Insurance").
American Re-Insurance underwrites property and casualty reinsurance on a direct
basis in both the domestic and international markets. The Company is a
wholly-owned subsidiary of Munich Reinsurance Company ("Munich Re"), a company
organized under the laws of Germany.
The information for the interim periods ended June 30, 2000, and 1999, is
unaudited. The interim consolidated financial statements have been prepared on
the basis of generally accepted accounting principles and, in the opinion of
management, reflect all adjustments (consisting of normal recurring 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. Intercompany accounts and transactions have been
eliminated. These financial statements should be read in conjunction with the
financial statements and related notes in the Company's 1999 Form 10-K.
2. COMPREHENSIVE INCOME
The Company had comprehensive income of $11.8 million for the three-month
period ended June 30, 2000, compared to a comprehensive loss of $45.7 million
for the same period in 1999, and a comprehensive loss of $17.5 million for the
six-month period ended June 30, 2000, compared to a comprehensive loss of
$66.4 million for the same period in 1999.
The components of accumulated other comprehensive income are as follows:
<TABLE>
<CAPTION>
NET UNREALIZED
APPRECIATION NET UNREALIZED
(DEPRECIATION) OF LOSS ON FOREIGN
INVESTMENTS EXCHANGE TOTAL
----------------- --------------- --------
<S> <C> <C> <C>
Balance at December 31, 1998............................ $ 158.9 $(35.8) $ 123.1
Period change......................................... (204.9) 2.9 (202.0)
Tax effect.......................................... 71.7 (1.0) 70.7
Reclassification adjustment for gain/loss included in
net income.......................................... (58.2) -- (58.2)
Tax effect.......................................... 20.4 -- 20.4
------- ------ -------
Balance at June 30, 1999................................ $ (12.1) $(33.9) $ (46.0)
======= ====== =======
Balance at December 31, 1999............................ $(104.8) $(35.2) $(140.0)
Period change......................................... 12.7 48.1 60.8
Tax effect.......................................... (4.4) (16.8) (21.2)
Reclassification adjustment for gain/loss included in
net income.......................................... (31.3) -- (31.3)
Tax effect.......................................... 10.9 -- 10.9
------- ------ -------
Balance at June 30, 2000................................ $(116.9) $ (3.9) $(120.8)
======= ====== =======
</TABLE>
4
<PAGE>
AMERICAN RE CORPORATION
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2000
(DOLLARS IN MILLIONS)
(UNAUDITED)
3. REINSURANCE
The Company reinsures certain risks to limit its exposure to catastrophes
and large or unusually hazardous risks. Although reinsurance agreements
contractually obligate the Company's reinsurers to reimburse it for the
agreed-upon portion of its gross paid losses, they do not discharge the primary
liability of the Company. The income statement amounts for premiums written,
premiums earned and losses and loss adjustment expenses are net of reinsurance.
Direct, assumed, ceded and net amounts for these items are as follows:
<TABLE>
<CAPTION>
THREE-MONTH PERIOD SIX-MONTH PERIOD
ENDED JUNE 30, ENDED JUNE 30,
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Premiums written
Direct................................................ $ 59.7 $ 52.0 $ 126.2 $ 119.5
Assumed............................................... 854.3 806.1 1,599.1 1,653.3
Ceded................................................. (143.6) (190.9) (207.2) (348.1)
------- ------- -------- --------
Net................................................... 770.4 667.2 1,518.1 1,424.7
======= ======= ======== ========
Premiums earned
Direct................................................ 66.1 54.5 126.0 118.0
Assumed............................................... 846.9 802.9 1,588.4 1,480.0
Ceded................................................. (152.0) (180.6) (202.9) (341.4)
------- ------- -------- --------
Net................................................... 761.0 676.8 1,511.5 1,256.6
======= ======= ======== ========
Losses incurred
Direct................................................ 57.0 87.5 80.7 99.1
Assumed............................................... 689.7 478.9 1,490.8 1,085.5
Ceded................................................. (146.1) (55.1) (284.6) (276.6)
------- ------- -------- --------
Net................................................... $ 600.6 $ 511.3 $1,286.9 $ 908.0
======= ======= ======== ========
</TABLE>
4. SEGMENT REPORTING
American Re's Domestic Insurance Company Operations ("DICO") serves U.S.
insurance companies by providing them with customized, integrated treaty,
facultative and finite risk reinsurance programs on a direct basis. American
Re's alternative market strategic business unit, Munich-American
RiskPartners, Inc. ("RiskPartners") provides customized risk transfer, risk
sharing, and risk management solutions to self-insured clients worldwide.
International Operations ("International") provides treaty, facultative and
finite risk reinsurance along with a range of other customized products and
services to insurance companies and other entities worldwide. American Re
Financial Products ("ARFP") provides clients with an array of highly customized
financial risk management products and services, including credit enhancement
and integrated risk management. American Re HealthCare ("HealthCare") integrates
risk transfer products and specialized services to help insurance companies and
self-insureds predict, prevent, and manage catastrophic medical events. In
addition to its core reinsurance business, American Re, through
5
<PAGE>
AMERICAN RE CORPORATION
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2000
(DOLLARS IN MILLIONS)
(UNAUDITED)
4. SEGMENT REPORTING (CONTINUED)
various subsidiaries, offers a broad array of related services including
actuarial and financial analysis, due diligence consulting for mergers and
acquisitions, rent-a-captive facilities, and reinsurance and insurance
brokerage. The financial results of these subsidiaries have been aggregated
along with holding company operations for presentation of segment results.
Segment information for the three months ended June 30, 1999, as filed in the
Company's June 1999 Form 10Q, has been restated to reflect management's
increased focus on the Company's ARFP and HealthCare segments.
THREE MONTHS ENDED JUNE 30, 2000
<TABLE>
<CAPTION>
TOTAL
REINSURANCE/ HOLDING
INSURANCE COMPANY
DICO RISKPARTNERS INTERNATIONAL HEALTHCARE ARFP OPERATIONS & OTHER TOTAL
-------- ------------ ------------- ---------- -------- ------------ -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES
GROSS PREMIUMS WRITTEN... $492.4 $190.1 $144.5 $68.0 $18.9 $913.9 $ 0.1 $914.0
------ ------ ------ ----- ----- ------ ----- ------
NET PREMIUMS WRITTEN..... 413.0 136.2 137.9 65.3 17.9 770.3 0.1 770.4
------ ------ ------ ----- ----- ------ ----- ------
PREMIUMS EARNED.......... 403.4 134.9 148.1 65.9 8.6 760.9 0.1 761.0
Net investment income.... 104.8 6.6 111.4
Net realized capital
gains.................. 17.7 (0.1) 17.6
Other income............. 0.5 6.0 6.5
------ ----- ------
Total revenue.......... 883.9 12.6 896.5
------ ----- ------
LOSSES AND
EXPENSES
LOSSES AND LAE........... 317.4 108.8 120.5 46.9 7.0 600.6 -- 600.6
UNDERWRITING EXPENSE..... 131.8 41.7 38.8 18.0 2.1 232.4 0.4 232.8
Interest expense......... -- 10.7 10.7
Other expense............ 5.1 15.0 20.1
------ ----- ------
Total losses and
expenses............. 838.1 26.1 864.2
------ ----- ------
Income (loss) before
income taxes......... 32.3
======
UNDERWRITING GAIN
(LOSS)............... (45.8) (15.6) (11.2) 1.0 (0.5) (72.1) (0.3) (72.4)
====== ====== ====== ===== ===== ====== ===== ======
LOSS AND LAE RATIO....... 78.7% 80.6% 81.4% 71.1% 80.1% 78.9% N/M 78.9%
UNDERWRITING EXPENSE
RATIO.................. 32.7% 31.0% 26.2% 27.4% 25.2% 30.5% N/M 30.6%
------ ------ ------ ----- ----- ------ ----- ------
COMBINED RATIO........... 111.4% 111.6% 107.6% 98.5% 105.3% 109.4% N/M 109.5%
====== ====== ====== ===== ===== ====== ===== ======
</TABLE>
6
<PAGE>
AMERICAN RE CORPORATION
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
JUNE 30, 2000
(DOLLARS IN MILLIONS)
(UNAUDITED)
THREE MONTHS ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
TOTAL
REINSURANCE/ HOLDING
INSURANCE COMPANY
DICO RISKPARTNERS INTERNATIONAL HEALTHCARE ARFP OPERATIONS & OTHER TOTAL
-------- ------------ ------------- ---------- -------- ------------ -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES
GROSS PREMIUMS WRITTEN... $469.4 $194.7 $142.6 $36.8 $ 7.7 $851.2 $ 6.9 $858.1
------ ------ ------ ----- ----- ------ ----- ------
NET PREMIUMS WRITTEN..... 375.1 123.0 124.2 31.1 6.9 660.3 6.9 667.2
------ ------ ------ ----- ----- ------ ----- ------
PREMIUMS EARNED.......... 388.1 122.9 133.8 21.4 3.7 669.9 6.9 676.8
Net investment income.... 99.2 2.5 101.7
Net realized capital
gains.................. 37.5 -- 37.5
Other income............. 0.8 1.5 2.3
------ ----- ------
Total revenue.......... 807.4 10.9 818.3
------ ----- ------
LOSSES AND
EXPENSES
LOSSES AND LAE........... 295.0 88.4 105.4 14.7 1.0 504.5 6.8 511.3
UNDERWRITING EXPENSE..... 133.6 33.5 35.0 9.3 3.1 214.5 (0.5) 214.0
Interest expense......... -- 10.0 10.0
Other expense............ 1.9 14.6 16.5
------ ----- ------
Total losses and
expenses............. 720.9 30.9 751.8
------ ----- ------
Income (loss) before
income taxes......... 66.5
======
UNDERWRITING GAIN
(LOSS)............... (40.5) 1.0 (6.6) (2.6) (0.4) (49.1) 0.6 (48.5)
====== ====== ====== ===== ===== ====== ===== ======
LOSS AND LAE RATIO....... 76.0% 71.9% 78.8% 68.7% 27.0% 75.3% 98.3% 75.5%
UNDERWRITING EXPENSE
RATIO.................. 34.4% 27.3% 26.2% 43.5% 83.8% 32.0% (7.7)% 31.6%
------ ------ ------ ----- ----- ------ ----- ------
COMBINED RATIO........... 110.4% 99.2% 105.0% 112.2% 110.8% 107.3% 90.6% 107.1%
====== ====== ====== ===== ===== ====== ===== ======
</TABLE>
7
<PAGE>
AMERICAN RE CORPORATION
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2000
(DOLLARS IN MILLIONS)
(UNAUDITED)
SIX MONTHS ENDED JUNE 30, 2000
<TABLE>
<CAPTION>
TOTAL
REINSURANCE/ HOLDING
INSURANCE COMPANY
DICO RISKPARTNERS INTERNATIONAL HEALTHCARE ARFP OPERATIONS & OTHER TOTAL
-------- ------------ ------------- ---------- -------- ------------ -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES
GROSS PREMIUMS
WRITTEN.............. $890.2 $356.6 $295.9 $133.5 $49.0 $1,725.2 $ 0.1 $1,725.3
------ ------ ------ ------ ----- -------- ----- --------
NET PREMIUMS WRITTEN... 821.9 248.4 286.5 126.4 34.8 1,518.0 0.1 1,518.1
------ ------ ------ ------ ----- -------- ----- --------
PREMIUMS EARNED........ 843.2 252.6 271.8 126.7 17.0 1,511.3 0.2 1,511.5
Net investment
income............... 206.6 12.1 218.7
Net realized capital
gains................ 31.3 -- 31.3
Other income........... 0.5 15.6 16.1
-------- ----- --------
Total revenue........ 1,749.7 27.9 1,777.6
-------- ----- --------
LOSSES AND EXPENSES
LOSSES AND LAE......... 724.6 206.6 252.2 89.5 14.0 1,286.9 -- 1,286.9
UNDERWRITING EXPENSE... 289.5 77.6 82.4 37.2 3.5 490.2 0.5 490.7
Interest expense....... -- 21.3 21.3
Other expense.......... 12.7 29.1 41.8
-------- ----- --------
Total losses and
expenses........... 1,789.8 50.9 1,840.7
-------- ----- --------
Income (loss) before
income taxes....... (63.1)
========
UNDERWRITING GAIN
(LOSS)............... (170.9) (31.6) (62.8) 0.0 (0.5) (265.8) (0.3) (266.1)
====== ====== ====== ====== ===== ======== ===== ========
LOSS AND LAE RATIO..... 85.9% 81.8% 92.8% 70.6% 82.0% 85.2% N/M 85.1%
UNDERWRITING EXPENSE
RATIO................ 34.3% 30.7% 30.3% 29.3% 20.9% 32.4% N/M 32.5%
------ ------ ------ ------ ----- -------- ----- --------
COMBINED RATIO......... 120.2% 112.5% 123.1% 99.9% 102.9% 117.6% N/M 117.6%
====== ====== ====== ====== ===== ======== ===== ========
</TABLE>
8
<PAGE>
AMERICAN RE CORPORATION
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2000
(DOLLARS IN MILLIONS)
(UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
TOTAL
REINSURANCE/ HOLDING
INSURANCE COMPANY
DICO RISKPARTNERS INTERNATIONAL HEALTHCARE ARFP OPERATIONS & OTHER TOTAL
-------- ------------ ------------- ---------- -------- ------------ -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES
GROSS PREMIUMS
WRITTEN.............. $963.5 $422.4 $293.8 $70.6 $14.3 $1,764.6 $8.2 $1,772.8
------ ------ ------ ----- ----- -------- ---- --------
NET PREMIUMS WRITTEN... 796.5 273.0 267.0 66.5 13.5 1,416.5 8.2 1,424.7
------ ------ ------ ----- ----- -------- ---- --------
PREMIUMS EARNED........ 730.5 229.3 243.5 38.1 7.0 1,248.4 8.2 1,256.6
Net investment
income............... 204.8 3.9 208.7
Net realized capital
gains................ 58.2 -- 58.2
Other income........... (0.2) 17.0 16.8
-------- ---- --------
Total revenue........ 1,511.2 29.1 1,540.3
-------- ---- --------
LOSSES AND EXPENSES
LOSSES AND LAE......... 521.1 168.3 182.7 26.0 1.8 899.9 8.1 908.0
UNDERWRITING EXPENSE... 257.7 67.9 76.3 17.6 5.0 424.5 (0.4) 424.1
Interest expense....... -- 20.5 20.5
Other expense.......... 3.5 38.5 42.0
-------- ---- --------
Total losses and
expenses........... 1,327.9 66.7 1,394.6
-------- ---- --------
Income (loss) before
income taxes....... 145.7
========
UNDERWRITING GAIN
(LOSS)............. (48.3) (6.9) (15.5) (5.5) 0.2 (76.0) 0.5 (75.5)
====== ====== ====== ===== ===== ======== ==== ========
LOSS AND LAE RATIO..... 71.3% 73.4% 75.0% 68.2% 25.7% 72.1% 98.8% 72.3%
UNDERWRITING EXPENSE
RATIO................ 35.3% 29.6% 31.3% 46.2% 71.4% 34.0% (4.9)% 33.7%
------ ------ ------ ----- ----- -------- ---- --------
COMBINED RATIO......... 106.6% 103.0% 106.3% 114.4% 97.1% 106.1% 93.9% 106.0%
====== ====== ====== ===== ===== ======== ==== ========
</TABLE>
Elements of underwriting result are BOLD.
The Company does not allocate certain items of revenues and expenses, nor
are they included in the assessment of the segment results as reviewed by the
Company's management. The assets and liabilities of the Company are generally
not maintained on a segment or geographical basis. An allocation of such assets
and liabilities is considered by the Company to be impracticable.
9
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MANAGEMENTS' DISCUSSION AND ANALYSIS OF THE COMPANY'S RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF OPERATIONS
QUARTER ENDED JUNE 30, 2000, COMPARED WITH QUARTER ENDED JUNE 30, 1999
The Company's net premiums written increased 15.5% to $770.4 million for the
quarter ended June 30, 2000, from $667.2 million for the same period in 1999.
This increase is partially attributable to increases in gross premiums written,
in addition to decreased ceded premiums resulting from long-term changes in the
Company's retrocessional programs. The increase in net premiums written was
comprised of increases in net premiums written in DICO, RiskPartners,
International, HealthCare and ARFP.
DICO experienced a 10.1% increase in net premiums written to $413.0 million
for the second quarter of 2000, from $375.1 million for the same period in 1999.
This increase was primarily attributable to a $54.8 million increase in DICO's
facultative business. RiskPartners experienced a 10.7% increase in net premiums
written to $136.2 million for the second quarter of 2000, from $123.0 million
for the same period in 1999. This increase was primarily attributable to a
$16.3 million increase in RiskPartners' direct business and a $13.6 million
increase in its facultative business, somewhat offset by a $14.2 million
decrease in finite risk writings. International experienced a 11.0% increase in
net premiums written to $137.9 million for the second quarter of 2000, from
$124.2 million for the same period in 1999. HealthCare experienced a significant
increase in net premiums written to $65.3 million for the second quarter of
2000, from $31.1 million for the same period in 1999. ARFP experienced a
significant increase in net premiums written to $17.9 million for the second
quarter of 2000, from $6.9 million for the same period in 1999.
The Company's net premiums earned increased 12.4% to $761.0 million for the
quarter ended June 30, 2000, from $676.8 million for the same period in 1999.
The increase in premiums earned was primarily attributable to the increase in
net premiums written, somewhat offset by the timing of premiums earned on
business in force.
Net losses and LAE incurred increased 17.5% to $600.6 million for the
quarter ended June 30, 2000, from $511.3 million for the same period in 1999.
This increase includes provisions for increased losses for the current accident
year to reflect adverse market conditions and additional loss provisions of
$38.4 million for certain finite risk losses, primarily from prior accident
years. The Company incurred $4.7 million of catastrophe losses during the
quarter ended June 30, 2000, compared to $27.5 million during the 1999 period.
Underwriting expense, consisting of commission expense plus operating
expense, increased 8.8% to $232.8 million for the quarter ended June 30, 2000,
from $214.0 million for the same period in 1999. This increase was due to a
16.3% increase in commission expense to $172.5 million for the second quarter of
2000 from $148.3 million for the same period in 1999. This increase was
primarily attributable to the increase in premiums earned. Operating expenses
decreased 8.2% to $60.3 million for the second quarter of 2000 from
$65.7 million for the second quarter of 1999. This decrease was primarily
attributable to a decrease in overhead costs related to underwriting activities.
The Company experienced an underwriting loss (net premiums earned minus
losses and LAE incurred and underwriting expenses) of $72.4 million for the
quarter ended June 30, 2000, compared to an underwriting loss of $48.5 million
for the same period in 1999. On a GAAP basis, the Company's loss ratio increased
to 78.9% for the second quarter of 2000 from 75.5% for the same period in 1999,
while the underwriting expense ratio decreased to 30.6% for the second quarter
of 2000 from 31.6% for the same period in 1999. As a result of these changes,
the combined ratio for the quarter ended June 30, 2000, increased to 109.5% from
107.2% for the same period in 1999.
Pre-tax net investment income increased 9.5% to $111.4 million for the
quarter ended June 30, 2000, from $101.7 million for the same period in 1999.
This increase is primarily attributable to a greater amount
10
<PAGE>
of taxable bond income, in addition to higher overall portfolio yields during
the 2000 period. The Company's after-tax net investment income increased 2.5% to
$77.2 million for the quarter ended June 30, 2000, from $75.3 million for the
same period in 1999.
The Company realized net capital gains of $17.6 million for the quarter
ended June 30, 2000, compared to net capital gains of $37.5 million for the same
period in 1999. The 2000 period included capital gains of $20.5 million on the
sale of common equities, offset by net capital losses of $2.8 million on the
sale of bonds. The 1999 period included capital gains of $1.0 million on the
sale of bonds and $33.6 million on the sale of common equities.
Other income increased to $6.5 million for the quarter ended June 30, 2000,
from $2.3 million for the same period in 1999. This increase was primarily
attributable to an increase in revenues from fee subsidiaries. Other expenses
increased 21.8% to $20.1 million for the second quarter of 2000 from
$16.5 million for the same period in 1999. This increase was primarily
attributable to an increase in the allocation of overhead costs related to
non-underwriting activities.
Income before income taxes and distributions on preferred securities
decreased 51.4% to $32.3 million for the quarter ended June 30, 2000, from
$66.5 million for the same period in 1999.
SIX MONTHS ENDED JUNE 30, 2000, COMPARED WITH SIX MONTHS ENDED JUNE 30, 1999
The Company's net premiums written increased 6.6% to $1,518.1 million for
the six months ended June 30, 2000, from $1,424.7 million for the same period in
1999. This increase is partially attributable to decreased ceded premiums
resulting from long-term changes in the Company's retrocessional programs. The
increase in net premiums written was comprised of increases in net premiums
written in DICO, International, HealthCare and ARFP.
DICO experienced a 3.2% increase in net premiums written to $821.9 million
for the six months ended June 30, 2000, from $796.5 million for the same period
in 1999. This increase was primarily attributable to a $57.0 million increase in
DICO's facultative business. International experienced a 7.3% increase in net
premiums written to $286.5 million for the six months ended June 30, 2000, from
$267.0 million for the same period in 1999. This decrease was primarily
attributable to a $45.2 million increase in International's treaty business,
offset by a $26.8 million decline in its finite risk business. HealthCare
experienced a substantial increase in net premiums written to $126.4 million for
the six months ended June 30, 2000, from $66.5 million for the same period in
1999. ARFP experienced a substantial increase in net premiums written to
$34.8 million for the six months ended June 30, 2000, from $13.5 million for the
same period in 1999. These increases were partially offset by a 9.0% decrease in
RiskPartners net premiums written to $248.4 million for the six months ended
June 30, 2000, from $273.0 million for the same period in 1999.
The Company's net premiums earned increased 20.3% to $1,511.5 million for
the six months ended June 30, 2000, from $1,256.6 million for the same period in
1999. The increase in premiums earned was primarily attributable to the increase
in net premiums written and the timing of premiums earned on business in force.
Net losses and LAE incurred increased 41.7% to $1,286.9 million for the six
months ended June 30, 2000, from $908.0 million for the same period in 1999.
This increase includes provisions for increased losses for the current accident
year to reflect adverse market conditions and additional loss provisions of
$86.9 million for certain finite risk losses, primarily from prior accident
years. In addition, the Company incurred $51.8 million of catastrophe losses
during the six months ended June 30, 2000, compared to $27.5 million during the
1999 period.
Underwriting expense, consisting of commission expense plus operating
expense, increased 15.7% to $490.7 million for the six months ended June 30,
2000, from $424.1 million for the same period in 1999. This increase was due to
a 24.9% increase in commission expense to $373.8 million for the six months
11
<PAGE>
ended June 30, 2000 from $299.2 million for the same period in 1999. This
increase was primarily attributable to the increase in premiums earned.
Operating expenses decreased 6.4% to $116.9 million for the six months ended
June 30, 2000 from $124.9 million for the six months ended June 30, 1999. This
decrease was primarily attributable to a decrease in overhead costs related to
underwriting activities.
The Company experienced an underwriting loss (net premiums earned minus
losses and LAE incurred and underwriting expenses) of $266.1 million for the six
months ended June 30, 2000, compared to an underwriting loss of $75.5 million
for the same period in 1999. On a GAAP basis, the Company's loss ratio increased
to 85.1% for the six months ended June 30, 2000 from 72.3% for the same period
in 1999, while the underwriting expense ratio decreased to 32.5% for the six
months ended June 30, 2000 from 33.7% for the same period in 1999. As a result
of these changes, the combined ratio for the six months ended June 30, 2000,
increased to 117.6% from 106.0% for the same period in 1999.
Pre-tax net investment income increased 4.8% to $218.7 million for the six
months ended June 30, 2000, from $208.7 million for the same period in 1999.
This increase was primarily attributable to an increase in taxable bond income.
The Company's after-tax net investment income decreased slightly to
$154.0 million for the six months ended June 30, 2000, from $154.3 million for
the same period in 1999.
The Company realized net capital gains of $31.3 million for the six months
ended June 30, 2000, compared to net capital gains of $58.2 million for the same
period in 1999. The 2000 period included capital gains of $47.9 million on the
sale of common equities, offset by net capital losses of $16.5 million on the
sale of bonds. The 1999 period included capital gains of $10.3 million on the
sale of bonds and $48.5 million on the sale of common equities.
Other income decreased 4.2% to $16.1 million for the six months ended
June 30, 2000, from $16.8 million for the same period in 1999. This decrease was
primarily attributable to a decrease in revenues from fee subsidiaries. Other
expenses decreased 0.5% to $41.8 million for the six months ended June 30, 2000
from $42.0 million for the same period in 1999.
The Company experienced a loss before income taxes and distributions on
preferred securities of $63.1 million for the six months ended June 30, 2000,
compared to income of $145.7 million for the same period in 1999.
FINANCIAL CONDITION
Total consolidated assets increased 1.7% to $14,516.1 million at June 30,
2000, from $14,278.8 million at December 31, 1999. Total consolidated
liabilities also increased 2.2% to $11,807.1 million at June 30, 2000, from
$11,552.3 million at December 31, 1999.
The total financial statement value of investments and cash increased 1.9%
to $7,582.0 million at June 30, 2000, from $7,439.9 million at December 31,
1999, primarily due to cash flow from operations for the period. The financial
statement value of the investment portfolio at June 30, 2000, included a net
decrease from amortized cost to fair value of $179.8 million for debt and equity
investments, compared to a net decrease of $161.2 million at December 31, 1999.
At June 30, 2000, the Company recognized a cumulative unrealized loss of
$116.9 million due to the net adjustment to fair value on debt and equity
investments, after applicable income tax effects, which was reflected in
stockholder's equity as a component of accumulated other comprehensive income.
This represents a net decrease to stockholder's equity of $12.1 million from the
cumulative unrealized loss on debt and equity securities of $104.8 million
recognized at December 31, 1999.
Common stockholder's equity decreased slightly to $2,471.5 million at
June 30, 2000, from $2,489.0 million at December 31, 1999. This decrease was
attributable to the net loss of $36.7 million for the six months ended June 30,
2000, and the $12.1 million unrealized loss on investments for the period,
offset by a $31.3 million unrealized gain on foreign exchange for the period,
after applicable income taxes.
12
<PAGE>
The Company's insurance/reinsurance subsidiaries' statutory surplus
decreased to $2,034.0 million at June 30, 2000, from $2,166.0 million at
December 31, 1999. This decrease was primarily attributable to statutory net
operating losses of $61.3 million for the six months ended June 30, 2000, in
addition to unrealized losses on investments of $73.1 million. Operating
leverage, as measured by such subsidiaries' premiums-to-surplus ratio, on an
annualized basis was 1.45 to 1 and 1.31 to 1 at June 30, 2000, and December 31,
1999, respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Company is an insurance holding company whose only material investment
is in the capital stock of American Re-Insurance. The Company is dependent on
dividends and tax allocation payments, primarily from American Re-Insurance, to
meet its short- and long-term liquidity requirements, including its debt service
obligations.
The Company's cash flow from operations may be influenced by a variety of
other factors, including cyclical changes in the property and casualty
reinsurance market, insurance regulatory initiatives, and changes in general
economic conditions. Liquidity requirements are met on a short- and long-term
basis by funds provided by operations and from the maturity and the sale of
investments. Cash provided by operations primarily consists of premiums
collected, investment income, and reinsurance recoverable balances collected,
less paid claims (including payments made to commute or settle reinsurance
arrangements), retrocession payments, underwriting and interest expenses, QUIPS
distributions, and income tax payments. Cash flows provided by operations for
the Company were $123.8 million for the six-month period ended June 30, 2000,
compared to cash flows used in operation of $18.2 million for the same period in
1999. The increase in the 2000 period is attributable to increased net premium
collections and federal income tax refunds received resulting from the net loss
recognized in 1999.
Cash and cash equivalents were $698.6 million and $597.5 million at
June 30, 2000, and December 31, 1999, respectively. Cash and short-term
investments are maintained for liquidity purposes and represented 9.2% and 8.0%,
respectively, of total financial statement investments and cash on such dates.
The increase in the level of cash and cash equivalents reflects a repositioning
of the investment portfolio.
MARKET AND INTEREST RATE RISK
The Company is subject to market risk arising from the potential change in
the value of its various financial instruments. These changes may be due to
fluctuations in interest and foreign exchange rate and equity prices. The major
components of market risk affecting the Company are interest rate, foreign
currency and equity risk.
The Company has both fixed and variable (including mortgage backed
securities and collateralized mortgage obligations) income investments with a
value of $6,461.7 million at June 30, 2000 that are subject to changes in value
due to market interest rates. The Company also has Senior Bank Debt of
$75.0 million, Senior Notes of $498.5 million, and QUIPS of $237.5 million. The
Senior Bank Debt is a variable rate loan, while the Senior Notes, and QUIPS are
fixed rate instruments.
The Company has exposure to movements in various currencies around the
world, particularly the British pound, the Euro and the Australian dollar.
Changes in currency exchange rates primarily affect the international components
of the Company's balance sheet, income statement, and statement of cash flows.
This exposure is somewhat offset because the Company's reinsurance premiums and
invested assets are partially offset by losses incurred and loss reserves,
respectively, generally denominated in the same currency. At June 30, 2000, the
Company had no material currency rate exposure.
In addition to interest rate and foreign exchange risk, the Company's common
equity portfolio of $409.1 million at June 30, 2000 is subject to changes in
value based on changes in equity prices, predominately from the United States.
13
<PAGE>
In November 1999, American Re Capital Markets, Inc. ("ARCM"), a subsidiary
of the Company, entered into certain index-based catastrophe-related swaps.
Under the terms of the catastrophe swaps, ARCM may receive approximately
$182.0 million of potential payments in the event of three types of certain
catastrophic events: California earthquakes, Midwest earthquakes, or Eastern and
Gulf Coast windstorms. The Company adjusts the catastrophe swaps to fair value
using a model pricing based upon interest rate spreads above comparable U.S.
Treasury investments, applied to a notional value of $182.0 million.
SAFE HARBOR DISCLOSURE
The Company has disclosed certain forward-looking statements concerning its
operations, economic performance and financial condition, including, in
particular the likelihood of the Company's success in developing and expanding
its business and the risks related thereto. These statements are based upon a
number of assumptions and estimates that are inherently subject to significant
uncertainties and contingencies, many of which are beyond the control of the
Company, and reflect future business decisions that are subject to change. Some
of these assumptions inevitably will not materialize, and unanticipated events
will occur which will affect the Company's results. Such statements may include,
but are not limited to, projections of premium revenue, investment income, other
revenue, losses, expenses, earnings, cash flows, plans for future operations,
common stockholder's equity, investments, capital plans, dividends, plans
relating to products or services of American Re, estimates concerning the
effects of litigation or other disputes, adverse state or federal legislation or
regulation, adverse publicity or news coverage or changes in general economic
factors as well as the assumptions for any of the foregoing and are generally
expressed with words, such as "believes," "estimates," "expects," "anticipates,"
"plans," "projects," "forecasts," "goals," "could have," "may have" and similar
expressions.
14
<PAGE>
AMERICAN RE CORPORATION
PART II. OTHER INFORMATION
ITEMS 1 - 4 HAVE BEEN OMITTED AS THEY ARE EITHER INAPPLICABLE OR THE ANSWER IS
NEGATIVE.
ITEM 5. OTHER INFORMATION.
HOLOCAUST VICTIMS INSURANCE LAWS. Several states (including California,
Maryland, Minnesota, New York, and Washington) have enacted legislation
pertaining to insurance policies that were issued in Europe to Holocaust victims
during the period 1920 through 1945, and legislation on this subject matter is
under consideration in other states (including New Jersey). Insurance regulators
in some of these states have taken actions or threatened to take actions to
sanction insurance companies licensed in such states for alleged failure to
comply with such laws. Most state insurance regulators have subscribed to a
private, non-governmental, voluntary organization named the International
Commission on Holocaust Era Insurance Claims ("Holocaust Commission") that is
dedicated to identifying and resolving outstanding insurance claims from the
Holocaust era for its members. Under some of the recently enacted state laws, an
insurer's participation in the Holocaust Commission confers certain statutory
benefits.
CALIFORNIA. California has two Holocaust era insurance related statutes.
The first purports to permit the suspension of an insurer's license if it or any
of its affiliates has failed to pay any claim of Holocaust victims proven to be
valid and unpaid. This statute also authorizes the Commissioner to include
consideration of whether an insurer is participating in the Holocaust Commission
in deciding whether to suspend the insurer's license. In July, 1999, the
California Insurance Department ("CID") initiated an examination and hearing
involving the Company's California licensed insurers and Munich Re in order to
investigate whether these companies or affiliated companies in Europe had
outstanding Holocaust era insurance claims. While the licensees named in the
examination and hearing process either were not in existence or did not do
business in Europe during the Holocaust era, and Munich Re, as a reinsurer,
never issued any insurance policies, the CID sought information on Holocaust era
insurance from European insurers in which Munich Re has an indirect investment
interest. The hearing and examination are pending.
The second California statute is the Holocaust Victim Insurance Relief Act
of 1999 ("California Registry Law") designed to create a publicly accessible
registry of Holocaust era policyholder information. The California Registry Law
requires California licensed insurers to report Holocaust era policyholder
information in their possession or in the possession of their "related
companies," as that term is defined in the California Registry Law. The CID
interprets this statute to require information even from companies that are not
controlled by the licensed insurers or their parent companies. In March 2000,
American Re-Insurance and the American Insurance Association, an insurance trade
association, many of whose members are California licensed insurers, initiated
litigation in California challenging the validity of the California Registry Law
on constitutional and other grounds. In June 2000, the California Superior Court
issued a preliminary injunction against the CID from enforcing the California
Registry Law. The litigation is pending.
FLORIDA. Florida has enacted a statute ("Florida Holocaust Law") that seeks
reports of information on Holocaust era insurance. The Florida Holocaust Law
requires Florida licensed insurers to report certain information on insurance
policies issued in Europe during the Holocaust era by such licensees and their
affiliates. American Re-Insurance and American Alternative have no information
to report because they did not issue insurance policies in Europe during the
relevant time period. However, the companies have timely filed reports
disclosing information voluntarily provided by European insurers in which Munich
Re has an investment interest. The Florida Insurance Department has issued
subpoenas to American Re-Insurance, American Alternative, and approximately 40
other insurance companies seeking policyholder information in connection with
the Florida Holocaust Law. An unaffiliated company initiated litigation against
the Florida Insurance Department challenging the validity of the subpoenas and
the constitutionality of the Florida Holocaust Law. That litigation is pending.
NEW YORK. New York has enacted a statute ("New York Holocaust Law") similar
to the Florida Holocaust Law. American Re-Insurance and American Alternative
timely filed reports responsive to the New York Holocaust Law disclosing
information voluntarily provided by European insurers in which
15
<PAGE>
Munich Re has an investment interest. The New York Insurance Department
subsequently requested additional information in connection with Holocaust era
insurance, and American Re promptly forwarded these requests to the European
insurers which responded directly to the Department. Notwithstanding this, the
Department has threatened to attempt to fine American Re up to $1,000 per day
for alleged reporting violations unless Munich Re joins the Holocaust
Commission, or agrees to pay alleged Holocaust claims involving companies that
Munich Re does not control, or contributes to a humanitarian fund for the
benefit of Holocaust survivors, and American Re-Insurance has received a letter
from the Department's Disciplinary Unit that disciplinary action against
American Re-Insurance and/or its officers is being considered. However, no
formal action has been taken by the Department to date.
WASHINGTON. Washington has enacted a statute similar to the California
Registry Law. American Re-Insurance and American Alternative have reported to
the Washington Insurance Department that they have nothing to report under the
statute. The Department has asserted that the companies' report is not in
compliance with the law and has indicated that it may initiate enforcement
action against American Re, although no action has been commenced to date.
* * * * *
American Re believes that it has fully complied with the requirements of
these statutes. However, there can be no assurance that insurance regulators
will not initiate administrative or other actions against American Re under
these laws. American Re does not believe that the ultimate resolution of these
matters will have a material adverse effect on the business, financial condition
or results of operations of American Re and its subsidiaries taken as a whole.
PENNSYLVANIA. American Re has been advised that the owners ("Sellers") of
the United National Group of insurance companies ("UNG") have exercised their
right to terminate the share purchase agreement between them and American Re
(the "Agreement"). Under the terms of the Agreement, the Sellers have had the
right to terminate the Agreement since March 10, 2000. The Sellers terminated
the Agreement due to the more than 10 month delay of the Pennsylvania Insurance
Department to rule on American Re's application for approval to acquire control
of the United National Insurance Company ("United National"), which is domiciled
in Pennsylvania.
In connection with American Re's efforts to complete the transaction,
American Re was required to obtain the approval of three insurance departments
which have regulatory authority over the various insurance companies involved in
the transaction.
Two of the three insurance departments that were required to approve the
transaction (Indiana and Wisconsin) conducted hearings, completed their reviews
and granted their approvals of the transaction prior to year-end 1999. However,
the Pennsylvania Insurance Department subjected American Re to an excessive
delay in reviewing the application regarding United National allegedly based on
the fact that Munich Re had not joined the Holocaust Commission.
As a result of this delay, on February 8, 2000, American Re filed suit in
Pennsylvania Commonwealth Court against the Pennsylvania Insurance Department
and the Pennsylvania Insurance Commissioner, seeking to compel the Department to
complete its review of American Re's application to acquire United National. In
June 2000, the Commonwealth Court issued its final order directing the
Department and the Commissioner to render a final decision on American Re's
application, and vacating the automatic stay of the order (such stay enabling
time for appeal). The Department and the Commissioner appealed to the
Pennsylvania Supreme Court to overturn the Commonwealth Court's order. The
Supreme Court reinstated the stay and ordered an expedited schedule for the
appeal process. That appeal was pending at the time the Sellers terminated the
Agreement.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27--Financial Data Schedule is filed as part of this report.
16
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AMERICAN RE CORPORATION
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.
<TABLE>
<S> <C> <C>
AMERICAN RE CORPORATION
(Registrant)
By: /s/ GEORGE T. O'SHAUGHNESSY, JR.
-----------------------------------------
GEORGE T. O'SHAUGHNESSY, JR.
Executive Vice President and
Chief Financial and Accounting Officer
</TABLE>
Dated: August 14, 2000
17
