FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
(Mark One)
X Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 (No Fee Required)
For the fiscal year ended December 31, 1996 or
Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (No Fee Required)
For the transition period from to
Commission file number 1-11340
LIFE RE CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Delaware 01-0437851
(State or Other Jurisdiction of (I.R.S.Employer
Incorporation or Organization) dentification No.)
969 High Ridge Road, Stamford, CT 06905
(Address of Principal Executive Offices) (Zip Code)
(203) 321-3000
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
Common Stock, $.001 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: NONE
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [x]
As of March 19, 1997, the aggregate market value of Common Stock, $.001
par value held by non-affiliates was $450,192,215.
APPLICABLE ONLY TO CORPORATE REGISTRANTS:
As of March 19, 1997, 13,558,666 shares of Common Stock, $.001 par value
were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Certain information required by Items 10, 11, 12 and 13 of Form 10-K is
incorporated by reference into Part III hereof from the registrant's proxy
statement for the 1997 Annual Meeting which will be filed with the
Securities and Exchange Commission within 120 days of the close of the
registrant's fiscal year ended December 31, 1996.
PAGE 1 of Pages
EXHIBIT INDEX LOCATED AT PAGE
TABLE OF CONTENTS
Item Page
PART I
1 Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2 Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
3 Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . 21
4 Submission of Matters to a Vote of Security
Holders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
PART II
5 Market for Registrant's Common Equity and
Related Stockholder Matters. . . . . . . . . . . . . . . . . . . 22
6 Selected Financial Data. . . . . . . . . . . . . . . . . . . . . 23
7 Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . . . . . . . 25
8 Financial Statements and Supplementary Data. . . . . . . . . . . 37
9 Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure . . . . . . . . . . . . . 68
PART III
10 Directors and Executive Officers of the Registrant . . . . . . . 68
11 Executive Compensation . . . . . . . . . . . . . . . . . . . . . 68
12 Security Ownership of Certain Beneficial Owners and
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
13 Certain Relationships and Related Transactions . . . . . . . . . 68
PART IV
14 Exhibits, Financial Statement Schedules,
and Reports on Form 8-K. . . . . . . . . . . . . . . . . . . . . 69
PART I
ITEM 1
Business
Life Re Corporation ("Life Re" or the "Company"), through its
principal wholly-owned subsidiary, Life Reassurance Corporation of
America ("Life Reassurance"), provides reinsurance for life and health
risks in the United States. Life Re's major lines of business include
ordinary life reinsurance, group life reinsurance, group accident and
health and special risk reinsurance, Administrative Reinsurance(service
mark), and automobile credit life and disability reinsurance.
Life Re was founded in 1988 by Rodney A. Hawes, Jr.,
Douglas M. Schair and Jacques E. Dubois for the purpose of acquiring Life
Reassurance from General Reinsurance Corporation ("General Re"). Life
Reassurance has specialized in providing life reinsurance since its
formation in 1967. Life Re serves as a holding company for all of the
common stock of TexasRe Life Insurance Company ("TexasRe"), which in turn
owns all of the common stock of Life Reassurance. Life Re purchased all
of the common stock of Life Reassurance from General Re in November 1988
for an adjusted purchase price of $306.3 million (the "Acquisition"). At
that time, Life Re also purchased all of the common stock of TexasRe for
$0.3 million.
In July 1995, Life Reassurance acquired all of the common stock of
John Deere Life Insurance Company (now known as Reassure America Life
Insurance Company or "REALIC") from two subsidiaries of Deere & Company
for an adjusted purchase price of $33.3 million. The acquisition of
REALIC provided Life Re with (i) the licenses and ability to administer
primary life insurance business and (ii) a platform for future
acquisitions of insurance in force and other life insurance companies.
Through REALIC's Administrative Reinsurance(service mark) line of
business, Life Re is able to provide a financial benefit to its clients
through block reinsurance of existing insurance in force and the ability
to assist clients who wish to discontinue the administration of older
non-core blocks of business. To this end, during 1996 REALIC entered
into a block reinsurance agreement with United Insurance Company of
America, and REALIC successfully completed the acquisition of Modern
American Life Insurance Company ("Modern") and Western Pioneer Life
Insurance Company ("Western") from an insurance subsidiary of I.C.H.
Corporation and New American Life Insurance Company ("New American") from
a subsidiary of General Accident plc. All three of the acquired
companies have been merged with and into REALIC.
TexasRe, Life Reassurance and REALIC are sometimes referred to
herein collectively as the "Subsidiaries."
In 1995, Life Re formed a Bermuda subsidiary, Life Re
International, Ltd., for the reinsurance of domestic and internationally
generated life and health insurance risks. Currently, Life Re
International, Ltd. has minimal business in force.
Business Written
General
The business of reinsurance generally consists of reinsurers, such
as Life Re, who enter into contractual arrangements (treaties) with
primary insurers (ceding companies) whereby the reinsurer agrees to
indemnify the ceding company for all or a portion of the risk associated
with the underlying insurance policy in exchange for a reinsurance
premium payable to the reinsurer. Reinsurers also may enter into
retrocessional reinsurance arrangements with other reinsurers, which
operate in a manner similar to the underlying reinsurance arrangement
described above. Under retrocessional reinsurance arrangements, the
reinsurer shifts a portion of the risk associated with the underlying
insurance policy to the retrocessionaires.
Reinsurance agreements may be written on an automatic treaty basis
or facultative basis, and reinsurance may be marketed directly by the
reinsurer or through reinsurance intermediaries or brokers. An automatic
treaty provides for a ceding company to cede contractually agreed-upon
risks on specific blocks of business to a reinsurer and binds that
reinsurer without obtaining further approval from that reinsurer.
Facultative reinsurance is the reinsurance of individual risks whereby a
reinsurer has the opportunity to analyze and separately underwrite a risk
prior to agreeing to accept the risk. In addition, both automatic treaty
and facultative reinsurance may be written on either a quota share basis
(a percentage of each risk in the reinsured class of risk is assumed by
the reinsurer from the ceding company with premiums proportional to such
assumed risk being paid to reinsurers) or an excess of loss basis
(reinsurers indemnify the ceding company up to a contractually-specified
amount for a portion of loss exceeding a specified loss retention amount
in consideration of non-proportional premiums being paid).
Life Re's major lines of business include ordinary life
reinsurance, group life reinsurance, group accident and health and
special risk reinsurance, automobile credit life and disability
reinsurance, and Administrative Reinsurance(service mark). These lines
of business cover the following risks: (i) mortality and morbidity, (ii)
investment, (iii) lapsation, and (iv) medical expense, disability and
accident. Life Re writes reinsurance predominantly on a direct basis
with primary life insurance companies. Life Reassurance has a closed
block of primary insurance in force consisting of single premium
annuities issued prior to 1986. In addition, the Administrative
Reinsurance(service mark) line of business, which focuses on
administering primary life insurance in force, includes closed blocks of
directly written life insurance.
The following table sets forth selected information for the
indicated periods concerning Life Re's insurance operations:
<TABLE>
<CAPTION>
Distribution of Policy Revenues and Insurance in Force
Years Ended December 31,
1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
Amount % Amount % Amount %
(Dollars in thousands, except in force data)
Policy revenues:
Ordinary life
reinsurance $268,902 59.6% $243,672 63.6% $224,998 64.1%
Group life reinsurance 23,213 5.2 24,442 6.4 23,913 6.8
Group accident and health
and special risk
reinsurance 139,653 31.0 112,403 29.3 101,964 29.1
Administrative
Reinsurance(service mark) 18,013 4.0 2,714 .7
Automobile credit life
and disability 1,211 .2 -- 0.0 -- 0.0
Total policy revenues $450,992 100.0% $383,231 100.0% $350,875 100.0%
Insurance in force
at end of year(in
millions and before
reinsurance ceded):
Ordinary life
reinsurance $103,560 $ 83,668 $ 74,167
Group life reinsurance 7,933 6,430 7,046
Primary insurance 4,519 1,185 --
Total insurance
in force $116,012 $ 91,283 $ 81,213
Ordinary life lapse
ratio 9.4% 10.8% 9.9%
</TABLE>
Ordinary Life Reinsurance
Ordinary life reinsurance is generally the reinsurance of
individual term life insurance policies, whole life insurance policies,
universal life insurance policies, and joint and survivor insurance
policies. Life Re's ordinary life line of business includes all of these
products.
Substantially all of Life Re's policy revenues with respect to
ordinary life reinsurance are written on an automatic treaty basis.
Ordinary life reinsurance is written on a facultative basis only in
limited circumstances, generally for primary insurers with which Life Re
has automatic treaty reinsurance business. Facultative reinsurance is
individually underwritten by Life Re for each policy to be reinsured,
with the pricing and other terms established at the time the policy is
underwritten based upon rates negotiated in advance. Most of Life Re's
ordinary life reinsurance business is written on a quota share basis.
Life Re generally requires ceding companies to retain at least 10% of
every risk, whether the business is written on an excess or quota share
basis. Life Re generally limits its own net liability on any one
ordinary life risk to $1.0 million. Life Re's reinsurance agreements
frequently provide for rights of recapture, which permit the ceding
company to increase the amount of liability it retains on the reinsured
policies after the policies have remained in force for a designated
period of time (generally between ten and twenty years). Accordingly, an
increase in the amount of liability retained by the ceding company will
decrease both Life Re's insurance in force and premiums to be received
from the reinsured policies.
Life Re's ordinary life reinsurance agreements typically remain in
force for the life of the underlying policies reinsured. Life Re is
entitled to renewal policy revenues absent the death of the insured,
voluntary surrender or lapse of the policy due to nonpayment of premium
or the recapture by the ceding company of the risks reinsured.
The following table sets forth Life Re's policy revenues on
ordinary life reinsurance first year business and renewal business for
the periods indicated:
<TABLE>
<CAPTION>
Distribution of First Year and Renewal Policy Revenues
for Ordinary Life Reinsurance
Years Ended December 31,
<S> <C> <C> <C> <C> <C> <C>
1996 1995 1994
Amount % Amount % Amount %
(Dollars in thousands)
Ordinary life
reinsurance policy
revenues:
First year (1) $ 36,217 13.5% $ 17,736 7.3% $ 13,248 5.9%
Renewal 232,685 86.5 225,936 92.7 211,750 94.1
Total ordinary life
reinsurance policy
revenues $268,902 100.0% $243,672 100.0% $224,998 100.0%
</TABLE>
_____________
(1) First year policy revenues are premiums received within one
year of the date of issuance of the underlying policy,
whether reinsured by treaties entered into prior to or
during the indicated period.
As of December 31, 1996 Life Re reinsured ordinary life insurance
business under treaties with approximately 450 ceding companies. In
1996, 45 ceding companies each accounted for at least $1.0 million of
ordinary life reinsurance policy revenues and in the aggregate
represented approximately 89% of Life Re's ordinary life reinsurance
policy revenues. Life Re markets its ordinary life reinsurance to a
broad cross section of companies, which vary in size, corporate
structure and geographic location. No ordinary life ceding company
accounted for more than 10% of Life Re's policy revenues in 1996.
Life Re occasionally reinsures ordinary life insurance business on
an experience rated basis, whereby the ceding company receives a refund
of a portion of the profits resulting from favorable claims experience
with respect to the underlying policies. Experience rating refunds
amounted to $5.1 million, $4.4 million and $2.8 million for 1996, 1995
and 1994, respectively.
Life Re reinsures, or retrocedes, portions of certain risks for
which it has accepted liability. Life Re's policy is to retain up to
$1.0 million of liability on any one life for ordinary life insurance.
The next $10.0 million of liability in excess of $1.0 million is
retroceded to a pool of ten retrocessionaires. In certain limited
circumstances Life Re reinsures policies where the underlying risk
exceeds $11.0 million. In such cases, Life Re retrocedes any such risk
in excess of $11.0 million on a facultative basis.
Each retrocessionaire in Life Re's current ordinary life pool
reinsures a percentage of each risk that is retroceded to the pool.
Each of the domestic participants in the pool is rated "A-" or better by
A.M. Best Company, Inc. ("A.M. Best"). Although the foreign
retrocessionaires, which constitute 20% of the pool, are not rated by
A.M. Best, each of the foreign retrocessionaires provides Life Re with
an irrevocable letter of credit drawn on a U.S. bank or a U.S. branch of
a foreign bank in the amount of the reserves held by such
retrocessionaire for the benefit of Life Re. If a foreign
retrocessionaire were to default on its payments, Life Re could collect
such funds by exercising its rights under the applicable letter of
credit. To date, Life Re has not experienced a material default in
connection with its retrocessional arrangements nor any material
difficulty in collecting claims recoverable from its retrocessionaires.
Group Life Reinsurance
Group life reinsurance is the reinsurance of various types of
group life policies. These policies generally include employee-employer
group term life (representing the majority of such business), voluntary
and supplemental term life, association or affinity term life, group
universal life and voluntary group universal life. Group life
reinsurance generally is written on an annual basis resulting in the
terms of such contracts being subject to renegotiation or cancellation
each year. Life Re typically reinsures group life clients on an
experience rated basis, whereby the ceding company receives a refund of
a portion of the profits resulting from favorable claims experience with
respect to the underlying policies. Group life reinsurance policy
revenues were $23.2 million, $24.4 million and $23.9 million in 1996,
1995 and 1994, respectively. Experience rating refunds amounted to $3.1
million, $3.8 million and $2.4 million for 1996, 1995, and 1994,
respectively.
Life Re markets its group life reinsurance to a broad cross
section of client entities, which vary in size, corporate structure and
geographic location. No group life client accounted for more than 5% of
Life Re's policy revenues in 1996.
Life Re's group life retrocessionaire is rated "A" by A.M. Best and
Life Re has not experienced any material difficulties in its recovery of
group life claims. Life Re's retention limit for group life insurance
business generally may be in an amount up to $350,000, with amounts in
excess thereof being retroceded.
Group Accident and Health and Special Risk Reinsurance
Group accident and health reinsurance consists of the reinsurance
of medical expense, disability and accident risks. Special risk
reinsurance consists principally of accidental death coverage and
catastrophic excess of loss coverage, as well as occupational accident
coverage. In the substantial majority of Life Re's group accident and
health reinsurance treaties, the original client is a self insured
corporate health plan. Reinsurance for such self insured plans is
secured in order to minimize the risk to the plan of claims well in
excess of those originally projected. The reinsurance is usually in
the form of specific and aggregate stop loss coverage. Specific stop
loss coverages provide for reimbursement of individual losses in excess
of a specified per person retention. Aggregate stop loss covers
accumulations of claims within the specified retention, once they exceed
an agreed percentage (usually 125%) of the total original estimated
claims cost. The average specified retention is generally at a level in
excess of $25,000 to $100,000 per person. Group accident and health and
special risk reinsurance policy revenues were $139.7 million, $112.4
million and $102.0 million in 1996, 1995 and 1994, respectively.
Life Re generally participates in group accident and health
reinsurance through reinsurance facilities, and in the case of special
risk reinsurance, through pool arrangements. Such reinsurance facilities
typically are formed by managing general underwriters to accept given
types of risk. The managing general underwriters then market their
facilities and invite reinsurers to share the risks. Usually,
reinsurance facilities consist of several reinsurance companies. Other
functions performed by managing general underwriters typically include
underwriting of the reinsurance risk, adjustment and payment of claims,
marketing and accounting.
Reinsurance of group accident and health and special risk business
generally is written on an annual basis resulting in the terms of such
contracts being subject to renegotiation or cancellation each year.
Many of the specific and aggregate medical facilities have a profit
commission feature which is based on the profitability of the treaty.
A substantial portion of the group accident and health and special
risk business was written on an excess basis as measured by policy
revenues.
At December 31, 1996, Life Re reinsured risks under treaties with
approximately 150 ceding client entities with respect to group accident
and health and special risk business. In 1996, twenty-nine ceding
client entities each accounted for at least $1.0 million of group
accident and health or special risk policy revenues and represented, in
the aggregate, approximately 89% of Life Re's group accident and health
and special risk policy revenues. Life Re markets its group accident
and health and special risk reinsurance to a broad cross section of
client entities, which vary in size, corporate structure and geographic
location. No group accident and health or special risk ceding client
entity accounted for more than 5% of Life Re's policy revenues in 1996.
On group health reinsurance, Life Re generally retains up to
$300,000 for any one insured person per year. Life Re's net liability
in excess of its retention up to $1.0 million is retroceded to a pool of
reinsurers and the next $1.0 million of liability is retroceded to a
single retrocessionaire. For one group health client, Life Re has a
retrocessional arrangement with a single retrocessionaire. Life Re has
not experienced any material difficulty in collecting claims recoverable
from its group health retrocessionaires.
On special risk reinsurance, Life Re generally retains up to $1.0
million on any one risk. Amounts in excess of $1.0 million are
retroceded to a syndicate of reinsurers in Europe. Life Re has not
experienced any difficulty in collecting claims recoverable from its
special risk retrocessionaires.
Administrative Reinsurance(service mark)
In furtherance of REALIC's strategy of providing its clients with
a financial benefit through block reinsurance of existing insurance in
force and assisting those clients who wish to discontinue the
administration of older non-core blocks of business, Life Re established
its Administrative Reinsurance(service mark) line of business. By
combining an administrative transfer with block reinsurance of insurance
in force, Life Re's clients may benefit financially in two ways: by
realizing the embedded value of the in force and freeing target surplus,
and by reducing overhead and variable expenses associated with these
older blocks.
Administrative Reinsurance(service mark) takes at least two forms:
the reinsurance of non-core existing insurance in force from life
insurers, and the acquisition of life insurance companies that lack
critical mass to effectively market products and efficiently administer
blocks of insurance. In either case, Life Re, through REALIC, organizes
the conversion of the client's block of business to the systems of its
third party administrator, Cybertek Corporation ("Cybertek"), and ceases
new marketing of the products reinsured. Before entering into
agreements for the acquisition of either blocks of business or insurance
companies, management of the Company conducts a review of each company's
underwriting standards and procedures and assesses each company's claims
history. Through REALIC, Life Re has completed four of these
transactions since July 1995, which were the purchases of Modern,
Western and New American for an aggregate purchase price of
approximately $38.1 million, and the assumption of approximately 46,000
life insurance policies from United Insurance Company of America
("United"), a wholly-owned subsidiary of Unitrin, Inc. for a ceding
allowance of $5.6 million These transactions added approximately $400.0
million in assets and liabilities to Life Re, consisting primarily of
fixed maturities and future policy benefits, respectively.
REALIC utilizes the services of an outside administrator,
Cybertek, to provide most of the administrative services needed for the
primary business. The administrative services provided by Cybertek are
set forth in a seven-year agreement between Cybertek and REALIC, and
include premium processing, billing, policyholder service and claims
administration. The balance of REALIC's administrative services and the
supervision of Cybertek are performed by employees of REALIC and Life
Reassurance.
Automobile Credit Life and Disability Reinsurance
During 1996, the Company entered into the automobile credit life
and disability reinsurance line of business. In July 1996, Life Re
entered into certain transactions with Resource Financial Corporation
("Resource"), which was formerly Ryan Dealer Group and a subsidiary of
Aon Corporation ("Aon"). Ryan Dealer Group had over thirty years
experience in marketing and issuing, through its affiliates, credit life
and disability insurance products in connection with the sale of
automobiles. Ryan Dealer Group was purchased from Aon by its management
employees and renamed Resource. Resource also purchased from Aon a life
insurance carrier, American Combined Life Insurance Company, which was
renamed Resource Life Insurance Company ("Resource Life").
Life Re's transactions with Resource included (i) the purchase of
5.9% of the voting and 32.7% of the non-voting stock of Resource, (ii)
the investment of $15.0 million in the preferred stock of, and a $5.0
million loan to, an intermediate holding company of Resource Life, and
(iii) reinsurance arrangements between Resource Life and Life
Reassurance. The funds invested and loaned to the intermediate holding
company have been contributed to and are now retained by Resource Life
as capital and surplus.
Much of the business produced by Resource Life originates from
automobile dealerships that own reinsurance companies. These
reinsurance companies are referred to as Dealer Owned Reinsurance
Companies (each, a "DRC"). Generally, business sold at a dealership will
be reinsured to that dealer's DRC on a written basis for credit life
insurance and on an earned basis for credit disability insurance.
Resource Life entered into reinsurance arrangements with Life
Reassurance under which a substantial majority of the credit life and
disability risks are reinsured to Life Reassurance which then retrocedes
such risks to the DRCs.
Life Reassurance also has entered into reinsurance agreements with
affiliates of Aon, and in connection with such reinsurance arrangements
and the arrangements with Resource Life, Life Reassurance agreed to pay
contingent consideration to a subsidiary of Aon based on premiums
produced by Resource for a period of five years subsequent to July 1,
1996.
Underwriting
Senior management has developed underwriting guidelines, policies
and procedures with the objective of controlling the quality and pricing
of business written. Life Re's underwriting process emphasizes close
collaboration among its underwriting, actuarial, administration and
claims departments.
Life Re determines whether to write reinsurance business by
considering many factors, including the type of risks to be covered,
ceding company retention and binding authority, product and pricing
assumptions and the ceding company's underwriting standards, financial
strength and distribution systems. Life Re generally does not assume
100% of a risk and requires the ceding company to retain at least 10% of
every reinsured risk. Life Re will assume a substantial portion of the
risk in connection with Administrative Reinsurance(service mark).
Life Re regularly updates its underwriting policies, procedures
and standards to take into account changing industry conditions, market
developments and changes in medical technology. Life Re endeavors to
ensure that the underwriting standards and procedures of its ceding
client entities are compatible with those of Life Re. Toward this end,
Life Re conducts periodic reviews of the ceding clients' underwriting
and claims procedures. Life Re maintains its underwriting manual, which
is distributed for use by its ceding clients, to reflect current medical
technology and Life Re's underwriting standards. In addition, with
respect to a portion of Life Re's group reinsurance business, certain
underwriting functions are performed on Life Re's behalf by managing
general underwriters according to underwriting guidelines reviewed by
Life Re.
Marketing
Life Re has developed its business on the basis of direct
marketing relationships established over many years through responsive
service. Life Re's senior management is directly involved in all aspects
of Life Re's marketing efforts, including the formulation, execution and
evaluation of marketing strategies, the identification of marketing
opportunities and the maintenance of relationships with senior
executives at client companies. Life Re seeks to evaluate each client's
specific reinsurance needs, tailor reinsurance programs to meet those
needs and be responsive in processing claims. Life Re believes this
strategy will enable it to achieve its objective of favorably competing
on the basis of service as well as price.
In January 1996, Life Re announced the creation of the Office of
Life Marketing. The Office of Life Marketing is responsible for direct
marketing of life reinsurance products and group reinsurance products.
These group reinsurance products include group life, major medical, and
catastrophic excess of loss business, all of which are marketed on a
direct basis. The Office of Life Marketing consists of executives
having expertise in various disciplines within the insurance industry.
These disciplines include actuarial, legal, marketing and underwriting.
The Office of Life Marketing is designed to provide excellent service to
Life Re's clients by working with clients to identify and address their
specific needs.
During 1996, substantially all policy revenues with respect to
ordinary life and group life reinsurance business were written directly
while approximately 11% of group accident and health and special risk
reinsurance was written directly. The remaining 89% of group accident
and health and special risk reinsurance was placed through reinsurance
intermediaries, and of that amount, 27% was placed by a single
intermediary, D.W. Van Dyke and Company of Connecticut, Inc.
Intermediaries solicit, negotiate or place reinsurance cessions or
retrocessions on behalf of a ceding insurer, reinsurer or a reinsurance
facility. Intermediaries do not have the authority to bind Life Re with
respect to reinsurance agreements, and Life Re does not commit in
advance to accept any portion of the business that intermediaries
submit.
Claims Administration
Life Re's claims department (i) reviews and verifies reinsurance
claims, (ii) obtains information necessary to evaluate claims,
(iii) determines Life Re's liability with respect to claims and
(iv) arranges for timely claim payments. Claims are subjected to a
thorough review process to ensure that the risk was properly ceded, the
claim complies with the contract provisions and the ceding company is
current in the payment of reinsurance policy premiums to Life Re.
Ordinary life and group life claims generally are reputed on an
individual basis by the ceding entity. The ceding entity will provide
the Company with proofs of loss, which the Company then reviews for
compliance with treaty terms.
Ordinary life claims under policies reinsured on a facultative
basis and underwritten within the five previous years and ordinary life
claims under policies reinsured under automatic treaties and
underwritten within the two previous years generally are reviewed by the
underwriting department. The claims department also investigates claims
generally for evidence of misrepresentation in the policy application
and approval process. In addition to reviewing and paying claims, the
claims department monitors both specific claims and overall claims
handling procedures of ceding companies.
Group accident and health claims generally are reported to
the Company by the ceding entity on an aggregate basis. The ceding
entity will provide the Company with a listing of the claims paid
by the ceding entity, which the Company then reviews for compliance with
treaty terms.
Cybertek provides claims administration for the Company's
Administrative Reinsurance(service mark). Cybertek reviews and processes
all claims information and provides for the payment of claims. The
Company reviews and must approve prior to payment all claims received by
Cybertek which involve a death benefit in excess of $100,000 or in which
the insured died within two years of policy issuance.
Policy Benefit Liabilities
Policy benefit liabilities comprise the majority of the Company's
financial obligations. Policy benefit liabilities for other than
annuities and interest sensitive life insurance products reflected in
Life Re's consolidated financial statements included herein are based
upon Life Re's best estimates of mortality, persistency and investment
income, with appropriate provision for adverse deviation and the use of
the net level premium method. The liabilities for policy benefits
established by Life Re with respect to individual risks or classes of
business may be greater or less than those established by ceding
companies due to the use of different mortality and other assumptions.
Policy benefit liabilities for annuities and interest sensitive life
insurance products are reported at the accumulated fund balance of such
contracts. Policy benefit liabilities include both mortality and
morbidity claims in the process of settlement and claims that have been
incurred but not yet reported. Actual experience in a particular period
may be worse than assumed experience and, consequently, may adversely
affect Life Re's operating results for such period. See Notes 2 and 6
of "Notes to Consolidated Financial Statements" for certain additional
information regarding reserve assumptions under generally accepted
accounting principles ("GAAP").
Investments
All investments made by Life Re are governed by the general
requirements and guidelines established and approved by the Boards of
Directors of Life Re and the Subsidiaries and by qualitative and
quantitative limits prescribed by Connecticut, Illinois and Texas
insurance laws and regulations. Life Re's investment policy is designed
to maintain a high quality portfolio, maximize current income, maintain
a high degree of liquidity, and attempt to match the cash flows of the
portfolio to the required cash flows of Life Re's liabilities.
At December 31, 1996, Life Re's invested assets had an aggregate
fair value of $1,833.2 million, of which 94% were fixed maturities with
a weighted average investment quality rating of "A." At December 31,
1996, the weighted average duration of invested assets was 6.3 years.
In the event the duration of invested assets were to materially differ
from the duration of liabilities and if significant rapid increases or
decreases in market interest rates were to occur, Life Re could be
required to sell assets at a loss or incur liabilities with respect to
policies in excess of investment income. Such consequences could have a
material adverse effect on Life Re's capital resources and financial
condition. Although no assurances as to future performance can be
given, Life Re has not experienced any material differences in cash
flows relating to its assets and liabilities.
Life Re's investment securities are managed by two professional
investment advisors, Conseco Capital Management, Inc. ("CCM") and
Liberty Capital Advisors, Inc. ("LCA"), each of which manages a segment
of the portfolio. Certain equity and short-term investments aggregating
approximately $44.4 million at fair value are managed directly by
Life Re. CCM is the primary investment advisor for Life Re, managing
81% of its invested assets (approximately $1,480.0 million at fair value
as of December 31, 1996). LCA acts as an investment advisor for the
portion of Life Re's invested assets relating to the reinsured universal
life insurance policies of an affiliate of LCA (approximately $244.0
million at fair value as of December 31, 1996). The LCA-managed assets
are held in separate custody accounts and are managed to achieve a
desired spread between investment earnings and interest credited on the
underlying universal life policies. The agreements with CCM and LCA may
be terminated by either party at the end of each calendar year upon
sixty days' notice. The performance of CCM and LCA and the fees
associated with the arrangements are periodically reviewed by the Boards
of Directors of Life Re and the Subsidiaries.
The following table summarizes certain of Life Re's investment
results for the years indicated:
<TABLE>
<CAPTION>
Investment Results
Years ended December 31,
1996 1995 1994
(Dollars in thousands)
<S> <C> <C> <C>
Total invested assets (1) $1,833,242 $1,504,175 $998,518
Investment income, net of
related expenses $ 124,340 $ 98,616 $ 82,438
Effective yield rate (2) 7.77% 8.16% 8.15%
Realized investment gains $ 17,210 $ 3,702 $ 89
</TABLE>
__________________
(1) Fair value at end of the indicated year.
(2) The effective yield rate equals (i) net pre-tax investment
income divided by (ii) the average of total adjusted invested
assets (fixed maturities at amortized cost) at the end of
each calendar quarter included in the indicated period.
Life Re's invested assets consist primarily of fixed maturities and
equity securities, with the majority being fixed maturities. The
Company's fixed maturities are invested primarily in U.S. government
obligations, foreign government obligations, public utilities
obligations, corporate fixed maturities, and mortgage-backed securities.
Equity securities are primarily nonredeemable preferred stock.
Mortgage-backed securities represented approximately 21% of total
invested assets as of December 31, 1996. Investors in these securities
are compensated primarily for reinvestment risk rather than credit
quality risk. Investments in mortgage-backed securities include
collateralized mortgage obligations ("CMOs") and mortgage-backed pass-through
securities. Mortgage-backed securities generally are
collateralized by mortgages issued by the Government National Mortgage
Association ("GNMA"), the Federal National Mortgage Association ("FNMA")
and the Federal Home Loan Mortgage Corporation ("FHLMC"), all of which are
agencies of the U.S. government. Of these, only GNMA mortgages are
backed by the full faith and credit of the U.S. government. Credit risk
generally is not a consideration when investing in agency mortgage-backed
securities. Life Re's mortgage-backed securities portfolio had a
weighted average investment quality rating of AAA at December 31, 1996.
At December 31, 1996 approximately 36% of Life Re's mortgage-backed
investment portfolio consists of planned amortization class ("PAC") and
target amortization class ("TAC") instruments. These investments are
designed to amortize in a more predictable manner by shifting the primary
risk of prepayment of the underlying collateral to investors in other
tranches ("support classes") of the CMO.
In addition to the fixed maturities and equity securities,
approximately 3% of the Company's invested assets consisted of policy
loans at December 31, 1996. These policy loans present no credit risk
because the amount of the loan cannot exceed the obligation due the
ceding company upon the death of the insured or surrender of the
underlying policy. The policy loan interest rates charged are determined
by the provisions of the treaties in force and the underlying policies.
Competition
Life Re operates in a highly competitive environment. Reinsurers
compete based upon many factors, including financial strength, A.M. Best
rating, pricing and other terms and conditions of reinsurance agreements,
reputation, service and experience in the lines of business underwritten.
Life Re believes that there are over 30 companies with significant
competitive positions within the ordinary life, group life, group accident
and health and special risk reinsurance markets within the United States.
Life Re believes that within this market it is among the five largest of
those companies, based on reinsurance in force.
In connection with Administrative Reinsurance(service mark), the
nature of the competition faced by Life Re depends on the company targeted
for acquisition or the block of business to be reinsured. Based on results
achieved thus far, Life Re believes that it is competitively positioned to
achieve its objectives for growth in this area.
A.M. Best Rating
Life Reassurance has been rated "A+" (Superior) by A.M. Best every
year since 1981. A.M. Best's ratings for insurance companies currently
range from "A++" to "F", and some companies are not rated. Publications
of A.M. Best indicate that "A++" and "A+" ratings are assigned to those
companies which in A.M. Best's opinion have achieved superior overall
performance when compared to the norms of the life insurance industry and
generally have demonstrated a strong ability to meet their policyholder
and other contractual obligations. Life Reassurance's A.M. Best
"Financial Size Category" is Class VIII, which encompasses companies with
adjusted policyholders' surplus of $100.0 million to $250.0 million.
REALIC is currently rated "A" (Excellent) by A.M. Best, the rating
that was given to REALIC prior to its acquisition by Life Reassurance.
Publications of A.M. Best indicate that "A" and "A-" ratings are assigned
to those companies which in A.M. Best's opinion have a strong ability to
meet their obligations to policyholders over a long period of time.
During 1996, REALIC's A.M. Best "Financial Size Category" was Class VI,
which encompasses companies with adjusted policyholders' surplus of $25.0
million to $50.0 million. At December 31, 1996, REALIC's adjusted
policyholder surplus was approximately $39.0 million.
In evaluating a company's financial and operating performance,
A.M. Best reviews such company's profitability, leverage and liquidity as
well as its book of business, the adequacy and soundness of its
reinsurance, the quality and estimated market value of its assets, the
adequacy of its policy reserves and the experience and competency of its
management. A.M. Best's ratings are based upon factors of concern to
policyholders, agents and intermediaries and are not directed toward the
protection of investors.
Employees
As of December 31, 1996, Life Re had 123 employees. None of these
employees is represented by a labor union. Life Re believes that its
relationship with its employees is generally satisfactory.
Regulation
Life Re and the Subsidiaries are subject to the insurance laws and
regulations of Connecticut, Illinois and Texas, the domiciliary states of
the Subsidiaries, and the laws and regulations of the other states in
which the Subsidiaries are licensed to do business. At present, Life
Reassurance is licensed to conduct business or is an authorized reinsurer
in all 50 states, the District of Columbia and Puerto Rico, and REALIC
is licensed to conduct business in all such locations except for New
Hampshire, New York, the District of Columbia and Puerto Rico. The
insurance laws and regulations, as well as the level of supervisory
authority that may be exercised by the various state insurance
departments vary by jurisdiction, but generally grant broad powers to
supervisory agencies or state regulators to examine and supervise
insurance companies and insurance holding companies with respect to every
significant aspect of the conduct of the insurance business. These laws
and regulations generally require insurance companies to meet certain
solvency standards and asset tests, to maintain minimum standards of
business conduct and to file certain reports with regulatory authorities,
including information concerning their capital structure, ownership and
financial condition. The Subsidiaries generally are required to file
annual and quarterly statutory financial statements in each jurisdiction
in which they are licensed. Additionally, the Subsidiaries are subject
to periodic examination by the insurance departments of the jurisdictions
in which each is licensed, authorized and accredited. The Connecticut
Insurance Department and the Texas Department of Insurance completed
their most recent respective examinations of Life Reassurance and TexasRe
for the years ended December 31, 1987 through December 31, 1992, and the
Texas Department of Insurance is in the process of completing its
examination of TexasRe for years through December 31, 1995. The
Illinois Department of Insurance completed its most recent examination of
REALIC for years through December 31, 1991 and is in the process of
completing an examination of REALIC for subsequent years through December
31, 1995. The results of each of the completed examinations contained no
findings which would have a material adverse effect on the operations of
any of the Subsidiaries. Although the rates and policy terms of primary
insurance agreements are regulated by state insurance departments, the
rates, policy terms and conditions of reinsurance agreements generally
are not subject to regulation by any regulatory authority.
Restrictions on Dividends and Distributions. The principal sources
of cash for Life Re to make payments of principal, interest and dividends
are payments under two surplus notes issued by TexasRe to Life Re in
connection with the Acquisition (the "Surplus Debentures") and dividends
paid by TexasRe. TexasRe's principal sources of funds are dividends from
Life Reassurance and distributions by Life Reassurance under a tax
allocation agreement among Life Re, TexasRe and Life Reassurance (the
"Tax Allocation Agreement"), a portion of which distributions are used to
pay TexasRe's income taxes. Under current Connecticut, Illinois and
Texas laws, any proposed payment of a dividend or distribution which,
together with dividends or distributions paid during the preceding twelve
months, exceeds the greater of (i) 10% of statutory capital and surplus
as of the preceding December 31 or (ii) statutory net gain from
operations for the preceding calendar year, is designated an
"extraordinary dividend" and may not be paid until either it has been
approved, or a 30-day waiting period shall have passed during which it
has not been disapproved, by the Insurance Commissioner of the State of
Connecticut (the "Connecticut Insurance Commissioner"), the Director of
Insurance of the State of Illinois (the "Illinois Director of Insurance")
or the Commissioner of Insurance of the State of Texas (the "Texas
Insurance Commissioner"), as the case may be. In addition, Connecticut
law provides that an insurance company may not pay dividends in an amount
exceeding its earned surplus without prior regulatory approval. Life
Reassurance has received approval from the Connecticut Department of
Insurance to define its earned surplus for this purpose to include
amounts of paid in surplus in excess of $125.0 million, and as of
December 31, 1996, such earned surplus was $43.9 million. Currently, no
prior approval of the Texas Department of Insurance is required to pay
scheduled principal or interest on the Surplus Debentures provided that,
after giving effect to any such payment, the statutory surplus of TexasRe
exceeds $125.0 million. Life Reassurance paid $14.9 million of dividends
in 1996, although the maximum amount of dividends Life Reassurance could
have paid in 1996 without the prior approval of the Connecticut Insurance
Commissioner was $34.8 million. Life Reassurance paid the maximum amount
of dividends permitted without the prior approval of the Connecticut
Insurance Commissioner of $30.9 million and $13.5 million in 1995 and
1994, respectively. TexasRe had the capacity to pay dividends of $27.1
million, $28.2 million and $15.4 million in 1996, 1995 and 1994,
respectively, without the prior approval of the Texas Insurance
Commissioner. TexasRe paid dividends aggregating $12.1 million and $15.0
million in 1996 and 1995, respectively. No dividends were paid by
TexasRe in 1994. REALIC has not paid any dividends subsequent to its
acquisition by Life Reassurance in July 1995. The maximum amount of
dividends REALIC may pay to Life Reassurance in 1997 without the prior
approval of the Illinois Commissioner is $8.1 million.
The Connecticut, Illinois and Texas insurance laws require that the
statutory surplus of Life Reassurance, REALIC and TexasRe, as the case
may be, following any dividend or distribution, be reasonable in relation
to its outstanding liabilities and adequate to meet its financial needs.
The Insurance Commissioner of any such state may bring an action to
enjoin or rescind the payment of a dividend or distribution that would
cause statutory surplus to be unreasonable or inadequate under this
standard.
In the event of a default on Life Re's debt or the bankruptcy,
liquidation or other reorganization of Life Re, the creditors and
stockholders of Life Re will have no right to proceed against the assets
of Life Reassurance, REALIC or TexasRe. If Life Reassurance, REALIC or
TexasRe were to be liquidated, such liquidation would be conducted by the
Connecticut, Illinois or Texas Insurance Commissioner, as the case may
be, as the receiver with respect to such insurance company's property and
business. Under the Connecticut, Illinois and Texas insurance laws, all
creditors of such insurance companies, including, without limitation,
holders of its reinsurance agreements and the various state guaranty
associations, would be entitled to payment in full from such assets
before Life Re, as a stockholder, would be entitled to receive any
distribution therefrom.
NAIC Regulatory Changes. The NAIC and insurance regulators are in
the process of reexamining existing laws and regulations and their
application to insurance companies. In particular, this reexamination
has focused on insurance company investment and solvency issues and, in
some instances, has resulted in new interpretations of existing law, the
development of new laws and the implementation of nonstatutory
guidelines. The NAIC has formed committees and appointed advisory groups
to study and formulate regulatory proposals on diverse issues. As part
of this review, the NAIC recently adopted the Valuation of Life Insurance
Policies Model Regulation (the "Model Regulation").
If adopted in its current form, the Model Regulation will have the
greatest impact on level term life insurance products with current
premiums guaranteed for more than five years. Companies with these
products generally will have to increase reserves above the current
levels or limit the period of guaranteed premiums to five years. The
Model Regulation also will impact the reserve requirements for other
increasing premium products, deficiency reserves and certain benefit
guarantees in universal life products. The Model Regulation will not
impact the financial statements of Life Re prepared in accordance with
GAAP; however, as a statutory accounting principle, the Model Regulation
may impact the statutory financial statements of the Subsidiaries.
Codification. In addition to the above regulatory changes being
reexamined and considered by the NAIC, the NAIC is in the process of
codifying statutory accounting principles. The purpose of such
codification is to establish a uniform set of accounting rules and
regulations for use by insurance companies in financial report
preparation in connection with financial reporting to regulatory
authorities. The Company is unable to determine what impact, if any,
this codification will have on its Subsidiaries' statutory surplus
requirements.
Assessments Against Insurers. Under insolvency or guaranty laws in
most states in which Life Re operates, insurers can be assessed for
policyholder losses incurred by insolvent insurance companies. At
present, most insolvency or guaranty laws provide for assessments based
upon the amount of primary insurance, rather than reinsurance,
underwritten in a given jurisdiction. Primary insurance written by
REALIC is subject to such laws. REALIC incurred an immaterial amount of
guaranty fund assessments in 1996. To date, Life Re has paid only a de
minimis amount of assessments with respect to insurer insolvency
proceedings.
Insurance Holding Company Regulations. Life Re and the
Subsidiaries are subject to regulation under the insurance and insurance
holding company statutes of Connecticut, Illinois and Texas. The
insurance holding company laws and regulations vary from jurisdiction to
jurisdiction, but generally require insurance and reinsurance
subsidiaries of insurance holding companies to register with the
applicable state regulatory authorities and to file with those
authorities certain reports describing, among other information, their
capital structure, ownership, financial condition, certain intercompany
transactions and general business operations. The insurance holding
company statutes also require prior regulatory agency approval or, in
certain circumstances, prior notice of certain material intercompany
transfers of assets as well as certain transactions between insurance
companies, their parent companies and affiliates.
Under the Connecticut, Illinois and Texas insurance laws, unless
(i) certain filings are made with the Connecticut Insurance Department,
the Illinois Department of Insurance or the Texas Department of
Insurance, as the case may be, (ii) certain requirements are met,
including, in the case of Texas, a public hearing and/or (iii) approval
or exemption is granted by the applicable insurance commissioner, no
person may acquire any voting security or security convertible into a
voting security of an insurance holding company, such as Life Re, which
controls a Connecticut insurance company or an Illinois insurance
company or a Texas insurance company, or merge with such a holding
company, if as a result of such transaction such person would "control"
the insurance holding company. "Control" is presumed to exist in
Connecticut, Illinois and Texas if a person directly or indirectly owns
or controls 10% or more of the voting securities of another person.
Federal Regulation. Although the federal government generally does
not directly regulate the insurance or reinsurance industries, federal
legislation, financial services regulation and federal taxation can
significantly affect the insurance business. In recent years, increased
scrutiny has been placed upon the insurance regulatory framework and
legislation has been introduced in Congress which could result in the
federal government assuming some role in the regulation of the insurance
industry.
It is not possible to predict the future impact of changing state
and federal regulation on the operations of the Subsidiaries or Life Re,
and there can be no assurance that existing insurance related laws and
regulations will not become more restrictive in the future or that laws
and regulations enacted in the future will not be more restrictive.
Tax Matters
Under applicable provisions of the Internal Revenue Code of 1986,
as amended (the "Code"), a life insurance company is not permitted to
file a consolidated federal income tax return with a company that is not
a life insurance company until such life insurance company has been a
member of the "affiliated group" (as such term is defined for federal
income tax purposes) for five taxable years. REALIC will file a separate
company income tax return for 1996. Although TexasRe and Life
Reassurance (together, the "Life Tax Group") as life insurance companies,
could and did file a consolidated federal income tax return, prior to
1994 they could not file a consolidated federal income tax return with
Life Re. As a result, to the extent Life Re generated taxable losses,
such losses could not be used to offset the taxable income reported on
the consolidated federal income tax return of the Life Tax Group.
Life Re began filing consolidated federal income tax returns with the
Life Tax Group commencing with its 1994 federal income tax return. Only
losses generated by Life Re during consolidated years can be used to
offset taxable income of the Life Tax Group reported on the consolidated
federal income tax return and those losses can only be so used to a
limited extent (generally, the lesser of 35% of such losses or 35% of the
taxable income of the Life Tax Group).
Pursuant to the Tax Allocation Agreement, the members of the Life
Tax Group are required to pay to Life Re an amount of tax measured by the
total amount that would have been due and payable by the Life Tax Group
to the taxing authorities had the Life Tax Group filed a life insurance
company consolidated federal income tax return. That amount is required
to be paid even if Life Re is, due to its own tax status apart from the
Life Tax Group, in a net tax loss or nontaxable position. In the event
that the Life Tax Group incurs tax losses, credits or other benefits
(including tax loss or credit carryforwards) that reduce the tax
liability of the consolidated group consisting of the Life Tax Group and
Life Re, Life Re is required to pay to the Life Tax Group the amount of
such reduction.
ITEM 2
Properties
Life Re's principal operations are conducted from approximately
51,000 square feet of leased office space located at 969 High Ridge Road,
Stamford, Connecticut 06905. The lease with respect to such space
expires on September 30, 2004. The rental expense paid by Life Re under
the lease during 1996 was $.9 million.
ITEM 3
Legal Proceedings
Life Re is not a party to any material pending litigation or
arbitration.
ITEM 4
Submission of Matters to a Vote of Security Holders
During the fourth quarter of 1996, no matters were submitted to the
security holders of Life Re for a vote.
PART II
ITEM 5
Market for Registrant's Common Equity and Related Stockholder Matters
MARKET INFORMATION
The common stock of Life Re has been listed for trading on the New York
Stock Exchange (the "NYSE") since October 28, 1992, the date of Life Re's
initial public offering, under the symbol LRE. Based upon information
reported in the Bloomberg consolidated transaction reporting system, the
high and low sales prices for each quarterly period from January 1, 1995
to December 31, 1996 were:
Period High Low
_________________________________________________________________________
January 1, 1995 - March 31, 1995. . . . . 20 17-3/8
April 1, 1995 - June 30, 1995 . . . . . . 19-5/8 16-1/2
July 1, 1995 - September 30, 1995 . . . . 21-7/8 17-3/8
October 1, 1995 - December 31, 1995 . . . 25 20-1/4
January 1, 1996 - March 31, 1996 . . . . 27-3/8 22-1/2
April 1, 1996 - June 30, 1996 . . . . . . 31 27-1/2
July 1, 1996 - September 30, 1996 . . . . 36 26-5/8
October 1, 1996 - December 31, 1996 . . . 38-5/8 33-3/4
__________________________________________________________________________
As of March 5, 1997, there were approximately 3,400 holders of the
outstanding shares of common stock, including individual participants in
securities position listings.
DIVIDENDS
Dividends of $0.07 per share and $0.10 per share were declared in each
calendar quarter of 1995 and 1996, respectively. On February 10, 1997,
Life Re's Board of Directors declared a dividend of $0.13 per share to be
paid on March 26, 1997.
The declaration and payment of future dividends to holders of its common
stock by Life Re will be at the discretion of the Board of Directors and
will depend upon Life Re's earnings and financial condition, capital
requirements of its subsidiaries, regulatory considerations and other
factors the Board of Directors deems relevant. (See "Liquidity and
Capital Resources" in Management's Discussion and Analysis of Financial
Condition and Results of Operations and Note 9 of "Notes to Consolidated
Financial Statements" included elsewhere herein.) Life Re's general
policy is to retain most of its earnings to finance the growth and
development of its business.
ITEM 6
SELECTED FINANCIAL DATA
The following table sets forth selected financial data and other operating
information. The selected financial data have been derived from the
consolidated financial statements of Life Re Corporation and
Subsidiaries ("Life Re" or the "Company") and should be read in conjunction
with the consolidated financial statements and accompanying notes of Life
Re and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere herein.
<TABLE>
<CAPTION>
Years Ended December 31,
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
(In millions, except per share data)
INCOME STATEMENT DATA
Policy revenues $ 451.0 $ 383.2 $ 350.9 $ 289.0 $ 250.9
Investment income 124.3 98.6 82.4 73.5 72.6
Realized investment gains 17.2 3.7 .1 21.0 27.1
Equity in earnings of investee -- -- -- -- 4.3
Total revenues $ 592.5 $ 485.5 $ 433.4 $ 383.5 $ 354.9
Policy benefits $ 332.5 $ 281.5 $ 245.8 $ 208.7 $ 171.5
Policy acquisition costs 111.9 95.7 88.7 71.1 65.5
Interest expense 8.4 10.7 9.1 9.9 18.9
Income before federal income
taxes 76.1 54.8 52.8 60.6 68.6
Extraordinary charge (1) -- 1.0 -- -- 8.6
Net income 54.2 34.6 34.3 39.2 36.4
Preferred stock
dividends -- -- -- -- 5.7
Earnings applicable to
common shareholders 54.2 34.6 34.3 39.2 30.7
Earnings per common share 3.89 2.32 2.21 2.50 2.69
Dividends per common share $ .40 $ .28 $ .24 $ .20 --
Weighted average common and
common equivalent shares 13.9 14.9 15.5 15.7 11.4
BALANCE SHEET DATA
Invested assets $1,833.2 $1,504.2 $ 998.5 $ 944.6 $ 845.2
Total assets 2,519.3 2,024.1 1,442.3 1,339.7 1,167.2
Total debt (1) 125.0 140.0 140.0 150.0 165.0
Common shareholders'
equity (1) 290.1 279.3 194.9 230.7 170.8
Total debt to total
capitalization 30% 33% 42% 39% 49%
STATUTORY DATA
Capital and surplus (2) $ 209.3 $ 208.2 $ 193.8 $ 187.4 $ 214.1
Ratio of capital and
surplus to insurance
liabilities (2)(3) 12% 15% 20% 24% 31%
Life insurance in force (3) 116,012 91,283 81,213 79,652 74,408
</TABLE>
__________________
(1) In November 1992, Life Re completed an offering of 10.6
million shares of its common stock (the "Offering") with net
proceeds to Life Re totaling $100.6 million. At such time
Life Re incurred new debt of $165.0 million under a credit
agreement (the "1992 Credit Agreement") with a syndicate of
banks. Life Re used the net proceeds of the Offering and the
borrowings under the 1992 Credit Agreement to redeem all
outstanding preferred stock and prepay all existing debt.
Costs related to the prepayment were accounted for as an
extraordinary charge. Effective November 2, 1995, Life Re
amended and restated the 1992 Credit Agreement (the "1995
Credit Agreement"), resulting in the writeoff of related
unamortized loan costs which was accounted for as an
extraordinary charge.
(2) Amounts have been derived from the Annual Statements of Life
Reassurance Corporation of America ("LRCA") and Reassure
America Life Insurance Company ("REALIC"), as filed with
insurance regulatory authorities and prepared in accordance
with statutory accounting practices. For purposes of this
presentation, capital and surplus is defined as statutory
capital and surplus of LRCA only, as its capital and surplus
materially reflects that of the combined insurance
subsidiaries plus the Asset Valuation Reserve ("AVR") and the
Interest Maintenance Reserve ("IMR") of LRCA and REALIC.
(3) Liabilities and life insurance in force include the combined
amounts for LRCA, TexasRe Life Insurance Company ("TexasRe"),
and in 1996 and 1995, REALIC. For purposes of computing the
ratio of statutory capital and surplus to liabilities, the
denominator consists of liabilities excluding AVR and IMR.
ITEM 7
Management's Discussion and Analysis of Financial Condition and Results of
Operations
The following analysis of Life Re's consolidated financial condition
and results of operations should be read in conjunction with "Selected
Financial Data" and the consolidated financial statements and accompanying
notes included elsewhere herein.
With the exception of historical information, the matters contained
in the following analysis are "forward looking statements," within the
meaning of Section 27A of the Securities Act of 1933, as amended and
Section 21E of the Securities Exchange Act of 1934, as amended. Such
statements may include, but are not limited to, projections of earnings,
revenues, income, or loss, capital expenditures, plans for future
operations and financing needs or plans, as well as assumptions relating
to the foregoing.
Forward looking statements are inherently subject to risks and
uncertainties, some of which cannot be predicted or quantified. Future
events and actual results, performance and achievements could differ
materially from those set forth in, contemplated by or underlying the
forward looking statements. Such factors include, but are not limited to,
general economic and business conditions which may impact the need and/or
financial ability to obtain reinsurance, insurance or retrocessional
reinsurance; changes in laws and government regulations applicable to Life
Re; the ability of Life Re to successfully implement its operating
strategies (which strategies are described herein); material fluctuations
in interest rate levels; material changes in morbidity and mortality
experience; material changes in the level of operating expenses; and the
success or failure of certain of Life Re's clients in premium writing.
General
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates and
assumptions developed by management. Any adjustments to reported bases of
assets or liabilities resulting from changes in estimates are reflected in
earnings in the period the estimates are revised. Certain management
estimates are based, in part, on information provided by ceding companies.
As is usual in the reinsurance business, Life Re's ceding companies
periodically update, refine and revise reinsurance information provided to
Life Re. The financial effects resulting from the incorporation of
revised data are reflected in earnings as changes in estimates.
Mortality and morbidity experience, both significant factors in the
determination of the results of operations of Life Re, generally are
predictable over time but are subject to fluctuations from year to year
and quarter to quarter. Significant fluctuations from period to period
could adversely affect Life Re's results of operations.
Life Re's reinsurance agreements frequently provide for rights of
recapture, which permit the ceding company to increase the amount of
liability it retains on the reinsured policies after the policies have
remained in force for a designated period of time (generally ten to twenty
years). Accordingly, an increase in the amount of liability retained by
the ceding company will decrease both Life Re's insurance in force and
premiums to be received from the reinsured policies. To date, recaptures
have not had a material impact on Life Re's results of operations.
Life Re retrocedes portions of certain risks in excess of a
predetermined retention amount for which it has accepted liability. From
time to time, Life Re also has entered into quota share retrocessional
agreements, and maintained catastrophe reinsurance to protect against
catastrophic event risks. Failure of a retrocessionaire to honor its
obligations could result in material losses to Life Re; to date, no such
losses have occurred. No amounts due Life Re from its retrocessionaires
were deemed uncollectible at December 31, 1996.
Life Re is party to several reinsurance agreements for which
transactions are denominated in Canadian currency. The assets and
liabilities related to such reinsurance agreements are remeasured in U.S.
dollars, the functional currency, at current exchange rates as of the end
of each reporting period. Deterioration in the exchange rate of Canadian
currency could have an adverse effect on results of operations. At
December 31, 1996, Life Re had $37.2 million of net assets denominated in
Canadian currency. Life Re has not engaged in hedging or any other
activities to mitigate the effect on earnings of a deterioration in the
exchange rate of Canadian currency.
Life Re's total policy revenues have increased in each year since
1992. However, should Life Re be unable to generate sufficient new
business to offset the expected future decline in policy revenues
associated with the current business in force due to lapsation and
mortality, Life Re's results of operations could be adversely affected.
In 1996, Life Re derived approximately 60% of its policy revenues
from the reinsurance of ordinary life insurance policies under agreements
with ceding companies which cover new business to be written by the client
and/or existing blocks of in force business. This business generally is
written on a direct basis and is written under agreements with
approximately 450 ceding companies. In 1996, forty-five ceding companies
each accounted for at least $1.0 million of ordinary life reinsurance
policy revenues and in the aggregate represented approximately 89% of Life
Re's ordinary life reinsurance policy revenues.
The Company's group life reinsurance business, which accounted for
approximately 5% of policy revenues in 1996, is written on a direct basis
and generally is excess of loss and often includes experience rating
provisions.
Approximately 30% of Life Re's policy revenues were generated from
group accident and health and special risk reinsurance in 1996. This
business generally is written on an annual basis through reinsurance
facilities which are managed by managing general underwriters. Generally
the risks are shared by several reinsurers on a quota share basis.
The remainder of 1996 policy revenues was derived from
Administrative Reinsurance(service mark). This business represents the
acquisition of closed blocks of primary insurance policies (both interest
sensitive and traditional) and annuity contracts and is expected to become
a more significant component of policy revenues in the future.
Recent Transactions
Through its acquisition of REALIC in 1995, Life Re put into place a
platform for acquiring and administering blocks of insurance in force.
This platform, known as Administrative Reinsurance(service mark), provides
a mechanism for an insurer to transfer to REALIC administrative
responsibilities to facilitate the insurer's exit from a line of business
by means of reinsurance or sale.
During 1996, Life Re, through REALIC, completed several such
transactions (collectively, "Transactions") (see Note 3 of "Notes to
Consolidated Financial Statements"). The Transactions increased total
assets and liabilities by approximately $400 million. The assets received
consisted primarily of cash and high quality investments and the
liabilities assumed consisted primarily of future policy benefits on
traditional life insurance policies and account values on annuities and
interest sensitive life insurance policies. For 1996, the Transactions
contributed policy revenues totaling $10.9 million and approximately $10.8
million of investment income.
Results of Operations
Net income increased by $19.6 million in 1996 to $54.2 million, or
$3.89 per share, compared with $34.6 million, or $2.32 per share, in 1995
and $34.3 million, or $2.21 per share, in 1994. Included in these results
were after-tax realized investment gains of $15.9 million and $2.4 million
in 1996 and 1995, respectively. In March 1996, Life Re realized a gain of
$13.5 million from the sale of its equity investment in Nacolah Holding
Corporation ("Nacolah"), parent of The North American Company for Life and
Health Insurance (see Note 5 of "Notes to Consolidated Financial
Statements"). The Company utilized existing tax net operating loss
carryforwards to offset the taxes otherwise payable in connection with the
gain, and reversed an existing deferred tax valuation allowance, resulting
in a tax benefit of $4.8 million. Net income in 1995 also included an
extraordinary charge amounting to $1.0 million, which resulted from the
write-off of unamortized loan costs associated with amending and restating
the 1992 Credit Agreement (see Note 8 of "Notes to Consolidated Financial
Statements").
Earnings before realized investment gains and federal income taxes
increased by $7.8 million to $58.9 million in 1996 compared with $51.1
million in 1995 and $52.7 million in 1994. The increase in 1996 was
primarily due to earnings from the Transactions and increased business in
force within ordinary reinsurance.
Policy revenues by major source for the three year period are as
follows:
(In millions) 1996 1995 1994
Ordinary reinsurance $268.9 $243.7 $225.0
Group reinsurance 164.1 136.8 125.9
Administrative
Reinsurance(service mark) 18.0 2.7 --
$451.0 $383.2 $350.9
The growth in ordinary reinsurance revenues was largely due to new
reinsurance agreements entered into during the last two years, as first
year premiums totaled $36.2 million in 1996 and increased by 68% and 17%
during 1996 and 1995, respectively. The ordinary reinsurance lapse rate
has ranged from 9-11% during the last three years.
Group reinsurance policy revenues consist of life, accident and
health, special risk and credit coverages. During the last three years,
Life Re's group accident and health and special risk reinsurance business
increased substantially over previous levels. Group accident and health
and special risk reinsurance policy revenues increased from $102.0 million
in 1994 to $112.4 million in 1995 and $139.7 million in 1996. This growth
resulted principally from increased participation in major medical and
accident reinsurance pools and quota share arrangements, which are
organized and managed by professional managing general underwriters. The
rate of growth experienced in accident and health and special risk policy
revenues is not expected to continue due to management's decision to
selectively reduce or eliminate participation in certain pool arrangements
to better balance the mix of risks reinsured.
The growth in Administrative Reinsurance(service mark) policy
revenues has been due to the Transactions. Future revenue growth from
Administrative Reinsurance(service mark) depends on Life Re's ability to
identify and complete similar transactions.
Investment income increased by 26% in 1996 to $124.3 million and by
20% in 1995 to $98.6 million. These increases were largely due to the
growth in invested assets from the REALIC acquisition in 1995 and the
Transactions completed in 1996. This rate of growth is dependent on new
Administrative Reinsurance(service mark) transactions and, to a lesser
extent, new ordinary reinsurance business. The weighted average portfolio
yield rate (amortized cost basis) was 7.8% in 1996 and 8.2% in 1995 and 1994.
Policy benefits increased by 18% in 1996 and 15% in 1995. These
increases resulted from higher volumes of group business and increased
life insurance in force, which was significantly impacted by the
acquisition of REALIC and the completion of the Transactions. As a
percentage of policy revenues, policy benefits were 74% in each of 1996
and 1995 and 70% in 1994. The increase experienced in the last two years
was primarily due to an increase in revenues generated under reinsurance
treaties with no acquisition costs, coinsurance involving paid-up
insurance and Administrative Reinsurance(service mark), which produces no
new business and, therefore, generally has a higher ratio of benefits to
policy revenues.
Policy acquisition costs increased by 17% in 1996 and 8% in 1995.
These increases reflect the higher volumes of ordinary and group accident
and health reinsurance business and the Transactions. As a percentage of
policy revenues, policy acquisition costs were 25% in each of 1996, 1995
and 1994.
Interest credited to policyholder accounts increased by 63% to $34.6
million in 1996 and by 42% to $21.2 million in 1995. These increases are
attributable to the acquisition of REALIC and the Transactions as the
majority of the policy benefit liabilities acquired in these transactions
are interest sensitive.
Interest expense, including facility fees and agency fees, decreased
to $8.4 million in 1996 from $10.7 million in 1995 and $9.1 million in
1994. This decrease was due to i) a decrease in the weighted average
variable rate charged on outstanding debt, which decreased to 6.2% in 1996
from 7.1% in 1995 and ii) a decrease in the outstanding principal balance
to $125.0 million resulting from the first quarter of 1996 repayment of
$15.0 million. The effective interest rate as of December 31, 1996 was
6.0%.
Other operating expenses increased significantly in 1996 mainly due
to i) third party administration fees incurred by REALIC, ii) higher
compensation costs related to the Transactions and iii) higher staffing
levels. REALIC utilizes the services of a third party administrator to
administer all of its business; accordingly, to the extent the Company is
successful in expanding Administrative Reinsurance(service mark), its
operating expenses will continue to increase. Other operating expenses
were essentially level in 1995 and 1994 as Canadian currency remeasurement
losses incurred in 1994 totaling $4.2 million were partially offset by
third party administrator fees incurred in connection with Administrative
Reinsurance(service mark) and by higher employee-related and consulting
costs in 1995.
The effective federal income tax rate was 29% in 1996 compared with
the statutory rate of 35%. The federal income tax expense is net of a
$4.8 million tax benefit resulting from the reversal of a deferred tax
valuation allowance in connection with the realized investment gain on the
Nacolah transaction. In 1995 and 1994, the effective federal income tax
rate was 35%.
Financial Condition and Liquidity
Investments
Invested assets at fair value amounted to $1,833.2 million and
$1,504.2 million at December 31, 1996 and 1995, respectively. The
increase in invested assets in 1996 resulted from the Transactions
partially offset by a decrease in unrealized investment gains. Net
unrealized gains on invested assets totaled $39.7 million and $82.5
million at year end 1996 and 1995, respectively, and generally reflect the
increase in interest rates from period to period.
Life Re's investment policy is designed to maintain a high quality
portfolio, maximize current income, maintain a high degree of liquidity,
and match the cash flows of the portfolio to the required cash flows of
Life Re's liabilities.
Life Re does not engage in trading activities to generate realized
investment gains and, thus, does not have a trading portfolio. However,
Life Re evaluates the desirability of continuing to hold a security when
market conditions, creditworthiness or other measurement factors change.
These changes may relate to a change in the credit risk of an issuer and a
decision to sell may be made to avoid further declines in realizable
value. Securities also may be sold prior to maturity to provide liquidity
should the need arise.
Life Re's fixed maturity securities, which constituted 94%, or
$1,720.6 million, of the total fair value of its invested assets as of
December 31, 1996, are predominantly investment grade, liquid securities
with varying maturity dates. The fair value of such investments may vary
depending on economic and market conditions, the level of interest rates
and the perceived creditworthiness of the issuer.
At December 31, 1996, approximately $75.8 million (at fair value),
or 4%, of Life Re's invested assets consisted of below investment grade
securities. Life Re generally limits its investments in fixed maturities
that are rated below investment grade, as these investments are subject to
a higher degree of credit risk than investment grade securities. Life Re
closely monitors its below investment grade securities as well as the
creditworthiness of the portfolio as a whole. When fair values decline
for reasons other than changes in interest rates or other perceived
temporary conditions, the security is written down to its net realizable
value. In 1996, 1995 and 1994, Life Re wrote down the value of certain
securities by $0.5 million, $0.9 million, and $1.3 million, respectively.
Life Re had no fixed maturities in default at December 31, 1996.
The results of operations and the financial condition of Life Re are
significantly affected by the performance of its investments and by
changes in interest rates. During a period of declining interest rates,
if Life Re's investments are prematurely sold, called, prepaid or
redeemed, Life Re would be unable to reinvest the proceeds in securities
with comparable rates of return. During a period of rising interest
rates, the fair value of Life Re's invested assets could decline. In
addition, rising interest rates could also cause disintermediation which
in turn could cause Life Re to be required to sell investments at prices
and times when the fair values of such investments are less than their
amortized cost. The Company believes that its traditional life insurance
liabilities are not highly interest sensitive and, therefore, the effects
of fluctuating interest rates on these liability cash flows are not
significant. For interest sensitive liabilities, the Company utilizes
asset/liability management to minimize the impact of changes in interest
rates. Life Re has not engaged in hedging activities to mitigate the
effects of interest rate changes on its invested assets.
At December 31, 1996, collateralized mortgage obligations and
mortgage-backed pass-through securities represented approximately 21% of
Life Re's invested assets. Certain of such investments may be subject to
significant prepayment risk and, therefore, are susceptible to
fluctuations in the level of interest rates.
During 1996, 1995 and 1994, proceeds from sales of fixed maturities
amounted to $253.4 million, $370.8 million and $134.8 million,
respectively. The net gains realized from such sales were $1.8 million,
$4.5 million and $0.4 million for the respective periods. The majority of
the 1996 and 1995 sales was attributable to the restructuring of
portfolios acquired in connection with the acquisition of REALIC and the
completion of the Transactions.
Real estate and mortgages (at cost) totaled $7.0 million at December
31, 1996 and were acquired as part of the Transactions. Mortgage loans
comprise the majority of this amount.
Policy Benefit Liabilities
The Company's obligations for policy benefit liabilities increased
by 33% and 42% during 1996 and 1995, respectively. These increases
resulted from the acquisition of REALIC and the Transactions and increased
reinsurance of new and in force life insurance business. Policy benefits
consist of the present value of net future benefits under traditional
ordinary and group life insurance policies, account values under interest
sensitive life and annuity contracts, group accident and health claim
reserves, life claims payable and other miscellaneous liabilities.
Through REALIC and the Transactions, the relative proportion of interest
sensitive and annuity policy benefit liabilities to the total has
increased significantly and, at December 31, 1996, totaled approximately
half of the policy benefits under life insurance contracts.
Asset/liability management techniques are utilized by the Company to
minimize the risks associated with interest rate fluctuations. For
interest sensitive policy benefits, Life Re seeks to invest in assets with
equal durations while attaining a targeted rate of return. The Company
currently does not engage in hedging transactions to mitigate the effects
of interest rate fluctuations.
Debt and Shareholders' Equity
In 1995, Life Re amended and restated the 1992 Credit Agreement to
convert the facility to a senior secured revolving and term loan with a
stated maturity of January 5, 2002. The two year revolving loan has a
commitment amount of $160.0 million and may be extended for up to two
one-year periods with bank consent (see Note 8 of "Notes to Consolidated
Financial Statements"). During 1996, the Company received bank consent to
extend the maturity date by one year. At December 31, 1996, loans
totaling $125.0 million were outstanding.
Interest rates on the loans are variable and, subject to certain
restrictions, Life Re may select the applicable interest rate index and
the period of applicability.
The 1995 Credit Agreement contains certain covenants which, among
other things, restrict under certain circumstances the payment of
dividends and repurchase of treasury stock. Further, certain actions of
Life Re are limited, including those related to mergers, acquisitions,
indebtedness and investments. Life Re and its subsidiaries are required
to meet certain financial ratios and maintain a minimum level of statutory
surplus.
Shareholders' equity increased by $10.8 million to $290.1 million at
December 31, 1996 from $279.3 million at December 31, 1995, primarily as a
result of net income of $54.2 million, partially offset by a decrease in
net unrealized appreciation of securities of $24.5 million, treasury stock
purchases of $17.0 million and common shareholder dividends of $5.5
million.
Under the stock repurchase program initially approved by the
Company's Board of Directors during 1995, approximately 2.1 million shares
have been purchased under a total authorization of 3.0 million shares.
Life Re may use internally generated funds or borrowings under the 1995
Credit Agreement to finance additional purchases of shares, if any, under
the repurchase program.
Dividends paid to common shareholders reflect an annual rate of $.40
per share in 1996 and $.28 per share in 1995; effective in the first
quarter of 1997, Life Re increased its annual dividend rate to $.52 per
share.
Debt to total capitalization (outstanding debt divided by
outstanding debt plus shareholders' equity) decreased significantly during
the last two years. As a percentage, these amounts were 30%, 33% and 42%
at year-end 1996, 1995 and 1994, respectively. Management believes that,
to best balance leverage and regulatory targets, a debt to total
capitalization ratio in the range of 25-35% is appropriate.
Liquidity
Sources of liquidity are available to Life Re in the form of cash
and short-term investments and, if necessary, the sale of invested assets.
The Company also may borrow an additional $35.0 million under the 1995
Credit Agreement and may enter into reverse repurchase agreements to fund
short-term cash needs. In addition to its debt servicing and dividend
obligations, Life Re's financial obligations consist of policy benefit and
acquisition costs, taxes and general operating expenses. During the next
twelve months, management believes these obligations will be adequately
provided for by policy revenues and investment income.
The primary sources of funds for Life Re Corporation (the "Parent")
consist of dividends and surplus debenture principal and interest payments
from TexasRe, which are further funded by dividends from LRCA to TexasRe.
The ability of the Parent to make payments of principal and interest as
well as to continue to pay common stock dividends is ultimately dependent
on the statutory earnings and surplus of its subsidiaries. The following
table shows surplus debenture principal and interest payments received and
dividends received by the Parent for the last three years as well as
dividends available for payment in that year without prior approval of
state regulatory authorities:
<TABLE>
<CAPTION>
Years Ended December 31,
(In millions) 1996 1995 1994
<S> <C> <C> <C>
Surplus debenture
amounts received
from TexasRe:
Interest $10.0 $19.4 $ 2.3
Principal -- 10.0 5.0
10.0 29.4 7.3
Dividends received
from TexasRe 12.1 15.0 --
$22.1 $44.4 $ 7.3
Dividends available
for payment by
TexasRe $27.1 $28.2 $15.4
</TABLE>
The unpaid principal amount of the surplus debentures at December
31, 1996 was $160.5 million. The interest rate payable under the terms of
the surplus debentures is the same as the interest rate under the 1995
Credit Agreement. In 1995, the principal amortization terms of the
surplus debentures were changed to conform to the terms of the 1995 Credit
Agreement.
Currently, no prior approval of the Texas Insurance Commissioner is
required to prepay or pay scheduled interest or principal on the surplus
debentures provided that, after giving effect to any such payment, the
statutory surplus of TexasRe exceeds $125.0 million.
TexasRe relies primarily on dividends from LRCA to meet its
obligations under the surplus debentures as well as to pay dividends to
Life Re. TexasRe received dividends from LRCA during 1996, 1995 and 1994
of $14.9 million, $30.9 million, and $13.5 million, respectively.
The payments of dividends by TexasRe and LRCA are subject to
restrictions set forth in Texas and Connecticut insurance laws and
regulations (see Note 9 of "Notes to Consolidated Financial Statements").
Under Connecticut law, no dividend in an amount exceeding LRCA's earned
surplus may be paid without prior regulatory approval. Approval has been
received from the Connecticut Department of Insurance to define earned
surplus for this purpose to include amounts of paid in surplus in excess
of $125.0 million.
Purchases and sales of fixed maturities increased substantially in
1996 and 1995 due primarily to restructuring of portfolios related to
REALIC and the Transactions. The completion of these types of
transactions generally produces a cash outlay for acquisitions and a net
cash inflow upon reinsurance of insurance in force. During 1996, net cash
of $59.7 million was generated by the receipt of cash as consideration for
the assumption of insurance liabilities partially offset by the purchase
price paid in acquiring companies. Financing cash flows include debt
prepayments of $15.0 million in 1996 and $10.0 million in 1994.
Withdrawals from annuity and interest sensitive life insurance contracts
totaled $74.7 million in 1996 compared to $30.7 million in 1995 due to
increased volumes of business resulting from the Transactions and an
increase in the related rate of lapsation.
Outlook
Life Re intends to continue its strategy of growth through i)
increased reinsurance of ordinary life new business and ii) the expansion
of Administrative Reinsurance(service mark) through purchases of in force
blocks of insurance business and insurance companies.
The growth in ordinary life reinsurance new business was substantial
in 1996 and 1995, with increases in first year reinsurance premiums
totaling 68% and 17%, respectively. Although the Company does not expect
the rate of growth experienced in 1996 to continue, its objective is to
increase ordinary life reinsurance new business written by more than 20%
during 1997. This growth could be constrained by i) competition, which
could dilute the profitability of this business, ii) the success of ceding
companies in writing primary business, and iii) the availability of
statutory capital and surplus, which generally is absorbed by writing new
business.
In July 1996, Life Re entered into certain agreements with Aon
Corporation ("Aon") and certain current and former affiliates of Aon. LRCA
reinsures certain automobile credit insurance policies written after June
30, 1996 by an affiliate of Resource Financial Corporation ("RFC"), which
is 80% owned by officers and employees of a former affiliate of Aon and
20% (voting and non-voting) owned by Life Re. In addition, Life Re
invested $20.0 million in debt and preferred stock of an affiliate of RFC.
The majority of the RFC business is retroceded.
As a significant portion of the credit business is retroceded, Life
Re's earnings from this business will result principally from investment
income on assets relating to unearned premium reserves and not the
underwriting results of this business. The amount of investment income
generated is dependent on the volume of business produced. As
consideration for this arrangement, Life Re pays contingent consideration
to Aon based on business written for a five year period.
The Company believes that consolidation within the insurance
industry will continue as companies shed non-core businesses or exit the
industry due to operating inefficiencies. Through Administrative
Reinsurance(service mark), Life Re expects to participate in this
consolidation as it has in place a licensed primary insurer with
administrative capabilities with which to effect reinsurance or other
acquisition transactions. However, this expansion may be adversely
affected by such factors as the availability of capital, the types of
business opportunities presented and the competition for such business.
Life Re anticipates financing ordinary reinsurance and
Administrative Reinsurance(service mark) growth through internally
generated funds. Also, the Company has available an additional $35.0
million under the 1995 Credit Agreement and, if necessary, could attempt
to increase the existing facility or pursue other forms of financing.
Alternative financing sources include debt and equity markets and the
retrocessional marketplace.
ITEM 8
Financial Statements and Supplementary Data
Index to Financial Statements and
Financial Statement Schedule
Life Re Corporation and Subsidiaries
Financial Statements Page
Report of Management . . . . . . . . . . . . . . . . .38
Report of Independent Auditors. . . . . . . . . . . . .39
Consolidated Balance Sheets at December 31,
1996 and 1995 . . . . . . . . . . . . . . . . . . . .40
Consolidated Statements of Income for the years
ended December 31, 1996, 1995 and 1994. . . . . . . .41
Consolidated Statements of Changes in
Shareholders' Equity for the years
ended December 31, 1996, 1995 and 1994. . . . . . . .42
Consolidated Statements of Cash Flows for the years
ended December 31, 1996, 1995 and 1994. . . . . . . .43
Notes to Consolidated Financial Statements. . . . . . .44
Financial Statement Schedule
Schedule II Condensed Financial Information
of Registrant. . . . . . . . . . . . . .65
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are
not required under the related instructions or are inapplicable and
therefore have been omitted or the information is presented in the
consolidated financial statements or accompanying notes.
REPORT OF MANAGEMENT
The management of Life Re Corporation has primary responsibility for
preparing the accompanying financial statements and for their integrity
and objectivity. The financial statements were prepared in accordance
with generally accepted accounting principles applied on a consistent
basis and are fairly stated in all material respects. The financial
statements include amounts that are based on management's best estimates
and judgements. Management also prepared the other information presented
elsewhere herein and is responsible for its accuracy and consistency with
the financial statements.
Management has established and maintains a system of internal
control that provides reasonable assurance as to the integrity and
reliability of the financial statements, the protection of assets from
unauthorized use or disposition and the prevention and detection of
fraudulent financial reporting. In addition, the adequacy and
effectiveness of the system of internal control is reviewed periodically
by the Company's internal auditors.
The Company's financial statements have been audited by independent
auditors. The independent auditors have unrestricted access to each
member of management in conducting their audit. Management has made
available to the independent auditors all of the Company's financial
records and related data, as well as the minutes of shareholders' and
directors' meetings. Furthermore, management believes that all
representations made to the independent auditors during their audits were
valid and appropriate.
The Audit Committee of the Board of Directors is comprised of
certain directors who are neither employees nor officers of the Company.
The Audit Committee meets periodically with management and the independent
auditors regarding independent audit scope, timing, results and to discuss
other auditing and financial reporting matters. The independent auditors
have direct access to and meet privately with the Audit Committee.
/s/ Rodney A. Hawes, Jr., /s/Jacques E. Dubois
Chairman of the Board and President and
Chief Executive Officer Chief Operating Officer
/s/ Chris C. Stroup
Executive Vice President
and Chief Financial Officer
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Life Re Corporation
We have audited the accompanying consolidated balance sheets of Life Re
Corporation and subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of income, shareholders' equity, and cash
flows for each of the three years in the period ended December 31, 1996.
Our audits also included the financial statement schedule listed in the
Index at Item 14(a). These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of Life Re Corporation and subsidiaries at December 31, 1996 and
1995, and the consolidated results of their operations and their cash
flows for each of the three years in the period ended December 31, 1996,
in conformity with generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents
fairly in all material respects the information set forth therein.
/s/ Ernst & Young LLP
Stamford, Connecticut
February 4, 1997
<TABLE>
<CAPTION>
Life Re Corporation and Subsidiaries
Consolidated Balance Sheets
<S> <C> <C>
December 31, 1996 1995
(In thousands, except share data)
ASSETS
Fixed maturities - at fair value
(amortized cost: $1,576,371 and $1,245,151,
respectively) $1,610,694 $1,316,908
Equity securities - at fair value
(cost: $20,841 and $16,051, respectively) 21,536 16,613
Assets held by ceding company under reinsurance
treaty - at fair value
(amortized cost: $105,519
and $115,767, respectively) 110,246 125,958
Mortgage loans and real estate 6,957 --
Short-term investments 25,589 13,285
Policy loans 58,220 31,411
Total investments 1,833,242 1,504,175
Cash 6,337 5,056
Accrued investment income 31,963 24,957
Policy revenues receivable 120,809 105,361
Amounts receivable on reinsurance ceded 277,625 209,313
Deferred policy acquisition costs and value of
business acquired 223,972 166,424
Other assets 25,372 8,811
Total assets $2,519,320 $2,024,097
LIABILITIES
Policy benefits $1,982,295 $1,486,934
Acquisition costs payable 34,059 33,573
Amounts due on reinsurance ceded 25,526 20,851
Other liabilities 62,329 63,426
Loans payable 125,000 140,000
Total liabilities 2,229,209 1,744,784
SHAREHOLDERS' EQUITY
Common stock (par value $.001 per share;
authorized 40,000,000 shares; issued 15,700,935
and 15,531,310 shares, respectively) 16 16
Paid in capital 105,226 101,582
Net unrealized appreciation of securities 24,854 49,403
Retained earnings 206,822 158,075
Treasury stock - at cost(2,172,769 and 1,557,969
shares, respectively) (46,807) (29,763)
Total shareholders' equity 290,111 279,313
Total liabilities and shareholders' equity $2,519,320 $2,024,097
</TABLE>
The accompanying notes are an integral
component of the consolidated financial statements.
<TABLE>
<CAPTION>
Life Re Corporation and Subsidiaries
Consolidated Statements of Income
<S> <C> <C> <C>
Years Ended December 31, 1996 1995 1994
(In thousands, except per share data)
REVENUES
Policy revenues $450,992 $383,231 $350,875
Investment income 124,340 98,616 82,438
Realized investment gains 17,210 3,702 89
Total revenues 592,542 485,549 433,402
BENEFITS AND EXPENSES
Policy benefits 332,476 281,518 245,790
Policy acquisition costs 111,933 95,707 88,664
Interest credited to policyholder
accounts 34,637 21,241 15,011
Interest expense 8,356 10,743 9,103
Other operating expenses 29,049 21,552 22,037
Total benefits and expenses 516,451 430,761 380,605
Income before federal income taxes and
extraordinary charge 76,091 54,788 52,797
Provision for federal income taxes 21,890 19,176 18,479
Income before extraordinary charge 54,201 35,612 34,318
Extraordinary charge, net of federal
income tax benefit -- 1,004 --
NET INCOME $ 54,201 $ 34,608 $34,318
Earnings per share:
Income before extraordinary
charge $ 3.89 $ 2.39 $ 2.21
Extraordinary charge, net
of federal income tax benefit -- .07 --
Net income $ 3.89 $ 2.32 $ 2.21
Dividends per share $ 0.40 $ 0.28 $ 0.24
Weighted average common and common
equivalent shares 13,918 14,937 15,523
</TABLE>
The accompanying notes are an integral
component of the consolidated financial statements.
<TABLE>
<CAPTION>
Life Re Corporation and Subsidiaries
Consolidated Statements of Changes in Shareholders' Equity
Amounts
<S> <C> <C> <C>
Years Ended December 31, 1996 1995 1994
(Dollars in thousands)
COMMON STOCK AND PAID IN CAPITAL
Balance, beginning of year $101,598 $101,429 $101,429
Reductions of employee stock loans 180 59 --
Exercises of stock options 3,464 110 --
Balance, end of year 105,242 101,598 101,429
UNREALIZED APPRECIATION
(DEPRECIATION) OF SECURITIES
Balance, beginning of year 49,403 (33,867) 32,451
Net unrealized appreciation
(depreciation) of securities (24,549) 83,270 (66,318)
Balance, end of year 24,854 49,403 (33,867)
RETAINED EARNINGS
Balance, beginning of year 158,075 127,590 96,996
Net income 54,201 34,608 34,318
Common stock dividends (5,454) (4,123) (3,724)
Balance, end of year 206,822 158,075 127,590
TREASURY STOCK
Balance, beginning of year (29,763) (211) (211)
Treasury stock acquired (17,044) (29,552) --
Balance, end of year (46,807) (29,763) (211)
TOTAL SHAREHOLDERS' EQUITY
OUTSTANDING $290,111 $279,313 $194,941
</TABLE>
The accompanying notes are an integral
component of the consolidated financial statements.
<TABLE>
<CAPTION>
Life Re Corporation and Subsidiaries
Consolidated Statements of Changes in Shareholders' Equity
Shares
<S> <C> <C> <C>
Years Ended December 31, 1996 1995 1994
COMMON STOCK AND PAID IN CAPITAL
Balance, beginning of year 15,531,310 15,526,310 15,526,310
Reductions of employee stock loans -- -- --
Exercises of stock options 169,625 5,000 --
Balance, end of year 15,700,935 15,531,310 15,526,310
UNREALIZED APPRECIATION
(DEPRECIATION) OF SECURITIES
Balance, beginning of year -- -- --
Net unrealized appreciation
(depreciation) of securities -- -- --
Balance, end of year -- -- --
RETAINED EARNINGS
Balance, beginning of year -- -- --
Net income -- -- --
Common stock dividends -- -- --
Balance, end of year -- -- --
TREASURY STOCK
Balance, beginning of year (1,557,969) (9,600) (9,600)
Treasury stock acquired (614,800) (1,548,369) --
Balance, end of year (2,172,769) (1,557,969) (9,600)
TOTAL SHARES OUTSTANDING 13,528,166 13,973,341 15,516,710
</TABLE>
The accompanying notes are an integral
component of the consolidated financial statements.
<TABLE>
<CAPTION>
Life Re Corporation and Subsidiaries
Consolidated Statements of Cash Flows
<S> <C> <C> <C>
Years Ended December 31, 1996 1995 1994
(In thousands)
OPERATING ACTIVITIES
Net income $ 54,201 $ 34,608 $ 34,318
Extraordinary charge -- 1,004 --
Adjustments to reconcile net income to net
cash provided by operating activities:
Change in accrued investment income (2,815) (1,890) (985)
Change in policy revenues receivable (22,008) 1,046 (21,007)
Change in policy benefits 51,063 24,971 31,413
Change in reinsurance ceded balances 4,769 1,235 3,741
Interest credited to policyholder accounts 34,637 20,429 15,011
Fees and charges deducted from policyholder
accounts (29,636) (20,184) (19,271)
Deferral of policy acquisition costs (33,779) (12,371) (13,430)
Amortization of policy acquisition costs
and value of business acquired 16,852 15,229 17,214
Net realized gains on investments (17,210) (3,702) (89)
Provision for deferred federal income taxes 17,825 8,906 794
Depreciation and amortization 1,095 303 1,721
Other 4,611 6,375 11,931
Net cash provided by operating activities 79,605 75,959 61,361
INVESTING ACTIVITIES
Purchases of fixed maturities (433,608) (484,848) (246,384)
Purchases of equity securities (17,200) -- --
Sales of fixed maturities 253,408 370,813 134,816
Maturities of fixed maturities 78,259 69,977 77,995
Sales or redemptions of equity securities 26,808 30 400
Change in short-term investments,
policy loans and other investments 18,441 36,726 (17,741)
Cash received (paid) for acquisitions
and in force reinsurance transactions 59,734 (34,383) 12,736)
Other (829) (878) (733)
Net cash used by investing activities (14,987) (42,563) (64,383)
FINANCING ACTIVITIES
Purchases of common stock for treasury (16,861) (29,497) --
Proceeds from exercises of common stock options 3,570 -- --
Loan principal repayments (15,000) -- (10,000)
Fees related to amendments to credit agreement -- (404) (550)
Dividends on common stock (5,454) (4,123) (3,724)
Deposits to policyholder accounts 45,092 33,560 29,217
Withdrawals from policyholder accounts (74,691) (30,741) (14,616)
Other 7 4 --
Net cash provided (used) by financing
activities (63,337) (31,201) 327
Increase (decrease) in cash 1,281 2,195 (2,695)
Cash, beginning of year 5,056 2,861 5,556
Cash, end of year $ 6,337 $ 5,056 $ 2,861
</TABLE>
The accompanying notes are an integral
component of the consolidated financial statements.
Life Re Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1996
1. Basis of Presentation and Nature of Business
The consolidated financial statements of Life Re Corporation and
subsidiaries (the "Company") include the accounts of TexasRe Life Insurance
Company ("TexasRe"), Life Reassurance Corporation of America ("LRCA"), Life
Re International, Ltd. and Reassure America Life Insurance Company
("REALIC")(Note 3). All significant intercompany balances and transactions
have been eliminated. The accompanying financial statements have been
prepared in accordance with generally accepted accounting principles.
Certain reclassifications have been made to prior years' financial
statements to conform to the current year's presentation. All dollar
amounts are reported in thousands unless otherwise indicated.
Business
The Company provides ordinary life reinsurance, group life
reinsurance, group accident and health and special risk reinsurance,
Administrative Reinsurance(service mark) and automobile credit
reinsurance. The Company reinsures mortality and morbidity risks, and
investment related risks associated with interest sensitive products. The
Company reinsures life insurance risks predominately on a direct basis with
ceding companies. A significant portion of the group accident and health
and special risk business is obtained through brokers or other
intermediaries. Generally, the Company assumes group health and special
risk business through participation in reinsurance pools which are operated
by managing general underwriters.
The acquisition of REALIC in 1995 (Note 3) provided the Company with
the ability to administer primary life insurance business through a third
party administrator. Through this Administrative Reinsurance(service mark)
platform, the Company acquired closed blocks of business by reinsurance
agreement and by acquisition.
Estimates, Risks and Uncertainties
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions
developed by management. Any adjustments to reported bases of assets or
liabilities resulting from changes in estimates are reflected in earnings in
the period the estimates are revised.
Certain management estimates are based, in part, on information
provided by ceding companies. As is usual in the reinsurance business,
ceding companies periodically update, refine and revise reinsurance
information provided to the Company. The financial effects resulting from
the incorporation of revised data are reflected in earnings as changes in
estimates.
Mortality and morbidity experience, significant factors in the
determination of the results of operations for the life insurance industry,
generally are predictable over time but are subject to fluctuations from
year to year and quarter to quarter. A significant fluctuation from period
to period could adversely affect the Company's results of operations.
The Company is party to several reinsurance agreements for which
transactions are denominated in Canadian currency. The assets and
liabilities related to such reinsurance agreements are remeasured in U.S.
dollars, the functional currency, at current exchange rates as of the end of
each reporting period and the resulting adjustments are included in income.
Such adjustments reduced net income by $282, $650 and $2,744 in 1996, 1995
and 1994, respectively. Deterioration in the exchange rate of Canadian
currency could have an adverse effect on results of operations. At December
31, 1996, the Company had $37,194 of net assets denominated in Canadian
currency. The Company has not engaged in hedging or any other activities to
mitigate the effect on earnings of a deterioration in the exchange rate of
Canadian currency.
2. Significant Accounting Policies
Investments
Fixed maturities in these notes include both fixed maturity securities
which are part of assets held by ceding company under reinsurance treaty and
those included in the caption fixed maturities in the accompanying
consolidated balance sheets.
Fixed maturities, consisting of bonds and redeemable preferred stocks,
and equity securities, consisting of common and nonredeemable preferred
stocks, are classified as available for sale and are reported at fair value.
Unrealized gains and losses on available for sale securities are recorded
directly in shareholders' equity with no effect on income. These amounts
are net of deferred income taxes and valuation adjustments which represent
the changes in amortization of deferred policy acquisition costs and value
of business acquired that would have been recorded as a charge or credit to
operations had the relating unrealized gains or losses been realized.
Mortgage loans are carried at amortized unpaid balances, net of
provisions for estimated losses. Real estate is carried at cost.
Short-term investments are stated at cost and policy loans are stated
at aggregate unpaid principal balances.
Realized gains or losses from sales of investments, determined on the
specific identification basis, and declines in fair value determined to be
other than temporary are included in net income.
Realized investment gains and losses are reported net of related
expenses and include the amount of amortization of deferred policy
acquisition costs and value of business acquired resulting from the
inclusion of such realized gains or losses in the gross profits used for the
calculation of such amortization.
Fair Values of Financial Instruments
The fair value of a financial instrument is the amount at which the
instrument could be exchanged in a current transaction between willing
parties. All financial instruments of the Company are carried at amounts
which approximate fair value except amounts related to insurance contracts,
which are exempt from fair value disclosure requirements.
The following methods and assumptions were used by the Company to
estimate the fair value of financial instruments reported or disclosed in
the financial statements.
Investment securities: Fair values of fixed maturities and equity
securities are obtained from independent pricing services which generally
use quoted market prices, where available. For securities for which quoted
market prices are not available and for securities which independent pricing
services are unable to price, fair values are obtained from the Company's
outside portfolio managers, who obtain them from broker/dealers or estimate
them using analytic pricing methods. These pricing methods determine fair
values by discounting expected future cash flows using current market rates
applicable to the yield, credit quality and maturity of comparable quoted
securities. The fair values resulting from the application of these methods
are significantly affected by the assumptions used, including the discount
rate and estimates of future cash flows. Such derived fair value estimates
may not be substantiated by comparison to independent markets and, in many
cases, could not be realized in immediate settlements of the instruments.
Policy loans: The carrying value of policy loans approximates fair
value, as the average loan interest rate approximates interest rates
currently offered for similar loans.
Cash and short-term investments: The carrying amounts reported for
these instruments approximate their fair values, due to their short
maturity.
Loans payable: The carrying value of loans payable approximates their
fair value, as these loans have variable rate interest terms.
Insurance contracts: Fair values of insurance contracts are not
required to be disclosed. The fair values of liabilities under all
insurance contracts are taken into consideration in the Company's overall
management of interest rate risk, which minimizes exposure to changing
interest rates by seeking to match investment cash flows with amounts
payable under insurance contracts.
Recognition of Policy Revenues and Related Expenses
Premiums are recognized as revenues over the premium paying periods of
the policies. Benefits and expenses are provided against such revenues to
recognize profits over the estimated lives of the policies through the
provision for future policy benefits and the deferral and amortization of
policy acquisition costs.
Revenues for annuities and interest sensitive life insurance contracts
consist of policy fees and charges for the cost of insurance, policy
administration and surrenders that have been assessed against policyholder
account balances during the period. Policy claims and benefits in excess of
related policyholder account balances are charged to expense.
Deferred Policy Acquisition Costs and Value of Business Acquired
The costs of acquiring new reinsurance business which vary with and
are directly related to the production of new business are deferred as
policy acquisition costs and amortized. Costs deferred in connection with
traditional life insurance products are amortized over the premium paying
period of the related policies using assumptions consistent with those used
to compute future policy benefits. For annuities and interest sensitive
life insurance products, policy acquisition costs are amortized generally in
proportion to the present value of expected gross profits from such
products. Amortization is adjusted when current estimates of future gross
profits are revised.
The value of business acquired represents an estimate of the present
value of future profits expected from business in force at the time the
Company acquired its insurance subsidiaries. It is amortized with interest
based on assumptions developed at the acquisition date regarding the amount
and incidence of future profits derived therefrom over the contract periods
in relation to premiums for traditional life insurance and to gross profits
for annuities and interest sensitive life insurance.
Policy Benefit Liabilities
Future policy benefits under traditional long-term and group life
insurance contracts have been computed based upon expected investment
yields, mortality, persistency and other assumptions. These assumptions
include a margin for adverse deviation and vary with the characteristics of
the plan of insurance, year of issue, age of insured and other appropriate
factors. Mortality and persistency assumptions are based on the Company's
experience as well as industry experience and standards.
Future policy benefits for annuities and interest sensitive life
insurance contracts are recorded at accumulated policyholder account values.
Policy claims include amounts determined on an individual case basis
for reported claims and estimates of incurred but not reported claims
developed on the basis of past experience.
Federal Income Taxes
The Company accounts for federal income taxes using the liability
method. Under this method, deferred tax assets and liabilities are
determined based on the differences between the financial reporting and tax
bases of assets and liabilities calculated using the tax rate in effect at
the measurement date.
Earnings Per Share
Primary earnings per share is computed using the weighted average
number of common shares outstanding during the periods presented including,
if applicable, the dilutive impact of common stock options.
3. Acquisitions and Reinsurance Transactions
On July 31, 1995, in a transaction accounted for as a purchase, the
Company acquired 100% of the common stock of REALIC, formerly John Deere
Life Insurance Company, from two wholly owned subsidiaries of Deere &
Company for an adjusted purchase price of $33,335, including direct costs of
the acquisition. The fair value of the assets acquired was $391,482 and
liabilities assumed aggregated $358,147.
The following pro forma financial information has been prepared
assuming the acquisition of REALIC had occurred at the beginning of each of
the periods presented and reflects certain purchase accounting adjustments,
including amortization of the value of business acquired, net of related
income tax effects. The pro forma results are not necessarily indicative of
the results that would have occurred had the acquisition been consummated as
of the assumed dates nor are they necessarily indicative of future operating
results.
Years Ended December 31,
1995 1994
Revenues $504,821 $467,164
Net income $ 37,892 $ 41,541
Earnings per share $ 2.54 $ 2.68
As of June 30, 1996, REALIC acquired, for an adjusted purchase price
of $16,433, 100% of the common stock of two subsidiaries of I.C.H.
Corporation in a transaction accounted for as a purchase. The fair value of
assets acquired, consisting primarily of invested assets, was $169,276, and
the liabilities assumed, principally future policy benefits, aggregated
$152,843. By December 31, 1996, these companies had been merged with and
into REALIC.
The following pro forma financial information has been prepared
assuming REALIC's purchase of these two subsidiaries had occurred at the
beginning of each of the periods presented and reflects certain purchase
accounting adjustments, including amortization of the value of business
acquired, net of related income tax effects. The pro forma results are not
necessarily indicative of the results that would have occurred had these
transactions been consummated as of the assumed dates nor are they
necessarily indicative of future operating results. The pro forma results
reflect realized investment gains and other income of the acquired companies
of $1,496 in 1996 and realized investment losses, net of other income, of
$7,309 in 1995 resulting primarily from writedowns of a common stock
investment in I.C.H. Corporation and certain real estate. Also included in
1995 is a $4,000 litigation settlement charge.
Years Ended December 31,
1996 1995
Revenues $601,518 $490,008
Net income $ 55,988 $ 23,781
Earnings per share $ 4.02 $ 1.59
On October 31, 1996, REALIC acquired, for a purchase price of $21,713,
100% of the common stock of New American Life Insurance Company from a
subsidiary of General Accident plc. The fair value of assets acquired,
consisting primarily of invested assets, was $136,135, and the liabilities
assumed, principally future policy benefits, aggregated $114,422. At the
purchase date, this company was merged with and into REALIC.
Effective May 31, 1996, REALIC acquired a block of insurance in force
under an assumption reinsurance agreement whereby it assumed liabilities for
future policy benefits totaling $124,245. Assets totaling $107,334,
principally cash, were transferred to REALIC by the ceding company.
Effective July 1, 1996, the Company purchased 20% of the common stock
of Resource Financial Corporation ("RFC") for $200 and on September 30, 1996,
purchased $15,000 of preferred stock and $5,000 of long term debt of a
wholly owned subsidiary of RFC. RFC and its subsidiary, Resource Life
Insurance Company, were organized for the purpose of acquiring certain
assets and operations from subsidiaries of Aon Corporation ("Aon"). RFC
provides insurance product distribution and administrative and financial
services for the retail automobile industry throughout the United States.
Also effective July 1, 1996, the Company entered into reinsurance
agreements with affiliates of Aon and with Resource Life Insurance Company
which provide for the Company to reinsure automobile credit insurance
produced through RFC or its predecessor, a substantial portion of which is
retroceded by the Company.
In connection with the foregoing transactions, the Company entered into
an agreement whereby it pays contingent consideration for a period of five
years to a subsidiary of Aon based on premiums produced through RFC
subsequent to June 30, 1996.
4. Policy Revenues and Policy Acquisition Costs
<TABLE>
<CAPTION>
Policy revenues are as follows: Years Ended December 31,
1996 1995 1994
<S> <C> <C> <C>
Ordinary life reinsurance $268,902 $243,672 $224,998
Group life reinsurance 23,213 24,442 23,913
Group accident and health and
special risk reinsurance 139,653 112,403 101,964
Administrative
Reinsurance(service mark) 18,013 2,714 --
Automobile credit reinsurance 1,211 -- --
Total policy revenues $450,992 $383,231 $350,875
</TABLE>
<TABLE>
<CAPTION>
Policy revenues by type are as follows:
<S> <C> <C> <C> <C> <C> <C>
Short-term accident and health insurance:
Assumed $ 179,549 $ 128,934 $ 137,505
Ceded (39,329) (16,765) (37,140)
Net short-term accident and
health policy revenues 140,220 112,169 100,365
Percentage of amount assumed to net 128% 115% 137%
Short-term life insurance:
Assumed 53,164 28,576 29,664
Ceded (29,517) (4,134) (5,750)
Net short-term life policy
revenues 23,647 24,442 23,914
Percentage of amount assumed to net 225% 117% 124%
Long-term life insurance:
Primary 19,521 2,792 --
Assumed 331,282 292,920 277,269
Ceded (63,678) (49,092) (50,673)
Net long-term life policy
revenues 287,125 246,620 226,596
Percentage of amount assumed to net 115% 119% 122%
Total policy revenues $ 450,992 $ 383,231 $ 350,875
Percentage of amount assumed to net 125% 118% 127%
Life insurance in force:
Primary $ 4,519,000 $ 1,185,000 --
Assumed 111,493,000 90,098,000 81,213,000
Ceded (19,679,000) (15,500,000) (15,040,000)
Net life insurance in force $ 96,333,000 $ 75,783,000 $ 66,173,000
Percentage of amount assumed to net 116% 119% 123%
</TABLE>
<TABLE>
<CAPTION>
Changes in deferred policy acquisition costs and value of business
acquired are as follows:
Years Ended December 31,
<S> <C> <C> <C>
1996 1995 1994
Balance, beginning of year $166,424 $165,023 $ 144,676
Acquisitions and in force
reinsurance transactions 35,624 20,183 12,195
Capitalization of costs of
acquiring new business 33,779 12,371 13,430
Interest accretion 15,888 15,685 14,166
Amortization (32,740) (30,914) (31,380)
Amortization related to
realized gains -- (494) --
Valuation adjustment for
unrealized (gains) losses 4,997 (15,430) 11,936
Balance, end of year $223,972 $166,424 $165,023
</TABLE>
The value of business acquired attributable to the acquisition of LRCA
is amortized with interest at 15% and the value of business acquired
attributable to acquisitions at REALIC is amortized with interest at rates
ranging from 2.5% to 6.5%. The percentage of the value of business acquired
which is expected to be amortized in each of the next five years is 6.1%,
5.7%, 5.4%, 5.1% and 4.8%.
5. Investments
Securities with a fair value of $110,246 at December 31, 1996 are
owned by a ceding company and held in a dedicated portfolio in conjunction
with an indemnity reinsurance agreement. Under the terms of the agreement,
investment income, realized gains and losses and all other risks and rewards
of ownership of the assets in the portfolio inure to the benefit or
detriment of the Company. Accordingly, these assets, consisting of $109,895
of fixed maturities classified as available for sale and $351 of short-term
investments at December 31, 1996, have been included as investments in the
accompanying balance sheet. The portfolio is managed by the Company's
primary investment advisor under guidelines approved by both parties to the
reinsurance agreement, subject to the requirement that the statutory
carrying value of the assets in the dedicated portfolio must be maintained
by the Company in an amount at least equal to the statutory reserves on the
reinsured business.
Securities with a fair value of $68,204 at December 31, 1996 were on
deposit with various governmental insurance regulatory agencies to comply
with applicable insurance laws.
Net unrealized appreciation of available for sale securities is as
follows:
Years Ended December 31,
1996 1995
Net unrealized gains on
securities $39,745 $82,510
Deferred federal income tax on
net unrealized gains 13,910 28,879
Net unrealized gains 25,835 53,631
Adjustment to deferred policy
acquisition costs and value of business
acquired on interest sensitive
life insurance products (1,508) (6,505)
Deferred federal income tax benefit on
adjustment (527) (2,277)
Net adjustment (981) (4,228)
Net unrealized appreciation
of securities $24,854 $49,403
The amortized cost, unrealized gains and losses and estimated fair
values of available for sale securities are as follows(see Note 2 for a
discussion of the fair value of financial instruments):
<TABLE>
<CAPTION>
Gross Gross
December 31, 1996 Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed maturities:
U.S. government
obligations $ 13,421 $ 160 $ 16 $ 13,565
Foreign government
obligations 25,318 1,523 23 26,818
Public utilities 219,987 9,052 1,644 227,395
Corporate securities 1,042,825 34,636 11,065 1,066,396
Mortgage-backed
securities 374,216 8,753 2,669 380,300
Redeemable preferred
stock 5,772 351 8 6,115
1,681,539 54,475 15,425 1,720,589
Equity securities 20,841 695 -- 21,536
$1,702,380 $55,170 $15,425 $1,742,125
Gross Gross
Amortized Unrealized Unrealized Fair
December 31, 1995 Cost Gains Losses Value
Fixed maturities:
U.S. government
obligations $ 4,906 $ 285 $ 2 $ 5,189
Foreign government
obligations 32,558 935 24 33,469
Public utilities 242,009 16,123 624 257,508
Corporate securities 715,981 54,093 3,623 766,451
Mortgage-backed
securities 359,819 15,322 591 374,550
Redeemable preferred
stock 3,823 59 5 3,877
1,359,096 86,817 4,869 1,441,044
Equity securities 16,051 652 90 16,613
$1,375,147 $87,469 $4,959 $1,457,657
At December 31, 1996, the contractual maturities of investments in fixed
maturities are as follows:
</TABLE>
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
<S> <C> <C> <C>
Due in one year or less $ 14,732 $ 15,261
Due after one year through five years 98,058 100,317
Due after five years through ten years 365,684 372,113
Due after ten years 828,849 852,598
Mortgage-backed securities 374,216 380,300
Total fixed maturities $1,681,539 $1,720,589
</TABLE>
Investments in any entity in excess of ten percent of shareholders'
equity at December 31, 1996, other than investments issued or guaranteed
by the U.S. Government, are as follows:
Fair Value
Fixed maturities:
Green Tree Financial Corporation $ 29,471
Federal National Mortgage Association $ 91,478
Federal Home Loan Mortgage Corporation $149,540
Major sources and related amounts of investment income are as follows:
Years Ended December 31,
1996 1995 1994
Fixed maturities $120,759 $ 95,391 $79,867
Short-term investments 1,901 3,010 1,518
Other 3,905 1,931 2,675
Total investment income 126,565 100,332 84,060
Investment expenses (2,225) (1,716) (1,622)
Total investment income $124,340 $ 98,616 $82,438
The changes in unrealized gains (losses) on securities are as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
1996 1995 1994
<S> <C> <C> <C>
Fixed maturities $(42,898) $141,971 $(112,193)
Equity securities 133 374 (399)
Change in unrealized
gains (losses) $(42,765) $142,345 $(112,592)
</TABLE>
Realized investment gains are as follows:
Years Ended December 31,
Sales: 1996 1995 1994
[S] [C] [C] [C]
Realized gains $18,744 $ 6,497 $ 2,581
Realized losses (3,383) (1,973) (2,212)
Net realized gains on sales 15,361 4,524 369
Calls, maturities and writedowns:
Realized gains 3,253 1,006 1,164
Realized losses (194) (464) (164)
Writedowns (533) (869) (1,280)
Net realized gains (losses) on
calls, maturities and writedowns 2,526 (327) (280)
Amortization of value of business
acquired -- (495) --
Related expenses (677) -- --
Total realized investment gains $17,210 $ 3,702 $ 89
On March 18, 1996, Life Re Corporation sold its equity investment in Nacolah
Holding Corporation ("Nacolah"), the parent of The North American Company for
Life and Health Insurance, in connection with the acquisition of Nacolah by
Sammons Enterprises, Inc. The Company received proceeds of $25,057 and
recorded a realized investment gain of $13,540.
6. Policy Benefit Liabilities
Policy benefit liabilities consist of the following:
<TABLE>
<CAPTION>
Years Ended December 31, Interest
1996 1995 Rate Range
<S> <C> <C> <C> <S><C>
Future policy benefits under
life insurance and annuity
contracts:
Traditional life $ 846,747 $ 674,968 6.0% - 9.5%
Interest sensitive life 521,837 335,049 5.0% - 7.5%
Annuities 344,086 271,138 6.5% - 9.0%
Group life 10,410 10,265 2.5% - 5.5%
1,723,080 1,291,420
Claims payable under life
insurance contracts 94,117 70,006
Accident and health insurance
claim reserves 127,061 97,677 3.0% - 7.0%
Other policy benefits 38,037 27,831
Total policy benefits $1,982,295 $1,486,934
</TABLE>
The Company's accident and health insurance business is of short
duration and generally claims are reported within a short period of time
after incurral. In the aggregate, there have been no material favorable
or adverse developments affecting accident and health insurance claims
reserves in 1996, 1995 or 1994.
7. Income Taxes
TexasRe and LRCA file a consolidated federal income tax return with
Life Re Corporation. REALIC files a separate federal income tax return.
The provisions for federal income taxes are as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
1996 1995 1994
<S> <C> <C> <C>
Current $ 4,065 $10,270 $17,685
Deferred 17,825 8,906 794
Provision for federal income taxes $21,890 $19,176 $18,479
</TABLE>
The deferred income tax balances, included in other liabilities, are
as follows:
Years Ended December 31,
1996 1995
Deferred tax liabilities:
Deferred policy acquisition costs $39,047 $20,996
Net unrealized appreciation
of securities 13,910 28,879
Value of business acquired and
other purchase adjustments 21,157 17,417
Policy receivables, net 1,086 1,641
Total deferred tax liabilities 75,200 68,933
Deferred tax assets:
Policy benefits, net 30,884 29,079
Other investment items 2,584 152
Net operating loss carryforwards 211 5,230
Other, net 2,843 1,054
Total deferred tax assets 36,522 35,515
Valuation allowance for deferred
tax assets -- (4,775)
Net deferred tax assets 36,522 30,740
Net deferred tax liabilities $38,678 $38,193
The Company paid federal income taxes of $13,500, $13,145 and $18,400
in 1996, 1995 and 1994, respectively. At December 31, 1996 income taxes
recoverable of $7,937 are included in other assets and at December 31, 1995
income taxes payable of $2,062 were included in other liabilities.
In 1995 and 1994, the effective income tax rate on income before
federal income taxes and extraordinary charge did not vary materially from
the statutory federal income tax rate. The realized gain on the sale of
Nacolah in 1996 (Note 5) and other income permitted the utilization of tax
net operating loss carryforwards available to Life Re Corporation and a
corresponding reversal of the previously established deferred tax valuation
allowance, resulting in a tax benefit of $4,775. This reduced the
effective income tax rate in 1996 to 29%.
8. Loans Payable
On November 2, 1995, the Company amended and restated its then
existing credit agreement (the "1992 Credit Agreement") to convert the
facility to a senior secured revolving and term loan with a total
commitment of $160,000 (the "Amended and Restated Credit Agreement").
Under the Amended and Restated Credit Agreement, at the conclusion of the
revolving loan period, the loan converts to a five year amortizing term
loan in a principal amount equal to the balance of the revolving loan at
conversion. During 1996, the maturity date of the revolving loan period
was extended to January 1999 and may, with bank consent, be extended for an
additional one year period. As of December 31, 1996, borrowings were
$125,000. Unamortized deferred loan costs associated with the 1992 Credit
Agreement of $1,545, before federal income tax benefit of $541, were
charged to income in 1995 as an extraordinary charge.
Borrowings under the Amended and Restated Credit Agreement are
secured by a first priority perfected security interest in all of the
capital stock and surplus debentures of TexasRe and a negative pledge with
respect to the capital stock of LRCA.
The Amended and Restated Credit Agreement contains certain covenants
which, among other things, restrict under certain circumstances the payment
of dividends and repurchase of treasury stock. Further, certain actions of
the Company are limited, including those related to mergers, acquisitions,
indebtedness and investments. The Company and the life insurance
subsidiaries are required to meet certain financial ratios and maintain a
minimum level of statutory surplus.
Interest is payable at a rate or rates equal to i) the greater of (a)
the bank's reference rate or (b) the federal funds rate plus 0.50% (the
"Alternative Reference Rate" or "ARR") or ii) a margin plus a eurodollar
interbank offered rate ("IBOR"). The applicable margin over IBOR is
adjustable based on the Company's indebtedness to capitalization ratio as
defined, at the end of each quarter.
Principal payments are due on January 5 of each year as follows
(assuming no additional extension of the revolving loan):
Percent of
Principal
Outstanding
at Conversion
Year to Term Loan
1999 12.5%
2000 15.625%
2001 21.875%
2002 25.0%
2003 25.0%
At December 31, 1996, the outstanding borrowings bear interest at an
annual effective rate of 6.0%. Interest paid on outstanding loans was
$8,774, $9,807 and $8,146 in 1996, 1995 and 1994, respectively.
9. Shareholders' Equity
During 1996, pursuant to the terms of stock repurchase programs
approved by the Company's Board of Directors, the Company purchased 581,500
shares of its common stock for an aggregate purchase price of $16,206.
Through December 31, 1996, 2,126,700 shares out of a total authorization by
the Company's Board of Directors to repurchase 3,000,000 shares have been
acquired for a total purchase price of $45,691. Treasury stock also
reflects the repurchase of shares of stock from certain officers in
accordance with the terms of their stock purchase agreements.
Under the Company's Certificate of Incorporation, 5,000,000 shares of
preferred stock are available for future issuance without shareholder
approval. The rights, terms and preferences of the preferred stock may be
determined by the Company's Board of Directors.
The availability of funds to meet obligations, including dividends
and debt service, is dependent, in part, on the ability of TexasRe to
transfer funds to Life Re Corporation. The subsidiaries are subject to
certain state laws and regulations which limit their ability to transfer
funds and pay dividends. Generally, the subsidiaries may not, without
prior regulatory approval, transfer cash dividends, loans or advances in
any twelve month period in excess of the greater of the prior year's
statutory operating income or 10% of capital and surplus at the preceding
year end. Additionally, under Connecticut law, no dividend in an amount
exceeding LRCA's earned surplus may be paid without prior regulatory
approval. Approval has been received from the Connecticut Department of
Insurance to define earned surplus for this purpose to include amounts of
paid in surplus in excess of $125,000.
At December 31, 1996, subsidiary net assets, determined in accordance
with generally accepted accounting principles, comprised approximately
$250,000 of shareholders' equity, of which $16,315 is available for
transfer in 1997 without prior approval of state regulatory authorities.
Dividends paid to Life Re Corporation by TexasRe were $12,087 in 1996,
$15,000 in 1995 and none in 1994.
Life Re Corporation owns $160,500 of surplus debentures issued by
TexasRe which provide funds to Life Re Corporation in the form of principal
and interest payments. Under the terms of an amendment to TexasRe's
surplus debentures, no prior approval of the Texas Department of Insurance
is required to pay or prepay scheduled principal or interest on the surplus
debentures provided that, after giving effect to any such payment, the
statutory surplus of TexasRe exceeds $125,000. Payments of surplus
debenture principal and interest to Life Re Corporation by TexasRe totaled
$10,008, $29,400 and $7,305 in 1996, 1995 and 1994, respectively.
The amendment to TexasRe's surplus debentures was approved under the
consideration that statutory surplus, as defined, in excess of $125,000 be
reflected in liabilities to the extent of outstanding surplus debenture
interest and principal. Accordingly, at December 31, 1996, surplus
debentures of $50,831 were reclassified to liabilities.
The subsidiaries' statutory basis financial statements are prepared
in accordance with accounting practices prescribed or permitted by their
respective domiciliary states. "Prescribed" statutory accounting practices
include state laws, regulations and general administrative rules, as well
as publications of the National Association of Insurance Commissioners
("NAIC"). "Permitted" statutory accounting practices encompass all
accounting practices that are not prescribed; such practices may differ
from state to state, may differ from company to company within a state and
may change in the future. The Company does not utilize any permitted
accounting practices. The NAIC currently is in the process of codifying
statutory accounting practices. That project, when completed, may change
prescribed statutory accounting practices and thus may result in changes to
the accounting practices that the subsidiaries use to prepare their
statutory basis financial statements.
<TABLE>
<CAPTION>
The combined statutory basis financial position of the subsidiaries
as of December 31, 1996 and 1995 is as follows:
<S> <C> <C> <C> <C> <C>
REALIC LRCA TexasRe Eliminations* Total
December 31, 1996:
Assets $717,898 $1,434,253 $188,274 $(318,300) $2,022,125
Liabilities $684,663 $1,261,357 $ 62,574 $(112,169) $1,896,425
Capital and surplus 33,235 172,896 125,700 (206,131) 125,700
$717,898 $1,434,253 $188,274 $(318,300) $2,022,125
December 31, 1995:
Assets $353,275 $1,243,408 $186,781 $(192,545) $1,590,919
Liabilities $336,074 $1,069,785 $ 61,081 $ (1,721) $1,465,219
Capital and surplus 17,201 173,623 125,700 (190,824) 125,700
$353,275 $1,243,408 $186,781 $(192,545) $1,590,919
</TABLE>
* Represents the elimination of intercompany balances.
Combined statutory basis net income totaled $16,315, $27,087 and
$28,236 in 1996, 1995 and 1994, respectively.
10. Stock Options
At December 31, 1996, 2,875,375 shares of authorized common stock
are reserved for issuance under two stock option plans, the Life Re
Corporation Stock Option Plan and the 1993 Non-Employee Directors Stock
Option Plan. The plans provide for the granting to certain officers,
employees and directors of nonqualified stock options or incentive stock
options. Options are granted at no less than fair value on the date of
grant for a period not in excess of ten years. They vest over periods of
four to five years or in full upon the occurrence of certain events
including a change in control of the Company.
Effective in 1996, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting for Stock
Based Compensation" ("FAS 123"), which provides for employee stock options
to be measured at fair value on the date of grant which is then amortized
to expense over the options' vesting period. As permitted by FAS 123, the
Company has elected to continue to account for its stock options under
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25") and related Interpretations. Under APB 25, the
Company does not incur any expense at the date of grant because the
exercise price of the stock options equals the market price of the
underlying stock on that date.
FAS 123 requires the disclosure of pro forma information regarding
net income and earnings per share as if the Company had accounted for its
employee stock options under the fair value method of FAS 123. The fair
value of the options for the pro forma disclosures which follows was
estimated using a Black-Scholes option pricing model with the following
assumptions for 1996 and 1995, respectively: risk-free interest rates
ranging from 5.4% to 6.8% and 6.8% to 7.7%, respectively; dividend yields
of 1.0% in each year; volatility factors for the expected market price of
the Company's common stock of 25% in each year; and weighted-average
expected life of the options of five years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. Option valuation models require
the input of highly subjective assumptions including the expected stock
price volatility. Because the Company's employee stock options have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect
the fair value estimate, in management's opinion, the existing models do
not necessarily provide a reliable single measure of the fair value of its
employee stock options.
Pro forma net income and earnings per share including the effects of
amortization of the estimated fair values of employee stock options
granted after December 15, 1994 are as follows:
Years Ended December 31,
1996 1995
Pro forma net income $53,116 $34,299
Pro forma earnings per share $3.82 $2.30
Options outstanding are as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
Weighted-Average Weighted-Average Weighted-Average
Options Exercise Price Options Exercise Price Options Exercise Price
Balance,
beginning
of year 1,258,500 $20.89 912,500 $21.40 647,500 $21.99
Granted 714,000 $26.61 368,000 $19.60 288,000 $20.10
Exercised (169,625) $20.58 (5,000) $22.00 -- --
Canceled (8,750) $22.70 (17,000) $20.05 (23,000) $21.73
Balance,
end of year 1,794,125 $23.19 1,258,500 $20.89 912,500 $21.40
Exercisable
at end of
year 487,225 $21.45 476,750 $21.72 269,625 $22.00
Weighted-average
fair value of
options granted
during the year $ 8.12 $ 6.39
</TABLE>
Exercise prices for options outstanding as of December 31, 1996 range
from $16.63 to $38.63. The weighted-average remaining contractual life of
those options is eight years.
11. Employee Benefit Plans
Substantially all full time employees are covered by a
noncontributory defined benefit pension plan. Benefits are determined by a
formula which relates the pension payable to years of service at
retirement, final five year average salary and wages covered by Social
Security. Annual contributions to the plan are sufficient to satisfy legal
funding requirements. In addition, the Company adopted an unfunded
Supplemental Executive Retirement Plan in 1995, which is a nonqualified
plan that provides certain officers defined pension benefits in excess of
limits imposed by federal tax law. The Company also sponsors a defined
contribution savings plan covering substantially all employees with at
least six months of service. The Company contributes 50% of the first 6%
of salary contributed by employees. Participants vest in Company
contributions over a four year period. The combined expense associated
with employee benefit plans was $1,151, $1,031 and $515 in 1996, 1995 and
1994, respectively.
12. Reinsurance Ceded
In the normal course of business, the Company seeks to limit its
exposure to loss by ceding reinsurance to retrocessionaires. In general,
the Company retains a maximum of $1,000 on any one life for ordinary life
insurance business with certain limited exceptions depending upon age and
classification of the risk. Amounts in excess of the retention are ceded
to a pool of retrocessionaires. From time to time, the Company has also
entered into quota share retrocessional agreements. In general, the
Company's policy in regard to group insurance business is to retain not
more than $250 of liability on any one life insurance risk, $300 on any
one accident or health insurance risk or, for special risk insurance,
$1,000 on any one risk. The Company has agreements with group
retrocessionaires primarily on an excess basis. Contracts for reinsurance
ceded do not relieve the Company from its obligations under contracts for
reinsurance assumed. Failure of retrocessionaires to honor their
obligations could result in losses to the Company; however, no amounts are
deemed uncollectible at December 31, 1996.
Amounts receivable on reinsurance ceded are as follows:
1996 1995
Future policy benefits under life insurance
contracts $213,001 $161,258
Claims payable under life insurance
contracts 19,752 13,602
Accident and health insurance claims
reserves 27,446 21,539
Other policy benefits 14,478 1,701
Acquisition costs payable 2,948 11,213
Total amounts receivable on reinsurance ceded $277,625 $209,313
The Company's policy generally is to require collateral from those
retrocessionaires not authorized to conduct reinsurance business in
Connecticut, LRCA's domiciliary state, in an amount at least equal to the
statutory reserves reinsured. Collateral is provided in the form of
letters of credit and trust agreements. Amounts receivable from one
retrocessionaire at December 31, 1996 accounted for 10.5% of total amounts
receivable on reinsurance ceded and is fully collateralized.
Policy benefits recovered on reinsurance ceded for the years ended
December 31, 1996, 1995 and 1994 were $75,971, $90,435 and $55,415,
respectively.
13. Commitments and Contingencies
Future lease commitments under noncancelable leases for the Company's
premises are approximately $1,000 in each of the next five years and total
$8,000.
The Company and a ceding company are in arbitration concerning the
terms of a reinsurance agreement. The Company does not believe that the
outcome will have a material adverse effect on results of operations or
financial position.
14. Unaudited Quarterly Financial Data
<TABLE>
<CAPTION>
1996 First Second Third Fourth
Quarter Quarter Quarter Quarter Total
<S> <C> <C> <C> <C> <C>
Policy revenues $100,728 $104,467 $123,750 $122,047 $450,992
Total revenues $143,588 $133,603 $157,346 $158,005 $592,542
Total benefits
and expenses 119,871 117,638 141,273 137,669 516,451
Income before federal
income taxes 23,717 15,965 16,073 20,336 76,091
Provision for federal
income taxes 3,561 5,588 5,623 7,118 21,890
Net income $ 20,156 $ 10,377 $ 10,450 $13,218 $54,201
Earnings per share:
Net income $ 1.43 $ .74 $ .76 $ .95 $ 3.89
1995
Policy revenues $ 92,564 $ 93,977 $ 94,232 $102,458 $383,231
Total revenues $114,481 $116,260 $121,916 $132,892 $485,549
Total benefits
and expenses 107,477 101,544 108,030 113,710 430,761
Income before federal
income taxes
and extraordinary
charge 7,004 14,716 13,886 19,182 54,788
Provision for federal
income taxes 2,451 5,151 4,860 6,714 19,176
Income before
extraordinary
charge 4,553 9,565 9,026 12,468 35,612
Extraordinary charge -- -- -- 1,004 1,004
Net income $ 4,553 $ 9,565 $ 9,026 $11,464 $34,608
Earnings per share:
Income before
extraordinary
charge $ .29 $ .63 $ .61 $ .87 $ 2.39
Extraordinary
charge -- -- -- .07 .07
Net income $ .29 $ .63 $ .61 $ .80 $ 2.32
</TABLE>
Due to changes in the number of average shares outstanding, quarterly
earnings per share do not add to the total.
<TABLE>
<CAPTION>
Life Re Corporation and Subsidiaries
Condensed Financial Information of Registrant
Schedule II
Life Re Corporation
Balance Sheets
(Parent Company)
<S> <C> <C>
December 31, 1996 1995
(In thousands, except share data)
ASSETS
Investment in common stock of wholly owned subsidiaries (1) $250,483 $243,335
Surplus debentures of wholly owned subsidiary (1) 160,500 160,500
Securities available for sale 202 11,203
Short-term investments 1,699 630
Cash 175 151
Interest receivable on surplus debentures (1) 608 724
Due from subsidiaries (1) -- 1,509
Other assets 11,781 3,443
Total assets $425,448 $421,495
LIABILITIES
Accrued expenses and other liabilities $ 2,085 $ 2,182
Due to subsidiaries (1) 8,252 --
Loans payable 125,000 140,000
Total liabilities 135,337 142,182
SHAREHOLDERS' EQUITY
Common stock (par value $.001 per share;
authorized 40,000,000 shares; issued 15,700,935 and
15,531,310 shares, respectively) 16 16
Paid in capital 105,226 101,582
Net unrealized appreciation of securities 24,854 49,403
Retained earnings 206,822 158,075
Treasury stock - at cost (2,172,769 and
1,557,969 shares, respectively) (46,807) (29,763)
Total shareholders' equity 290,111 279,313
Total liabilities and shareholders' equity $425,448 $421,495
</TABLE>
(1) Eliminated in consolidation.
The condensed parent company financial statements should be read in
conjunction with the consolidated financial statements of Life Re
Corporation and Subsidiaries included elsewhere herein.
<TABLE>
<CAPTION>
Life Re Corporation and Subsidiaries
Condensed Financial Information of Registrant
Schedule II - continued
Life Re Corporation
Statements of Income
(Parent Company)
<S> <C> <C> <C>
Years Ended December 31, 1996 1995 1994
(In thousands)
REVENUES
Interest income on surplus debentures of
wholly owned subsidiary (1) $ 9,892 $11,402 9,445
Investment income 767 1,788 2,920
Realized investment gains (losses) 12,767 61 (2,300)
Total revenues 23,426 13,251 10,065
EXPENSES
Interest expense 8,356 10,743 9,103
Other operating expenses 4,647 2,626 2,126
Total expenses 13,003 13,369 11,229
Income before income taxes,
equity in undistributed earnings
of wholly owned subsidiaries and
extraordinary charge 10,423 (118) (1,164)
Provision for federal income taxes (benefit) 6 (42) --
Income before equity in undistributed
earnings of wholly owned subsidiaries
and extraordinary charge 10,417 (76) (1,164)
Equity in earnings of subsidiaries (1) 43,784 35,688 35,482
Income before extraordinary charge 54,201 35,612 34,318
Extraordinary charge, net of tax benefit -- 1,004 --
NET INCOME $54,201 $34,608 $34,318
</TABLE>
(1) Eliminated in consolidation.
The condensed parent company financial statements should be read in
conjunction with the consolidated financial statements of Life Re
Corporation and Subsidiaries included elsewhere herein.
Certain reclassifications have been made to the prior year amounts to
conform to the current year presentation.
<TABLE>
<CAPTION>
Life Re Corporation and Subsidiaries
Condensed Financial Information of Registrant
Schedule II - continued
Life Re Corporation
Statements of Cash Flows
(Parent Company)
<S> <C> <C> <C>
Years Ended December 31, 1996 1995 1994
(In thousands)
OPERATING ACTIVITIES
Net income $ 54,201 $ 34,608 $34,318
Extraordinary charge 1,004
Adjustments to reconcile net income
to net cash used by operating activities
Equity in earnings of subsidiaries (1) (43,784) (35,688) (35,482)
Interest on surplus debentures of
subsidiary (1) (9,892) (11,402) (9,445)
Realized gains on investments (12,767) (61) 2,300
Other 950 335 473
Net cash used by operating activities (11,292) (11,204) (7,836)
INVESTING ACTIVITIES
Purchases of securities (200) (3,162) (13,683)
Sales of securities 25,057 5,266 25,069
Change in short-term investments (1,069) (350) 4,589
Surplus debenture interest received from
subsidiary (1) 10,008 19,400 2,305
Dividends received from subsidiary (1) 12,087 15,000 --
Repayment of surplus debenture principal
by subsidiary (1) -- 10,000 5,000
Purchases of furniture and equipment, net (829) (878) (733)
Net cash provided by investing
activities 45,054 45,276 22,547
FINANCING ACTIVITIES
Purchases of common stock for treasury (16,861) (29,497) --
Proceeds from exercises of common stock
options 3,570 -- --
Loan principal repayments (15,000) -- (10,000)
Fees related to amendments
to credit agreement -- (404) (550)
Dividends on common stock (5,454) (4,123) (3,724)
Other 7 4 --
Net cash used by financing activities (33,738) (34,020) (14,274)
Increase in cash 24 52 437
Cash balance at beginning of period 151 99 (338)
Cash balance at end of period $ 175 $ 151 $ 99
</TABLE>
(1) Eliminated in consolidation.
The condensed parent company financial statements should be read in
conjunction with the consolidated financial statements of Life Re
Corporation and Subsidiaries included elsewhere herein.
Certain reclassifications have been made to the prior year amounts to
conform to the current year presentation.
ITEM 9
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
None.
PART III
ITEM 10
Directors and Executive Officers of the Registrant
The information required by Item 10 is hereby incorporated by reference
from the Registrant's definitive proxy statement to be filed with the
Commission pursuant to Regulation 14A within 120 days after December 31,
1996.
ITEM 11
Executive Compensation
The information required by Item 11 is hereby incorporated by reference
from the Registrant's definitive proxy statement to be filed with the
Commission pursuant to Regulation 14A within 120 days after December 31,
1996.
ITEM 12
Security Ownership of Certain Beneficial Owners and Management
The information required by Item 12 is hereby incorporated by reference
from the Registrant's definitive proxy statement to be filed with the
Commission pursuant to Regulation 14A within 120 days after December 31,
1996.
ITEM 13
Certain Relationships and Related Transactions
The information required by Item 13 is hereby incorporated by reference
from the Registrant's definitive proxy statement to be filed with the
Commission pursuant to Regulation 14A within 120 days after December 31,
1996.
PART IV
ITEM 14
Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) The following documents are filed or incorporated by reference as part
of this Form 10-K:
1. Financial Statements
The audited consolidated financial statements of Life Re and the
related auditor's report listed in the Index to Financial
Statements and Financial Statement Schedule appearing on page 37.
2. Financial Statement Schedule
The schedule listed in the Index to Financial Statements and
Financial Statement Schedule appearing on page 65.
3. Exhibits
The accompanying Exhibit Index appearing on page 72 is
incorporated herein by reference. The exhibits listed in the
Exhibit Index are filed or incorporated by reference as part of
this Form 10-K.
(b) A Current Report on Form 8-K was filed with the Securities and Exchange
Commission on October 21, 1996 regarding the acquisition of New
American Life Insurance Company. No other reports on Form 8-K were
filed with the Securities and Exchange Commission during the three
months ended December 31, 1996.
Pursuant to the requirements of Section 13 or 15(d) 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.
LIFE RE CORPORATION
March 28, 1997 By: /s/Rodney A. Hawes, Jr.
Rodney A. Hawes, Jr.
Chairman of the Board,
Chief Executive Officer,
Office of the Chairman and Director
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Chairman of the Board, Chief
/s/Rodney A. Hawes, Jr. Executive Officer, Office of March 28, 1997
Rodney A. Hawes, Jr. the Chairman and Director
Vice Chairman of the Board,
/s/Douglas M. Schair Chief Investment Officer, March 28, 1997
Douglas M. Schair Office of the Chairman and
Director
President, Chief Operating
/s/Jacques E. Dubois Officer, Office of the March 28, 1997
Jacques E. Dubois Chairman and Director
Executive Vice President,
/s/Chris C. Stroup Chief Financial Officer, March 28, 1997
Chris C. Stroup (principal accounting officer
and principal financial
officer) and Director
/s/Samuel V. Filoromo Vice President - Operations March 28, 1997
Samuel V. Filoromo and Director
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/Carolyn K. McCandless Director March 28, 1997
Carolyn K. McCandless
/s/K. Fred Skousen Director March 28, 1997
K. Fred Skousen
/s/T. Bowring Woodbury, II Director March 28, 1997
T. Bowring Woodbury, II
LIFE RE CORPORATION
EXHIBIT INDEX
Sequential
Exhibit Page
Number Description of Exhibit Number
2.01 Stock Purchase Agreement, dated as of April
24, 1995, by and among John Deere Insurance
Group, Inc., Tahoe Insurance Company, Rock
River Insurance Company and Life Reassurance
Corporation of America ("Life Reassurance"),
incorporated by reference to Exhibit 2.1 of
the Life Re Corporation (the "Company") Form
10-Q for the quarterly period ended March 31,
1995, as filed with the Securities and
Exchange Commission on May 15, 1995.
2.02 Stock Purchase Agreement, dated as of April
2, 1996, by and between Bankers Multiple Line
Insurance Company and Reassure America Life
Insurance Company with respect to all of the
outstanding capital stock of Modern American
Life Insurance Company and Western Pioneer
Life Insurance Company, incorporated by
reference to Exhibit 2.1 of the Life Re
Corporation Current Report on Form 8-K, Date
of Report April 2, 1996, as filed with the
Securities and Exchange Commission on April
17, 1996.
2.03 Stock Purchase Agreement, dated as of June
30, 1996, between Combined Insurance Company
of America and Resource Financial
Corporation, and, for purposes of Section 5.9
only, Life Re Corporation, incorporated by
reference to Exhibit 2.02 of the Company's
Form 10-Q for the quarterly period ended June
30, 1996, as filed with the Securities and
Exchange Commission on August 13, 1996.
2.04 Subscription Agreement and Letter of
Investment Intent, dated as of June 30, 1996,
between Resource Financial Corporation and
Life Re Corporation, incorporated by
reference to Exhibit 2.03 of the Company's
Form 10-Q for the quarterly period ended June
30, 1996, as filed with the Securities and
Exchange Commission on August 13, 1996.
2.05 Stock Purchase Agreement, dated as of
October 3, 1996, by and between Farmers and
Merchants Insurance Company and Reassure
America Life Insurance Company with respect
to all of the outstanding capital stock of
New American Life Insurance Company,
incorporated by reference to Exhibit 2.1 of
the Life Re Corporation Current Report on
Form 8-K, Date of Report October 3, 1996,
as filed with the Securities and Exchange
Commission on October 21, 1996.
3.01 Certificate of Incorporation of the Company,
dated June 1, 1988, incorporated by reference
to Exhibit 3.1 of the Company's Registration
Statement on Form S-1 (File No. 33-50556).
3.02 Amendment to the Certificate of Incorporation
of the Company, dated November 10, 1988,
incorporated by reference to Exhibit 3.5 of
the Company's Registration Statement on
Form S-1 (File No. 33-50556).
3.03 Amendment to the Certificate of Incorporation
of the Company, dated December 9, 1988,
incorporated by reference to Exhibit 3.6 of
the Company's Registration Statement on
Form S-1 (File No. 33-50556).
3.04 Amendment to the Certificate of Incorporation
of the Company, dated December 27, 1988,
incorporated by reference to Exhibit 3.7 of
the Company's Registration Statement on
Form S-1 (File No. 33-50556).
3.05 Amendment to the Certificate of Incorporation
of the Company, dated October 14, 1992,
incorporated by reference to Exhibit 3.07 of
the Company's Form 10-K for the fiscal year
ended December 31, 1992, as filed with the
Securities and Exchange Commission on March
31, 1993.
3.06 Amendment to the Certificate of Incorporation
of the Company, dated October 30, 1992,
incorporated by reference to Exhibit 3.08 of
the Company's Form 10-K for the fiscal year
ended December 31, 1992, as filed with the
Securities and Exchange Commission on March
31, 1993.
3.07 By-Laws of the Company, dated August 5, 1992,
incorporated by reference to Exhibit 3.09 of
the Company's Form 10-K for the year ended
December 31, 1992, as filed with the
Securities and Exchange Commission on March
31, 1993.
4.01 Specimen Common Stock Certificate of the
Company, incorporated by reference to Exhibit
4.1 of the Company's Registration Statement
on Form S-1 (File No. 33-50556).
10.01 General Reassurance Company Coinsurance
Treaty, dated as of January 1, 1981, between
Massachusetts Indemnity and Life Insurance
Company and General Reassurance Corporation,
incorporated by reference to Exhibit 10.34 of
the Company's Registration Statement on
Form S-1 (File No. 33-50556).
10.02 Amended and Restated Reinsurance Agreement
#7000-1, effective as of July 1, 1995,
between Liberty Life Insurance Company and
Life Reassurance, incorporated by reference
to Exhibit 10.02 of the Company's Form 10-K
for the year ended December 31, 1995, as
filed with the Securities and Exchange
Commission on March 28, 1996.
10.03 Reinsurance Agreement #501-1 dated
October 1, 1970, between The Guardian Life
Insurance Company of America ("Guardian") and
General Reassurance Corporation, incorporated
by reference to Exhibit 10.37 of the
Company's Registration Statement on Form S-1
(File No. 33-50556).
10.04 Reinsurance Agreement #1348-1, dated
January 2, 1980, between Guardian and General
Reassurance Corporation, as amended,
incorporated by reference to Exhibit 10.38 of
the Company's Registration Statement on
Form S-1 (File No. 33-50556).
10.05 Reinsurance Agreement #2249-2, dated
July 1, 1982, between Guardian and General
Reassurance Corporation, incorporated by
reference to Exhibit 10.39 of the Company's
Registration Statement on Form S-1 (File No.
33-50556).
10.06 Reinsurance Agreement #2316-1, dated
January 1, 1983, between Guardian and General
Reassurance Corporation, incorporated by
reference to Exhibit 10.40 of the Company's
Registration Statement on Form S-1 (File No.
33-50556).
10.07 Reinsurance Agreement #5380-1, dated
April 1, 1986, between Guardian and Life
Reassurance, incorporated by reference to
Exhibit 10.41 of the Company's Registration
Statement on Form S-1 (File No. 33-50556).
10.08 Reinsurance Agreement #5565-1, dated
January 1, 1989, between Guardian and Life
Reassurance, incorporated by reference to
Exhibit 10.42 of the Company's Registration
Statement on Form S-1 (File No. 33-50556).
10.09 Reinsurance Agreement #9000-1, dated
September 30, 1993, between North American
Company for Life and Health Insurance and
Life Reassurance, incorporated by reference
to Exhibit 10.21 of the Company's
Registration Statement on Form S-1 (File No.
33-70922).
10.10 Surplus Debenture No. 1 in the amount of
$180,500,000, dated November 16, 1988, issued
by First of Groves Life Insurance Company to
the Company, incorporated by reference to
Exhibit 10.16 of the Company's Registration
Statement on Form S-1 (File No. 33-50556).
10.11 First Amendment to Surplus Debenture No. 01
of TexasRe Life Insurance Company (Formerly
known as First of Groves Life Insurance
Company), effective November 3, 1992,
incorporated by reference to Exhibit 10.12 of
the Company's Form 10-K for the year ended
December 31, 1994, as filed with the
Securities and Exchange Commission on March
31, 1994.
10.12 Second Amendment to Surplus Debenture No. 01
of TexasRe Life Insurance Company (Formerly
known as First of Groves Life Insurance
Company), effective January 1, 1994,
incorporated by reference to Exhibit 10.13 of
the Company's Form 10-K for the year ended
December 31, 1994, as filed with the
Securities and Exchange Commission on March
31, 1995.
10.13 Third Amendment to Surplus Debenture No. 01
of TexasRe Life Insurance Company (Formerly
known as First of Groves Life Insurance
Company), effective November 1995,
incorporated by reference to Exhibit 10.13 of
the Company's Form 10-K for the year ended
December 31, 1995, as filed with the
Securities and Exchange Commission on March
28, 1996.
10.14 Surplus Debenture No. 2 in the amount of
$80,000,000, dated November 16, 1988, issued
by First of Groves Life Insurance Company to
the Company, incorporated by reference to
Exhibit 10.17 of the Company's Registration
Statement on Form S-1 (File No. 33-50556).
10.15 First Amendment to Surplus Debenture No. 02
of TexasRe Life Insurance Company (Formerly
known as First of Groves Life Insurance
Company), effective November 3, 1992,
incorporated by reference to Exhibit 10.15 of
the Company's Form 10-K for the year ended
December 31, 1994, as filed with the
Securities and Exchange Commission on March
31, 1995.
10.16 Second Amendment to Surplus Debenture No. 02
of TexasRe Life Insurance Company (Formerly
known as First of Groves Life Insurance
Company), effective January 1, 1994,
incorporated by reference to Exhibit 10.16 of
the Company's Form 10-K for the year ended
December 31, 1994, as filed with the
Securities and Exchange Commission on March
31, 1995.
10.17 Third Amendment to Surplus Debenture No. 02
of TexasRe Life Insurance Company (Formerly
known as First of Groves Life Insurance
Company), effective November 6, 1995,
incorporated by reference to Exhibit 10.17 of
the Company's Form 10-K for the year ended
December 31, 1995, as filed with the
Securities and Exchange Commission on March
28, 1996.
10.18 Employment Agreement, effective as of June 9,
1995, between the Company and Rodney A.
Hawes, Jr., incorporated by reference to
Exhibit 10.18 of the Company's Form 10-K for
the fiscal year ended December 31, 1995, as
filed with the Securities and Exchange
Commission on March 28, 1996.
10.19 Employment Agreement, effective as of June 9,
1995, between the Company and Douglas M.
Schair, incorporated by reference to Exhibit
10.19 of the Company's Form 10-K for the
fiscal year ended December 31, 1995, as filed
with the Securities and Exchange Commission
on March 28, 1996.
10.20 Employment Agreement, effective as of June 9,
1995, between the Company and Jacques E.
Dubois, incorporated by reference to Exhibit
10.20 of the Company's Form 10-K for the
fiscal year ended December 31, 1995, as filed
with the Securities and Exchange Commission
on March 28, 1996.
10.21 Life Re Corporation Stock Option Plan,
effective November 3, 1992, incorporated by
reference to Exhibit 10.17 of the Company's
Form 10-K for the fiscal year ended December
31, 1992, as filed with the Securities and
Exchange Commission on March 31, 1993.
10.22 Life Reassurance and its Affiliates Employee
Savings Plan, effective January 1, 1989,
incorporated by reference to Exhibit 10.31 of
the Company's Registration Statement on Form
S-1 (File No. 33-50556).
10.23 Employees' Retirement Plan of Life
Reassurance and its Affiliates, effective
January 1, 1989, as amended on January 1,
1991, incorporated by reference to Exhibit
10.32 of the Company's Registration Statement
on Form S-1 (File No. 33-50556).
10.24 Form of the Life Re Corporation Stock
Investment Plan, incorporated by reference to
Exhibit 4(e) of the Company's Registration
Statement on Form S-8 (File No. 33-54138).
10.25 Form of the Company's Restricted Stock
Purchase Agreement, incorporated by reference
to Exhibit 10.33 of the Company's
Registration Statement on Form S-1 (File No.
33-50556).
10.26 Life Re Corporation 1993 Non-Employee
Directors Stock Option Plan, effective June
9, 1993, incorporated by reference to Exhibit
28.1 of the Company's Form 10-Q for the
quarterly period ended June 30, 1993, as
filed with the Securities and Exchange
Commission on August 16, 1993.
10.27 Amended and Restated Advisory Agreement,
dated November 16, 1988, between Life
Reassurance and Conseco Capital Management,
Inc., incorporated by reference to Exhibit
10.45 of the Company's Registration Statement
on Form S-1 (File No. 33-50556).
10.28 October 1993 Amendment, dated October 1,
1993, to Amended and Restated Advisory
Agreement, dated November 16, 1988, between
Life Reassurance and Conseco Capital
Management, Inc., incorporated by reference
to Exhibit 10.25 of the Company's Form 10-K
for the year ended December 31, 1993, as
filed with the Securities and Exchange
Commission on March 31, 1994.
10.29 Advisory Agreement, dated December 31, 1991,
between Life Reassurance and Liberty Capital
Advisors, Inc., incorporated by reference to
Exhibit 10.46 of the Company's Registration
Statement on Form S-1 (File No. 33-50556).
10.30 Tax Allocation Agreement, effective as of the
first day of the consolidated return taxable
year beginning January 1, 1994 by and among
the Company, TexasRe Life Insurance Company
and Life Reassurance, incorporated by
reference to Exhibit 10.1 of the Company's
Form 10-Q for the quarterly period ended June
30, 1995, as filed with the Securities and
Exchange Commission on August 14, 1995.
10.31 Credit Agreement, dated as of October 27,
1992, among the Company as the Borrower,
various financial institutions, as the
Lenders, Shawmut Bank Connecticut, N.A.
(formerly Connecticut National Bank),
Continental Bank N.A., and The Bank of New
York as Co-Agents, and Continental Bank N.A.,
as Administrative Agent for the Lenders, and
as Syndication Agent, incorporated by
reference to Exhibit 10 of the Company's Form
10-Q for the quarterly period ended September
30, 1992, as filed with the Securities and
Exchange Commission on December 10, 1992.
10.32 First Amendment Dated as of February 3, 1993
to Credit Agreement, dated as of October 27,
1992, among the Company as the Borrower,
various financial institutions, as the
Lenders, Shawmut Bank Connecticut, N.A.
(formerly Connecticut National Bank),
Continental Bank N.A., and The Bank of New
York as Co-Agents, and Continental Bank N.A.,
as Administrative Agent for the Lenders, and
as Syndication Agent, incorporated by
reference to Exhibit 10.29 of the Company's
Form 10-K for the year ended December 31,
1993, as filed with the Securities and
Exchange Commission on March 31, 1994.
10.33 Waiver and Second Amendment Dated as of March
17, 1993 to Credit Agreement, dated as of
October 27, 1992, among the Company as the
Borrower, various financial institutions, as
the Lenders, Shawmut Bank Connecticut, N.A.
(formerly Connecticut National Bank),
Continental Bank N.A., and The Bank of New
York as Co-Agents, and Continental Bank N.A.,
as Administrative Agent for the Lenders, and
as Syndication Agent, as amended,
incorporated by reference to Exhibit 10 of
the Company's Form 10-Q for the quarterly
period ended March 31, 1993, as filed with
the Securities and Exchange Commission on May
14, 1993.
10.34 Third Amendment Dated as of May 14, 1993 to
Credit Agreement, dated as of October 27,
1992, among the Company as the Borrower,
various financial institutions, as the
Lenders, Shawmut Bank Connecticut, N.A.
(formerly Connecticut National Bank),
Continental Bank N.A., and The Bank of New
York as Co-Agents, and Continental Bank N.A.,
as Administrative Agent for the Lenders, and
as Syndication Agent, as amended,
incorporated by reference to Exhibit 10.1 of
the Company's Form 10-Q for the quarterly
period ended June 30, 1993, as filed with the
Securities and Exchange Commission on August
16, 1993.
10.35 Consent dated as of July 9, 1993 to exclude
surplus strain from the reinsurance
transaction with North American Company for
Life and Health Insurance from a covenant in
the Credit Agreement, dated as of October 27,
1992, among the Company as the Borrower,
various financial institutions, as the
Lenders, Shawmut Bank Connecticut, N.A.
(formerly Connecticut National Bank),
Continental Bank N.A., and The Bank of New
York as Co-Agents, and Continental Bank N.A.,
as Administrative Agent for the Lenders, and
as Syndication Agent, as amended,
incorporated by reference to Exhibit 10.2 of
the Company's Form 10-Q for the quarterly
period ended June 30, 1993, as filed with the
Securities and Exchange Commission on August
16, 1993.
10.36 Fourth Amendment Dated as of February 1, 1994
to Credit Agreement, dated as of October 27,
1992, among the Company as the Borrower,
various financial institutions, as the
Lenders, Shawmut Bank Connecticut, N.A.
(formerly Connecticut National Bank),
Continental Bank N.A., and The Bank of New
York as Co-Agents, and Continental Bank N.A.,
as Administrative Agent for the Lenders, and
as Syndication Agent, as amended,
incorporated by reference to Exhibit 10.1 of
the Company's Form 8-K for an event reported
on February 2, 1994, as filed with the
Securities and Exchange Commission on
February 14, 1994.
10.37 Consent dated as of August 4, 1994 to the
creation of a Subsidiary to be organized
under the laws of Bermuda and to exempt such
Subsidiary from a certain covenant in the
Credit Agreement, dated as of October 27,
1992, among the Company, as the Borrower,
various financial institutions, as the
Lenders, Shawmut Bank Connecticut, N.A.
(formerly The Connecticut National Bank),
Continental Bank (formerly Continental Bank
N.A.) and The Bank of New York, as Co-Agents,
and Continental Bank, as Administrative Agent
for the Lenders, and as Syndication Agent, as
amended, subject to the pledge of the stock
of such Subsidiary under the Pledge
Agreement, dated November 3, 1992, among Life
Re Corporation, Continental Bank as Agent,
and Continental Trust Company, incorporated
by reference to Exhibit 10.2 of the Company's
Form 10-Q for the quarterly period ended June
30, 1995, as filed with the Securities and
Exchange Commission on August 14, 1995.
10.38 Consent dated as of July 12, 1995 to the
acquisition by Life Reassurance of the stock
of John Deere Life Insurance Company (now
known as Reassure America Life Insurance
Company) under the Credit Agreement, dated as
of October 27, 1992, among the Company, as
the Borrower, various financial institutions,
as the Lenders, Shawmut Bank Connecticut,
N.A. (formerly The Connecticut National
Bank), Bank of America Illinois (formerly
Continental Bank) and The Bank of New York
as, Co-Agents, and Bank of America Illinois,
as Administrative Agent for the Lenders, and
as Syndication Agent, as amended,
incorporated by reference to Exhibit 10.3 of
the Company's Form 10-Q for the quarterly
period ended June 30, 1995, as filed with the
Securities and Exchange Commission on August
14, 1995.
10.39 Amended and Restated Credit Amendment dated
as of November 2, 1995 among Life Re
Corporation, as the Borrower, Various
Financial Institutions, as the Lenders,
Shawmut Bank Connecticut, N.A., Bank of
America Illinois and The Bank of New York, as
Co-Agents, and Bank of America National Trust
and Savings Association, as Administrative
Agent for the Lenders, incorporated by
reference to Exhibit 10.01 of the Company's
Form 10-Q for the quarterly period ended
September 30, 1995, as filed with the
Securities and Exchange Commission on
November 14, 1995.
10.40 Form of Amended and Restated Pledge Amendment
dated as of November 2, 1995 between Life Re
Corporation, as the Pledgor, and Bank of
America National Trust and Savings
Association, as Administrative Agent for the
Lenders, incorporated by reference to Exhibit
10.02 of the Company's Form 10-Q for the
quarterly period ended September 30, 1995, as
filed with the Securities and Exchange
Commission on November 14, 1995.
10.41 Investment Agreement, dated as of May 4,
1993, by and among Life Reassurance,
Consolidated Fidelity Life Insurance Company,
Consolidated National Corporation,
International Insurance Investors, L.P. and
DLJ Merchant Banking, Inc., incorporated by
reference to Exhibit 10.25 of the Company's
Registration Statement on Form S-1 (File No.
33-70922).
10.42 Amendment No. 1, dated as of December 20,
1993, to the Investment Agreement, dated as
of May 4, 1993, by and among Life
Reassurance, Consolidated Fidelity Life
Insurance Company, Consolidated National
Corporation, International Insurance
Investors, L.P. and DLJ Merchant Banking,
Inc., incorporated by reference to Exhibit
10.25 of the Company's Form 10-K for the year
ended December 31, 1993, as filed with the
Securities and Exchange Commission on March
31, 1994.
10.43 Assumption Reinsurance Agreement, made as of
May 31, 1996, between United Insurance
Company of America and Reassure America Life
Insurance Company, incorporated by reference
to Exhibit 10.01 of the Company's Form 10-Q
for the quarterly period ended June 30, 1996,
as filed with the Securities and Exchange
Commission on August 13, 1996.
10.44 Reinsurance and Retrocession Agreement
(Disability Policies), effective as of July
1, 1996, between American Combined Life
Insurance Company and Life Reassurance
Corporation of America, incorporated by
reference to Exhibit 10.02 of the Company's
Form 10-Q for the quarterly period ended June
30, 1996, as filed with the Securities and
Exchange Commission on August 13, 1996.
10.45 Reinsurance and Retrocession Agreement (Life
Policies), effective as of July 1, 1996,
between American Combined Life Insurance
Company and Life Reassurance Corporation of
America, incorporated by reference to Exhibit
10.03 of the Company's Form 10-Q for the
quarterly period ended June 30, 1996, as
filed with the Securities and Exchange
Commission on August 13, 1996.
10.46 Administration Agreement, effective as of
July 1, 1996, by and among American Combined
Life Insurance Company, Resource Financial
Corporation and Life Reassurance Corporation
of America, incorporated by reference to
Exhibit 10.04 of the Company's Form 10-Q for
the quarterly period ended June 30, 1996, as
filed with the Securities and Exchange
Commission on August 13, 1996.
10.47 Consulting and Non-Compete Agreement,
effective as of July 1, 1996, between Ryan
Insurance Group, Inc. and Life Reassurance
Corporation of America, incorporated by
reference to Exhibit 10.05 of the Company's
Form 10-Q for the quarterly period ended June
30, 1996, as filed with the Securities and
Exchange Commission on August 13, 1996.
10.48 Employment Agreement, effective as of June 1,
1996, between the Company and Samuel V.
Filoromo, incorporated by reference to
Exhibit 10.06 of the Company's Form 10-Q for
the quarterly period ended June 30, 1996, as
filed with the Securities and Exchange
Commission on August 13, 1996.
10.49 Employment Agreement, effective as of June 1,
1996, between the Company and Chris C.
Stroup, incorporated by reference to Exhibit
10.07 of the Company's Form 10-Q for the
quarterly period ended June 30, 1996, as
filed with the Securities and Exchange
Commission on August 13, 1996.
10.50 Employment Agreement, effective as of June 1,
1996, between the Company and W. Weldon
Wilson, incorporated by reference to Exhibit
10.08 of the Company's Form 10-Q for the
quarterly period ended June 30, 1996, as
filed with the Securities and Exchange
Commission on August 13, 1996.
10.51 Life Re Corporation Supplemental Executive
Retirement Plan, Effective: January 1, 1995,
incorporated by reference to Exhibit 10.09 of
the Company's Form 10-Q for the quarterly
period ended June 30, 1996, as filed with the
Securities and Exchange Commission on August
13, 1996.
10.52 Severance Agreement, effective as of June 1,
1996, between the Company and Tracy L.
Rudolph, incorporated by reference to Exhibit
10.10 of the Company's Form 10-Q for the
quarterly period ended June 30, 1996, as
filed with the Securities and Exchange
Commission on August 13, 1996.
10.53 Amendment to Employment Agreement, dated as
of November 11, 1996, to the Employment
Agreement, effective as of June 9, 1995,
between the Company and Rodney A. Hawes, Jr.,
incorporated by reference to Exhibit 10.01 of
the Company's Form 10-Q for the quarterly
period ended September 30, 1996, as filed
with the Securities and Exchange Commission
on November 14, 1996.
10.54 Amendment to Employment Agreement, dated as
of November 11, 1996, to the Employment
Agreement, effective as of June 9, 1995,
between the Company and Douglas M. Schair,
incorporated by reference to Exhibit 10.02 of
the Company's Form 10-Q for the quarterly
period ended September 30, 1996, as filed
with the Securities and Exchange Commission
on November 14, 1996.
10.55 Amendment to Employment Agreement, dated as
of November 11, 1996, to the Employment
Agreement, effective as of June 9, 1995,
between the Company and Jacques E. Dubois,
incorporated by reference to Exhibit 10.03 of
the Company's Form 10-Q for the quarterly
period ended September 30, 1996, as filed
with the Securities and Exchange Commission
on November 14, 1996.
10.56 November 1994 Amendment to the Amended and
Restated Advisory Agreement between Life
Reassurance Corporation of America and
Conseco Capital Management, Inc., effective
as of November 1, 1994, incorporated by
reference to Exhibit 10.04 of the Company's
Form 10-Q for the quarterly period ended
September 30, 1996, as filed with the
Securities and Exchange Commission on
November 14, 1996.
10.57 May 1995 Amendment to the Amended and
Restated Advisory Agreement between Life
Reassurance Corporation of America and
Conseco Capital Management, Inc., effective
as of May 31, 1995, incorporated by
reference to Exhibit 10.05 of the Company's
Form 10-Q for the quarterly period ended
September 30, 1996, as filed with the
Securities and Exchange Commission on
November 14, 1996.
10.58 September 1996 Amendment to the Amended and
Restated Advisory Agreement between Life
Reassurance Corporation of America and
Conseco Capital Management, Inc., effective
as of September 15, 1996 , incorporated by
reference to Exhibit 10.06 of the Company's
Form 10-Q for the quarterly period ended
September 30, 1996, as filed with the
Securities and Exchange Commission on
November 14, 1996.
10.59 Amendment Number One to Advisory Agreement
Dated December 31, 1991 between Liberty
Capital Advisors, Inc. and Life Reassurance
Corporation of America, effective as of
July 1, 1996, incorporated by reference to
Exhibit 10.07 of the Company's Form 10-Q for
the quarterly period ended September 30,
1996, as filed with the Securities and
Exchange Commission on November 14, 1996.
10.60 Consent to extension of Commitment
Termination Date, dated November 6, 1996,
pursuant to the Amended and Restated Credit
Amendment dated as of November 2, 1995 among
Life Re Corporation, as the Borrower, Various
Financial Institutions, as the Lenders,
Shawmut Bank Connecticut, N.A., Bank of
America Illinois and The Bank of New York, as
Co-Agents, and Bank of America National Trust
and Savings Association, as Administrative
Agent for the Lenders, incorporated by
reference to Exhibit 10.08 of the Company's
Form 10-Q for the quarterly period ended
September 30, 1996, as filed with the
Securities and Exchange Commission on
November 14, 1996.
10.61 Amendment Number One to the 1992 Life Re
Corporation Stock Option Plan, dated
March 7, 1995.
10.62 Amendment Number One to the Life Re
Corporation 1993 Non-Employee Directors Stock
Option Plan, dated January 1, 1997.
10.63 Form of Amendment Number One to Life Re
Corporation Stock Option Plan Stock Option
Agreement.
10.64 Amendment Number Two to the 1992 Life Re
Corporation Stock Option Plan, dated
January 1, 1997.
10.65 Life Re Corporation Annual Incentive Plan,
dated November 3, 1994.
10.66 Life Re Corporation Long-Term Incentive
Plan, dated November 3, 1994.
21.01 Subsidiaries of the Company, incorporated by
reference to Exhibit 21.01 of the Company's
Form 10-K for the year ended December 31,
1995, as filed with the Securities and
Exchange Commission on March 28, 1996.
23.01 Consent of Ernst & Young LLP.
27.01 Financial Data Schedule.
Amendment Number One
to the 1992 Life Re Corporation
Stock Option Plan
This Amendment Number One (this "Amendment") to the 1992 Life Re
Corporation Stock Option Plan is entered into by the Board of Directors
(the "Board") of Life Re Corporation (the "Company") to be effective on the
Effective Date (as hereinafter defined).
WITNESSETH
WHEREAS, the Company maintains a stock option plan, the 1992 Life Re
Corporation Stock Option Plan (the "Plan"), for the benefit of its "key
personnel"; and
WHEREAS, the Board of Directors is empowered to amend the Plan
pursuant to Section 3.1 thereof; and
WHEREAS, the Board of Directors wishes to amend the Plan to meet the
requirements of the Treasury Regulations issued under Section 162(m) of the
Internal Revenue Code and to increase the number of shares available
thereunder.
NOW, THEREFORE, the Board of Directors has determined that the Plan
shall be amended, effective as of the date set forth below, as follows:
1. Defined Terms. Terms not defined herein will have the meanings
assigned to such terms under the Plan.
2. Increase of Shares. Section 1.5(b) of the Plan is hereby amended
and restated to read as follows:
"(b) Subject to Section 3.5 (relating to adjustments upon changes in
capitalization), as of any date the total number of shares of Common Stock
with respect to which options may be granted under the Plan shall be equal
to the excess (if any) of (i) 3,000,000 minus (ii) the sum of (A) the
number of shares subject to outstanding options granted under the Plan, and
(B) the number of shares previously transferred pursuant to the exercise of
options granted under the Plan. In accordance with (and without limitation
upon) the preceding sentence, shares of Common Stock covered by options
granted under the Plan which are cancelled, expire or terminate for any
reason whatsoever shall again become available for awards under the Plan."
3. Maximum Grants. Section 1.5 of the Plan is hereby amended by
adding the following subsection (e) to the end of Section 1.5:
"(e) Notwithstanding the foregoing and subject to Section 3.5
(relating to adjustments upon changes in capitalization) the maximum number
of shares of Common Stock with respect to which options may be granted
during any calendar year to any individual shall be 150,000 shares."
4. Amendments. Section 3.1 of the Plan is hereby amended by revising
and restating subsection (a) to read as follows:
" (a) The Board of Directors of the Company may, without shareholder
approval from time to time suspend or discontinue the Plan or revise or
amend it in any respect whatsoever, except that no such amendment shall
alter or impair any rights or obligations under any award theretofore made
under the Plan without the consent of the person to whom such award was
made. Furthermore, except as and to the extent otherwise permitted by
Section 3.5 or Section 3.11, no such amendment shall, without shareholder
approval:
(i) increase, beyond the amounts set forth in Section 1.5, the number
of shares of Common Stock in respect of which options may be granted under
the Plan or to any individual;
(ii) change the designation in Section 1.3 of the class of persons
eligible to receive awards under the Plan:
(iii) provide for the grant of options having an option exercise
price per share of Common Stock less than the fair market value of a share
of Common Stock on the date of grant;
(iv) permit an option to be exercisable more than 10 years after the
date of grant; or
(v) extend the term of the Plan beyond the period set forth in
Section 3.13."
5. Effective Date. This Amendment shall be effective as of the date
it is approved by the stockholders of the Company.
6. Governing Law. This Amendment shall be governed by the same law as
applies to the interpretation of the Plan.
IN WITNESS WHEREOF, this Amendment is executed on this 7th day of
March 1995 to be effective on the Effective Date.
LIFE RE CORPORATION
By: /s/ Rodney A. Hawes, Jr.
Name: Rodney A. Hawes, Jr.
Title: Chairman and Chief
Executive Officer
AMENDMENT NUMBER ONE TO
THE LIFE RE CORPORATION
1993 NON-EMPLOYEE DIRECTORS
STOCK OPTION PLAN
This Amendment Number One (this "Amendment") to the Life Re
Corporation 1993 Non-Employee Directors Stock Option Plan is entered
into by the Board of Directors (the "Board") of Life Re Corporation
(the "Company") to be effective on the Effective Date (as hereinafter
defined).
WITNESSETH
WHEREAS, the Company maintains a stock option plan, the Life Re
Corporation 1993 Non-Employee Directors Stock Option Plan (the
"Plan"), for the benefit of its non-employee directors; and
WHEREAS, the Board of Directors and the Committee are empowered
to amend the Plan pursuant to Section 11 thereof; and
WHEREAS, the Board of Directors wishes to amend the Plan to
provide for the transferability of stock options granted under the
Plan.
NOW, THEREFORE, the Board of Directors has determined that the
Plan shall be amended, effective as of the date set forth below, as
follows:
1. Defined Terms. Terms not defined herein will have the meanings
assigned to such terms under the Plan.
2. Transferability. Section 8 of the Plan is hereby amended and
restated to read as follows:
"8. Transferability of Options. A Participant may, in
his or her sole discretion, transfer all or a portion of
an Option to (i) the Participant's spouse, siblings,
parents, children and/or grandchildren (each, a
"Transferee"), (ii) trusts established solely for the
benefit of any Transferee(s), (iii) partnerships,
corporations, limited liability companies or other
entities of which the only interest holders are the
Participant and/or Transferee(s) (or trusts for such
Transferee(s)), and/or (iv) charitable organizations or
private foundations. Following the transfer of all or a
portion of an Option in accordance with the preceding
sentence, such transferred Option or portion thereof
shall no longer be transferable, and any attempt to
transfer, assign or encumber such transferred Option
shall be null and void and no subsequent transferee,
assignee or beneficiary of any encumbrance shall acquire
by reason thereof, any right, title or interest in any
such transferred Option or portion thereof. In the event
that all or a portion of an Option is transferred
pursuant to this Section 8, the person or entity to whom
or which such Option has been transferred shall have the
same rights with respect to exercising such Option as the
Participant had immediately prior to the transfer."
3. Effective Date. This Amendment shall be effective as of the
date it is approved by the Board of Directors of the Company.
4. Governing Law. This Amendment shall be governed by the same
law as applies to the interpretation of the Plan.
IN WITNESS WHEREOF, this Amendment is executed on this 1st day
of January 1997 to be effective on the Effective Date.
LIFE RE CORPORATION
By: /s/ Rodney A. Hawes, Jr.
Name: Rodney A. Hawes, Jr.
Title: Chairman and Chief
Executive Officer
FORM OF
AMENDMENT NUMBER ONE TO
LIFE RE CORPORATION
STOCK OPTION PLAN
STOCK OPTION AGREEMENT
This Amendment Number One ("Amendment") to the Life Re Corporation
Stock Option Plan Stock Option Agreement between LIFE RE CORPORATION, a
Delaware corporation ("Company"), and _____________________________
("Optionee"), dated as of _____________, 19___ ("Agreement"), is entered
into by the Company and the Optionee to be effective on the Effective
Date (as hereinafter defined).
WITNESSETH
WHEREAS, the Company maintains a stock option plan, the 1992 Life
Re Corporation Stock Option Plan (the "Plan"), for the benefit of its
"key personnel"; and
WHEREAS, pursuant to Section 3.1(b) of the Plan, the Committee is
empowered to amend outstanding Option Agreements with the consent of the
grantee and subject to the terms and conditions of the Plan; and
WHEREAS, the Committee wishes to amend the Agreement to provide
for the transferability of the options subject to the Agreement.
NOW, THEREFORE, the Committee and the Optionee agree that the
Agreement shall be amended, effective as of the date set forth below, as
follows:
1. Defined Terms. Terms not defined herein will have the meanings
assigned to such terms under the Plan and the Agreement.
2. Transferability. Section 5 of the Agreement is hereby amended by
adding the following two sentences to the end of Section 5:
"Notwithstanding anything contained in the Agreement to the
contrary, the Optionee may, in [his] [her] sole discretion,
transfer all or a portion of the option to (i) the Optionee's
[spouse], [siblings], [parents], [children], [grandchildren],
[and/or] [any other person] (each, a "Transferee"), (ii) trusts
established solely for the benefit of any Transferee(s), (iii)
partnerships, corporations, limited liability companies or other
entities of which the only interest holders are the Optionee
and/or Transferee(s) (or trusts for such Transferee(s)), and/or
(iv) charitable organizations or private foundations. Following
the transfer of all or a portion of the option in accordance with
the preceding sentence, such transferred option or portion thereof
shall no longer be transferable. In the event that all or a
portion of the option is transferred pursuant to this Section 5,
the person or entity to whom or which the option has been
transferred shall have the same rights with respect to exercising
the option as the Optionee had immediately prior to the transfer."
3. Effective Date. This Amendment shall be effective as of the date
it is approved by the Board of Directors of the Company.
4. Governing Law. This Amendment shall be governed by the same law
as applies to the interpretation of the Plan.
IN WITNESS WHEREOF, this Amendment is executed on this _____ day
of _______ 199__ to be effective on the Effective Date.
LIFE RE CORPORATION
By: _____________________
Rodney A. Hawes, Jr.
Chairman of the Board &
Chief Executive Officer
ATTEST: ___________________
_____________________________
(Optionee)
______________________________
(Address)
AMENDMENT NUMBER TWO TO
THE 1992 LIFE RE CORPORATION
STOCK OPTION PLAN
This Amendment Number Two (this "Amendment") to the 1992 Life Re
Corporation Stock Option Plan is entered into by the Board of Directors
(the "Board") of Life Re Corporation (the "Company") to be effective on
the Effective Date (as hereinafter defined).
WITNESSETH
WHEREAS, the Company maintains a stock option plan, the 1992 Life
Re Corporation Stock Option Plan (the "Plan"), for the benefit of its
"key personnel"; and
WHEREAS, the Board of Directors is empowered to amend the Plan
pursuant to Section 3.1 thereof; and
WHEREAS, the Board of Directors wishes to amend the Plan to
provide (i) that members of the Stock Option Plan Committee shall meet
the definitional requirements of (1) an "outside director" under section
162(m) of the Code and (2) a "Non-Employee Director" under Rule 16b-3
under the 1934 Act, and (ii) for the transferability, in certain
instances, of nonqualified stock options granted under the Plan.
NOW, THEREFORE, the Board of Directors has determined that the
Plan shall be amended, effective as of the date set forth below, as
follows:
1. Defined Terms. Terms not defined herein will have the meanings
assigned to such terms under the Plan.
2. Members of the Stock Option Plan Committee. Section 1.2(a) of the
Plan is hereby amended and restated to read as follows:
"(a) The Plan shall be administered by the Stock
Option Plan Committee ("Committee") of the Board of Directors
of the Company, which shall be composed solely of two or more
directors each of whom shall qualify as a (i) "Non-Employee
Director" within the meaning of Rule 16b-3(3) under the 1934
Act and (ii) an "outside director" within the meaning of
Treasury regulation section 1.162-27(e)(3) under
section 162(m) of the Code."
3. Transferability. Section 3.3 of the Plan is hereby amended by
adding the following sentence to the end of Section 3.3:
"Notwithstanding anything contained in the Plan to the
contrary, the Committee, in its sole discretion, may provide in
any Option Agreement that an option, other than an incentive
stock option, may be transferable by the grantee to
(i) the grantee's spouse, siblings, parents, children and/or
grandchildren, or to any other person which the Committee may
specify in the Option Agreement (each, a "Transferee"),
(ii) trusts established solely for the benefit of any
Transferee(s), (iii) partnerships, corporations, limited
liability companies or other entities of which the only
interest holders are the grantee and/or Transferee(s) (or
trusts for such Transferee(s)), and/or (iv) charitable
organizations or private foundations."
4. Choice of Law. A new Section 3.14 is hereby added to the Plan:
"3.14 Choice of Law. The interpretation, performance,
and enforcement of the Plan shall be governed by the laws of
the State of Delaware and applicable federal law without
reference to principles of conflict of laws."
5. Effective Date. This Amendment shall be effective as of the date
it is approved by the Board of Directors of the Company.
6. Governing Law. This Amendment shall be governed by the same law
as applies to the interpretation of the Plan.
IN WITNESS WHEREOF, this Amendment is executed on this 1st day of
January 1997 to be effective on the Effective Date.
LIFE RE CORPORATION
By: /s/ Rodney A. Hawes, Jr.
Name: Rodney A. Hawes, Jr.
Title: Chairman and Chief
Executive Officer
Life Re Corporation
Annual Incentive Plan
1. Purpose.
The purpose of this Life Re Corporation Annual Incentive Plan (the
"Plan") is (i) to assist the Company in attracting and retaining key
corporate executives, and (ii) to motivate and reward key corporate
executives based on their attainment of predetermined goals which will
further the interest of the Company and its stockholders.
2. Definitions.
For purposes of the Plan, the following terms shall have the defined
meanings as set forth below:
"Board" shall mean the Board of Directors of the Company.
"Change in Control" means a change in control of the Company of a
nature that would be required to be reported in response to Item 6(e) of
Schedule 14A of Regulation 14A under the Exchange Act, whether or not the
Company is subject to the Exchange Act at such time; provided, that
without limiting the generality of the foregoing, such a Change in Control
will in any event be deemed to occur if and when:
(a) any person (as such term is used in paragraphs 13(d) and
14(d) (2) of the Exchange Act, hereinafter in this paragraph 2(a),
"Person"), other than the Company or a subsidiary or employee
benefit plan of the Company or subsidiary, becomes the beneficial
owner (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Company representing more than
twenty-five percent of the combined voting power of the Company's
then outstanding securities;
(b) stockholders approve a merger, consolidation or other
business combination (a "Business Combination") other than a
Business Combination in which holders of common stock of the Company
immediately prior to the Business Combination have substantially the
same proportionate ownership of common stock of the surviving
corporation immediately after the Business Combination as
immediately before;
(c) stockholders approve either (i) an agreement for the sale
or disposition of all or substantially all of the Company's assets
to any entity which is not a subsidiary of the Company, or (ii) a
plan of complete liquidation;
(d) the persons who were members of the Board of Directors
immediately before a tender offer by any Person other than the
Company or a subsidiary, or before a merger, consolidation, or
contested election, or before any combination of such transactions,
cease to constitute a majority of the Board of Directors as a result
of such transaction or transactions.
"Code" means the Internal Revenue Code of 1986, as amended, or any
successor thereto.
"Committee" shall mean the committee of the Board described in
Section 4 hereof.
"Company" means Life Re Corporation, a corporation organized under
the laws of the State of Delaware (or any successor corporation).
"Disability" shall mean a physical or mental condition of a
Participant resulting from a bodily injury, disease, or mental disorder
which renders him or her incapable of continuing in the employment of the
Company. Such Disability shall be determined by the Committee based upon
appropriate medical advice and examination.
"Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time.
"Participant" shall mean a key executive of the Company who is
selected by the Committee to participate in the Plan.
"Performance Objective" shall mean the performance goal set by the
Committee in accordance with Section 6 of the Plan
"Plan Year" means the calendar year of the Company.
"Retirement" shall mean retirement from active employment with the
Company on or after attainment of age 62, unless an earlier retirement is
approved by the Committee.
3. Effective Date.
The Plan shall be effective on January 1, 1995, provided, however,
that the effectiveness of this Plan is conditioned on its approval by an
affirmative vote of the holders of Company stock represented at a meeting
duly held in accordance with Delaware law within twelve (12) months after
the date this Plan is adopted by the Board. All awards under this Plan
shall be null and void if the Plan is not approved by such stockholders
within such twelve-month period.
4. Administration.
(a) The Plan shall be administered by the Compensation Committee
("Committee") of the Board of Directors of the Company, which shall
consist solely of two or more directors each of whom is an outside
director within the meaning of the applicable regulations under Section
162(m) of the Internal Revenue Code or any successor thereto. The members
of the Committee shall be appointed by, and may be changed from time to
time at the discretion of the Board of Directors of the Company.
(b) The Committee shall have the authority (i) to exercise all of
the powers granted to it under the Plan, (ii) to construe, interpret, and
implement the Plan, (iii) to prescribe, amend and rescind rules and
regulations relating to the Plan, (iv) to make all determinations
necessary or advisable in administering the Plan, and (v) to correct any
defect, supply any omission and reconcile any inconsistency in the Plan.
(c) The Committee shall maintain written minutes of its meetings,
including minutes regarding the Performance Objectives established by the
Committee pursuant to Section 6(c) hereof and any certification regarding
the satisfaction of Performance Objectives made pursuant to Section 7
hereof.
(d) Solely for purposes of satisfying the shareholder approval
requirement of Section 162(m) (4) (c) (ii), the Committee shall cause the
material terms under which awards are to be paid to be disclosed to
shareholders for approval by a majority of the vote in a separate
shareholder vote before the payment of the award. In order to prevent the
disclosure of confidential competitive information, such disclosure shall
be limited to the disclosure of only those material terms necessary to
satisfy the requirements of Section 162(m) of the Internal Revenue Code
and the regulations thereunder.
(e) All decisions made by the Committee pursuant to the provisions
of the Plan shall be final and binding on all persons, including the
Company and Participants.
(f) No member of the Committee shall be liable for any action or
determination made in good faith with respect to the Plan.
5. Eligibility and Participation.
The class of officers who are eligible to participate in the Plan
shall consist of such members of the Office of the Chairman and other
corporate officers of the Company or its subsidiaries as the Committee
shall in its discretion select. Prior to the start of each Plan Year, the
Committee shall determine the officers who shall participate for such Plan
Year. An officer who is eligible for one Plan Year is not guaranteed to be
eligible for any subsequent Plan Year.
6. Annual Incentives.
(a) The amount of a Plan Participant's annual incentive award for
attaining Performance Objectives shall be determined by the Committee in
its discretion, based on such criteria as it shall determine, including,
without limitation, the future performance of the Company, the
Participant's level of responsibility, performance, salary, and incentive
compensation.
(b) The Committee will assign one of three "Impact Levels" to a
Participant. The award opportunity will vary based on the Participant's
Impact Level. The Office of the Chairman shall be assigned the highest
Impact Level. The Chief Financial Officer, General Counsel, and such other
key corporate officers as the Committee in its discretion shall select,
shall be assigned to the second highest Impact Level. Such other key
corporate officers as the Committee in its discretion shall select shall
be assigned the third Impact Level.
(c) The Committee shall develop the Performance Objectives
applicable to the Plan Year for each element used in determining an annual
incentive award. Performance Objectives will be related to such measures
as the profitability and growth of the Company. The Committee may
determine different Performance Objectives for different Participants,
notwithstanding application of an identical Plan Year. The applicable
Performance Objectives shall be established by the Committee in accordance
with the applicable regulations under Code Section 162(m).
(d) Accounting terms and such measures related to the performance of
the Company which the Committee selects as Performance Objectives shall
have the same meaning as (i) those terms used in connection with the
regulations regarding the preparation of the Annual Report on Form 10-K
filed with the Securities and Exchange Commission, as adjusted to reflect
determinations made by the Committee pursuant to subsection (e) below, or
(ii) to the extent that such objectives or measures are not set forth in
such regulations, in accordance with generally accepted accounting
principles consistently applied, as adjusted to reflect determinations
made by the Committee pursuant to subsection (e) below.
(e) The Committee may make, from time to time and in its sole
discretion, adjustments in the accounting terms or other performance
measures used for purposes of calculating the Performance Objectives so
that changes in accounting principles, extraordinary or unusual charges or
credits, acquisitions, mergers, consolidations, recapitalizations, stock
dividends, stock splits, stock repurchases, exchange of shares, sale by
the Company of all or part of its assets, other corporate transactions or
change, or such other circumstances as the Committee may determine, and
such other elements of or factors influencing the calculation of
Performance Objectives, do not distort or affect the operations of the
Plan or the realization of the objectives of the Company in a manner
inconsistent with its purposes.
(f) To the extent allowable under the applicable regulations under
Code Section 162(m), the Committee may, in its sole discretion, revise the
amount payable under an award downward, if, in the business judgment of
the Committee, it is in the best interests of the Company and its
shareholders, and an unintended windfall, or inequitable payment will
otherwise result.
7. Committee Certification.
Within two and one-half months of the end of the Plan Year, the
Committee shall determine whether and to what extent the Performance
Objectives have been attained. Prior to the payment of the value of any
award, the Committee will certify in writing that the Performance
Objectives set forth pursuant to Section 6 and any other material terms
within the meaning of the regulations under Code Section 162(m) were in
fact satisfied.
8. Payment.
Within two and one-half months of the end of the Plan Year, provided
that the requisite Committee certification under Section 7 hereof has
occurred, the Company shall pay to each Participant, in cash, a lump sum
equal to the value of his or her award, net of any withholding required
under Section 13 hereto.
9. Termination of Employment.
(a) If a Participant's employment with the Company or any of its
affiliates terminates prior to payment for any reason other than (i)
death; (ii) Disability; or (iii) Retirement, then the Participant shall
not be entitled to any payment with respect to an award for such Plan
Year.
(b) If a Participant's employment is terminated prior to payment due
to (i) death; (ii) Disability; or (iii) Retirement, then the Participant
or his or her estate shall be entitled to payment for awards granted to
such Participant for such Plan Year, provided, however, that for purposes
of Section 6 hereof, the value of any such award shall be equal to the
value of an award, as otherwise determined in accordance with Section 6,
multiplied by a fraction, the numerator of which is the number of whole or
partial months during which the individual was an employee of the Company
during the Plan Year and the denominator of which is twelve.
10. Change of Control
Notwithstanding anything to the contrary set forth herein, if a
Participant's employment with the Company or any of its affiliates
terminates within twelve (12) months after a Change in Control, or if a
reduction of the Participant's duties, title or position occurs within
twelve (12) months after a Change in Control, then the Participant will be
entitled to a payment under the Plan equal to the amount of the award
earned by the Participant for the Plan Year immediately preceding the Plan
Year in which the Change in Control occurred, multiplied by a fraction,
the numerator of which is the number of whole or partial months subsequent
to the date of the Change in Control and the denominator of which is
twelve.
11. Amendment of the Plan.
The Board may from time to time alter, amend, suspend, or
discontinue the Plan. However, no such amendment or modification shall
adversely affect any Participant's rights with regard to outstanding
awards.
12. Assignability.
No awards granted but not paid under the Plan shall be pledged,
assigned or transferred by any Participant except by a will or by the laws
of descent and distribution. Any estate of any Participant receiving any
awards under the Plan shall be subject to all of the terms and conditions
of the Plan.
13. Tax Withholding.
Under the Plan, payments made to Participants shall be made in cash.
However, such payments shall be made net of any amounts necessary to
satisfy federal, state and local withholding tax requirements, where
required by law.
14. No Contract of Employment.
Neither the action of the Company in establishing this Plan, nor any
provisions hereof, nor any action taken by the Company, nor the Committee
or Board pursuant to such provisions, shall be construed as giving to any
employee or Participant the right to be retained in the employ of the
Company.
15. No Right to Inspect Books and Records.
Any calculation approved by the Committee in connection with Section
6 hereof shall be conclusive and binding on the Company, the Participants
or any other person ever effected thereby. Neither the Participants nor
any other person shall have the right for any purpose to inquire into the
manner in which the calculations made in accordance with Section 6 were
determined or examine the computations or working papers in connection
therewith.
16. Other Provisions.
The following miscellaneous terms and conditions are also in effect
under the Plan:
(a) Any expenses and liabilities incurred by the Board, the
Committee or the Company in administering the Plan shall be paid by the
Company.
(b) Any benefits received or amounts paid to a Participant under
the Plan shall have no effect on the level of benefits provided to or
received by such Participant, or the Participant's estate or
beneficiaries, as a part of any other employee benefit plan or similar
arrangement provided by the Company, except as provided under the terms of
such other employee benefit plan or similar arrangement.
IN WITNESS WHEREOF, the Company has caused this plan to be executed
this third day of November, 1994.
ATTEST LIFE RE CORPORATION
/S/ Tracy L. Rudolph By: /s/ Rodney A. Hawes, Jr.
Tracy L. Rudolph Name: Rodney A. Hawes, Jr.
Associate Secretary Title: Chairman and Chief Executive
Officer
Life Re Corporation
Long-Term Incentive Plan
1. Purpose.
The purpose of this Life Re Corporation Long-Term Incentive Plan (the
"Plan") is (i) to recognize the efforts of senior executives in locating,
evaluating and entering into long-term strategic initiatives and/or target
marketing transactions that have a substantial, beneficial financial or
strategic impact on the Company, but that may take a significant period of
time to have such an impact, and (ii) to provide an incentive to senior
executives to maximize the long-term performance of the Company through the
successful completion of such strategic initiatives and target marketing
transactions, and (iii) to attract and retain achievement oriented senior
executives.
2. Definitions.
For purposes of the Plan, the following terms shall have the defined
meanings as set forth below:
"Board" shall mean the Board of Directors of the Company.
"Bonus Pool" shall have the meaning set forth in Section 6 hereof.
"Code" means the Internal Revenue Code of 1986, as amended, or any
successor thereto.
"Committee" shall mean the committee of the Board described in
Section 4 hereof.
"Company" means Life Re Corporation, a corporation organized under
the laws of the State of Delaware (or any successor corporation).
"Disability" shall mean a physical or mental condition of a
Participant resulting from a bodily injury, disease, or mental disorder
which renders him or her incapable of continuing in the employment of the
Company. Such Disability shall be determined by the Committee based upon
appropriate medical advice and examination.
"Participant" shall mean an officer of the Company who is awarded and
holds Units under the Plan.
"Performance Goal" shall mean the performance goal set by the
Committee in accordance with Section 6 of the Plan.
"Retirement" shall mean retirement from active employment with the
Company on or after attainment of age 62, unless an earlier retirement is
approved by the Committee.
"Triggering Event" means the closing of a transaction described in a
Performance Goal.
"Unit" shall mean an interest in the Bonus Pool which shall entitle
the holder to receive a portion of the Bonus Pool as determined in
accordance with Section 8 hereof.
3. Effective Date.
The Plan shall be effective on July 1, 1994, provided, however, that
the effectiveness of this Plan is conditioned on its approval by an
affirmative vote of the holders of Company stock represented at a meeting
duly held in accordance with Delaware law within twelve (12) months after
the date this Plan is adopted by the Board. All awards under this Plan
shall be null and void if the Plan is not approved by such stockholders
within such twelve-month period.
4. Administration.
(a) The Plan shall be administered by the Compensation Committee
("Committee") of the Board of Directors of the Company, which shall consist
solely of two or more directors each of whom is an outside director within
the meaning of the applicable regulations under Section 162(m) of the
Internal Revenue Code or any successor thereto. The members of the
Committee shall be appointed by, and may be changed from time to time at
the discretion of the Board of Directors of the Company.
(b) The Committee shall have the authority (i) to exercise all of the
powers granted to it under the Plan, (ii) to construe, interpret, and
implement the Plan, (iii) to prescribe, amend and rescind rules and
regulations relating to the Plan, (iv) to make all determinations necessary
or advisable in administering the Plan, and (v) to correct any defect,
supply any omission and reconcile any inconsistency in the Plan.
(c) The Committee shall maintain written minutes of its meetings,
including minutes regarding the Performance Goals established by the
Committee pursuant to Section 6 hereof, and any certification regarding the
satisfaction of Performance Goals made pursuant to Section 7 hereof.
(d) Solely for purposes of satisfying the shareholder approval
requirement of Section 162(m) (4) (c) (ii), the Committee shall cause the
material terms under which awards are to be paid to be disclosed to
shareholders for approval by a majority of the vote in a separate
shareholder vote before the payment of the award. In order to prevent the
disclosure of confidential competitive information, such disclosure shall
be limited to the disclosure of only those material terms necessary to
satisfy the requirements of Section 162(m) of the Internal Revenue Code and
the regulations thereunder.
(e) All decisions made by the Committee pursuant to the provisions of
the Plan shall be final and binding on all persons, including the Company
and Participants.
(f) No member of the Committee shall be liable for any action or
determination made in good faith with respect to the Plan.
(g) To the extent allowable under the proposed regulations under
Section 162(m), the Committee may, in its sole discretion, revise the
amount payable under an award downward, if, in the business judgment of the
Committee, it is in the best interests of the Company and its shareholders,
and an unintended windfall, or inequitable payment will otherwise result.
5. Eligibility and Participation.
The class of officers who are eligible to receive payments under the
Plan shall consist of such members of the Office of the Chairman of the
Company as the Committee shall in its sole discretion select. Participation
in the Plan will be evidenced by the grant of Units, which will represent a
proportionate interest in the Bonus Pool described in Section 6 hereof. The
Committee annually shall determine the officers who shall receive Units
under the Plan, and the number of Units to be awarded to each eligible
officer.
6. Bonus Pool.
Upon the occurrence of each Triggering Event, there shall be
established a Bonus Pool under the Plan. The amount of each Bonus Pool, if
any, shall equal the sum of:
(a) 2% of the amount involved in connection with a transaction which
meets the criteria set forth in Performance Goal A;
(b) 2% of the amount involved in connection with the acquisition of a
block of insurance in force which meets the criteria set forth in
Performance Goal B; and
(c) 5% of the amount involved in connection with a recognition of
capital gains by the Company upon the sale of an investment which meets the
criteria set forth in Performance Goal C.
Performance Goal A shall be (i) any acquisition (which closes after
the effective date of this Plan) by the Company and/or its subsidiaries
with the advance approval of the Board of Directors of the Company, either
acting alone or jointly with another entity or indirectly with or through
another entity, whether or not such an entity is an affiliate, of (a)
assets or (b) another entity in whole or in part, whether via an investment
either in debt or in equity, with a value greater than or equal to $5
million, or (ii) the merger of the Company and/or its subsidiaries with
another entity, whether or not the Company and/or its subsidiaries are the
surviving entity.
Performance Goal B shall be any acquisition (which closes after the
effective date of this Plan) by the Company and/or its subsidiaries, either
acting alone or jointly with another entity or indirectly with or through
another entity, whether or not such an entity is an affiliate, of blocks of
insurance in force where the Company and/or its subsidiaries provides a
ceding allowance with a value greater than or equal to $5 million.
Performance Goal C shall be any sale at a gain (which closes after
the effective date of this Plan) by the Company and/or its subsidiaries,
either acting alone or jointly with another entity or indirectly with or
through another entity, whether or not such an entity is an affiliate, of
an investment or investments held on the effective date of this Plan or
hereafter acquired in accordance with any of the activities listed in
Performance Goal A.
The "amount involved" with respect to Performance Goal A shall be the
total consideration provided by the Company and its subsidiaries in
connection with an acquisition or merger meeting the criteria of
Performance Goal A. With respect to a merger which meets the criteria of
Performance Goal A, consideration shall mean the value of the stock of the
Company and/or its subsidiaries involved in the transaction, plus any other
consideration given by the Company and/or its subsidiaries. The "amount
involved" with respect to Performance Goal B shall be the total ceding
allowance paid or deemed to be paid by the Company and/or its subsidiaries.
The "amount involved" with respect to Performance Goal C shall be the
capital gain recognized on the sale of the investment acquired in
accordance with Performance Goal A. For purposes of this Plan, the amount
involved shall be calculated in accordance with generally accepted
accounting principles, consistently applied, which shall be reviewed and
approved by the Company's independent auditors.
7. Committee Certification.
As soon as practicable after the occurrence of a Triggering Event,
and prior to the payment of the value of any Unit, the Committee will
certify in writing that the Performance Goals set forth in Section 6 and
any other material terms within the meaning of the regulations under Code
Section 162(m) were in fact satisfied.
8. Valuation of Units.
For purposes of this Plan, the value of a Unit shall be equal to the
amount allocated to the Bonus Pool, multiplied by a fraction, the numerator
of which is one and the denominator of which is the total number of Units
which were granted with respect to such Bonus Pool.
9. Payment of Units.
As soon as practicable after the Committee certification pursuant to
Section 7 hereof, the Company shall pay to each Participant, in cash, a
lump sum equal to the value of his or her Units.
10. Termination of Employment.
(a) If a Participant's employment with the Company terminates prior
to payment for any reason other than (i) death; (ii) Disability; or (iii)
Retirement, then the Participant shall not be entitled to any payment with
respect to any Units granted.
(b) If a Participant's employment is terminated due to (i) death;
(ii) Disability; or (iii) Retirement, then upon the occurrence of a
Triggering Event within the twelve months following such death, Disability
or Retirement, the Committee, in its sole discretion, may authorize payment
to the estate of the Participant of all or any portion of the amount
attributable to Units granted to the Participant.
11. Amendment of the Plan.
The Board may from time to time alter, amend, suspend, or discontinue
the Plan. However, no such amendment or modification shall adversely affect
any Participant's rights with regard to outstanding Units.
12. Assignability.
No Units granted under the Plan shall be pledged, assigned or
transferred by any Participant except by a will or by the laws of descent
and distribution. Any estate of any Participant receiving any Units under
the Plan shall be subject to the terms and conditions of the Plan.
13. Tax Withholding.
Under the Plan, payments made to Participants shall be made in cash.
However, such payments shall be made net of any amounts necessary to
satisfy federal, state and local withholding tax requirements, where
required by law.
14. No Contract of Employment.
Neither the action of the Company in establishing this Plan, nor any
provisions hereof, nor any action taken by the Company, nor the Committee
or Board pursuant to such provisions, shall be construed as giving to any
employee or Participant the right to be retained in the employ of the
Company.
15. No Right to Inspect Books and Records.
Any calculation reviewed and approved by the Committee in connection
with Section 6 hereof shall be conclusive and binding on the Company, the
Participants or any other person ever effected thereby. Neither the
Participants nor any other person shall have the right for any purpose to
inquire into the manner in which the calculations made in accordance with
Section 6 were determined or examine the computations or working papers in
connection therewith.
16. Other Provisions.
The following miscellaneous terms and conditions are also in effect
under the Plan:
(a) Any expenses and liabilities incurred by the Board, the Committee
or the Company in administering the Plan shall be paid by the Company.
(b) Any benefits received or amounts paid to a Participant with
respect to Units under the Plan shall have no effect on the level of
benefits provided to or received by such Participant, or the Participant's
estate or beneficiaries, as a part of any other employee benefit plan or
similar arrangement provided by the Company, except as provided under the
terms of such other employee benefit plan or similar arrangement.
IN WITNESS WHEREOF, the Company has caused this plan to be executed
this third day of November, 1994.
ATTEST LIFE RE CORPORATION
/s/ Tracy L. Rudolph By:/s/ Rodney A. Hawes, Jr.
Tracy L. Rudolph Name: Rodney A. Hawes, Jr.
Associate Secretary Title: Chairman and Chief
Executive Officer
Exhibit 23.01
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 33-54138) pertaining to The Life Re Corporation Stock
Investment Plan, the Registration Statement (Form S-8 No. 33-80251)
pertaining to The Life Re Corporation Stock Option Plan and the
Registration Statement (Form S-8 No. 33-80737) pertaining to The Life Re
Corporation 1993 Non-Employee Directors Stock Option Plan of our report
dated February 4, 1997, with respect to the consolidated financial
statements and schedule of Life Re Corporation included in the Annual
Report (Form 10-K) for the year ended December 31, 1996.
/S/ ERNST & YOUNG LLP
Stamford, Connecticut
March 26, 1997
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