<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(MARK ONE)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-11340
LIFE RE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 01-0437851
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(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
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969 HIGH RIDGE ROAD
STAMFORD, CONNECTICUT 06905
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(203) 321-3000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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
COMMON STOCK OUTSTANDING ($.001 PAR VALUE) AS OF AUGUST 4, 1997: 13,596,466
SHARES
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TABLE OF CONTENTS
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Item Page
PART I - FINANCIAL INFORMATION
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1 Financial Statements
Independent Accountants' Review Report..........................................................3
Condensed Consolidated Balance Sheets (Unaudited)
June 30, 1997 and December 31, 1996.............................................................4
Condensed Consolidated Statements
of Income (Unaudited)
Three and six months ended June 30, 1997 and 1996...............................................5
Condensed Consolidated Statements
of Cash Flows (Unaudited)
Six months ended June 30, 1997 and 1996.........................................................6
Notes to Condensed Consolidated Financial
Statements June 30, 1997 (Unaudited)............................................................7
2 Management's Discussion and Analysis of
Financial Condition and Results of Operations..................................................11
PART II- OTHER INFORMATION
2 Changes in Securities..........................................................................17
4 Submission of Matters to a Vote of
Security Holders...............................................................................18
6 Exhibits and Reports on Form 8-K...............................................................19
Exhibit Index..................................................................................22
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2
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Part I -- Financial Information
Item 1
Independent Accountants' Review Report
The Board of Directors
Life Re Corporation
We have reviewed the accompanying condensed consolidated balance sheet of Life
Re Corporation and subsidiaries as of June 30, 1997, and the related condensed
consolidated statements of income for the three-month and six-month periods
ended June 30, 1997 and 1996 and the condensed consolidated statements of cash
flows for the six months ended June 30, 1997 and 1996. These financial
statements are the responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data, and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, which will be performed
for the full year with the objective of expressing an opinion regarding the
financial statements taken as a whole. Accordingly, we do not express such an
opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to the accompanying condensed consolidated financial statements referred
to above for them to be in conformity with generally accepted accounting
principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Life Re Corporation and
subsidiaries as of December 31, 1996 and the related consolidated statements of
income, changes in shareholders' equity and cash flows for the year then ended
(not presented herein) and in our report dated February 4, 1997, we expressed an
unqualified opinion on those consolidated financial statements. In our opinion,
the information set forth in the accompanying condensed consolidated balance
sheet as of December 31, 1996, is fairly stated, in all material respects, in
relation to the consolidated balance sheet from which it has been derived.
/s/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
Stamford, Connecticut
July 29, 1997
3
<PAGE> 4
PART I, ITEM 1.
LIFE RE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
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JUNE 30, DECEMBER 31,
1997 1996
---- ----
(In thousands,
except share data)
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ASSETS
Fixed maturities - at fair value
(amortized cost: $1,644,229 and $1,576,371, respectively) $ 1,675,936 $ 1,610,694
Equity securities - at fair value
(cost: $21,091 and $20,841, respectively) 22,260 21,536
Assets held by ceding company under reinsurance treaty - at fair value
(amortized cost: $101,257 and $105,519, respectively) 105,008 110,246
Mortgage loans and real estate 5,672 6,957
Short-term investments 46,445 25,589
Policy loans 58,991 58,220
----------- -----------
Total investments 1,914,312 1,833,242
Cash 9,072 6,337
Accrued investment income 33,406 31,963
Policy revenues receivable 125,306 120,809
Amounts receivable on reinsurance ceded 270,603 277,625
Deferred policy acquisition costs and value of business acquired 241,100 223,972
Other assets 24,196 25,372
----------- -----------
Total assets $ 2,617,995 $ 2,519,320
=========== ===========
LIABILITIES
Policy benefits $ 1,943,130 $ 1,982,295
Acquisition costs payable 38,592 34,059
Amounts due on reinsurance ceded 32,535 25,526
Other liabilities 71,358 62,329
Loans payable 125,000 125,000
----------- -----------
Total liabilities 2,210,615 2,229,209
----------- -----------
Corporation-obligated, mandatorily redeemable capital securities
of subsidiary trust 100,000
----------- -----------
COMMON SHAREHOLDERS' EQUITY
Common stock (par value $.001 per share;
authorized 40,000,000 shares; issued 15,792,935
and 15,700,935 shares, respectively) 16 16
Paid in capital 107,208 105,226
Net unrealized appreciation of securities 22,529 24,854
Retained earnings 225,389 206,822
Treasury stock - at cost (2,196,469 and 2,172,769
shares, respectively) (47,762) (46,807)
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Total common shareholders' equity 307,380 290,111
----------- -----------
Total liabilities and shareholders' equity $ 2,617,995 $ 2,519,320
=========== ===========
</TABLE>
The accompanying notes are an integral component of the condensed consolidated
financial statements.
4
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LIFE RE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
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THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1997 1996 1997 1996
---- ---- ---- ----
(In thousands,
except per share data)
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REVENUES
Policy revenues $122,608 $104,467 $237,321 $205,195
Investment income 36,328 28,325 71,237 57,286
Realized investment gains 1,052 811 1,789 14,710
--------- -------- -------- --------
Total revenues 159,988 133,603 310,347 277,191
--------- -------- -------- --------
BENEFITS AND EXPENSES
Policy benefits 86,422 74,468 168,612 153,321
Policy acquisition costs 36,312 27,516 68,228 52,017
Interest credited to policyholder accounts 7,929 7,158 18,143 14,596
Interest expense 1,993 2,064 3,981 4,408
Distributions on capital securities 606 606
Other operating expenses 8,191 6,432 16,784 13,167
--------- -------- -------- --------
Total benefits and expenses 141,453 117,638 276,354 237,509
--------- -------- -------- --------
Income before federal income taxes 18,535 15,965 33,993 39,682
Provision for federal income taxes 6,488 5,588 11,898 9,149
--------- -------- -------- --------
NET INCOME $ 12,047 $ 10,377 $ 22,095 $ 30,533
======== ======== ======== ========
Earnings per common share $ 0.85 $ 0.74 $ 1.57 $ 2.17
======== ======== ======== ========
Dividends per common share $ 0.13 $ 0.10 $ 0.26 $ 0.20
======== ======== ======== ========
Weighted average common and common equivalent shares 14,091 14,053 14,095 14,087
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral component of the condensed consolidated
financial statements.
5
<PAGE> 6
LIFE RE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
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SIX MONTHS ENDED
JUNE 30,
1997 1996
---- ----
(In thousands)
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OPERATING ACTIVITIES
Net income $ 22,095 $ 30,533
Adjustments to reconcile net income to net cash
provided by operating activities:
Change in accrued investment income (1,443) (1,768)
Change in policy revenues receivable (4,497) (3,790)
Change in policy benefits (10,348) 17,782
Change in reinsurance ceded balances 14,031 1,996
Interest credited to policyholder accounts 18,143 14,596
Fees and charges deducted from policyholder accounts (18,178) (11,048)
Deferral of policy acquisition costs (28,782) (12,778)
Amortization of policy acquisition costs and value of business acquired 9,710 8,362
Net realized gains on investments (1,789) (14,710)
Provision for deferred federal income taxes 10,209 7,610
Depreciation and amortization 443 167
Other 13,928 (6,764)
--------- ----------
Net cash provided by operating activities 23,522 30,188
--------- ----------
INVESTING ACTIVITIES
Purchases of fixed maturities (223,166) (242,235)
Sales of fixed maturities 127,389 122,227
Maturities of fixed maturities 28,295 40,554
Sales or redemptions of equity securities 26,300
Change in short-term investments, policy loans and other investments (19,837) (17,830)
Cash received for acquisitions and in force reinsurance transactions 87,662
Other, net (1,218) (652)
--------- ----------
Net cash (used) provided by investing activities (88,537) 16,026
--------- ----------
FINANCING ACTIVITIES
Purchases of common stock for treasury (956) (14,146)
Proceeds from exercises of common stock options 1,982 2,322
Issuance of corporation-obligated, mandatorily redeemable
capital securities of subsidiary trust, net of issuance costs 99,034
Loan principal repayments (15,000)
Dividends on common stock (3,528) (2,748)
Deposits to policyholder accounts 25,180 19,232
Withdrawals from policyholder accounts (53,962) (37,436)
--------- ----------
Net cash provided (used) by financing activities 67,750 (47,776)
--------- ----------
Increase (decrease) in cash 2,735 (1,562)
Cash, beginning of period 6,337 5,056
--------- ----------
Cash, end of period $ 9,072 $ 3,494
========= =========
</TABLE>
The accompanying notes are an integral component of the condensed consolidated
financial statements.
6
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ITEM 1.
LIFE RE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(UNAUDITED)
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1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
of Life Re Corporation and Subsidiaries (the "Company") have been
prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments, consisting solely of normal
recurring accruals considered necessary for a fair presentation of
financial results, have been included. Operating results for the six
month period ended June 30, 1997 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1997. For
further information, refer to the consolidated financial statements and
notes thereto included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1996.
Certain reclassifications have been made to the prior year financial
statements to conform to the current year presentation.
All dollar amounts are reported in thousands except per share data or
unless otherwise specified.
NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings per
Share" ("FAS 128"), effective for years ending after December 15, 1997.
FAS 128 will require the calculation and presentation on the face of
the income statement of basic earnings per share and, if applicable,
diluted earnings per share. Basic earnings per share ("EPS") excludes
dilution and is computed by dividing income available to common
stockholders by the weighted-average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution
that could occur if securities or other contracts to issue common stock
were exercised or converted into common stock or resulted in the
issuance of common stock that then shared in the earnings of the
entity. The adoption of FAS 128 is not expected to have a material
effect on reported earnings per share.
7
<PAGE> 8
ITEM 1.
LIFE RE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(UNAUDITED)
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In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" ("FAS 130"), effective for years beginning after December 15,
1997. FAS 130 establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains and
losses) in a full set of general purpose financial statements. FAS 130
requires that all items that are required to be recognized under
accounting standards as components of comprehensive income be reported
in a financial statement that is displayed with the same prominence as
other financial statements and requires that the accumulated balance of
other comprehensive income be displayed separately from retained
earnings and additional paid-in capital in the equity section of the
balance sheet. The adoption of FAS 130 will not affect results of
operations or financial position, but will affect their presentation
and disclosure. However, the Company has not completed its analysis of
the impact of implementing this new standard.
Also in June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information" ("FAS 131"),
effective for years beginning after December 15, 1997. FAS 131 requires
that a public company report financial and descriptive information
about its reportable operating segments pursuant to criteria that
differ from current accounting practice. Operating segments, as
defined, are components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief
operating decision maker in deciding how to allocate resources and in
assessing performance. The financial information to be reported
includes segment profit or loss, certain revenue and expense items and
segment assets and reconciliations to corresponding amounts in the
general purpose financial statements. FAS 131 also requires information
about revenues from products or services, countries where the company
has operations or assets and major customers. The adoption of FAS 131
will not affect results of operations or financial position, but will
affect the disclosure of segment information. However, the Company has
not completed its analysis of the impact of implementing this new
standard.
2. ACQUISITIONS AND REINSURANCE TRANSACTION
As of June 30, 1996, the Company's subsidiary, Reassure America Life
Insurance Company ("REALIC") acquired, for an adjusted purchase price
of $16,433, 100%
8
<PAGE> 9
ITEM 1.
LIFE RE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(UNAUDITED)
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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 1996 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 date 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 $1,495.
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Six Months Ended
June 30, 1996
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Revenues $285,806
Net income $ 32,601
Earnings per share $ 2.31
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The Company has an agreement to acquire a 79% interest in American
Merchants Life Insurance Company ("AML") through the purchase of 79% of
the common stock of AML's parent company, AML Acquisition Company, for
cash consideration of approximately $12,600. The transaction will be
accounted for as a purchase and is expected to close in the third
quarter of 1997. At June 30, 1997, AML had statutory-basis assets of
approximately $125,000.
Effective July 1, 1997, the Company entered into a reinsurance
agreement with UNUM Life Insurance Company of America, a subsidiary of
UNUM Corporation, to coinsure and administer a block of insurance in
force consisting of life insurance and annuity contracts with
statutory-basis reserves at June 30, 1997 of approximately $102,000.
9
<PAGE> 10
ITEM 1.
LIFE RE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(UNAUDITED)
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3. ISSUANCE OF CORPORATION-OBLIGATED, MANDATORILY REDEEMABLE CAPITAL
SECURITIES
On June 6, 1997, the Company completed a private placement under Rule
144A of the Securities Act of 1933 of $100,000 of 8.72% capital
securities of Life Re Capital Trust I ("Trust"), a subsidiary of the
Company. Distributions are cumulative and payable in arrears beginning
December 15, 1997. The securities have a maturity date of June 15, 2027
and may be redeemed, at the option of the Company, at any time on or
after June 15, 2007. Payments on the securities are fully and
unconditionally guaranteed by the Company. The securities have an
effective interest rate of 8.75%. The assets of the Trust consist of
junior subordinated debentures issued by the Company which have terms
that parallel the terms of the capital securities.
4. CONTINGENCIES
The Company and a ceding company are in arbitration concerning a
reinsurance agreement. The Company does not believe that the outcome
will have a material adverse effect on its results of operations or
financial position.
10
<PAGE> 11
ITEM 2.
LIFE RE CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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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 Corporation and Subsidiaries (the
"Company"); the ability of the Company to successfully implement its operating
strategies; material fluctuations in interest rate levels; material changes in
mortality and morbidity experience; material changes in the level of operating
expenses; and the success or failure of certain of the Company's clients in
premium writing.
RESULTS OF OPERATIONS
During 1996, the Company, through its subsidiary, Reassure America Life
Insurance Company ("REALIC"), completed several transactions, (collectively
"Transactions") through which the Company acquired blocks of insurance in force.
Together these Transactions increased total assets and liabilities by
approximately $400 million in 1996.
Six Months Ended June 30, 1997 Compared to Six Months Ended June 30, 1996
Net Income totaled $22.1 million for the six months ended June 30, 1997
compared to $30.5 million for the same period last year. Included in the 1996
results was an after-tax realized gain of $13.5 million from the sale of a
strategic investment. In conjunction therewith, 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. Income before federal
income taxes and excluding realized investment gains was $20.9 million in the
current six month period compared to $16.3 million in the same period last year.
The increase in earnings is largely attributable to comparatively favorable
mortality and higher in force volumes in ordinary life reinsurance and
contributions from Administrative Reinsurance(SM)
11
<PAGE> 12
ITEM 2.
LIFE RE CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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as a result of the Transactions. These favorable results were partially offset
by higher morbidity in the group accident and health and special risk pool
business. Morbidity experience within the group accident and health and special
risk pool business is not expected to improve materially in the near term.
Policy revenues increased by $32.1 million, or 16%, to $237.3 million in
1997 from $205.2 million in 1996. Ordinary life reinsurance policy revenues
increased by $16.8 million, or 13%, to $145.6 million due to an increase in
first year premiums of $12.5 million and higher renewal premiums resulting from
higher in force amounts. An increase in Administrative Reinsurance(SM) policy
revenues of $11.3 million is attributable to the Transactions. Future revenue
growth from Administrative Reinsurance(SM) is dependent on the completion of
similar transactions.
Group policy revenues increased by $4.0 million, or 6%. Premiums of $8.2
million in the 1997 period were generated from the automobile credit reinsurance
agreement effective July 1996. Group life premiums declined by $3.8 million
period to period due to treaty terminations. Group accident and health and
special risk premiums were level period to period as a result of a selective
reduction in certain pool participations and an agreement, effective January 1,
1997, to retrocede 50% of most accident and health and special risk business
attributable to the 1997 underwriting year to a pool of reinsurers. Due to pool
participation reductions and this reinsurance agreement, these premium volumes
will decline in the future.
Investment income increased by 24% to $71.2 million as a result of assets
received in conjunction with the Transactions and the automobile credit
reinsurance agreement, slightly offset by a decrease in the weighted average
portfolio yield rate, which was 7.55% and 7.63% at June 30, 1997 and 1996,
respectively. Future investment income growth is dependent, among other factors,
on the completion of additional Administrative Reinsurance(SM) transactions and
continued growth in ordinary life reinsurance and automobile credit reinsurance
business.
Policy benefits increased by $15.3 million from the prior period due to
higher volumes of business in force; however, as a percentage of policy
revenues, policy benefits improved to 71% in 1997 from 75% in 1996. Improved
mortality in ordinary life reinsurance was partially offset by a deterioration
in group accident and health and special risk morbidity experience.
12
<PAGE> 13
ITEM 2.
LIFE RE CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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Policy acquisition costs as a percentage of policy revenues were 29% for
the six months ended June 30, 1997 compared to 25% for the same period of 1996.
The increase is largely due to higher ultimate commission rates on ordinary life
reinsurance.
Interest credited to policyholder accounts increased to $18.1 million in
1997 from $14.6 million in 1996 corresponding to the growth in interest
sensitive business resulting from the Transactions, partially offset by a
revised estimate of certain bonus interest provisions.
Interest expense declined by $.4 million as a result of a $15.0 million
principal repayment in March 1996 and a decline in the weighted average variable
rate to 6.0% from 6.3%.
Distributions on capital securities of $.6 million were incurred from
the issuance in June 1997 of $100 million of 8.72% capital securities by a
subsidiary trust as further described in the Financial Condition and Liquidity
section (see Note 3 of Notes to Condensed Consolidated Financial Statements).
Other operating expenses increased by $3.6 million to $16.8 million
largely due to higher fees for third party administration which are based on
Administrative Reinsurance(SM) in force volumes, which increased due to the
Transactions. Salary and employee benefit expense increased due to higher
staffing levels.
Federal income taxes were provided at the federal statutory rate of 35%
for 1997. The 1996 rate was 23% due to the previously mentioned tax benefit from
utilization of operating loss carryforwards.
Second Quarter of 1997 Compared to Second Quarter of 1996
Net income increased by $1.7 million to $12.1 million from $10.4 million
in the second quarter of 1996. Included in these results were realized
investment gains, after tax, of $.7 million and $.5 million, respectively.
Income before federal income taxes and excluding realized investment gains was
$17.5 million in the current quarter compared to $15.2 million in 1996. The
increase is mainly attributable to higher in force volumes in ordinary life
reinsurance, contributions to Administrative Reinsurance (SM) from the
Transactions and investment income from the automobile credit business. These
results were partially offset by higher morbidity costs within the accident and
health and special risk reinsurance pool business.
13
<PAGE> 14
ITEM 2.
LIFE RE CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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Policy revenues increased by $18.1 million, or 17%, to $122.6 million in
1997 from $104.5 million in last year's second quarter. Ordinary life
reinsurance policy revenues increased by $11.2 million, or 17%, to $78.0
million mainly due to an increase in first year premiums. A $6.6 million
increase in Administrative Reinsurance(SM) policy revenues is attributable to
the Transactions.
Group policy revenues were essentially level period to period. A decrease
in group life and accident and health and special risk reinsurance premiums was
offset by an increase in automobile credit reinsurance premiums. The decrease in
group accident and health and special risk policy revenues is a result of
management's decision to selectively reduce or eliminate participation in
certain pool arrangements. In addition, effective January 1, 1997, the Company
entered into a quota share reinsurance agreement whereby 50% of most accident
and health and special risk business written in the 1997 underwriting year will
be retroceded to a pool of reinsurers. This agreement reduced accident and
health and special risk reinsurance premiums by approximately $4.0 million for
the quarter.
Investment income increased by 28% to $36.3 million as a result of assets
received in conjunction with the Transactions and the automobile credit
reinsurance agreement partially offset by a decline in the weighted average
portfolio yield rate.
Policy benefits increased by $11.9 million period to period due to higher
volumes of business in force, but, as a percentage of policy revenues, improved
slightly in 1997 from 1996. Improved mortality in ordinary life reinsurance was
partially offset by a deterioration in group accident and health and special
risk morbidity experience.
Policy acquisition costs as a percentage of policy revenues were 30% for
the 1997 quarter compared to 26% for the prior year quarter largely due to
higher ultimate commission rates on ordinary life reinsurance.
Interest credited to policyholder accounts increased to $7.9 million in
1997 from $7.2 million in 1996 corresponding to the growth in interest sensitive
business resulting from the Transactions partially offset by a revised estimate
of certain bonus interest provisions.
Distributions on capital securities of $.6 million were incurred from
the issuance in June 1997 of $100 million of 8.72% capital securities by a
subsidiary trust as further described in the Financial Condition and Liquidity
section (see Note 3 of Notes to Condensed Consolidated Financial Statements).
14
<PAGE> 15
ITEM 2.
LIFE RE CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
- -------------------------------------------------------------------------------
Other operating expenses increased by $1.8 million to $8.2 million
largely due to higher third party administration fees resulting from higher
Administrative Reinsurance(SM) in force volumes. Higher staffing levels caused
an increase in salaries and employee benefits expense.
FINANCIAL CONDITION AND LIQUIDITY
INVESTMENTS
Invested assets grew to $1,914.3 million at June 30, 1997 from $1,833.2
million at December 31, 1996 as a result of the issuance of $100 million of
capital securities and the reinvestment of operating cash flow of $23.5 million,
partially offset by net withdrawals from policyholder accounts of $28.8 million
and a $3.1 million interest rate-related fair value decline.
The Company's fixed maturity portfolio (including the fixed maturity
securities which are included in assets held by ceding company under reinsurance
treaty) constituted 93% of invested assets at June 30, 1997, of which $71.1
million, or 3.7% of invested assets, consisted of below investment grade
securities. At June 30, 1997, the weighted average quality rating of the fixed
maturities portfolio was "A", and no fixed maturities were in default.
LIQUIDITY
The Company's liquidity and capital position was enhanced during the
quarter by the issuance of capital securities resulting in additional available
funds of approximately $99.0 million. Of this amount, $75.0 million was
contributed to the Company's subsidiary, Life Reassurance Corporation of
America, with the intent to use it for Administrative Reinsurance(SM)
transactions and ordinary life reinsurance growth.
Sources of liquidity are available to the Company in the form of cash and
short-term investments and, if necessary, the sale of invested assets. The
Company may enter into reverse repurchase agreements to fund short-term cash
needs and can also borrow an additional $35.0 million under its revolving credit
agreement. Effective May 1, 1997, the credit agreement was amended to reduce the
margin over an index rate that determines the amount of interest paid by the
Company. In addition, the Company may defer the commencement of principal
amortization until January 2001. As of June 30, 1997 and December 31, 1996, the
weighted average interest rate on long-term debt was 6.0%. In addition to debt
servicing and dividend obligations, the Company's financial obligations
15
<PAGE> 16
ITEM 2.
LIFE RE CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
- -------------------------------------------------------------------------------
consist of policy benefit and acquisition costs, taxes and general operating
expenses. Management believes that these obligations will be adequately provided
for by policy revenues and investment income for the next twelve months.
The ability of the Company to make principal and interest payments under
its credit agreement and fund capital security distributions as well as to
continue to pay common stock dividends ultimately is dependent on the statutory
earnings and surplus of the insurance subsidiaries. The transfer of funds from
the subsidiaries to Life Re Corporation is subject to applicable insurance laws
and regulations. The Company continues to buy shares of its common stock
pursuant to a stock repurchase program approved by the Company's Board of
Directors under which a total 3.0 million shares have been authorized for
purchase. As of June 30, 1997, the Company had repurchased approximately 2.2
million shares for an aggregate purchase price of $46.6 million including $.7
million in the three months ended June 30, 1997.
RECENT TRANSACTIONS
In the third quarter of 1997, the Company completed a reinsurance
transaction and expects to complete an acquisition which, together, will
increase assets by approximately $235.0 million (see Note 2 of "Notes to
Condensed Consolidated Financial Statements").
NEW ACCOUNTING PRONOUNCEMENTS
In 1997, the Financial Accounting Standards Board issued Statements No.
128, 130 and 131. These statements concern the calculation of earnings per share
and the presentation of comprehensive income and segment reporting,
respectively. These statements will not affect the Company's financial condition
or results of operations (see Note 1 of "Notes to Condensed Consolidated
Financial Statements").
16
<PAGE> 17
PART II - OTHER INFORMATION
ITEM 2
CHANGES IN SECURITIES
(c) On June 6, 1997, Life Re Corporation (the "Company") completed
a private placement under Rule 144A of the Securities Act of
1933, as amended (the "Act") of $100 million of 8.72% Capital
Securities of Life Re Capital Trust I (the "Trust"), a
subsidiary of the Company, at $1,000 per Capital Security.
Each Capital Security will pay cumulative distributions at the
annual rate of 8.72% of the stated $1,000 amount per Capital
Security, payable semi-annually in arrears beginning December
15, 1997, and will have a maturity date of June 15, 2027.
Payments on the Capital Securities are fully and
unconditionally guaranteed by the Company. Both Standard &
Poor's Rating Service and Duff & Phelps Credit Rating Co.
assigned a "BBB" (Triple-B) rating to the Capital Securities.
The Capital Securities were initially sold to BancAmerica
Securities, Inc. ("BancAmerica") who in turn sold the Capital
Securities to qualified institutional buyers and institutional
accredited investors (as such terms are defined under Rule
144A and Regulation D of the Act). For its services, the
Company paid BancAmerica an aggregate amount of $875,000.
The holders of the Capital Securities have voting rights
generally limited to those matters affecting the Capital
Securities. The Company has agreed that if there occurs an
event of default under the terms of its guarantee or certain
other operative documents related thereto, or if the Company
elects to defer payment of interest on those certain junior
subordinated debentures of the Company which are held in trust
by the Trust for the benefit of the holders of the Capital
Securities, it will not, among other things, declare or pay
any dividends or distributions on, or redeem, purchase,
acquire or make a liquidation payment with respect to, any of
its capital stock, or generally make any principal, interest
or other similar payments on any of its debt securities and/or
guarantees that rank pari passu with or junior in right of
payment to the junior subordinated debentures of the Company
referred to above.
17
<PAGE> 18
ITEM 4
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The meeting was held on May 15, 1997 and it was the Annual
Meeting of Stockholders.
(b) The meeting involved the election of directors and the
following directors were each elected to serve a three (3)
year term:
Jacques E. Dubois
K. Fred Skousen
The name of each other director whose term of office as a
director continued after the meeting is as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Rodney A. Hawes, Jr. Chris C. Stroup
Douglas M. Schair Carolyn K. McCandless
Samuel V. Filoromo T. Bowring Woodbury, II
</TABLE>
(c) Two (2) matters were voted upon at the meeting: (i) the
election of directors and; (ii) the ratification of the
appointment of independent auditors for the year 1997.
(i) ELECTION OF DIRECTORS:
<TABLE>
<CAPTION>
Nominee Votes For Votes Withheld
------- --------- --------------
<S> <C> <C> <C>
Jacques E. Dubois 12,703,873 55,450
K. Fred Skousen 12,703,773 55,550
</TABLE>
(ii) RATIFICATION OF AUDITORS:
<TABLE>
<CAPTION>
Votes For Votes Against Abstentions
--------- ------------- -----------
<S> <C> <C> <C>
12,755,081 2,555 1,687
</TABLE>
18
<PAGE> 19
ITEM 6
EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
(a) Exhibits
<S> <C> <C>
3.01 Certificate of Incorporation of Life Re Corporation
(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.
</TABLE>
19
<PAGE> 20
ITEM 6
EXHIBITS AND REPORTS ON FORM 8-K (CONTINUED)
<TABLE>
<CAPTION>
<S> <C> <C>
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).
4.02 Company's Agreement to File Indenture.
10.01 Second Amendment dated as of June 30, 1997 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.
23.01 Acknowledgment Letter of Ernst & Young LLP.
27.01 Financial Data Schedule.
</TABLE>
(b) A Current Report on Form 8-K was filed with the Securities and
Exchange Commission on June 10, 1997 reporting that the
Company, through its subsidiary, Life Re Capital Trust I, sold
in a private placement in reliance on Rule 144A $100 million
of 8.72% Capital Securities of such Trust, at $1,000 per
Security. No other reports on Form 8-K were filed during the
three months ended June 30, 1997.
20
<PAGE> 21
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Life Re Corporation
Dated: August 13, 1997 By:/s/Chris C. Stroup
------------------
Chris C. Stroup,
Executive Vice President
and Chief Financial Officer
21
<PAGE> 22
EXHIBIT INDEX
<TABLE>
<CAPTION>
<S> <C> <C>
4.02 Company's Agreement to File Indenture.
10.01 Second Amendment dated as of June 30, 1997 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.
23.01 Acknowledgment Letter of Ernst & Young LLP.
27.01 Financial Data Schedule.
</TABLE>
<PAGE> 1
EXHIBIT 4.02
Instruments Defining Rights of Security Holders, Including Indentures
Pursuant to the requirements of Item 601(b)(4)(iii)(A) of Regulation
S-K, the Registrant agrees to file with the Securities and Exchange Commission
(the "Commission") a copy of the Indenture, dated as of June 6, 1997, between
Life Re Corporation and The Bank of New York, upon the request of the
Commission.
<PAGE> 1
EXHIBIT 10.01
<PAGE> 2
SECOND AMENDMENT
THIS SECOND AMENDMENT dated as of June 30, 1997 (this "Amendment") is among
LIFE RE CORPORATION (the "Borrower"), various financial institutions (the
"Lenders"), and BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as
Administrative Agent for the Lenders (in such capacity, the "Administrative
Agent").
W I T N E S E T H:
- - - - - - - - -
WHEREAS, the Borrower, the Lenders and the Administrative Agent have
entered into a Credit Agreement dated as of November 2, 1995 (as previously
amended, the "Agreement") which provides for the Lenders to make Loans to the
Borrower from time to time (terms defined in the Agreement and not otherwise
defined herein are used herein as defined in the Agreement); and
WHEREAS, the parties hereto desire to amend the Agreement in certain
respects as hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration (the receipt and sufficiency of which are hereby
acknowledged), the parties hereto agree as follows:
SECTION 1. AMENDMENTS. Effective on (and subject to the occurrence of)
the Second Amendment Effective Date (as defined below), the Agreement shall be
amended in accordance with Sections 1.1 through 1.6 below.
1.1 Addition of Certain Definitions. Section 1.1 of the Agreement is
amended by adding the following definitions thereto in appropriate alphabetical
sequence:
Capital Securities means the 8.72% Capital Securities issued by the
Capital Trust containing substantially the terms described in the Capital
Trust Offering Memorandum.
Capital Trust means the Life Re Capital Trust I, a special purpose
Delaware business trust established by the Borrower, of which the Borrower
holds all the common securities, which is the issuer of the Capital
Securities, and which loaned to the Borrower (such loan being evidenced by
the Capital Trust Debentures) the net proceeds of the issuance and sale of
the Capital Securities.
Capital Trust Debentures means the 8.72% Junior Subordinated
Deferrable Interest Debentures issued by the
<PAGE> 3
Borrower to the Capital Trust containing substantially the terms described
in the Capital Trust Offering Memorandum.
Capital Trust Offering Memorandum means the Offering Memorandum dated
June 6, 1997 for $100,000,000 of Capital Securities to be issued by the
Capital Trust.
1.2 Replacement of Certain Definitions. Section 1.1 of the Agreement is
amended by deleting the existing definitions of "Debt", "Indebtedness to
Capitalization Ratio" and "Total Capital" in their entirety and substituting
the following therefor, respectively:
Debt shall mean, with respect to any Person, at any date, without
duplication, (i) all obligations of such Person for borrowed money or in
respect of loans or advances; and (ii) all obligations of such Person
evidenced by bonds, debentures, notes or other similar instruments.
Notwithstanding the foregoing, (a) any surplus debentures issued by TexasRe
shall not be considered Debt of TexasRe, (b) the Capital Trust Debentures
shall not be considered Debt of the Borrower and (c) the Capital Securities
shall not be considered Debt of the Capital Trust.
Indebtedness to Capitalization Ratio shall mean, at any time, the
ratio of (x) the consolidated Indebtedness of the Borrower and its
Subsidiaries at such time to (y) the sum at such time of the consolidated
Indebtedness of the Borrower and its Subsidiaries plus the consolidated
Equity of the Borrower and its Subsidiaries plus, without duplication, the
outstanding amount of the Capital Securities.
Total Capital shall mean the sum of (a) the Statutory Surplus of Life
Reassurance, plus (b) the Statutory Surplus of TexasRe (excluding the
Statutory Carrying Value of Life Reassurance) to the extent such amount
exceeds the minimum capital and surplus requirements of its Department,
plus (c) any cash, cash equivalents and Invested Assets (excluding surplus
debentures of TexasRe on the books of the Borrower, the GAAP book value of
TexasRe and investments in the Capital Trust) of the Borrower only.
1.3 Amendment to Definition of Indebtedness. The definition of
"Indebtedness" in Section 1.1 of the Agreement is amended by adding the
following sentence at the end thereof: "The obligations of the Borrower in
respect of the Capital Trust Debentures shall not constitute Indebtedness for
purposes of this Agreement, except that such obligations shall constitute
Indebtedness for purposes of Section 9.1.3."
-2-
<PAGE> 4
1.4 Amendment to Definition of Contingent Liability. The definition of
Contingent Liability in Section 1.1 of the Agreement is amended by adding the
following sentence at the end thereof: The obligations of the Borrower under
its guarantee of the Capital Securities shall not constitute Contingent
Liabilities for purposes of this Agreement, except that such obligations shall
constitute Contingent Liabilities (and, therefore, shall constitute
Indebtedness) for purposes of Section 9.1.3.
1.5 AMENDMENT OF SECTION 8.2.13. Section 8.2.13 is amended in its
entirety to read as follows:
8.2.13 RESTRICTED PAYMENTS. Not purchase or redeem any shares of
its stock, declare or pay any dividends thereon (other than stock
dividends), make any distribution to stockholders, make any
payments of principal of the Capital Trust Debentures or redeem
(or make any payment in respect of its guarantee of) any Capital
Securities or set aside any funds for any such purpose (any of
the foregoing, a Restricted Payment), except that (i) the
Borrower may make Restricted Payments in any Fiscal Year in an
aggregate amount not exceeding three percent (3%) of the amount
of the Borrower's Equity on the last day of the immediately
preceding Fiscal Year, and (ii) the Borrower may make additional
Restricted Payments if (a) immediately before and after giving
effect thereto no Event of Default or Unmatured Event of Default
exists, (b) Life Reassurance has an A.M. Best rating of A or
better and (c) immediately before and after giving effect thereto
the sum of Total Capital (including, without duplication, the
full amount of the surplus notes) plus, without duplication, the
outstanding amount of the Capital Securities is greater than the
consolidated Indebtedness of the Borrower and its Subsidiaries.
1.6 Amendment of Form of Compliance Certificate. Exhibit E to the
Agreement is deleted in its entirety and replaced by the Exhibit E attached
hereto.
SECTION 2. WARRANTIES. To induce the Lenders to enter into this
Amendment, the Borrower warrants that:
2.1 Authorization. The Borrower is duly authorized to execute and
deliver this Amendment and to perform its obligations under the Agreement, as
amended hereby (the "Amended Agreement").
2.2 No Conflicts. The execution and delivery of this Amendment, and the
performance by the Borrower of its obligations under the Amended Agreement, do
not and will not conflict with
-3-
<PAGE> 5
any provision of law or of the charter or by-laws of the Borrower or of any
agreement binding upon the Borrower.
2.3 Validity and Binding Effect. The Amended Agreement is a legal,
valid and binding obligation of the Borrower, enforceable against the Borrower
in accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency or other similar laws of general application affecting
the enforcement of creditors' rights or by general principles of equity
limiting the availability of equitable remedies.
SECTION 3. Conditions Precedent to Effectiveness. the amendments set
forth in SECTION 1 hereof shall become effective, as of the day and year first
above written, on such date (herein called the "Second Amendment Effective
Date") when each of the following conditions precedent have been satisfied.
3.1 Second Amendment. The Administrative Agent shall have received
counterparts of this Amendment executed by the Borrower and all Lenders.
3.2 No Default. No Event of Default or Unmatured Event of Default shall
have occurred and be continuing.
SECTION 4. GENERAL.
4.1 Expenses. The Borrower agrees to reimburse the Administrative Agent
upon demand for all reasonable expenses, including reasonable fees of attorneys
and paralegals for the Administrative Agent, incurred by the Administrative
Agent in connection with the preparation, negotiation and execution of this
Amendment and any document required to be furnished herewith.
4.2 Governing Law. This Amendment shall be governed by the laws of the
State of New York applicable to contracts made and to be performed entirely
within such State.
4.3 Confirmation of the Agreement. Except as amended hereby, the
Agreement shall remain in full force and effect and is hereby ratified and
confirmed in all respects. After the Second Amendment Effective Date, all
references in the Agreement and the other Loan Documents to "Credit Agreement,"
"Agreement" or similar terms shall refer to the Amended Agreement.
4.4 Execution in Counterparts. This Amendment may be executed by the
parties hereto in several counterparts, each of which shall be deemed to be an
original and all of which shall constitute together but one and the same
agreement.
-4-
<PAGE> 6
4.5 Effectiveness of Pricing Change. Any change to the Applicable
Margin or the Facility Fee Rate resulting from the changes made by this
Amendment shall be effective on and after the Second Amendment Effective Date.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized as of the date
first written above.
LIFE RE CORPORATION
By: /s/ Chris C. Stroup
_________________________________________
Title: Executive Vice President
Chief Financial Officer
_______________________________________
By: /s/ W. Weldon Wilson
_________________________________________
Title: Vice President and General Counsel
______________________________________
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as
Administrative Agent
By: /s/ MICHAEL ERNST
_________________________________________
Title: Vice President
_________________________________________
BANK OF AMERICA ILLINOIS
By: /s/ MICHAEL ERNST
_________________________________________
Title: Vice President
_________________________________________
FLEET NATIONAL BANK
By: /s/ Juliana B. Dalton
__________________________________________
Title: Vice President
__________________________________________
THE BANK OF NEW YORK
By: /s/ Melanie Shorofsky
_________________________________________
Title: Vice President
_________________________________________
-5-
<PAGE> 7
MELLON BANK, N.A.
By: /s/ KAREN E. McCONOY
_________________________________________
Title: Assistant Vice President
_________________________________________
BANK OF TOKYO-MITSUBISHI TRUST COMPANY
By: /s/ Ned Komar
_________________________________________
Title: Vice President
_________________________________________
BANK OF MONTREAL
By: /s/ Charles W. Reed
_________________________________________
Title: Director
_________________________________________
-6-
<PAGE> 8
EXHIBIT E
FORM OF COMPLIANCE CERTIFICATE
Date: _____________, _____
TO: Bank of America National Trust and Savings
Association, as Administrative Agent, and the
Lenders under the Credit Agreement referred
to below
RE: LIFE RE CORPORATION
Please refer to that certain Amended and Restated Credit Agreement (as
heretofore amended, modified, supplemented, restated, refunded or renewed and
as currently in effect, herein called the "Agreement"), dated as of November 2,
1995, among Life Re Corporation (the "Borrower"), the Lenders and Co-Agents
referred to therein, and Bank of America National Trust and Savings
Association, as Administrative Agent.
Terms defined in the Agreement shall have the same meanings when used
herein.
In accordance with Section 8.1.1 (f) of the Agreement, the Borrower
hereby certifies that the statements and calculations set forth below are true
and correct as of ___________________, 19__ (the "Calculation Date"):
I. Section 8.1.10(ii) - Investments.
A. Consolidated Invested Assets of the
Borrower and its Subsidiaries $_____________
B. 15% of Item A $_____________
C. 100% of Statutory Surplus of Life
Reassurance $_____________
D. Maximum aggregate amount of investments
permitted pursuant to Section 8.1.10(ii)
(the lesser of Item B or Item C)
E. Restricted Investments
1. Non-Investment Grade Securities $_____________
2. Common stock and other equity
securities (other than (x)
investments in Subsidiaries and
(y) preferred stock) $_____________
<PAGE> 9
3. Investments in interests in real property
(excluding those described in the
parenthetical clause in SECTION 8.1.10(ii)(c) $__________
4. Sum of Items E.1 through E.3 $__________
[Item E.4 is not permitted to exceed Item D]
II. Section 8.1.10(iii) - Investments.
A. Admitted assets of Life Reassurance as
of the Calculation Date $__________
B. 4% of Item A $__________
C. Life Reassurance capital and surplus
as of the Calculation Date $__________
D. 20% of Item C
E. The lesser of Item B or Item D $__________
F. The value, as of the Calculation Date,
of the investments of the Borrower and
its Subsidiaries in one securities issuer
which exceed the amount of Item E ___________
(excluding U.S. Government Securities, (name of
Canadian Government Securities and issuer)
investments of the Borrower and/or
its Subsidiaries in the Borrower or any
other Subsidiary) $__________
(value of
[Item F is not permitted to exceed Item E] investment)
III. Section 8.2.1 - EBT to Future Fixed
Charges.
A. EBT for the calendar year ended on the
Calculation Date $__________
B. Future Fixed Charges of Borrower and its
Subsidiaries for the next calendar year: $__________
1. Future Interest Charges $__________
2. Mandatory principal payments with
respect to Consolidated Debt $__________
3. Sum of B.1 and B.2 $__________
C. Item A divided by Item B.3 $__________
[Item C is not permitted to be less than 1.25]
IV. Section 8.2.2 - EBT to Future Interest Charges.
<PAGE> 10
A. EBT for the four Fiscal Quarters ended on the
Calculation Date $________
B. Future Interest Charges of Borrower and its
Subsidiaries for the next four Fiscal Quarters: $________
1. Outstanding principal amount of Debt at the
Date of Calculation $________
2. Annualized interest rate applicable to Debt $________
3. Item B.1 multiplied by Item B.2 $________
4. Interest corresponding to mandatory principal
reductions scheduled for the next four
Fiscal Quarters $________
5. Item B.3 less Item B.4 $________
C. Item A divided by Item B.5) $________
D. EBT to Future Interest Charges for prior Fiscal
Quarter. ________
[Item C is not permitted to be less than 2.0 for any
two consecutive Fiscal Quarters]
V. Section 8.2.3 Minimum Statutory Surplus
A. Total Adjusted Capital of Life Reassurance as
of the Calculation Date $________
B. Company Action Level (as such term is defined
by NAIC risk-based capital level) $________
[Item A is not permitted to be less than 150% of
Item B]
VI. Section 8.2.4 Indebtedness to Capitalization
A. Consolidated Indebtedness of the Borrower and
its Subsidiaries as of the Calculation Date $________
B. Consolidated Equity of the Borrower and its
Subsidiaries as of the Calculation Date $________
C. Outstanding Amount of Capital Securities as
of Calculation Date $________
D. Item A plus Item B plus Item C $________
E. Item A divided by Item D ________
<PAGE> 11
[Item E is not permitted to be greater than 45%]
VII. Section 8.2.13 - Restricted Payments.
A. Permitted Restricted Payments
1. Borrower's Equity as of the last day
of the Fiscal Year immediately
preceding the Calculation Date. $________
2. 3% of Item A.1 $________
3. Cumulative amount of Restricted Payments
during the applicable Fiscal Year as of the
Calculation Date $________
B. A.M. Best rating of Life Reassurance as of
the Calculation Date ________
C. Total Capital
1. Statutory Surplus of Life Reassurance $________
2. Statutory Surplus of TexasRe (excluding the
Statutory Carrying Value of Life Reassurance)
to the extent such amount exceeds minimum
capital and surplus requirements of its
Department $________
3. Any cash, cash equivalents and Invested Assets
(excluding surplus debentures of TexasRe on
books of Borrower, GAAP book value of TexasRe
and investments in the Capital Trust) $________
4. Sum of Items C.1 through C.3 $________
D. Outstanding Amount of Capital Securities $________
E. Sum of Items C.4 and D $________
F. Consolidated Indebtedness of Borrower and its
Subsidiaries as of the Calculation Date. $________
[Item A.3 is not permitted to exceed Item A.2
unless (a) no Event of Default or Unmatured Event
of Default exists, (b) Item B is "A" or better and
(c) Item E is greater than Item F]
<PAGE> 12
VIII. Section 8.14 Capital Expenditures.
A. Cumulative amount of Capital Expenditures
during applicable Fiscal Year as of the
Calculation Date $__________
[Item A is not permitted to exceed
$10,000,000]
<PAGE> 1
EXHIBIT 23.01
<PAGE> 2
Acknowledgment Letter
The Board of Directors
Life Re Corporation
We are aware of the incorporation by reference in the Registration Statements
(Form S-8s: Numbers 33-54138, 33-80251, and 33-80737) pertaining to The Life Re
Corporation Stock Investment Plan, The Life Re Corporation Stock Option Plan and
The Life Re Corporation 1993 Non-Employee Directors Stock Option Plan,
respectively, of our report dated July 29, 1997 relating to the unaudited
condensed consolidated interim financial statements of Life Re Corporation that
is included in its Form 10-Q for the quarter ended June 30, 1997.
/s/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
Stamford, Connecticut
July 29, 1997
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<DEBT-HELD-FOR-SALE> 1,675,936
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 22,260
<MORTGAGE> 4,412
<REAL-ESTATE> 1,260
<TOTAL-INVEST> 1,914,312
<CASH> 9,072
<RECOVER-REINSURE> 270,603
<DEFERRED-ACQUISITION> 241,100
<TOTAL-ASSETS> 2,617,995
<POLICY-LOSSES> 0
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 125,000
0
0
<COMMON> 16
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237,321
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<UNDERWRITING-OTHER> 0
<INCOME-PRETAX> 33,993
<INCOME-TAX> 11,898
<INCOME-CONTINUING> 22,095
<DISCONTINUED> 0
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<CHANGES> 0
<NET-INCOME> 22,095
<EPS-PRIMARY> 1.57
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<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
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</TABLE>
