<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, 1998
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)
DELAWARE 01-0437851
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
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 10, 1998:
17,286,279 SHARES
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Page 2
TABLE OF CONTENTS
Item Page
PART I - FINANCIAL INFORMATION
1 Financial Statements
Independent Accountants' Review Report
Condensed Consolidated Balance Sheets (Unaudited)
June 30, 1998 and December 31, 1997
Condensed Consolidated Statements
of Income (Unaudited)
Three and six months ended June 30, 1998 and 1997
Condensed Consolidated Statements
of Cash Flows (Unaudited)
Six months ended June 30, 1998 and 1997
Notes to Condensed Consolidated Financial
Statements June 30, 1998 (Unaudited)
2 Management's Discussion and Analysis of
Financial Condition and Results of Operations
PART II- OTHER INFORMATION
2 Changes in Securities
4 Submission of Matters to a Vote of
Security Holders
5 Other Information
6 Exhibits and Reports on Form 8-K
Exhibit Index
<PAGE> 3
Page 3
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 its subsidiaries as of June 30, 1998, and the related
condensed consolidated statements of income for the three-month and six month
periods ended June 30, 1998 and 1997, and the condensed consolidated statements
of cash flows for the six-month periods ended June 30, 1998 and 1997. These
condensed consolidated 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, 1997 and the related consolidated statements of
income, shareholders' equity and cash flows for the year then ended (not
presented herein) and in our report dated February 12, 1998 (except for Notes 9
and 10, as to which the date is March 17, 1998), 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, 1997, is fairly stated, in all material respects, in relation
to the consolidated balance sheet from which it has been derived.
/s/
--------------------------
ERNST & YOUNG LLP
Stamford, Connecticut
July 26, 1998
<PAGE> 4
PART I, ITEM 1.
LIFE RE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
----------- -----------
(In thousands,
except share data)
<S> <C> <C>
ASSETS
Fixed maturities - at fair value
(amortized cost: $3,176,829 and $2,243,423, respectively) $ 3,287,158 $ 2,335,795
Equity securities - at fair value
(cost: $27,764 and $25,171, respectively) 29,145 26,775
Assets held by ceding company under reinsurance treaty - at fair value
(amortized cost: $101,329 and $101,767, respectively) 109,663 109,266
Mortgage loans and real estate 38,680 12,007
Short-term investments 191,971 166,801
Policy loans 183,729 133,986
----------- -----------
Total investments 3,840,346 2,784,630
Cash 5,863 16,797
Accrued investment income 64,399 43,378
Policy revenues receivable 170,133 158,560
Amounts receivable on reinsurance ceded 336,772 347,828
Deferred acquisition costs 468,048 325,570
Other assets 24,099 23,479
----------- -----------
Total assets $ 4,909,660 $ 3,700,242
=========== ===========
LIABILITIES
Policy benefits $ 3,583,517 $ 2,871,243
Acquisition costs payable 57,663 54,247
Amounts due on reinsurance ceded 59,394 55,085
Other liabilities 215,632 120,877
Loans payable 125,000 125,000
----------- -----------
Total liabilities 4,041,206 3,226,452
----------- -----------
Corporation-obligated, mandatorily redeemable capital securities
of subsidiary trusts 236,620 100,000
----------- -----------
COMMON SHAREHOLDERS' EQUITY
Common stock (par value $.001 per share;
authorized 40,000,000 shares; issued 19,502,185
and 15,835,785 shares, respectively) 20 16
Paid in capital 334,086 111,337
Net unrealized appreciation of securities 70,123 61,416
Retained earnings 276,573 249,297
Treasury stock - at cost (2,215,906 and 2,205,223
shares, respectively) (48,968) (48,276)
----------- -----------
Total common shareholders' equity 631,834 373,790
----------- -----------
Total liabilities and shareholders' equity $ 4,909,660 $ 3,700,242
=========== ===========
</TABLE>
The accompanying notes are an integral component of the condensed consolidated
financial statements.
<PAGE> 5
LIFE RE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- ----------------------
1998 1997 1998 1997
-------- -------- -------- -------
(In thousands,
except per share data)
<S> <C> <C> <C> <C>
REVENUES
Policy revenues $161,093 $122,608 $302,412 $237,321
Investment income 57,539 36,328 105,349 71,237
Realized investment gains 122 1,052 715 1,789
Total revenues -------- -------- -------- -------
218,754 159,988 408,476 310,347
-------- -------- -------- -------
BENEFITS AND EXPENSES
Policy benefits 110,236 86,422 206,011 168,612
Acquisition costs 44,423 36,312 85,624 68,228
Interest credited to policyholder accounts 18,753 7,929 33,196 18,143
Interest expense 1,961 1,993 3,942 3,981
Distributions on capital securities 4,229 606 6,728 606
Other operating expenses 12,072 8,191 23,878 16,784
Total benefits and expenses -------- -------- -------- -------
191,674 141,453 359,379 276,354
-------- -------- -------- -------
Income before federal income taxes 27,080 18,535 49,097 33,993
Provision for federal income taxes 9,478 6,488 17,184 11,898
-------- -------- -------- -------
NET INCOME $ 17,602 12,047 $ 31,913 $22,095
======== ======== ======== =======
Earnings per common share $ 1.02 $ 0.89 $ 2.02 $ 1.63
======== ======== ======== =======
Earnings per common share assuming dilution $ 0.97 $ 0.85 $ 1.92 $ 1.57
======== ======== ======== =======
Dividends per common share $ 0.15 $ 0.13 $ 0.30 $ 0.26
======== ======== ======== =======
</TABLE>
The accompanying notes are an integral component of the condensed consolidated
financial statements.
<PAGE> 6
LIFE RE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------------
1998 1997
--------- ---------
(In thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Income before federal income taxes $ 49,097 $ 33,993
Adjustments to reconcile income before federal income taxes to
net cash provided by operating activities:
Change in accrued investment income (11,898) (1,443)
Change in policy revenues receivable, net 495 (4,497)
Change in policy benefits 29,093 (10,348)
Change in reinsurance ceded balances (8,392) 14,031
Interest credited to policyholder accounts 33,196 18,143
Fees and charges deducted from policyholder accounts (32,020) (18,178)
Deferral of acquisition costs (29,320) (28,782)
Amortization of acquisition costs, net of interest accretion 8,055 9,710
Net realized gains on investments (715) (1,789)
Depreciation and amortization 2,859 443
Other (17,563) 10,945
--------- ---------
Net cash provided by operations 22,887 22,228
Federal income taxes recovered (paid) (22,725) 1,294
--------- ---------
Net cash provided by operating activities 162 23,522
--------- ---------
INVESTING ACTIVITIES
Purchases of fixed maturities (984,240) (223,166)
Sales of fixed maturities 451,622 127,389
Maturities of fixed maturities 68,541 28,295
Purchases of equity securities (2,040)
Sales or redemptions of equity securities 2,572
Change in short-term investments, policy loans and other investments 214,141 (19,837)
Short-term borrowings 89,758
Cash paid in connection with acquisitions and
reinsurance transactions, net (160,611)
Other, net (1,290) (1,218)
--------- ---------
Net cash used by investing activities (321,547) (88,537)
--------- ---------
FINANCING ACTIVITIES
Purchases of common stock for treasury (692) (956)
Proceeds from exercises of common stock options 3,732 1,982
Issuance of common stock, net of issuance costs 219,120
Issuance of corporation-obligated, mandatorily redeemable
capital securities of subsidiary trust 133,177 99,034
Dividends on common stock (4,637) (3,528)
Deposits to policyholder accounts 41,499 25,180
Withdrawals from policyholder accounts (81,748) (53,962)
--------- ---------
Net cash provided by financing activities 310,451 67,750
--------- ---------
Increase (decrease) in cash (10,934) 2,735
Cash, beginning of period 16,797 6,337
--------- ---------
Cash, end of period $ 5,863 $ 9,072
========= =========
</TABLE>
The accompanying notes are an integral component of the condensed consolidated
financial statements.
<PAGE> 7
Page 5
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, 1998 are not necessarily indicative of the results that
may be expected for the year ending December 31, 1998. 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, 1997.
Certain reclassifications have been made to the prior year financial
statements to conform to the current year presentation.
All amounts are reported in thousands except per share data or unless
otherwise specified.
Earnings per common share is computed using the weighted average number of
common shares outstanding during the periods presented. Earnings per share
assuming dilution reflects the dilution that could occur if options to purchase
common stock granted under the Company's stock option plans were exercised. The
following table presents the effect of dilutive common stock options.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------------------------
1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
Weighted average common shares outstanding 17,282 13,569 15,767 13,560
Net effect of stock options assumed to be exercised 905 522 862 535
------ ------ ------ ------
Total common shares assuming dilution 18,187 14,091 16,629 14,095
====== ====== ====== ======
</TABLE>
As of January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"),
which establishes new rules for the reporting and display of comprehensive
income and its components, consisting of net income and other comprehensive
income. The accumulated balance of other comprehensive income is required to be
reported separately in common shareholders' equity. The Company's only component
of
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other comprehensive income is net unrealized gains or losses on available for
sale securities, as defined, which is reported separately in common
shareholders' equity. Therefore, the adoption of SFAS 130 has no impact on
common shareholders' equity. Comprehensive income, which will be reported in the
Statement of Changes in Common Shareholders' Equity on an annual basis, is as
follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-----------------------------------------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income $ 17,602 $ 12,047 $ 31,913 $ 22,095
Net unrealized gains (losses) on securities 13,573 24,153 8,707 (2,325)
-------- -------- -------- --------
Total comprehensive income $ 31,175 $ 36,200 $ 40,620 $ 19,770
======== ======== ======== ========
</TABLE>
2. CAPITAL SECURITIES AND SHAREHOLDERS' EQUITY
On March 17, 1998, the Company completed two separate public offerings
(together, the "Offerings") in which it sold 3,500,000 shares of common stock
and 2,070,000 6.0% Adjustable Conversion-rate Equity Security Units (the
"Units") issued through Life Re Capital Trust II, a subsidiary of the Company.
The Units consist of stock purchase contracts and Quarterly Income Preferred
Securities. Net proceeds from the Offerings were $352,297 of which $207,000 was
contributed to the insurance subsidiaries.
3. ACQUISITIONS AND REINSURANCE TRANSACTION
Effective February 28, 1998, the Company acquired, for a purchase price
of $61,596, 100% of the common stock of Mission Life Insurance Company
("Mission"). The fair value of assets acquired and liabilities assumed were
approximately $261,000 and $200,000, respectively.
Effective April 1, 1998, the Company acquired, for a purchase price of
$46,600, 100% of the common stock of Lincoln Liberty Life Insurance Company and
First Delaware Life Insurance Company from First Lincoln Holdings, Inc. The
combined fair value of the assets acquired and the liabilities assumed were
approximately $243,000 and $196,000, respectively.
Also effective April 1, 1998, the Company recaptured certain business
it had retroceded to ERC Life Insurance Company. The portion recaptured amounted
to 20% of the total block of business coinsured from Allianz Life Insurance
Company effective December 31, 1997.
<PAGE> 9
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Effective June 30, 1998, the Company acquired, for a purchase price of
$29,338, 100% of the common stock of North American Financial Services, Inc.,
the parent of Atlas Life Insurance Company. The fair value of the assets
acquired and liabilities assumed were approximately $229,000 and $200,000,
respectively.
Also effective June 30, 1998, the Company acquired, for a purchase
price of $70,834, 100% of the common stock of Capitol Bankers Life Insurance
Company, an indirect subsidiary of The Manufacturers Life Insurance Company. The
fair value of the assets acquired and liabilities assumed were approximately
$196,000 and $125,000, respectively.
On July 24, 1998, the Company entered into an agreement to acquire 100%
of the common stock of Eagan Holding Company, the parent of First Capital Life
Insurance Company of Louisiana ("First Capital Life"), for a purchase price of
approximately $24,000. The acquisition, which is subject to regulatory
approvals, is expected to close in the third quarter. First Capital Life had
statutory assets of approximately $80,000 at March 31, 1998.
4. SUBSEQUENT EVENT
On July 27, 1998, the Company and Swiss Reinsurance Company ("Swiss
Re") entered into a definitive agreement (the "Merger Agreement") pursuant to
which Swiss Re will acquire the Company in a merger transaction (the "Merger")
for $95.00 per share, provided that if the closing is delayed by Swiss Re after
all conditions are otherwise satisfied, stockholders shall also be entitled to
receive an additional payment per share equal to $.0208 per day from, but not
including, the date on which the closing would have occurred absent the exercise
by Swiss Re of its right to delay the closing, to, and including, the closing
date. The aggregate cash purchase price of the Merger transaction is
approximately $1.8 billion.
The Merger is subject to certain customary closing conditions,
including, without limitation, the approval of the Merger Agreement by the
requisite vote of the stockholders of the Company in accordance with applicable
law, the representations and warranties of each of Swiss Re, Swiss Re's
subsidiary formed to consummate the acquisition ("Sub") and the Company being
true and correct in all material respects on and as of the effective time of the
merger (the "Effective Time"), each of Swiss Re, Sub and the Company having
performed in all material respects its obligations to be performed prior to the
Effective Time under the Merger Agreement, and the receipt of all material
consents, authorizations, orders, approvals and filings of any governmental
entity required in connection with the Merger (including all insurance
regulatory approvals) shall have been obtained or made.
The Merger Agreement will be subject to termination at any time prior
to the Effective Time by (i) the mutual consent of Swiss Re and the Company,
(ii) either Swiss Re, Sub or the Company if the Company's stockholders fail to
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approve and adopt the Merger Agreement at the Company's special meeting of
stockholders, if any court or governmental entity has taken action to
permanently restrain, enjoin or otherwise prohibit the Merger and such action
has become final and non-appealable, or if the Effective Time shall not have
occurred before January 31, 1999, or (iii) if the Company receives a superior
proposal from a bona fide third party under certain circumstances. If the Merger
Agreement is terminated by the Company because it has received a superior
proposal, then the Company shall promptly pay Swiss Re a fee of $60 million.
Additionally, if following termination of the Merger Agreement, the Company
enters into an acquisition agreement within 12 months of such termination with a
person that previously made a takeover proposal to the Company, or announced an
intention to make a takeover proposal, then the Company shall promptly pay Swiss
Re a fee of $60 million.
<PAGE> 11
Page 9
ITEM 2.
LIFE RE CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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. The words "expect", "project",
"estimate", "predict", "anticipate", "believes" and similar expressions are also
intended to identify forward-looking statements. 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,
(i) uncertainties relating to general economic and business conditions which may
impact the reinsurance marketplace; (ii) changes in laws and government
regulations applicable to the Company; (iii) the ability of the Company to
implement its operating strategies successfully; (iv) the ability of the Company
to execute Administrative ReinsuranceSM transactions and the amount, timing and
returns thereof and therefrom: (v) material fluctuations in interest rate
levels; (vi) material changes in mortality and morbidity experience; (vii)
material changes in persistency; (viii) material changes in the level of
operating expenses; (ix) success or failure of certain of the Company's clients
in premium writing; (x) significant changes in competitive factors affecting the
Company; (xi) occurrences affecting the Company's ability to obtain funds from
operations, debt or equity to finance growth in its businesses; and (xii) other
risks and uncertainties. Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect, actual outcomes
may vary materially from those indicated.
RESULTS OF OPERATIONS
During 1997 and the first six months of 1998, the Company completed
several transactions through which it acquired blocks of insurance in force
(collectively, the "Transactions"). Transactions completed in 1997 (the "1997
Transactions") increased total assets by approximately $930 million. The
transactions completed in 1998 (the "1998 Transactions") increased total assets
by approximately $720 million.
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Page 10
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, a subsidiary of the Company (the "1997 Offering"). On
March 17, 1998, the Company completed two separate public offerings in which it
sold 3,500,000 shares of common stock (the "Common Stock Issuance") and
2,070,000 6.0% Adjustable Conversion-rate Equity Security Units (the "Units")
issued through Life Re Capital Trust II, a subsidiary of the Company (the "1998
Offering"). The Units consist of a stock purchase contract and Quarterly Income
Preferred Securities.
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997
Net income was $31.9 million for the six months ended June 30, 1998
compared to $22.1 million for the same period last year. The increase is due to
the contribution to administrative reinsurance from the Transactions and higher
premium volumes and lower relative mortality in traditional reinsurance.
Policy revenues by major source for the six months ended June 30, 1998
and 1997 are as follows:
<TABLE>
<CAPTION>
(in millions) 1998 1997
------- -------
<S> <C> <C>
Traditional reinsurance $ 194.7 $ 153.4
Administrative reinsurance 70.2 23.1
Group accident and health and special
risk reinsurance 37.5 60.8
------- -------
$ 302.4 $ 237.3
======= =======
</TABLE>
Policy revenues increased by $65.1 million, or 27%, to $302.4 million
from $237.3 million in the same period last year. Traditional life reinsurance
policy revenues increased by $41.3 million, or 27%, to $194.7 million due to an
increase in first year premiums of $7.0 million and higher renewal premiums
resulting from higher in force amounts. The $47.1 million increase in
administrative reinsurance policy revenues is attributable to the Transactions.
Group accident and health and special risk policy revenues decreased by $23.3
million, or 38%, to $37.5 million. This decrease is due to the Company's
withdrawal from the group accident and health and special risk marketplace
during 1997 and an agreement, effective January 1, 1997, to retrocede 50% of
1997 group accident and health and special risk reinsurance risks.
Investment income increased by 48% to $105.3 million as a result of
assets received in conjunction with the Transactions, and the proceeds received
from the Common Stock Issuance and 1998 Offering, partially offset by a decline
in the weighted average portfolio yield rate as of June 30, 1998 compared to
June 30,
<PAGE> 13
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1997.
Policy benefits increased by $37.4 million period to period due to
higher volumes of business in force; as a percentage of policy revenues, policy
benefits improved to 68% in 1998 from 71% in 1997. The decrease in the ratio
largely was due to shift in the mix of business within traditional reinsurance
from excess to first dollar quota share reinsurance. Under first dollar quota
share reinsurance, typically a higher portion of the reinsurance premium funds
acquisition costs and a lesser portion funds mortality costs. In addition, in
1998 there is higher proportion of administrative reinsurance business, which
generally possesses lower benefit ratios due to a significant portion of policy
benefit costs on interest sensitive products being classified as interest
credited.
Policy acquisition costs as a percentage of policy revenues were 28%
for the 1998 period compared to 29% for the comparable prior year period. The
decrease largely is attributable to the decline in group accident and health and
special risk business, which generally possesses a higher acquisition cost ratio
and the growth in the administrative reinsurance business, which generally
possesses lower acquisition cost ratios. The decrease was offset partially by an
increase in the acquisition cost ratio within traditional reinsurance as a
result of the aforementioned mix in business from excess to first dollar quota
share.
Interest credited to policyholder accounts increased to $33.2 million
in 1998 from $18.1 million in 1997 corresponding to the growth in interest
sensitive business resulting from the Transactions.
Interest expense on loans payable was level at $4.0 million for 1998
and 1997, as rates and amounts outstanding generally were unchanged.
Distributions on capital securities of $6.7 million were incurred from
the issuance of the 1997 and 1998 Offerings.
Other operating expenses increased by $7.1 million to $23.9 million due
to administrative fees for third party administrators incurred within
administrative reinsurance due to the Transactions and higher compensation
costs.
Federal income taxes were provided at the federal statutory rate of 35%
for 1998 and 1997.
SECOND QUARTER OF 1998 COMPARED TO SECOND QUARTER OF 1997
Net income was $17.6 million for the three months ended June 30, 1998
compared to $12.1 million for the same period last year. The increase is due to
higher premium volumes and lower relative mortality in traditional reinsurance
and the contribution to administration reinsurance from the Transactions.
<PAGE> 14
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Policy revenues by major source for the periods ended June 30, 1998 and
1997 are as follows:
<TABLE>
<CAPTION>
(in millions) 1998 1997
------- -------
<S> <C> <C>
Traditional reinsurance $ 103.5 $ 81.5
Administrative reinsurance 38.1 14.0
Group accident and health and special
risk reinsurance 19.5 27.1
------- -------
$ 161.1 $ 122.6
======= =======
</TABLE>
Policy revenues increased by $38.5 million, or 31%, to $161.1 million
in 1998 from $122.6 million in last year's second quarter. Traditional life
reinsurance policy revenues increased by $22.0 million, or 27%, to $103.5
million due to an increase in first year premiums of $2.1 million and higher
renewal premiums resulting from higher in force amounts. The $24.1 million
increase in administrative reinsurance policy revenues primarily is attributable
to the Transactions. Group accident and health and special risk policy revenues
decreased by $7.6 million, or 28%, to $19.5 million. This decrease is due to the
Company's withdrawal from the group accident and health and special risk
marketplace during 1997 and an agreement, effective January 1, 1997, to
retrocede 50% of 1997 group accident and health and special risk reinsurance
risks.
Investment income increased by 58% to $57.5 million as a result of
assets received in conjunction with the Transactions, and the proceeds received
from the Common Stock Issuance and 1998 Offering, partially offset by a decline
in the weighted average portfolio yield rate as of June 30, 1998 compared to
June 30, 1997.
Policy benefits increased by $23.8 million period to period due to
higher volumes of business in force, but, as a percentage of policy revenues,
improved to 68% in 1998 from 71% in 1997. The decrease largely was due to shift
in the mix of business within traditional reinsurance from excess to first
dollar quota share reinsurance. Under first dollar quota share reinsurance,
typically a higher portion of the reinsurance premium funds acquisition costs
and a lesser portion funds mortality costs. In addition, there is higher
proportion of administrative reinsurance business, which generally possesses
lower benefit ratios due to a significant portion of policy benefit costs on
interest sensitive products being classified as interest credited.
Policy acquisition costs as a percentage of policy revenues were 28%
for the 1998 period compared to 30% for the comparable prior year quarter. The
decrease largely is attributable to the decline in group accident and health and
special risk business, which generally possesses a higher acquisition cost ratio
and the growth in the administrative reinsurance business, which generally
possesses lower
<PAGE> 15
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acquisition cost ratios. The decrease was offset partially by an increase in the
acquisition cost ratio within traditional reinsurance as a result of the
aforementioned mix in business from excess to first dollar quota share.
Interest credited to policyholder accounts increased to $18.8 million
in 1998 from $7.9 million in 1997 corresponding to the growth in interest
sensitive business resulting from the Transactions.
Interest expense on loans payable was level at $2.0 million for 1998
and 1997, as rates and amounts outstanding generally were unchanged.
Distributions on capital securities of $4.2 million were incurred from
the issuance of the 1997 and 1998 Offerings.
Other operating expenses increased by $3.9 million to $12.1 million due
to administrative fees for third party administrators incurred within
administrative reinsurance due to the Transactions and higher compensation
costs.
Federal income taxes were provided at the federal statutory rate of 35%
for 1998 and 1997.
FINANCIAL CONDITION AND LIQUIDITY
INVESTMENTS
Invested assets totaled $3,840.3 million at June 30, 1998 compared to
$2,784.6 million at December 31, 1997 largely due to assets acquired from the
Transactions and proceeds from the Common Stock Issuance and 1998 Offering.
The Company's fixed maturity portfolio (including the fixed maturity
securities which are included in assets held by ceding company under reinsurance
treaty) constituted 88% of invested assets at June 30, 1998, of which $99.8
million, or 3% of invested assets, consisted of below investment grade
securities. At June 30, 1998, the weighted average quality rating of the fixed
maturities portfolio was A2/A and no fixed maturities were in default.
LIQUIDITY
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. In addition to debt servicing and dividend and capital securities
distribution obligations, the Company's financial obligations consist of policy
benefit
<PAGE> 16
Page 15
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.
In order to provide additional liquidity and capital needed to support
its core businesses, the Company raised capital in the quarter ended March 31,
1998 (see Note 2 of "Notes to Condensed Consolidated Financial Statements")
through the Common Stock Issuance and 1998 Offering.
The ability of the Company to make principal and interest payments
under its credit agreement 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 the Company is
subject to applicable insurance laws and regulations.
<PAGE> 17
Page 16
PART II - OTHER INFORMATION
ITEM 4
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The meeting was held on May 14, 1998 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:
Rodney A. Hawes, Jr.
Chris C. Stroup
T. Bowring Woodbury, II
The name of each other director whose term of office as a
director continued after the meeting is as follows:
Jacques E. Dubois Carolyn K. McCandless
Douglas M. Schair K. Fred Skousen
(c) Four (4) matters were voted upon at the meeting: (i) the
election of directors; (ii) the amendment to the 1992 Life Re
Corporation Stock Option Plan authorizing an increase from
3,000,000 to 4,500,000 in the number of shares of Life Re
Corporation common stock available for issuance; (iii) the
amendment to the Life Re Corporation Restated Certificate of
Incorporation to increase the authorized number of shares of
common stock from 40,000,000 to 80,000,000; and (iv) the
ratification of the appointment of independent auditors for
the year 1998.
(i) ELECTION OF DIRECTORS:
Nominee Votes For Votes Withheld
Rodney A. Hawes, Jr. 15,309,647 242,132
Chris C. Stroup 15,308,827 242,952
T. Bowring Woodbury, II 15,317,687 234,092
<PAGE> 18
Page 17
(ii) AMENDMENT TO THE 1992 LIFE RE CORPORATION STOCK OPTION PLAN
AUTHORIZING AN INCREASE FROM 3,000,000 TO 4,500,000 IN THE NUMBER OF SHARES OF
LIFE RE CORPORATION COMMON STOCK AVAILABLE FOR ISSUANCE
Votes For Votes Against Abstentions
9,466,203 4,991,627 54,109
(iii) AMENDMENT TO THE LIFE RE CORPORATION RESTATED CERTIFICATE OF
INCORPORATION TO INCREASE THE AUTHORIZED NUMBER OF SHARES OF COMMON STOCK FROM
40,000,000 TO 80,000,000
Votes For Votes Against Abstentions
14,547,118 953,352 51,309
(iv) RATIFICATION OF AUDITORS:
Votes For Votes Against Abstentions
15,539,142 4,158 8,479
ITEM 5
OTHER INFORMATION
On July 27, 1998, Life Re Corporation and Swiss Reinsurance Company
("Swiss Re") entered into an agreement whereby Swiss Re will acquire Life Re
Corporation for $95.00 per common share. The agreement is subject to shareholder
and regulatory approvals and certain other conditions and is more fully
described in Note 4 "Notes to Consolidated Financial Statements."
In order to limit the ability of management proxies to exercise their
discretionary voting authority with respect to any stockholder proposal for the
regular annual meeting of the stockholders of Life Re Corporation in the year
1999, where the stockholder has not sought inclusion of the proposal in the Life
Re Corporation proxy statement, Life Re Corporation must receive notice of the
proposal no later than February 24, 1999. Such notices should be sent to the
Life Re Corporation Corporate Secretary at 969 High Ridge Road, Stamford, CT
06905.
<PAGE> 19
Page 18
ITEM 6
EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.01 Restated Certificate of Incorporation of Life Re
Corporation (the "Company"), dated November 13, 1997,
incorporated by reference to Exhibit 3.01 of the
Company's Form 10-Q for the quarterly period ended
September 30, 1997, as filed with the Securities and
Exchange Commission ("SEC") on November 13, 1997.
3.02 Amendment to the Restated Certificate of
Incorporation of the Company, dated June 19, 1998.
3.03 Bylaws of the Company, dated August 5, 1992,
incorporated by reference to Exhibit 3.02 of the
Company's Form 10-Q for the quarterly period ended
September 30, 1997, as filed with the SEC on November
13, 1997.
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 Certificate of Trust of Life Re Capital Trust II
("Trust II"), incorporated by reference to Exhibit
4.3 of the Company's Registration Statement on Form
S-3 (File No. 333-46213).
4.03 Declaration of Trust of Trust II, incorporated by
reference to Exhibit 4.4 of the Company's
Registration Statement on Form S-3 (File No.
333-46213).
4.04 Form of Amended and Restated Declaration of Trust of
Trust II, incorporated by reference to Exhibit 4.5 of
the Company's Registration Statement on Form S-3
(File No. 333-46213).
4.05 Form of Quarterly Income Preferred Security ("QUIPS")
of Trust II, incorporated by reference to Exhibit 4.6
of the Company's Registration Statement on Form S-3
(File No. 333-46213).
4.06 Form of Junior Subordinated Debenture, incorporated
by reference to Exhibit 4.8 of the Company's
Registration Statement on Form S-3 (File No.
333-46213).
4.07 Form of Indenture between the Company and The Bank of
New York, as Trustee,
<PAGE> 20
Page 19
pursuant to which the Junior Subordinated Debentures
are to be issued, incorporated by reference to
Exhibit 4.7 of the Company's Registration Statement
on Form S-3 (File No. 333-46213).
4.08 Form of Guarantee Agreement with respect to the
QUIPS, incorporated by reference to Exhibit 4.9 of
the Company's Registration Statement on Form S-3
(File No. 333-46213).
4.09 Form of Master Unit Agreement, incorporated by
reference to Exhibit 4.11 of the Company's
Registration Statement on Form S-3 (File No.
333-46213).
4.10 Form of Adjustable Conversion-rate Equity Security
Units, incorporated by reference to Exhibit 4.12 of
the Company's Registration Statement on Form S-3
(File No. 333-46213).
4.11 Form of Pledge Agreement, incorporated by reference
to Exhibit 4.13 of the Company's Registration
Statement on Form S-3 (File No. 333-46213).
4.12 Form of Call Option Agreement, incorporated by
reference to Exhibit 4.14 of the Company's
Registration Statement on Form S-3 (File No.
333-46213).
4.13 Company's Agreement to File Indenture, incorporated
by reference to Exhibit 4.02 of the Company's Form
10-Q for the quarterly period ended June 30, 1997, as
filed with the SEC on August 13, 1997.
10.01 Resignation Agreement, effective as of March 31,
1998, between the Company and Samuel V. Filoromo.
10.02 Amendment Number Three to the 1992 Life Re
Corporation Stock Option Plan.
10.03 April 15, 1998 Amendment to the Amended and Restated
Advisory Agreement, dated November 16, 1988, between
Life Reassurance and Conseco Capital Management, Inc.
15.01 Acknowledgment Letter of Ernst & Young LLP.
27.01 Financial Data Schedule.
(b) A Current Report on Form 8-K was filed on July 27, 1998 with
respect to the proposed transaction between Life Re
Corporation and Swiss Reinsurance Company. No Current Reports
on Form 8-K were filed during the three months ended June 30,
1998.
<PAGE> 21
Page 20
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 12, 1998 By: /s/ Chris C. Stroup
---------------------------
Chris C. Stroup,
Executive Vice President
and Chief Financial Officer
<PAGE> 22
Page 21
EXHIBIT INDEX
3.02 Amendment to the Restated Certificate of Incorporation of the
Company, dated June 19, 1998.
10.01 Resignation Agreement, effective as of March 31, 1998, between
the Company and Samuel V. Filoromo.
10.02 Amendment Number Three to the 1992 Life Re Corporation Stock
Option Plan.
10.03 April 15, 1998 Amendment to the Amended and Restated Advisory
Agreement, dated November 16, 1988, between Life Reassurance
and Conseco Capital Management, Inc.
15.01 Acknowledgment Letter of Ernst & Young LLP.
27.01 Financial Data Schedule.
<PAGE> 1
Page 22
EXHIBIT 3.02
CERTIFICATE OF AMENDMENT TO
RESTATED CERTIFICATE OF INCORPORATION OF
LIFE RE CORPORATION
Life Re Corporation (the "Corporation"), a corporation organized and
existing under the Delaware General Corporation Law, hereby certifies that:
ARTICLE 1. The name of the Corporation is Life Re Corporation.
ARTICLE 2. The first sentence of ARTICLE FOUR of the Restated
Certificate of Incorporation of the Corporation is hereby amended to read as
follows: The total number of shares which the Corporation shall have the
authority to issue is eighty five million (85,000,000) shares, of which eighty
million (80,000,000) shares, $0.001 par value, shall be Common Stock, and five
million (5,000,000) shares, $0.01 par value, shall be Preferred Stock.
ARTICLE 3. This amendment was duly adopted by a vote of the directors
and of the stockholders in accordance with the provisions of Section 242 of the
Delaware General Corporation Law.
IN WITNESS WHEREOF, Life Re Corporation has caused this Certificate to
be executed in its name and on its behalf by Jacques E. Dubois, its President
and Chief Operating Officer, and attested by W. Weldon Wilson, its Secretary, on
this 19th day of June, 1998.
LIFE RE CORPORATION
By: /S/ Jacques E. Dubois
------------------------------
Jacques E. Dubois, President
and Chief Operating Officer
ATTEST:
/S/ Weldon Wilson
- ----------------------------
W. Weldon Wilson, Secretary
<PAGE> 1
Page 23
EXHIBIT 10.01
This RESIGNATION AGREEMENT (this "Agreement") is made effective as of
the 31st day of March, 1998 (the "Effective Date") by and between Life Re
Corporation, a Delaware corporation having its principal executive offices at
969 High Ridge Road, Stamford, Connecticut (hereinafter referred to,
collectively with its subsidiaries, as the "Company") and Samuel V. Filoromo
(referred to as the "Executive").
W I T N E S S E T H
WHEREAS, the Executive and the Company entered into an Employment
Agreement, effective as of June 1, 1996 (the "Employment Agreement"); and
WHEREAS, the Executive wishes to terminate his employment with the
Company, subject to the terms and conditions set forth herein.
NOW, THEREFORE, the Company and the Executive hereby agree as follows:
1. DEFINITIONS. Unless defined in this Agreement, terms that are capitalized
will have the meanings set forth in the Employment Agreement.
2. TERMINATION OF EMPLOYMENT.
(A) The Executive hereby voluntarily resigns from and terminates his
employment with the Company, effective as of March 31, 1998 (the "Termination
Date").
(B) Effective as of the Termination Date, the Executive hereby resigns
from all offices and directorships of the Company and its subsidiaries he holds
as of such date.
(C) The Executive and the Company agree that SECTION 9(A) of the
Employment Agreement shall be amended in its entirety to read as follows:
"(a) If the Company terminates the Executive's
employment with the Company during the term of this Agreement
for Disability or any reason other than for Cause or
subsequent to a Change in Control, or if the Executive
terminates his employment with the Company during the term of
this Agreement for Good Reason pursuant to paragraph 8(c)
above, the Company will pay or provide the Executive, as
severance pay or liquidated damages or both:
(i) Base Salary through the Date of
Termination at the rate in effect at the time Notice
of Termination is given, together with any other
amounts payable to the Executive under paragraph 6
above for periods prior to the Date of Termination;
(ii) a lump sum payment, on the eighth
business day after the
<PAGE> 2
Page 24
Date of Termination, equal to the sum of (A) the Base
Salary at the rate in effect as of the Date of
Termination from the Date of Termination through
February 28, 1999, and (B) $76,200;
(iii) employee benefits and service credit
for employee benefits and employee benefit accruals
which the Executive would have received under
paragraph 6(f) above if the Executive's employment
had continued under this Agreement until the later of
(i) one year from the Date of Termination or (ii) the
date for the termination of this Agreement provided
in paragraph 3 above;
(iv) all options held by the Executive
become immediately vested and the Executive has the
right to exercise the options at any time from the
Date of Termination until the expiration of such
options as provided in the individual option
agreements; and
(v) any amounts payable under paragraph 20
below."
(D) The Company agrees that in consideration for the resignation of the
Executive, the Company will pay or provide to the Executive the items provided
by SECTION 9(a) of the Employment Agreement, as modified by this Agreement, as
if the Executive's employment was terminated by the Company other than for
Cause. The Executive and the Company agree that for purposes of determining
amounts payable the "Date of Termination" shall be March 31, 1998. The Executive
and the Company agree to waive the requirement for a Notice of Termination as
provided in the Employment Agreement.
(E) The Executive and the Company agree that no other provision of the
Employment Agreement is modified by this Agreement, except as specifically set
forth in this Agreement. All other protections, indemnifications and rights
provided in the Employment Agreement for the Executive, other than the rights
related to continued employment, continue in full force and effect.
(F) The Executive understands and agrees that the payments and benefits
enumerated in this Agreement and the Employment Agreement (as modified by this
Agreement and including payments provided therein for employee benefit plans)
are all that he is or will be entitled to receive from the Company in connection
with his termination of employment, and to the extent that he, or anyone
claiming through him, is or may by entitled to additional payments or benefits
with respect to such termination pursuant to the Employment Agreement, any stock
option agreement, any Company severance pay plan, or any other agreement, plan
or arrangement with or of the Company, such agreement, plan or arrangement is
hereby modified to limit the payment or benefits thereunder to those
contemplated by this Agreement.
(G) The Executive and the Company agree that the Indemnification
Agreement
<PAGE> 3
Page 25
between the Executive and the Company, dated August 4, 1992 (the
"Indemnification Agreement"), regarding tax indemnification for the Executive's
purchase of restricted stock, shall remain in force until April 16, 2002,
subject to extensions of the statute of limitations for the Executive's 1998
federal income tax return.
3. RELEASE.
(A) In connection with this Agreement, and in consideration for the
promises of the Company, the Executive agrees to provide a release of all claims
the Executive or anyone claiming through him has or may have against the
Company, in a form acceptable to the parties.
(B) In connection with this Agreement, and in consideration for the
promises of the Executive, the Company, on its behalf and on behalf of its
successors, hereby releases and forever discharges the Executive from any and
all actions, or causes of action, suits, debts, claims, complaints, contracts,
controversies, agreements, promises, damages and demands of any nature
whatsoever, at law or in equity, that the Company ever had, now has, or may have
as of the date of this Agreement, other than claims with respect to acts by the
Executive of willful misconduct which acts (i) are unknown to the Company as of
the date of this Agreement and (ii) have had or are likely to result in
substantial economic damage to the Company.
(C) The Company promises never to file a lawsuit or administrative
complaint asserting any claims that are released in SECTION 3(B) of this
Agreement.
4. NON-DISPARAGEMENT.
(A) The Executive agrees not to disparage the Company, its employees,
directors, stockholders, or officers, so as to affect adversely their business
or reputation.
(B) The Company agrees that the senior executive officers of Life Re
Corporation will not disparage the Executive so as to affect adversely the
Executive's business or reputation.
5. MISCELLANEOUS.
(A) The Executive is responsible for any tax liability associated with
payments provided under this Agreement. The Company has the right to withhold
taxes from such payments to the extent required by law.
(B) This Agreement, the Employment Agreement, the Indemnification
Agreement, and various stock options agreements constitute the entire agreement
between the Executive and the Company. The Company has made no promises to the
Executive other than those in this Agreement. This Agreement may not be amended
or terminated except
<PAGE> 4
Page 26
by a writing signed by the parties hereto.
(C) This Agreement may not be assigned by either party without the
prior written consent of the other party, except that no consent is necessary
for the Company to assign this Agreement to a corporation succeeding to
substantially all the assets or business of the Company whether by merger,
consolidation, acquisition or otherwise. This Agreement shall be binding upon
the Executive, his heirs and permitted assigns and the Company, its successors
and permitted assigns.
(D) This Agreement shall be governed by the laws of the State of
Connecticut.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date set forth below.
THE COMPANY:
LIFE RE CORPORATION
By: /s/ Rodney A. Hawes, Jr.
--------------------------------------
Rodney A. Hawes, Jr.
Chairman and Chief Executive Officer
Dated: March 30, 1998
THE EXECUTIVE:
/s/ Samuel V. Filoromo
------------------------------------------
Samuel V. Filoromo
Dated: March 30, 1998
<PAGE> 5
Page 27
RELEASE AND WAIVER
This Release and Waiver (the "Release") is made as of the 31st day of
March, 1998 by and between Samuel V. Filoromo (the "Executive") and Life Re
Corporation (collectively with its subsidiaries, the "Company").
WHEREAS, the parties set forth their mutual understanding concerning
the termination of the Executive's employment with the Company in the
Resignation Agreement (the "Agreement"), which is hereby incorporated herein;
and
WHEREAS, the certain promises in the Agreement constitute consideration
for execution of this Release by the Executive; and
WHEREAS, in the Agreement the Executive agreed to execute this Release.
NOW THEREFORE, the parties agree to be bound by the following terms:
1. CONSIDERATION. As consideration for the Executive signing this
Release, the Company will make the payments and provide the benefits to the
Executive that are described in the Agreement. The parties agree that the
payments and benefits enumerated in the Agreement that constitute consideration
for the Executive signing this Release are in excess of any payments or benefits
to which the Executive may otherwise be entitled.
2. RELEASE. The Executive, on behalf of himself and his heirs, legal
representatives, estates and successors in interest, hereby releases and forever
discharges the Company from any and all actions, or causes of action, suits,
debts, claims, complaints, contracts, controversies, agreements, promises,
damages and demands of any nature whatsoever, at law or in equity, that the
Executive ever had, now has, or may have as of the date of this Agreement,
including without limitation any claims alleging (i) wrongful discharge, (ii)
discrimination based on race, sex, color, religious creed, marital status,
national origin, ancestry, present or past history of mental disability or
physical disorder, sexual orientation, or age (including rights and claims under
the Age Discrimination in Employment Act), or (iii) breach of any express or
implied contract, or violation of any local, state, or federal law, regulation
or ordinance having any bearing whatsoever on the terms and conditions of the
Executive's employment with the Company.
3. NO FUTURE LAWSUITS, COMPLAINTS OR CLAIMS. The Executive promises
never to file a lawsuit or administrative complaint asserting any claims that
are released in SECTION 2 of this Release.
4. NONRELEASE OF FUTURE CLAIMS. This Release does not waive or release
any rights or claims that the Executive may have under the Age Discrimination in
Employment Act which arise after the effective date of this Release.
<PAGE> 6
Page 28
5. PERIOD FOR REVIEW AND CONSIDERATION OF RELEASE. The Executive
confirms that he has twenty-one (21) days to review and consider this release
before signing it. The Executive understands that he may use as much or as
little of this period as he wishes prior to signing.
6. ENCOURAGEMENT TO CONSULT WITH AN ATTORNEY. The Executive is
encouraged, at his own expense, to consult with an attorney before signing this
Release.
7. EXECUTIVE'S RIGHT TO REVOKE RELEASE. The Executive may revoke this
release within seven (7) business days of the date of the Executive's signature.
revocation can be made by delivering a written notice of the revocation to the
Chief Executive Officer of the Company. For this revocation to be effective,
written notice must be received no later than the close of business on the
seventh (7th) business day after the Executive signs this Release. If the
Executive revokes this Release, it shall not be effective or enforceable and the
Executive will not receive the payment and/or benefits described in the
Agreement.
8. SEVERABILITY. The parties agree that the provisions of this Release
are severable and divisible. In the event any portion of this Release is
determined to be illegal or unenforceable, the remaining provisions of this
release shall remain in full force and effect.
9. REMEDIES. In addition to other rights the Company may have, should
the Executive breach any of the terms of this release, including specifically,
but not limited to, the representations and promises contained in SECTION 2, the
Company will have the right to cease any and all payments under the Agreement.
Such action will have no effect on the Release contained herein.
10. EFFECTIVE DATE OF RELEASE. The effective date of this release shall
be seven (7) business days from the date on which this Release is signed and
dated by the Executive.
11. OTHER BENEFITS. Anything herein to the contrary notwithstanding,
this Release shall not affect the Executive's rights under (i) the Resignation
Agreement, including the right to enforce that agreement, (ii) the Employment
Agreement, as amended, dated as of June 1, 1996 between the Company and the
Executive, or (iii) any vested rights under the Company's pension or employee
benefit plans.
<PAGE> 7
Page 29
THE EXECUTIVE ACKNOWLEDGES THAT HE HAS READ THIS RELEASE,
UNDERSTANDS IT AND IS VOLUNTARILY ENTERING INTO IT.
IN WITNESS WHEREOF, the parties hereto have executed this Release as of
the date set forth below.
THE COMPANY:
LIFE RE CORPORATION
By: /s/ Rodney A. Hawes, Jr.
--------------------------------------
Rodney A. Hawes, Jr.
Chairman and Chief Executive Officer
Dated: March 30, 1998
THE EXECUTIVE:
/s/ Samuel V. Filoromo
------------------------------------------
Samuel V. Filoromo
Dated: March 30, 1998
<PAGE> 1
Page 30
EXHIBIT 10.02
Amendment Number Three
to the 1992 Life Re Corporation
Stock Option Plan
<PAGE> 2
Page 31
Amendment Number Three
to the 1992 Life Re Corporation
Stock Option Plan
This Amendment Number Three (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, as previously amended (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 increase
the number of shares of Common Stock available for issuance 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) 4,500,000 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."
<PAGE> 3
Page 32
3. Effective Date. This Amendment shall be effective as of the date it
is approved by the stockholders 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 12th day of
February 1998 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
<PAGE> 1
Page 33
EXHIBIT 10.03
CONSECO CAPITAL MANAGEMENT, INC.
11825 N. Pennsylvania Street
P.O. Box 1925
Carmel, Indiana 46032
317.817.2804
March 2, 1998
Mr. Weldon W. Wilson
Executive Vice President
General Counsel & Secretary
Life Reassurance Corporation of America
969 High Ridge Rd.
Stamford, CT 06905
RE: LIFE REASSURANCE CORPORATION
LIFERE CORPORATION
REASSURE AMERICA LIFE INSURANCE COMPANY
TEXASRE LIFE INSURANCE COMPANY
INVESTMENT ADVISORY AGREEMENT
Dear Mr. Wilson:
We are writing to inform you of some revisions to the language of the scope of
liability clause in our standard form of investment advisory agreement. In order
to better track the language generally prescribed by the Securities and Exchange
Commission for these types of clauses, we have, among other changes, removed the
word "gross" before "negligence", removed the words "willful misfeasance" and
substituted "malfeasance", and removed the words "in bad faith" from the same
clause in paragraph (a). We also have made some stylistic changes.
We would like to incorporate the revised clause in the Investment Advisory
Agreement between us. The revised clause, which would replace paragraphs (a),
(b) and (c) of Section 8 of that Agreement, reads as follows:
8. Scope of Liability
(a) Subject to paragraph (c) below, neither the Adviser nor any
shareholder, officer, director or employees thereof shall be liable to the
Company, or to the Board of Directors of the Company or to any shareholder of
the Company, for errors of judgment or other errors or for any losses that may
be sustained in connection with the purchase, holding, redemption or sale of any
security on behalf of the Company except to the extent such liability or losses
result from negligence or malfeasance or violation of applicable law.
(b) Subject to paragraph (c) below, the Adviser and its stockholders,
officers, directors and employees may (but are not required to) consult with the
officers or directors of the Company, the Company's legal counsel and/or the
Company's independent accountants and shall not be liable for any action taken
or omission suffered in good faith, reasonable reliance upon and in accordance
with the written opinion or written
<PAGE> 2
Page 34
advice of any such officer, counsel or accountants.
(c) The federal securities laws impose liabilities under certain
circumstances on persons who act in good faith and therefore nothing in
paragraphs (a) and (b) above shall in any way constitute a waiver or limitation
of any rights which the Company may have under any federal securities laws.
Please evidence your agreement to the replacement of those paragraphs of that
Agreement with the above paragraphs by signing the enclosed copy of this letter
and returning it to us in the enclosed envelope. Please also attach this letter
to your copy of the current Investment Advisory Agreement between us. If you
have any questions, please do not hesitate to call your Portfolio Manager or
Bill Latimer, our Senior Counsel, at 317/817-6863.
Sincerely,
/S/ MAXWELL E. BUBLITZ
Maxwell E. Bublitz
President
AGREED TO:
LIFE REASSURANCE CORPORATION
LIFERE CORPORATION
REASSURE AMERICA LIFE INSURANCE COMPANY
TEXASRE LIFE INSURANCE
By: /S/ BRUCE I. WEISER APRIL 15, 1998
--------------------- ------------------
(Signature) Dated
BRUCE I. WEISER
(Printed Name)
<PAGE> 1
Page 35
EXHIBIT 15.01
Acknowledgment Letter
The Board of Directors
Life Re Corporation
We are aware of the incorporation by reference in the Registration Statement
(Form S-8 Number 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, the Registration Statement (Form
S-8 No. 33-80737) pertaining to the Life Re Corporation 1993 Non-Employee
Directors Stock Option Plan and in the Registration Statement (Form S-3 No.
333-35031) pertaining to the registration of shares of common stock in
connection with certain employees' restricted stock grant of our report dated
July 26, 1998 relating to the unaudited condensed consolidated interim financial
statements of Life Re Corporation that are included in its Form 10-Q for the
quarter ended June 30, 1998.
/s/
------------------------
ERNST & YOUNG LLP
Stamford, Connecticut
July 26, 1998
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