<PAGE> 1
===============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997
or
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-11868
ZURICH REINSURANCE CENTRE HOLDINGS, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 13-3703575
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
One Chase Manhattan Plaza, 43rd Floor
New York, New York 10005
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: (212) 898-5000
Former name, former address and former fiscal year, if changed since last
report:
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock:
<TABLE>
<S> <C>
(Class) (Outstanding at May 1, 1997)
Common Stock, $.01 par value 26,205,443 Shares
</TABLE>
===============================================================================
<PAGE> 2
ZURICH REINSURANCE CENTRE HOLDINGS, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I. FINANCIAL INFORMATION
- ------------------------------
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 3
Signatures 7
</TABLE>
-2-
<PAGE> 3
ZURICH REINSURANCE CENTRE HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Item 2--"Management's Discussion and Analysis of Financial Condition and Results
of Operations" is restated in its entirety as follows:
RESULTS OF OPERATIONS
The Company's pre-tax operating income (excluding realized capital gains)
increased 106.2% to $18.8 million in the first quarter of 1997, compared to $9.1
million for the first quarter of 1996. The Company's investment in Insurance
Partners, L.P. increased pre-tax operating results by $10.9 million and $0.3
million for the first quarter of 1997 and 1996, respectively.
Net income was $16.1 million for the first quarter of 1997, compared to $7.4
million for the corresponding period of 1996, due to a $6.2 million increase in
after-tax operating income and a $2.5 million increase in after-tax realized
capital gain activity.
Gross premiums written for the first quarter of 1997 increased 11.0% to $196.3
million, compared with $176.9 million in the first quarter of 1996. Net premiums
written for the first quarter of 1997 increased 1.5% to $179.2 million, compared
with $176.6 million in the first quarter of 1996. The Company entered into a
quota share treaty with members of the Zurich American Insurance Group (the "ZA
Quota Share") during 1995. The ZA Quota Share contributed $40.5 million and
$52.4 million to first quarter 1997 and 1996 gross premiums written,
respectively. This decline was offset by increased premiums from new bound
business. The increases in gross and net premiums written differ due to a ceded
reinsurance program that covers certain workers' compensation business written
on a primary basis. Net premiums earned for the first quarter of 1997 increased
6.4% to $185.0 million from $173.8 million for the comparable 1996 period. For
the first quarter of 1997, net premiums written increased less on a percentage
basis than net premiums earned due to the maturing of the Company's book of
business.
Losses and loss adjustment expenses for the first quarter of 1997 increased
to $138.6 million, a 9.8% increase over the comparable 1996 period. There were
no significant catastrophe losses in either the first quarter of 1997 or 1996.
Commissions for the first quarter of 1997 were $46.9 million compared to $44.6
million for the corresponding 1996 period. The increase in losses and
commissions is due to the growth in earned premiums as discussed above. The GAAP
loss and commission ratio for the first quarter of 1997 increased to 100.3% from
98.3% for the first quarter of 1996 due primarily to a 2.3 percentage point
increase in the loss ratio. An aggregate net addition to the Company's loss
reserves of approximately $4.3 million was indicated as a result of the
Company's regular 1997 first quarter reserve analyses principally attributable
to: (i) management's assessment of the effects of continued highly competitive
market conditions on the pricing of premiums earned during the first quarter of
1997, particularly as respects professional and umbrella liability coverages and
facultative casualty certificate business (accounting for approximately $0.7
million of additional loss reserves) and (ii) the receipt by the Company of new
information indicating the need for additional reserve amounts as to certain
-3-
<PAGE> 4
ZURICH REINSURANCE CENTRE HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
pre-1997 excess general liability, proportional workers' compensation and excess
umbrella coverages. The Company reported an aggregate net addition to its
pre-1997 loss reserves of approximately $3.6 million comprising $5.3 million of
additional case reserves offset by favorable development with respect to
pre-1997 IBNR amounts of $1.7 million. The additional information received by
the Company with respect to pre-1997 reserve balances included reported losses
(paid and case reserves) during the quarter which exceeded management's
expectations (accounting for approximately $5.6 million of additional reserve
amounts) and new information received as a result of reviews performed during
the quarter and in connection with proposed renewals (accounting for
approximately $1.1 million of additional reserve amounts). Such additional
incurred losses exceeded favorable reserve development as to other accounts of
approximately $3.1 million resulting in a net increase to the Company's loss
ratio for the quarter.
Other operating costs and expenses for the first quarter of 1997 increased 19.5%
to $14.1 million, compared to the corresponding period of 1996, due to increased
premium volume and changes in the mix of business written. Interest and
amortization expense for the first quarter of 1997 was $4.2 million compared to
$3.8 million for the first quarter of 1996.
ZRC's statutory combined ratio for the first quarter of 1997 increased to 106.5%
from 103.9% for the same period of 1996, primarily due to a 2.3 percentage point
increase in the loss ratio discussed above. ZRC's statutory combined ratio
differs from the Company's GAAP combined ratio primarily due to the deferral
of certain acquisition costs and the inclusion of certain holding company
expenses, each of which is considered in the Company's GAAP combined ratio.
Net investment income for the first quarter of 1997 was $26.7 million, a 23.5%
increase over the comparable 1996 period. Growth in net investment income
continues as the cash and invested asset base expands due to strong cash flows,
primarily attributable to underwriting operations. In addition, profit from the
Company's investment in Insurance Partners, L.P., increased after-tax operating
results for the first quarter of 1997 by $7.1 million, compared to $0.2 million
for the comparable 1996 period. The after-tax annualized net investment income
yield of 4.1% for the first quarter of 1997 was comparable to 4.0% for the first
quarter of 1996.
Pre-tax realized capital gains were $5.3 million for the first quarter of 1997,
compared to $1.4 million for the first quarter of 1996. The 1997 and 1996
realized capital gain activity is reflective of market conditions and is
consistent with the Company's investment philosophy, whereby capital gains
(losses) are realized to maximize total investment return.
The Company's overall effective tax rates of 33.1% and 29.9% for the three
months ended March 31, 1997 and 1996, respectively, had both operating income
and realized capital gain components. The effective tax rates on operating
income of 32.6% and 29.1% for the three months ended March 31, 1997 and 1996,
respectively, differed from the federal statutory rate of 35.0% due principally
to tax-exempt investment income and dividends. The effective tax rate on
-4-
<PAGE> 5
ZURICH REINSURANCE CENTRE HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
realized capital gains approximated the federal statutory rate for the three
months ended March 31, 1997 and 1996.
FINANCIAL CONDITION
During the first three months of 1997, the Company's cash and invested assets
increased 6.2% to $1,856.1 million. The increase is principally due to cash
flows from operations. As of March 31, 1997, approximately 65% of the Company's
cash and invested assets were invested in fixed maturity securities, 11% in
equity securities and 24% in short-term investments and cash and cash
equivalents, compared to 69%, 10% and 21%, respectively, as of December 31,
1996.
Approximately 83% of the fixed maturity portfolio at March 31, 1997 and December
31, 1996 was invested in U.S. government obligations or securities rated
"triple-A" by Moody's Investors Service or Standard & Poor's Corporation. The
balance of the fixed maturity portfolio was invested in other investment-grade
fixed maturities. The duration of the Company's fixed maturity portfolio of 3.9
years as of March 31, 1997 approximated the 4.2 years duration at December 31,
1996.
Liabilities for gross losses and loss adjustment expenses (together, "loss
reserves") were $1,012.2 million as of March 31, 1997, a $73.4 million increase
from December 31, 1996. The increase in loss reserves is due to reserves
established for 1997 business offset by loss payments.
Stockholders' equity at March 31, 1997 was $713.9 million compared to
$711.9 million at December 31, 1996. The increase in stockholders' equity is
primarily due to net income, partially offset by unrealized depreciation on the
invested asset portfolio.
Cash and cash equivalents and short-term investments as of March 31, 1997
increased to $438.8 million, or 17.9% since December 31, 1996, as a result of
operating cash flows and sector shifts consistent with the Company's investment
strategy.
Net cash provided by operating activities for the three months ended March 31,
1997 was $97.1 million, compared to $64.6 million for the three months ended
March 31, 1996. The increase in operating cash flows is primarily attributable
to underwriting operations. For the three months ended March 31, 1997, net cash
used in financing activities of $2.6 million resulted from the Company's
dividend payment. Net cash used in financing activities for the first three
months of 1996 was $5.6 million and resulted from the Company's stock repurchase
program and dividend payment.
SUBSEQUENT EVENT
On April 17, 1997, the Company entered into a definitive agreement to merge with
a subsidiary of the Zurich Group, its 65.7% shareholder. Under the agreement,
which was approved by unanimous vote of the Company's Board of Directors, the
Company's public shareholders will
-5-
<PAGE> 6
ZURICH REINSURANCE CENTRE HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
receive cash consideration at closing of $39.50 per share. The agreement
contains terms and conditions customary in transactions of this type including
provisions relating to approval of the transaction by the Company's shareholders
and certain regulatory consents. The transaction is expected to close during the
third quarter. The Company has also reached an agreement in principle for the
settlement of the shareholder class action lawsuits pending in Delaware, which
settlement is subject to court approval.
-6-
<PAGE> 7
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Zurich Reinsurance Centre Holdings, Inc.
----------------------------------------
(Registrant)
Date July 25, 1997 /s/ Richard E. Smith
------------- ----------------------------------------
Richard E. Smith
President and Chief Executive Officer
Date July 25, 1997 /s/ Karen O'Connor Rubsam
------------- ----------------------------------------
Karen O'Connor Rubsam
Sr. Vice President, Chief Financial Officer
and Treasurer
-7-
