<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
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 1-13832
TERRA NOVA (BERMUDA) HOLDINGS LTD.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS
CHARTER)
BERMUDA N/A
------- ----
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANISATION) IDENTIFICATION NO)
RICHMOND HOUSE
12 PAR-LA-VILLE ROAD
HAMILTON HM08
BERMUDA
------------------------------
(ADDRESS OF PRINCIPAL
EXECUTIVE OFFICES)
(ZIP CODE)
TELEPHONE: (441) 292 7731
-------------------------------------------------------
(REGISTRANTS TELEPHONE NUMBER, INCLUDING AREA CODE)
N/A
(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_______
------
The number of registrant's ordinary shares ($5.80 par value) outstanding as of
November 14, 1996 was 25,823,308 .
<PAGE>
TERRA NOVA (BERMUDA) HOLDINGS LTD.
AND SUBSIDIARIES
INDEX TO FORM 10-Q
PART I - FINANCIAL INFORMATION
- ------------------------------
Page No.
--------
Item 1. Financial Statements:
Consolidated Balance Sheets
September 30, 1996 (Unaudited) and December 31, 1995 1
Consolidated Statements of Operations (Unaudited)
Three Months Ended September 30, 1996 and 1995 2
Nine Months Ended September 30, 1996 and 1995
Consolidated Statements of Shareholders' Equity (Unaudited)
Nine Months Ended September 30, 1996 and 1995 3
Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended September 30, 1996 and 1995 4
Notes to the Interim Consolidated Financial
Statements (Unaudited) 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
PART II - OTHER INFORMATION
- ---------------------------
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 19
Exhibit 20
Index
<PAGE>
TERRA NOVA (BERMUDA) HOLDINGS LTD.
AND SUBSIDIARIES
Consolidated Balance Sheets
(dollars in thousands)
<TABLE>
<CAPTION>
At September 30, At December 31,
1996 1995
---------------- ---------------
(Unaudited)
ASSETS
<S> <C> <C>
Investments and cash:
Fixed maturities, at market:
Bonds (amortized cost $1,071,389 and $938,146, respectively) $1,083,504 $998,901
Equity securities, at market:
Common stocks (cost $86,409 and $69,200, respectively) 112,212 80,410
Cash and cash equivalents 72,136 88,725
---------------- ---------------
Total investments and cash 1,267,852 1,168,036
Accrued investment income 24,396 23,781
Insurance balances receivable 46,857 28,277
Reinsurance recoverable on paid losses 46,331 62,289
Reinsurance recoverable on unpaid losses 274,297 354,417
Accrued premium income 166,403 111,061
Prepaid reinsurance premiums 14,593 3,943
Deferred acquisition costs 56,201 36,950
Goodwill 10,218 -
Receivable for securities sold - 1,514
Other assets 33,489 27,652
---------------- ---------------
Total assets $1,940,637 $1,817,920
================ ===============
LIABILITIES
Unpaid losses and loss adjustment expenses $1,075,961 $1,168,652
Unearned premiums 216,287 139,993
Insurance balances payable 45,088 58,321
Payable for securities purchased 15,146 -
Income taxes payable 18,948 70
Deferred income taxes 12,544 14,931
Long-term debt 100,000 100,000
Net liabilities of Aviation business in run off 64,653 63,772
Other liabilities 19,771 21,041
---------------- ---------------
Total liabilities 1,568,398 1,566,780
---------------- ---------------
Commitments and contingent liabilities (note 2) - -
Convertible redeemable preferred shares - 33,376
Minority interests in subsidiaries - 20,756
---------------- ---------------
SHAREHOLDERS' EQUITY
Common shares 149,775 89,282
Additional capital 111,544 18,203
Unrealized appreciation of investments, net of minority interests
and income tax 24,909 49,972
Retained earnings 86,011 39,551
---------------- ---------------
Total shareholders' equity 372,239 197,008
---------------- ---------------
Total liabilities, convertible redeemable preferred shares,
minority interests and shareholders' equity $1,940,637 $1,817,920
================ ===============
</TABLE>
See accompanying notes to the interim consolidated financial statements.
1
<PAGE>
TERRA NOVA (BERMUDA) HOLDINGS LTD.
AND SUBSIDIARIES
Consolidated Statements of Operations
For the Three Months and Nine Months Ended September 30, 1996 and 1995
(Unaudited)
(dollars in thousands except share amounts)
<TABLE>
<CAPTION>
Three months Nine months
Ended September 30, Ended September 30,
----------------------- -----------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Net premiums written $50,653 $32,332 $275,837 $223,764
Change in unearned premiums 17,220 8,241 (65,711) (28,509)
----------- ----------- ----------- -----------
Net premiums earned 67,873 40,573 210,126 195,255
Net investment income 19,839 17,578 58,665 56,438
Realized net capital gains/(losses) on sales of investment (1,122) 1,138 11,060 4,032
Foreign exchange gains (losses) 35 (710) (600) 2,795
Octavian agency income 2,251 - 6,486 -
----------- ----------- ----------- -----------
Total revenues 88,876 58,579 285,737 258,520
----------- ----------- ----------- -----------
Expenses:
Losses and loss adjustment expenses, net 42,230 29,489 137,031 145,155
Acquisition costs 20,621 11,482 61,604 50,749
Other operating expenses 2,094 1,814 6,042 6,390
Interest expense 2,688 2,742 8,063 6,748
Octavian agency expense 2,050 - 5,886 -
Other expenses 1,682 1,126 4,344 2,178
----------- ----------- ----------- -----------
Total expenses 71,365 46,653 222,970 211,220
----------- ----------- ----------- -----------
Income from operations before income taxes and minority interests 17,511 11,926 62,767 47,300
Income tax expense 3,062 2,642 13,204 11,930
Minority interests in income of consolidated subsidiaries - 555 985 1,766
----------- ----------- ----------- -----------
Net income $14,449 $8,729 $48,578 $33,604
=========== =========== =========== ===========
Earnings per common share and common share equivalent $0.55 $0.53 $2.13 $2.08
Weighted average number of common shares and common 26,207 15,650 22,714 15,650
share equivalents outstanding (in thousands)
</TABLE>
See accompanying notes to the interim consolidated financial statements.
2
<PAGE>
TERRA NOVA (BERMUDA) HOLDINGS LTD.
AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity
For the Nine Months Ended September 30, 1996 and 1995
(Unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------------------
1996 1995
--------- ---------
<S> <C> <C>
Common shares:
Balance, beginning of period $89,282 $59,057
Shares issued in initial public offering 42,195 -
Shares issued in exchange for minority interests in subsidiaries 11,826 -
Shares issued for conversion of convertible redeemable preferred shares 5,740 -
Other shares issued during the period 732 2,221
-------- -------
Balance, end of period $149,775 $61,278
========= =======
Additional capital:
Balance, beginning of period $18,203 -
Surplus arising from initial public offering 71,758 -
Surplus arising from shares issued in exchange for minority interests in subsidiaries 8,655 -
Surplus arising from conversion of convertible redeemable preferred shares 12,108 -
Other capital contributed during period 820 -
-------- --------
Balance, end of period $111,544 $-
======== ========
Unrealized appreciation of investments:
Balance, beginning of period $49,972 $-
Changes during the period (32,451) 46,466
Deferred income tax benefit (expense) 7,388 (10,379)
-------- --------
Balance, end of period $24,909 $36,087
======== ========
Retained earnings:
Balance, beginning of period $39,551 $-
Net income 48,578 33,604
Dividends payable on convertible redeemable preferred shares (1,088) (2,800)
Dividends payable on ordinary shares (1,030) -
-------- --------
Balance, end of period $86,011 $30,804
======== ========
-------- --------
Total shareholders' equity $372,239 $128,169
======== ========
</TABLE>
See accompanying notes to the interim consolidated financial statements.
3
<PAGE>
TERRA NOVA (BERMUDA) HOLDINGS LTD.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 1996 and 1995
(Unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
------------------------
1996 1995
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income $49,563 $35,370
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortisation of goodwill 828 -
Bad debt charge - -
Realized capital gains (11,060) (4,032)
Change in unpaid losses and loss adjustment expenses (92,130) (91,446)
Change in unearned premiums and prepaid reinsurance 65,644 28,519
Change in insurance balances payable (13,233) (18,333)
Change in insurance balances receivable, accrued premium
income and reinsurance recoverable on paid and
unpaid losses 22,689 85,281
Change in deferred policy acquisition costs (19,251) (12,084)
Change in accrued investment income (628) (3,947)
Change in current and deferred income taxes 22,078 7,263
Change in other assets and liabilities - net (7,058) (2,566)
Change in net liabilities of Aviation business in run off 881 (1,116)
---------- ----------
Total adjustments (31,240) (12,461)
---------- ----------
Net cash provided by operating activities 18,323 22,909
---------- ----------
Cash flows from investing activities:
Proceeds of fixed maturities matured 38,283 92,449
Proceeds of fixed maturities sold 254,891 81,717
Proceeds of equity securities sold 138,828 79,443
Purchase of fixed maturities (409,517) (358,773)
Purchase of equity securities (144,048) (101,239)
Payment consideration for Octavian (9,393) -
Acquisition expenses (644) -
---------- ----------
Net cash used in investing activities (131,600) (206,403)
---------- ----------
Cash flows from financing activities:
Proceeds from public debt offering - 100,000
Repayment of long term bank debt - (85,000)
Payment of fees for financing public debt offering - (5,346)
Net proceeds from initial public offering 113,953 -
Redemption of preferred shares (16,035) -
Preference dividends paid to stockholders (499) (1,898)
Ordinary dividends paid to stockholders (1,030) -
Proceeds from shares issued - 175
---------- ----------
Net cash provided by financing activities 96,389 7,931
---------- ----------
Change in cash and cash equivalents (16,888) (175,563)
Exchange on foreign currency cash balances 299 816
Cash and cash equivalents at beginning of period 88,725 242,206
---------- ----------
Cash and cash equivalents at end of period $72,136 $67,459
========== ==========
Supplemental disclosure of cash flow information
Income taxes (refunded) paid $(10,610) $1,109
========== ==========
Interest paid $10,780 $4,281
========== ==========
</TABLE>
See accompanying notes to the interim consolidated financial statements.
4
<PAGE>
TERRA NOVA (BERMUDA) HOLDINGS LTD.
AND SUBSIDIARIES
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying interim consolidated financial statements present
information in relation to Terra Nova (Bermuda) Holdings Ltd. ("The
Company") and have been prepared on the basis of accounting principles
generally accepted in the United States of America. All material
intercompany accounts and transactions among the companies included in
the interim consolidated financial statements have been eliminated. In
the opinion of management, these unaudited interim consolidated financial
statements reflect all adjustments (consisting of normal recurring
accruals) necessary for a fair presentation of the financial position,
results of operations and cash flows of the Company. The results of
operations for interim periods are not necessarily indicative of the
results to be expected for the full year. Certain prior year amounts
have been reclassified to conform with the current year presentation.
These financial statements should be read in conjunction with the audited
consolidated financial statements as of December 31, 1995 and for each of
the three years prior to the period ended December 31, 1995, and related
notes thereto included in the Company's Annual Report as filed with the
Securities and Exchange Commission.
2. CONTINGENCIES
The Company is regularly involved, directly or indirectly, in litigation
in the ordinary course of conducting its insurance and reinsurance
business. In a number of cases, plaintiffs seek to establish coverage
for liability under environmental protection laws. While the nature and
extent of insurance and reinsurance coverage for environmental liability
has widened since 1980, in the judgement of management, none of these
cases, individually or collectively, is likely to result in judgements
for amounts which, net of losses and loss adjustment expense liabilities
previously established and reinsurance recoverables which management
believes are probable of realisation, would have a material effect on the
financial position of the Company, although there is no assurance that
such losses will not materially effect the Company's results of
operations for any period.
3. REINSURANCE CEDED
In the ordinary course of business, Terra Nova Insurance Company Limited
("Terra Nova"), Terra Nova (Bermuda) Insurance Company Ltd. ("Terra Nova
(Bermuda)") and Terra Nova Capital Limited ("Terra Nova Capital") cede
reinsurance to other insurance companies. Ceded reinsurance arrangements
facilitate greater diversification of business and limit the net loss
potential arising from large risks. Reinsurance is effected under
reinsurance treaties and by negotiation on individual risks.
Terra Nova, Terra Nova (Bermuda) and Terra Nova Capital cede reinsurance
to and assume reinsurance from Lloyd's of London ("Lloyd's") syndicates.
As of September 30, 1996, the aggregate exposure in respect of
reinsurance ceded to Lloyd's syndicates in respect of continuing
operations, including estimated reinsurance recoveries in respect of
losses incurred but not reported, was approximately $106 million, the
majority of which was ceded into Equitas with effect from September 4,
1996.
5
<PAGE>
TERRA NOVA (BERMUDA) HOLDINGS LTD.
AND SUBSIDIARIES
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
(UNAUDITED)
(a) Net premiums written are comprised of the following:
Nine Months Ended
September 30,
------------------------------
1996 1995
------------ ------------
(dollars in thousands)
Direct business $95,540 $80,570
Reinsurance assumed 228,137 184,223
Reinsurance ceded (47,840) (41,029)
------------ ------------
Net premiums written $275,837 $223,764
============ ============
(b) Net premiums earned are comprised of the following:
Nine Months Ended
September 30,
------------------------------
1996 1995
------------ ------------
(dollars in thousands)
Direct business $69,630 $70,307
Reinsurance assumed 177,686 160,409
Reinsurance ceded (37,190) (35,461)
------------ ------------
Net premiums earned $210,126 $195,255
============ ============
(c) Losses and loss adjustment expenses, net, are comprised of the following:
Nine Months Ended
September 30,
------------------------------
1996 1995
------------ ------------
(dollars in thousands)
Losses and loss adjustment expenses $150,249 $147,399
Reinsurance ceded (13,218) (2,244)
------------ ------------
Losses and loss adjustment expenses, net $137,031 $145,155
============ ============
4. EARNINGS PER COMMON SHARE AND COMMON SHARE EQUIVALENT
Primary earnings per share are computed using the weighted average number of
common shares and common share equivalents outstanding during the period. Common
share equivalents consist of shares issuable upon exercise of share options and
prior to April 22, 1996 shares issuable at the option of Bermuda Holdings under
put agreements. For purposes of the calculation of primary earnings per share,
net income has been increased to reflect the elimination of minority interests
by exercise of the various put options and has been decreased to reflect the
dividend paid to convertible redeemable preferred shareholders.
In accordance with the SEC Staff Accounting Bulletin Topic 4-D, for purposes of
the earnings per share calculations reflected in these interim consolidated
financial statements, all shares of common stock issued and stock options
granted prior to the date of the Registration Statement filed with the SEC on
March 19, 1996 have been deemed to be outstanding since January 1, 1995.
6
<PAGE>
TERRA NOVA (BERMUDA) HOLDINGS LTD.,
AND SUBSIDIARIES
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
(UNAUDITED)
5. PUBLIC OFFERING
On April 22, 1996 the Company completed an initial public offering of
6,600,000 Class A Ordinary shares at a price to the public of $17, of which
5,280,000 Shares were initially offered for sale in the United States,
Bermuda and Canada and 1,320,000 Shares were initially being offered for
sale outside the United States, Bermuda and Canada in a concurrent offering
("the offerings"). In addition, the Company granted to the U.S.
underwriters for the Offering an option to purchase up to 990,000
additional Shares of which 675,000 were purchased. The proceeds of the
offerings were $114.0 million after expenses. Of these net proceeds $16.0
million was used to redeem a portion of the Company's non-voting
convertible redeemable preferred shares, $75 million was contributed to
Terra Nova (Bermuda), to support its insurance operations, including
increasing the capacity potentially available to the Octavian Syndicates
and $15 million was contributed to Terra Nova, with the balance retained
for general corporate purposes.
6. CAPITALIZATION CHANGES
On March 25, 1996 the Company's shareholders approved an increase in the
par value of the Company's 'A' and 'B' ordinary shares to $5.80 per share
and a reverse split of the Company's ordinary shares on a one for 5.80
basis. The shareholders also approved an amendment to the Bye-Laws which,
among other things, eliminated the Company's Class C ordinary shares.
In addition, the Company in connection with the offerings completed on
April 22, 1996 performed the following:
(a) issued 1,951,899 ordinary shares in exchange for the ordinary shares
and preferred shares of Terra Nova and Terra Nova (Bermuda) which
were held by minority interests. Subsequent to the offering the
Company issued a further 86,970 shares in exchange for the ordinary
shares and preferred shares of Terra Nova and Terra Nova (Bermuda)
which were held by minority interests; and
(b) converted 16,317,354 of the Company's convertible redeemable
preferred shares into 989,697 ordinary shares of the Company, and
redeemed for cash 17,058,455 of the Company's convertible redeemable
preferred shares at a redemption price of $16,034,948 out of the
proceeds of the offerings.
7. THE OCTAVIAN ACQUISITION
On January 5, 1996, in continuation of its market diversification strategy,
the Company purchased the business and assets of Octavian, a Lloyd's
managing agent, consisting primarily of the rights to manage five Lloyd's
syndicates (the "Octavian Syndicates") for the 1996 and subsequent years of
account (the "Octavian Acquisition"), for a purchase price of $9.4 million
and 126,268 Shares. The Octavian Syndicates, whose writings include
primarily U.K. liability and marine lines, have approximately $350 million
of aggregate underwriting capacity for the 1996 year of account, of which
$38.8 million is provided by the Company through Terra Nova Capital, a
limited liability corporate member of Lloyd's formed by the Company. The
Company estimates that its share of the Octavian syndicates' written
premiums gross of commission for the 1996 year of account will be
approximately $34 to $36 million.
7
<PAGE>
TERRA NOVA (BERMUDA) HOLDINGS LTD.,
AND SUBSIDIARIES
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
(UNAUDITED)
These activities are not expected to contribute significantly to the Company's
earnings in 1996. The goodwill in the Company's balance sheet represents the
goodwill arising on the acquisition of Octavian which has been calculated using
the purchase method and is being amortized in a straight line over a 10 year
period. The Octavian results from the date of the acquisition are included in
the Consolidated Statements of Operations.
8. SUMMARIZED FINANCIAL INFORMATION FOR TERRA NOVA INSURANCE (UK) HOLDINGS
PLC ("UK HOLDINGS")
Summarized consolidated balance sheet information as at September 30, 1996 and
December 31, 1995 and summarized consolidated statement of operations
information for the nine months ended September 30, 1996 and 1995 relating to UK
Holdings is set out below. Separate financial statements of UK Holdings are not
presented because they would not be material to holders of UK Holdings 10 3/4
Senior Notes due 2005.
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
----------- -----------
(dollars in thousands)
<S> <C> <C>
Investments and cash $848,828 $884,514
Reinsurance recoverable on unpaid losses 403,789 488,335
Accrued premium income 137,308 99,885
Other assets 222,782 188,367
----------- -----------
Total assets $1,612,707 $1,661,101
=========== ===========
Unpaid losses and loss adjustment expenses $1,004,850 $1,096,857
Unearned premiums 195,053 136,351
Net liabilities of Aviation business in run off 58,843 58,972
Long-term debt 100,000 100,000
Other liabilities 94,684 150,953
----------- -----------
Total liabilities 1,453,430 1,543,133
----------- -----------
Minority interests in subsidiary - 10,584
Total shareholders' equity 159,277 107,384
----------- -----------
Total liabilities, minority interests and
shareholders' equity $1,612,707 $1,661,101
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1996 1995
----------- -----------
(dollars in thousands)
<S> <C> <C>
Net premiums earned $184,860 $182,651
Net investment income 39,697 44,275
Realized investment gains/(losses) 10,759 3,652
Foreign exchange(losses)/gains (680) 2,899
Octavian agency income 6,486 -
----------- -----------
Total revenues 241,122 233,477
----------- -----------
Underwriting costs and expenses 184,401 189,074
Interest expenses 8,063 6,748
Other expenses 1,990 579
Octavian agency expenses 5,886 -
----------- -----------
Income from operations before income taxes and
minority interest 40,782 37,076
----------- -----------
Net income $27,071 $24,301
=========== ===========
</TABLE>
8
<PAGE>
TERRA NOVA (BERMUDA) HOLDINGS LTD.,
AND SUBSIDIARIES
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
(UNAUDITED)
9. DIVIDENDS DECLARED
On August 6, 1996 the Company declared a dividend of $0.02 per share paid
on September 27, 1996, to shareholders of record as of September 6, 1996.
9
<PAGE>
TERRA NOVA (BERMUDA) HOLDINGS LTD.,
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THE COMPANY
The following discussion addresses the principal factors affecting the earnings
and financial condition of the Company. All references herein to the "Company"
are to Terra Nova (Bermuda) Holdings Ltd. ("Bermuda Holdings") and all of its
direct and indirect subsidiaries, including Terra Nova Insurance (UK) Holdings
plc ("UK Holdings"), Terra Nova Insurance Company Limited ("Terra Nova"), Terra
Nova (Bermuda) Insurance Company Ltd. ("Terra Nova (Bermuda)"), Octavian
Syndicate Management Limited ("OSML") and Terra Nova Capital Limited ("Terra
Nova Capital"). This discussion should be read in conjunction with the audited
consolidated financial statements of Bermuda Holdings as of December 31, 1995
and for each of the three years for the period ended December 31, 1995 and
related notes thereto included in the Company's Annual Report as filed with the
Securities and Exchange Commission.
MIX OF BUSINESS
The Company's mix of business and combined ratios for the three and nine months
ended September 30, 1996 and 1995 are set forth in the following table:
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
------------------------------------------------ -----------------------------------------------
1996 1995 1996 1995
---------------------- ---------------------- ---------------------- ---------------------
Amount Percent Amount Percent Amount Percent Amount Percent
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gross Premiums Written........ (dollars in thousands)
Non-marine property........ $31,832 52.0 % $22,127 60.6 % $176,472 54.5 % $132,745 50.1 %
Non-marine casualty........ 11,432 18.7 7,316 20.1 51,201 15.8 43,633 16.5
Marine & Aviation.......... 17,993 29.4 6,458 17.7 94,776 29.3 84,560 31.9
Life(1).................... (73) (0.1) 568 1.6 1,228 0.4 3,855 1.5
---------- -------- ---------- -------- ---------- -------- ---------- --------
Total.............. $61,184 100.0 % $36,469 100.0 % $323,677 100.0 % $264,793 100.0 %
========== ======== ========== ======== ========== ======== ========== ========
Net Premiums Written
Non-marine property........ $24,313 47.9 % $19,818 61.3 % $147,978 53.6 % $108,248 48.4 %
Non-marine casualty........ 11,578 22.9 8,073 25.0 46,204 16.8 37,402 16.7
Marine & Aviation.......... 14,775 29.2 3,967 12.3 80,427 29.2 74,518 33.3
Life(1).................... (13) - 474 1.4 1,228 0.4 3,596 1.6
---------- -------- ---------- -------- ---------- -------- ---------- --------
Total.............. $50,653 100.0 % $32,332 100.0 % $275,837 100.0 % $223,764 100.0 %
========== ======== ========== ======== ========== ======== ========== ========
Net Premiums Earned
Non-marine property........ $32,477 47.9 % $21,144 52.1 % $94,720 45.1 % $85,759 43.9 %
Non-marine casualty........ 14,408 21.2 10,496 25.9 40,032 19.0 35,826 18.4
Marine & Aviation.......... 21,001 30.9 8,459 20.8 74,146 35.3 70,074 35.9
Life(1).................... (13) - 474 1.2 1,228 0.6 3,596 1.8
---------- -------- ---------- -------- ---------- -------- ---------- --------
Total.............. $67,873 100.0 % $40,573 100.0 % $210,126 100.0 % $195,255 100.0 %
========== ======== ========== ======== ========== ======== ========== ========
Losses and Loss Adjustment
Expense Ratios
Non-marine property.................... 57.4 % 74.8 % 60.1 % 65.2 %
Non-marine casualty.................... 78.1 96.8 81.7 100.7
Marine & Aviation...................... 58.6 36.7 62.6 71.3
Life(1)................................ NM 86.6 76.6 88.8
-------- -------- -------- --------
Total.......................... 62.2 % 72.7 % 65.2 % 74.3 %
======== ======== ======== ========
Underwriting Expense Ratios
Non-marine property.................... 31.0 % 33.2 % 31.9 % 30.6 %
Non-marine casualty.................... 34.4 17.3 29.0 23.8
Marine & Aviation...................... 37.1 50.7 34.6 30.9
Life(1)................................ NM 36.1 20.2 18.8
-------- -------- -------- --------
Total.......................... 33.5 % 32.8 % 32.2 % 29.3 %
======== ======== ======== ========
Combined Ratios
Non-marine property.................... 88.4 % 108.0 % 92.0 % 95.8 %
Non-marine casualty.................... 112.5 114.1 110.7 124.5
Marine & Aviation...................... 95.7 87.4 97.2 102.2
Life(1)................................ NM 122.7 96.8 107.6
-------- -------- -------- --------
Total.......................... 95.7 % 105.5 % 97.4 % 103.6 %
======== ======== ======== ========
</TABLE>
(1) The Company ceased writing new life business on March 1, 1996 and therefore
the ratios for the three months to September 30, 1996 are not meaningful.
10
<PAGE>
TERRA NOVA (BERMUDA) HOLDINGS LTD.
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED WITH THREE MONTHS ENDED
SEPTEMBER 30, 1995
Gross Premiums Written; Net Premiums Written; Net Premiums Earned. Gross
premiums written increased 67.8%, to $61.2 million in 1996 from $36.5
million in 1995. The increase in gross written premiums arises from a $9.7
million increase in non-marine property business, a $4.1 million increase
in non-marine casualty business and an $11.5 million increase in marine and
aviation business offset by a $0.6 million reduction in life business as a
consequence of Terra Nova ceasing writing new life business on March 1,
1996. The increase in non-marine property premiums was primarily
attributable to increased writings by Terra Nova (Bermuda); Terra Nova
Capital business which was established by the Company to participate in
business written by the Octavian Syndicates for the 1996 year of account;
increased writings of Terra Nova's overseas offices, which write
predominately proportional treaty and primary reinsurance business; and
increased writings in primary business, mainly through Terra Nova's United
States surplus lines business. The increase in non-marine casualty business
primarily arises from business written by Terra Nova Capital in 1996. The
increase in marine and aviation premiums was a consequence of Terra Nova
having much lower prior year revisions in 1996 and new business from Terra
Nova Capital, partially offset by Terra Nova writing less hull and energy
business due to competitive market conditions.
Reinsurance ceded increased by 154.6%, to $10.5 million in 1996 from
$4.1 million in 1995. The increase is a consequence of an increase in
prior year reinsurance premiums, timing differences in the purchase of
reinsurance in 1996 compared to 1995, an increase in reinsurance ceded by
Terra Nova (Bermuda) and reinsurance ceded by Terra Nova Capital in 1996.
As a consequence of the higher gross premiums written and higher
reinsurance ceded, net premiums written increased by 56.7%, to $50.7
million in 1996 from $32.3 million in 1995.
Net premiums earned increased 67.3%, to $67.9 million in 1996 from $40.6
million in 1995. The substantial increase in net premiums earned was
attributable to the Company's share of the Octavian syndicates' earned
premiums, a large increase in business written and earned by Terra Nova
(Bermuda) and lower prior year revisions by Terra Nova in 1996 compared to
1995.
Net Investment Income. Net investment income increased by 12.9%, to
$19.8 million in 1996 from $17.6 million in 1995 resulting from an increase
of 13.6% in average invested assets, attributable to the rights issue in
October 1995 and the IPO in April 1996, partially offset by lower portfolio
yields. The average investment yield before realized gains and losses was
6.3% and 6.4% in 1996 and 1995, respectively.
Realized Gains on Sale of Investments. Realized gains on sales of
investments decreased $2.2 million to a loss of $1.1 million in 1996 from a
gain of $1.1 million in 1995.
Foreign Exchange Gains (Losses). Foreign exchange gains of $0.1 million
in 1996 and losses of $0.7 million in 1995 arose from foreign currency
exchange transactions during the quarter together with the translation of
foreign currency assets and liabilities into U.S. dollars, the Company's
functional currency.
Octavian Agency Income. This income consists of fees received by OSML in
respect of the managing of certain Lloyd's syndicates.
Losses and Loss Adjustment Expenses. Losses and loss adjustment expenses
increased 43.2%, to $42.2 million in 1996 from $29.5 million in 1995. As
a percentage of net premiums earned, losses and LAE decreased 10.5
percentage points, to 62.2% in 1996 from 72.7% in 1995. The decrease is
due to an absence of large losses and stable results for prior years in
1996.
11
<PAGE>
TERRA NOVA (BERMUDA) HOLDINGS LTD.
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Acquisition Costs. Acquisition costs, comprising commissions and other
underwriting expenses, increased 79.6%, to $20.6 million in 1996 from $11.5
million in 1995. Acquisition costs as a percentage of net premiums earned
increased 2.1 percentage points, to 30.4% in 1996 from 28.3% in 1995. The
increase in 1996 was a consequence of changes made to Terra Nova's mix of
business in order to protect earnings from price weakness in certain lines
of business, but this has been offset by lower claims costs.
Other Operating Expenses. Other operating expenses increased 15.4%, to
$2.1 million in 1996 from $1.8 million in 1995.
Net Interest Expense. Net interest expense in 1996 and 1995 relates to
interest on the $100 million 10.75% Senior Notes issued on June 30, 1995.
Octavian Agency Expenses. These expenses consist of costs incurred in
managing certain Lloyd's syndicates.
Other Expenses. Other expenses increased to $1.7 million in 1996 from
$1.1 million in 1995 mainly due to the inclusion of certain expense
accruals that in 1995 were not made until the fourth quarter and additional
corporate costs due to the increase in corporate activity in 1996.
Income from Operations before Income Taxes and Minority Interests.
Income from operations before income taxes and minority interests increased
46.8%, to $17.5 million in 1996 from $11.9 million in 1995. This increase
was primarily due to the improved underwriting result and in 1996 higher
net investment income.
Income Tax Expense. Income tax expense increased 15.9%, to $3.1 million
in 1996 from $2.6 million in 1995, as a consequence of the increase in
income of the United Kingdom subsidiaries.
Net Income. Net income increased 65.5%, to $14.4 million in 1996 from
$8.7 million in 1995 as a result of the factors described above.
Combined Ratios. The Company's combined ratio was 95.7% for 1996 and
105.5% for 1995. The decrease was attributable to a 10.5 percentage point
reduction in the overall loss ratio, offset by a 0.7 percentage point
increase in the expense ratio.
12
<PAGE>
TERRA NOVA (BERMUDA) HOLDINGS LTD.
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED WITH NINE MONTHS ENDED
SEPTEMBER 30, 1995
Gross Premiums Written; Net Premiums Written; Net Premiums Earned. Gross
premiums written increased 22.2%, to $323.7 million in 1996 from $264.8
million in 1995. The increase in gross written premiums arises from:
(a) increased writings by Terra Nova (Bermuda) to $50.7 million in 1996
from $23.3 million in 1995 resulting from a full year of marketing
prior to the January renewals. The majority of business written by
Terra Nova (Bermuda) is non-marine property business;
(b) Terra Nova Capital writing gross premiums of $25.7 million in 1996.
Terra Nova Capital was established by the Company to participate in
business written by the Octavian Syndicates for the 1996 year of
account. The majority of the business written by the Octavian
Syndicates is UK casualty, marine and aviation business; and
(c) lower prior year revisions to Terra Nova business in 1996 compared to
1995, partially offset by lower current year writings in 1996 due to
competitive market conditions.
Reinsurance ceded increased by 16.6%, to $47.8 million from $41.0
million. The increase was primarily attributable to:
(a) Terra Nova Capital ceding $6.6 million of reinsurance premiums in
1996;
(b) an increase of $4.0 million in reinsurance premiums at Terra Nova
(Bermuda) due to increased inwards premiums; partially offset by
(c) lower reinsurance costs at Terra Nova in 1996 as a result of an
increase in the retention of the non-marine property catastrophe
reinsurance programme and rate reductions obtained on the non-marine
property, non-marine casualty and marine reinsurance programmes,
partially offset by higher prior year reinsurance costs mainly on the
marine programme.
As a consequence of the higher gross premiums written and higher amounts
of reinsurance ceded, net premiums written increased by 23.3%, to $275.8
million in 1996 from $223.8 million in 1995.
Net premiums earned increased 7.6%, to $210.1 million in 1996 from $195.3
million in 1995. The increase in net premiums earned was attributable to
the Company's share of the Octavian syndicates' earned premiums, a large
increase in business written by Terra Nova (Bermuda) and lower prior year
revisions by Terra Nova in 1996 compared to 1995.
Net Investment Income. Net investment income increased by 3.9% to $58.7
million in 1996 from $56.4 million in 1995, resulting from an increase of
13.5% in average invested assets, attributable to the rights issue in
October 1995 and the IPO in April 1996, partially offset by lower portfolio
yields.
Realized Gains on Sale of Investments. Realized gains on sales of
investments increased $7.1 million to a gain of $11.1 million in 1996 from
a gain of $4.0 million in 1995. The majority of gains in 1996 arose from
equity securities sold during the period.
13
<PAGE>
TERRA NOVA (BERMUDA) HOLDINGS LTD.
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Foreign Exchange (Losses) Gains. Foreign exchange losses of $0.6 million
in 1996 and gains of $2.8 million in 1995 arose from foreign currency
exchange transactions during the period together with the translation of
foreign currency assets and liabilities into U.S. dollars, the Company's
functional currency.
Octavian Agency Income. This income consists of fees received by OSML in
respect of the managing of certain Lloyd's syndicates.
Losses and Loss Adjustment Expenses. Losses and loss adjustment expenses
decreased 5.6%, to $137.0 million in 1996 from $145.2 million in 1995. As
a percentage of net premiums earned, losses and LAE decreased 9.1
percentage points, to 65.2% in 1996 from 74.3% in 1995. The decrease is
due to an absence of large losses and stable results for prior years in
1996.
Acquisition Costs. Acquisition costs, comprising commissions and other
underwriting expenses, increased 21.4%, to $61.6 million in 1996 from $50.7
million in 1995. Acquisition costs as a percentage of net premiums earned
increased 3.3 percentage points, to 29.3% in 1996 from 26.0% in 1995. The
increase in 1996 was a consequence of changes made to Terra Nova's mix of
business in order to protect earnings from price weakness in certain lines
of business, but this has been offset by lower claims costs.
Other Operating Expenses. Other operating expenses decreased 5.4%, to
$6.0 million in 1996 from $6.4 million in 1995.
Net Interest Expense. Net interest expense in 1996 relates to interest
on the $100 million 10.75% Senior Notes issued on June 30, 1995. The net
interest expense in 1995 relates to interest on an $85 million Credit
Agreement which became effective on December 21, 1994 and which was repaid
in full out of the proceeds of the Senior Notes issued on June 30, 1995, as
well as third quarter interest on the $100 million 10.75% Senior Notes.
Octavian Agency Expenses. These expenses consist of costs incurred in
managing certain Lloyd's syndicates.
Other Expenses. Other expenses increased to $4.3 million in 1996 from
$2.2 million in 1995, mainly due to the inclusion of certain expense
accruals that in 1995 were not made until the fourth quarter and additional
corporate costs due to the increase in corporate activity in 1996.
Income from Operations before Income Taxes and Minority Interests.
Income from operations before income taxes and minority interests increased
32.7%, to $62.8 million in 1996 from $47.3 million in 1995. The increase
was primarily due to the improved underwriting result, higher realized
investment gains and higher net investment income.
Income Tax Expense. Income tax expense increased 10.7%, to $13.2 million
in 1996 from $11.9 million in 1995, as a consequence of the increase in
income of the United Kingdom subsidiaries.
Net Income. Net income increased 44.6%, to $48.6 million in 1996 from
$33.6 million in 1995, as a result of the factors described above.
Combined Ratios. The Company's combined ratio was 97.4% for 1996 and
103.6% for 1995. The decrease was attributable to a 9.1 percentage point
reduction in the overall loss ratio, offset by a 2.9 percentage point
increase in the expense ratio.
14
<PAGE>
TERRA NOVA (BERMUDA) HOLDINGS LTD.
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
TAXATION
Since 1983 the U.K. Inland Revenue had asserted the Terra Nova's loss
reserves should have been discounted in determining underwriting results
for corporation tax purposes, although Terra Nova did not accept
discounting as an appropriate accounting policy nor the U.K. Inland
Revenue's assertion in this regard. On January 26, 1996 the U.K. Inland
Revenue withdrew their assertion and have stated that they currently have
no intention of raising the issue in relation to the tax liability on all
years prior to and including 1995. In March 1996, the Inland Revenue
repaid all the taxes (including interest on the overdue amount) due to
Terra Nova relating to this dispute.
LIQUIDITY AND CAPITAL RESOURCES
On April 22, 1996 the Company completed an initial public offering of
6,600,000 Class A Ordinary shares at a price to the public of $17, of which
5,280,000 Shares were initially offered for sale in the United States,
Bermuda and Canada and 1,320,000 Shares were initially being offered for
sale outside the United States, Bermuda and Canada in a concurrent offering
("the offerings"). In addition, the Company granted to the U.S.
underwriters for the Offering an option to purchase up to 990,000
additional Shares of which 675,000 were purchased. The proceeds of the
offerings, including the additional 675,000 shares purchased, were $114.0
million after expenses. Of these net proceeds, $16.0 million was used to
redeem a portion of the Company's non-voting convertible redeemable
preference shares, $75 million was contributed to Terra Nova (Bermuda) to
support its insurance operations, including increasing the capacity
potentially available to the Octavian Syndicates from the Company, and $15
million was contributed to Terra Nova, with the balance retained for
general corporate purposes.
In addition, the Company in connection with the offerings completed on
April 22, 1996 performed the following:
(a) issued 1,951,899 ordinary shares in exchange for the ordinary shares
and preferred shares of Terra Nova and Terra Nova (Bermuda) which
were held by minority interests. Subsequent to the offering the
Company issued a further 86,970 shares in exchange for the ordinary
shares and preferred shares of Terra Nova and Terra Nova (Bermuda)
which were held by minority interests; and
(b) converted 16,317,354 of the Company's convertible redeemable
preferred shares into 989,697 ordinary shares of the Company, and
redeemed for cash 17,058,455 of the Company's convertible redeemable
preferred shares.
The Company's assets consist primarily of the capital stock of UK
Holdings and Terra Nova (Bermuda), and UK Holdings' assets consist
primarily of the capital stock of Terra Nova, Terra Nova Capital and OSML.
The ability of the Company to pay dividends on its capital stock and to pay
its obligations depends primarily on dividends or other payments from Terra
Nova, Terra Nova (Bermuda), Terra Nova Capital and OSML. The payment of
dividends and other payments by Terra Nova, Terra Nova (Bermuda), Terra
Nova Capital and OSML are subject to restrictions under U.K. law and
Bermuda law, respectively.
The sources of funds for the Company's subsidiaries consist primarily of
net premiums, investment income and proceeds from sales and redemptions of
investments. The funds are used primarily to pay claims and operating
expenses and for the purchase of investments, largely fixed income
securities.
The consolidated shareholders' equity of the Company at September 30,
1996 of $372.2 million represented the combined shareholders' equity in
Terra Nova, Terra Nova (Bermuda) and OSML of $461.6 million and other
assets of $10.6 million, reduced by $100.0 million of debt in UK Holdings.
15
<PAGE>
TERRA NOVA (BERMUDA) HOLDINGS LTD.
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The shareholders' equity of Terra Nova at September 30, 1996 was $240.9
million compared to $211.9 million at December 31, 1995. The increase of
$29.0 million in the nine months to September 30, 1996 was a consequence of
net retained income of $25.3 million and a capital injection of $15.0
million, partially offset by unrealized losses on investments (net of tax)
of $11.3 million due to the weak bond markets in the first half of 1996.
The shareholders' equity of Terra Nova (Bermuda) at September 30, 1996 was
$208.6 million compared to $122.9 million December 31, 1995. The increase
of $85.7 million in the nine months to September 30, 1996 was due to a
capital injection of $75.0 million and net retained income of $23.2
million, partially offset by unrealised losses on investments of $12.5
million.
Total investments and cash were $1,267.9 million at September 30, 1996,
comprising fixed maturities - 85.4%, common stocks - 8.9% and cash and cash
equivalents - 5.7%. At September 30, 1996, approximately 95% of the
Company's fixed income investments were rated AA or better by Moody's
Investors Service Inc., or Standard & Poor's Corporation with the balance
of fixed income investments being issued by political sub-divisions of
governments outside the US and UK, which have investment grade ratings. The
Company's investment portfolio earned interest and dividend income, net of
investment management fees, of 6.4% and 7.0% in the nine months ended
September 30, 1996 and 1995, respectively. The Company had realized
investment gains of $11.1 million and $4.0 million in 1996 and 1995,
respectively.
For the nine months ended September 30, 1996, the cashflow provided by
operating activities of the Company was $18.3 million compared to cashflow
provided by operating activities and available for investment of $22.9
million in 1995. The insurance cashflow has deteriorated in 1996 due to:-
(a) higher insurance balances due at December 31, 1994 which were
received in 1995 compared to balances due at December 31, 1995 which
were received in 1996;
(b) larger net cash outflows in 1996 compared to 1995 on the discontinued
marine LMX, aviation and life business; and
(c) a higher percentage of proportional treaty and direct business
written in 1996 compared to 1995. The cash receipts of premiums
written on this business are received throughout the year while the
majority of cash receipts for catastrophe and excess of loss business
are received in the first half of the year. As a result cash flows
from operating activities in the three months to September 30, 1996
were $13.6 million compared to a cash outflow of $7.4 million in
1995, and are expected to be positive for the full year as was the
case in 1995 and are expected to be sufficient to meet the Company's
foreseeable 1996 obligations.
On September 11, 1996 A.M.Best assigned a group rating of "A-" to the
Company reflecting the group's strong consolidated balance sheet, improved
liquidity, disciplined exposure management, geographic risk spread, premium
growth through acquisition and experienced management team.
On October 14, 1996 the company announced that net premiums written for
1996 would exceed the 15-20% growth estimate previously indicated to a
level in excess of 25%. The Company also estimated that the 1997 net
premiums written increase would probably be around 30-35% primarily because
of the large increase in the Company's participation in the syndicates
managed by Octavian, the Lloyds managing agency.
Certain information contained in this form 10-Q may be forward-looking
statements that are based on management's estimates, assumptions and
projections. Important factors that could cause actual results to differ
materially from those estimated by management include, among other things,
an unexpected increase in competition, unfavorable government regulation,
the pricing environment and other industry developments.
16
<PAGE>
TERRA NOVA (BERMUDA) HOLDINGS LTD.
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
DIVIDEND POLICY
On April 30, 1996 the company declared a dividend of $0.02 per share paid on
June 28, 1996, to shareholders of record as of June 7, 1996. On August 6, 1996
the Company declared a dividend of $0.02 per share paid on September 27, 1996,
to shareholders of record as of September 6, 1996. The declaration and payment
of dividends is at the discretion of the Board of Directors of the Company and
will depend upon the Company's results of operations, the financial position and
capital requirements of the Company's operating subsidiaries, general business
conditions, legal, tax and regulatory restrictions on the payment of dividends
and other factors the Board of Directors of the Company deems relevant. While
the Company is not itself subject to any contractual restrictions or significant
legal prohibitions on dividend payments the Company's subsidiaries are subject
to regulatory and legal constraints on their respective abilities to pay
dividends. Accordingly, there is no assurance that dividends will be declared or
paid in the future.
17
<PAGE>
TERRA NOVA (BERMUDA) HOLDINGS LTD.
AND SUBSIDIARIES
PART II - OTHER INFORMATION
---------------------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) EXHIBIT 11.1 Statement regarding Computation of Primary Earnings Per
Common Share and Common Share Equivalents.
b) FORM 8K None.
18
<PAGE>
TERRA NOVA (BERMUDA) HOLDINGS LTD.
AND SUBSIDIARIES
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 thereto duly authorized.
Date: November 14, 1996 By: /s/ WILLIAM O. BAILEY
----------------- ----------------
William O. Bailey
Chairman and Chief Executive Officer
By: /s/ WILLIAM J. WEDLAKE
----------------------
William J. Wedlake
Chief Financial Officer
19
<PAGE>
TERRA NOVA (BERMUDA) HOLDINGS LTD.
AND SUBSIDIARIES
EXHIBIT INDEX
-------------
SEQUENTIAL
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
- ------ ----------- ----------
11.1 Statement regarding Computation of 21-22
Primary Earnings Per Common Share and
Common Share Equivalents
Form 8K
20
<PAGE>
EXHIBIT 11.1
------------
TERRA NOVA (BERMUDA) HOLDINGS LTD.
AND SUBSIDIARIES
COMPUTATION OF PRIMARY EARNINGS PER COMMON SHARE
AND COMMON SHARE EQUIVALENTS
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended September 30, Ended September 30,
1996 1995
------------------- -------------------
<S> <C> <C>
Earnings per common share and common share equivalents
- - Primary
Weighted average common shares outstanding 22,342,562 11,610,232
Weighted average common shares outstanding - -
(under as if converted method)
Average stock options and warrants outstanding 371,062 4,039,983
(net of repurchased shares under the treasury
stock method)
Other dilutive securities assumed to be outstanding - -
under regulatory rules (net of repurchased shares
under the treasury stock method)
------------------- -------------------
Weighted average common shares and common
share equivalents outstanding 22,713,624 15,650,215
=================== ===================
Net income $48,475,000 $32,570,000
=================== ===================
Primary earinings per common share $2.13 $2.08
and common share equivalent
=================== ===================
</TABLE>
21
<PAGE>
EXHIBIT 11.1
------------
TERRA NOVA (BERMUDA) HOLDINGS LTD.
AND SUBSIDIARIES
COMPUTATION OF PRIMARY EARNINGS PER COMMON SHARE
AND COMMON SHARE EQUIVALENTS
<TABLE>
<CAPTION>
Three Months Three Months
Ended September 30, Ended September 30,
1996 1995
------------------- -------------------
<S> <C> <C>
Earnings per common share and common share equivalents
- - Primary
Weighted average common shares outstanding 25,823,308 11,610,232
Weighted average preferred shares outstanding - -
(under as of converted method)
Average stock options and warrants outstanding 383,782 4,039,983
(net of repurchased shares under the treasury
stock method)
Other dilutive securities assumed to be outstanding - -
under regulatory rules (net of repurchased shares
under the treasury stock method)
------------------- -------------------
Weighted average common shares and common
share equivalents outstanding 26,207,090 15,650,215
=================== ===================
Net income $14,449,000 $8,382,000
=================== ===================
Primary earnings per common share
and common share equivalent $0.55 $0.53
=================== ===================
</TABLE>
22
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
TERRA NOVA (BERMUDA) HOLDINGS LTD. AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<DEBT-HELD-FOR-SALE> 1,083,504
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 112,212
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 1,195,716
<CASH> 72,136
<RECOVER-REINSURE> 46,331
<DEFERRED-ACQUISITION> 56,201
<TOTAL-ASSETS> 1,940,637
<POLICY-LOSSES> 1,075,961
<UNEARNED-PREMIUMS> 216,287
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 100,000
0
0
<COMMON> 149,775
<OTHER-SE> 222,464
<TOTAL-LIABILITY-AND-EQUITY> 1,940,637
210,126
<INVESTMENT-INCOME> 58,665
<INVESTMENT-GAINS> 11,060
<OTHER-INCOME> 5,886
<BENEFITS> 137,031
<UNDERWRITING-AMORTIZATION> 61,604
<UNDERWRITING-OTHER> 6,042
<INCOME-PRETAX> 62,767
<INCOME-TAX> 13,204
<INCOME-CONTINUING> 49,563
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 48,578
<EPS-PRIMARY> 2.13
<EPS-DILUTED> 2.11
<RESERVE-OPEN> 814,235
<PROVISION-CURRENT> 137,031
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 6,800
<PAYMENTS-PRIOR> 142,802
<RESERVE-CLOSE> 801,664
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
