<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, 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 1-13832
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 STREET
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, 1997 was 25,881,802 (includes 469,250 ordinary shares owned by
trusts on behalf of the Company).
<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, 1997 (Unaudited) and December 31, 1996 1
Consolidated Statements of Operations (Unaudited)
Three Months Ended September 30, 1997 and 1996
Nine Months Ended September 30, 1997 and 1996 2
Consolidated Statements of Shareholders' Equity (Unaudited)
Nine Months Ended September 30, 1997 and 1996 3
Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended September 30, 1997 and 1996 4
Notes to the Interim Consolidated Financial Statements
(Unaudited) 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
PART II - OTHER INFORMATION
- ---------------------------
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
Exhibit Index 18
<PAGE>
TERRA NOVA (BERMUDA) HOLDINGS LTD.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AT SEPTEMBER 30, AT DECEMBER 31,
1997 1996
----------------- ----------------
(Unaudited)
<S> <C> <C>
ASSETS
Investments available for sale and cash, at fair value:
Fixed maturities:
Bonds (amortized cost $1,149,875 and $1,095,126, respectively) $1,181,058 $1,119,531
Common stocks (cost $110,701 and $92,877, respectively) 153,010 120,411
Cash and cash equivalents 90,237 50,544
----------------- ----------------
Total investments and cash 1,424,305 1,290,486
Accrued investment income 28,630 24,351
Insurance balances receivable 55,382 31,943
Reinsurance recoverable on paid losses 38,238 43,745
Reinsurance recoverable on unpaid losses 222,230 254,129
Accrued premium income 214,666 121,900
Prepaid reinsurance premiums 33,820 8,261
Deferred acquisition costs 85,676 45,279
Other assets 65,089 47,253
----------------- ----------------
Total assets $2,168,036 $1,867,347
================= ================
LIABILITIES
Unpaid losses and loss adjustment expenses $1,080,084 $1,078,108
Unearned premiums 316,964 173,120
Insurance balances payable 8,182 18,340
Income taxes payable 32,666 21,311
Deferred income taxes 10,725 8,720
Long-term debt 175,000 100,000
Net liabilities of Aviation business in run-off 43,501 43,286
Other liabilities 41,382 25,703
----------------- ----------------
Total liabilities $1,708,504 $1,468,588
----------------- ----------------
SHAREHOLDERS' EQUITY
Common shares 150,114 149,933
Stock held in Trust (9,500) --
Deferred equity compensation 2,464 --
Additional capital 111,568 111,544
Unrealized appreciation of investments, net of income tax 53,426 36,271
Cumulative translation adjustments 58 190
Retained earnings 151,402 100,821
----------------- ----------------
Total shareholders' equity 459,532 398,759
================= ================
Total liabilities and shareholders' equity $2,168,036 $1,867,347
================= ================
</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, 1997 AND 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------- -----------------------
1997 1996 1997 1996
--------- --------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES
Net premiums written $90,458 $50,653 $368,778 $275,837
Decrease (increase) in unearned premiums 11,399 17,220 (92,537) (65,711)
------- ------- -------- --------
Net premiums earned 101,857 67,873 276,241 210,126
Net investment income 21,461 19,839 62,524 58,665
Realized net capital gains (losses) on sales of investments 4,221 (1,122) 11,733 11,060
Foreign exchange gains (losses) (585) 35 210 (600)
Agency income 3,455 2,251 10,019 6,486
------- ------- ------- -------
Total revenues 130,409 88,876 360,727 285,737
------- ------- ------- -------
EXPENSES
Losses and loss adjustment expenses, net 61,875 42,230 178,147 137,031
Acquisition costs 34,104 20,621 83,868 61,604
Other operating expenses 3,500 2,094 10,714 6,042
Interest expense 3,297 2,688 8,672 8,063
Agency expense 2,805 2,050 8,044 5,886
Other expenses 1,441 1,682 4,195 4,344
------- ------- ------- -------
Total expenses 107,022 71,365 293,640 222,970
------- ------- ------- -------
Income from operations before income taxes and minority interests 23,387 17,511 67,087 62,767
Income tax expense (4,378) (3,062) (13,430) (13,204)
Minority interests in income of consolidated subsidiaries -- -- -- (985)
------- ------- ------- -------
Net income $19,009 $14,449 $53,657 $48,578
======= ======= ======= =======
Earnings per common share and common share equivalent $0.74 $0.55 $ 2.06 $ 2.13
Earnings per common share and common share equivalent
-- assuming full dilution $0.74 $0.55 $2.06 $2.11
Weighted average number of common shares and common
share equivalents outstanding (in thousands) 25,799 26,207 26,071 22,714
Weighted average number of common shares and common share equivalents
outstanding (in thousands) 25,826 26,222 26,104 23,204
-- assuming full dilution
</TABLE>
See accompanying notes to the interim consolidated financial statements.
2
<PAGE>
TERRA NOVA (BERMUDA) HOLDINGS LTD.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------------
1997 1996
-------- --------
<S> <C> <C>
Common shares:
Balance, beginning of period $149,933 $ 89,282
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 181 732
-------- --------
Balance, end of period $150,114 $149,775
======== ========
Stock held in Trust:
Balance, beginning of period $ -- $ --
Purchased during the period (10,020) --
Options exercised during the period 520 --
-------- --------
Balance, end of period $ (9,500) $ --
======== ========
Deferred equity compensation:
Balance, beginning of period $ -- $ --
Stock option compensation expense 2,833 --
Options exercised during the period (369) --
-------- --------
Balance, end of period $ 2,464 $ --
======== ========
Additional capital:
Balance, beginning of period $111,544 $ 18,203
Options exercised during the period 24 --
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 the period -- 820
-------- --------
Balance, end of period $111,568 $111,544
======== ========
Unrealized appreciation of investments:
Balance, beginning of period $ 36,271 $ 49,972
Changes during the period 21,553 (32,451)
Deferred income tax benefit (charge) (4,398) 7,388
-------- --------
Balance, end of period $ 53,426 $ 24,909
======== ========
Cumulative translation adjustments:
Balance, beginning of period $ 190 $ --
Changes during the period (132) --
-------- --------
Balance, end of period $ 58 $ --
======== ========
Retaining earnings:
Balance, beginning of period $100,821 $ 39,551
Net income 53,657 48,578
Dividends payable on ordinary shares (3,076) (1,030)
Dividends payable on convertible redeemable
preferred shares -- (1,088)
-------- --------
Balance, end of period $151,402 $ 86,011
======== ========
-------- --------
Total shareholders' equity $459,532 $372,239
======== ========
</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, 1997 AND 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------------
1997 1996
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 53,657 $ 49,563
ADJUSTMENTS TO RECONCILE NET INCOME TO
NET CASH PROVIDED BY OPERATING ACTIVITIES:
Amortization of goodwill 854 828
Stock option compensation expense 2,403 --
Realized capital gains (11,733) (11,060)
Change in unpaid losses and loss adjustment
expenses (33,809) (92,130)
Change in unearned premiums and prepaid
reinsurance 95,769 65,644
Change in insurance balances payable (20,686) (13,233)
Change in insurance balances receivable, accrued
premium income and reinsurance recoverable on
paid and unpaid losses (41,495) 22,689
Change in deferred acquisition costs (35,771) (19,251)
Change in accrued investment income (2,064) (628)
Change in current and deferred income taxes 9,747 22,078
Change in other assets and liabilities, net 8,631 (7,058)
Change in net liabilities of Aviation business
in run-off 215 881
-------- --------
Total adjustments (27,939) (31,240)
======== ========
Net cash provided by operating activities 25,718 18,323
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds of fixed maturities matured 50,582 38,283
Proceeds of fixed maturities sold 311,423 254,891
Proceeds of equity securities sold 132,966 138,828
Purchase of fixed maturities (361,341) (409,517)
Purchase of equity securities (138,159) (144,048)
Payment consideration for Corifrance (42,225) --
Payment consideration for Octavian -- (9,393)
Acquisition expenses (203) (644)
======== ========
Net cash used in investing activities (46,957) (131,600)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from public debt offering 74,866 --
Payment of fees for financing public debt offering (538) --
Net proceeds from initial public offering -- 113,953
Redemption of preferred shares -- (16,035)
Preference dividends paid to stockholders -- (499)
Ordinary dividends paid to stockholders (3,076) (1,030)
Repurchase of common shares (10,020) --
Stock options exercised 356 --
-------- --------
Net cash provided by financing activities 61,588 96,389
-------- --------
Change in cash and cash equivalents 40,349 (16,888)
Exchange on foreign currency cash balances (656) 299
Cash and cash equivalents at beginning of period 50,544 88,725
======== ========
Cash and cash equivalents at end of period $ 90,237 $ 72,136
======== ========
Supplemental disclosure of cash flow information
Income taxes paid (refunded) $ 324 $(10,610)
======== ========
Interest paid $ 10,750 $ 10,750
======== ========
See accompanying notes to the interim consolidated financial statements.
</TABLE>
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, 1996 and for each of the
three years for the period ended December 31, 1996, 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 realization, would have a
material effect on the financial position of the Company, although there is no
assurance that such losses will not materially affect the Company's results of
operations for any period.
3. RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, Earnings Per Share ("EPS") ("FAS 128").
FAS 128 specifies the computation presentation and disclosure requirements for
EPS and is effective for financial statements issued for periods ending after
December 15, 1997, including interim periods. Earlier application is not
permitted.
FAS 128 is designed to improve the EPS information provided in financial
statements by simplifying the existing computational guidelines, revising the
disclosure requirements, and increasing the comparability of EPS data on an
international basis. Some of the changes made to simplify the EPS computations
include: (a) eliminating the presentation of primary EPS and replacing it with
basic EPS, with the principal difference being that common stock equivalents
(CSES) are not considered in computing basic EPS, (b) eliminating the modified
treasury stock method and the three percent materiality provision, and (c)
revising the contingent share provisions and the supplemental EPS data
requirements. FAS 128 requires dual presentation of basic and diluted EPS on
the face of the income statements for all entities with complex capital
structures regardless of whether basic and diluted EPS are the same; it also
requires a reconciliation of the numerator and denominator used in computing
basic and diluted EPS.
The impact of FAS 128 has not yet been determined.
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 129, Disclosure of Information about Capital
Structure ("FAS 129"). FAS 129 is effective for financial statements for
periods ending after December 15, 1997.
5
<PAGE>
TERRA NOVA (BERMUDA) HOLDINGS LTD.
AND SUBSIDIARIES
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
FAS 129 requires disclosure about an entity's capital structure including a
brief discussion of rights and privileges for securities outstanding, dividend
and liquidation preferences, participation rights, exercise prices or rates and
pertinent dates, significant terms of contracts to issue additional shares and
other similar items.
The impact of FAS 129 has not yet been determined.
4. 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 provide 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, 1997 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 $91 million, the majority of which was ceded into Equitas with
effect from September 4, 1996.
<TABLE>
<CAPTION>
(A) NET PREMIUMS WRITTEN ARE COMPRISED OF THE FOLLOWING:
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------------
1997 1996
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Direct business $209,573 $95,540
Reinsurance assumed 222,552 228,137
Reinsurance ceded (63,347) (47,840)
-------- --------
Net premiums written $368,778 $275,837
======== ========
(B) NET PREMIUMS EARNED ARE COMPRISED OF THE FOLLOWING:
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------
1997 1996
--------- ---------
(DOLLARS IN THOUSANDS)
Direct business $123,218 $69,630
Reinsurance assumed 192,637 177,686
Reinsurance ceded (39,614) (37,190)
-------- -------
Net premiums earned $276,241 $210,126
======== ========
(C) LOSSES AND LOSS ADJUSTMENT EXPENSES, NET, ARE COMPRISED OF THE FOLLOWING:
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------
1997 1996
----------- --------
(DOLLARS IN THOUSANDS)
Losses and loss adjustment expenses $200,817 $150,249
Reinsurance ceded (22,670) (13,218)
-------- --------
Losses and loss adjustment expenses, net $178,147 $137,031
======== ========
</TABLE>
6
<PAGE>
TERRA NOVA (BERMUDA) HOLDINGS LTD.
AND SUBSIDIARIES
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
5. 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.
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. LONG TERM DEBT
On August 26, 1997, UK Holdings completed an issue of $75 million 7.2% Senior
Notes due 2007, fully and unconditionally guaranteed by Bermuda Holdings. The
net proceeds were used to finance the acquisition of Corifrance on September 8,
1997 and to support the Company's operations in the UK.
7. CORIFRANCE ACQUISITION
On September 8 1997, the Company purchased all of the issued and outstanding
shares of Corifrance, a French reinsurance company. The acquisition was made by
a French subsidiary of Terra Nova, the Group's UK operating insurance company.
Corifrance transacts business internationally, although mainly outside of the
United States.
The goodwill in the Company's balance sheet includes the goodwill arising on the
acquisition of Corifrance, which has been calculated using the purchase method
of accounting and is being amortized on a straight line basis over a twenty five
year period.
8. SUMMARIZED FINANCIAL INFORMATION FOR TERRA NOVA INSURANCE (UK) HOLDINGS PLC
("UK HOLDINGS")
Summarized consolidated balance sheet information as at September 30, 1997 and
December 31, 1996 and summarized consolidated statement of operations
information for the nine months ended September 30, 1997 and 1996 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 10.75%
Senior Notes due 2005 or to holders of UK Holdings 7.2% Senior Notes due 2007.
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------------ -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Investments and cash $933,513 $872,171
Reinsurance recoverable on unpaid losses 384,804 387,733
Accrued premium income 200,486 108,012
Other assets 288,027 193,212
---------- ----------
Total assets $1,806,830 $1,561,128
========== ==========
Unpaid losses and loss adjustment expenses $1,012,304 $1,011,015
Uncarried premiums 296,320 157,515
Net liabilities of Aviation business in run-off 37,455 36,913
Long-term debt 175,000 100,000
Other liabilities 106,442 83,440
---------- ----------
Total liabilities 1,627,521 1,388,883
---------- ----------
Total shareholders' equity 179,309 172,245
---------- ----------
Total liabilities and shareholders' equity $1,806,830 $1,561,128
========== ==========
</TABLE>
7
<PAGE>
TERRA NOVA (BERMUDA) HOLDINGS LTD.
AND SUBSIDIARIES
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-----------------------------------------
1997 1996
---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Net premiums earned $239,724 $184,860
Net investment income 41,214 39,697
Realized investment gains 11,350 10,759
Foreign exchange gains (losses) 300 (680)
Agency income 10,019 6,486
---------- ----------
Total revenues 302,607 241,122
---------- ----------
Underwriting costs and expenses 243,848 186,391
Interest expense 8,672 8,063
Agency expenses 8,044 5,886
---------- ----------
Income from operations before income taxes and
minority interests 42,043 40,782
---------- ----------
Net income $28,612 $27,071
========== ==========
</TABLE>
9. DIVIDENDS DECLARED
On February 10, 1997 the Company declared a dividend of $0.02 per share
payable on March 27, 1997, to shareholders of record as of March 6, 1997.
On May 5, 1997 the Company declared a dividend of $0.05 per share
payable on June 27, 1997, to shareholders of record as of June 6, 1997.
On August 4, 1997 the Company declared a dividend of $0.05 per share
payable on September 26, 1997, to shareholders of record as of September 5,
1997.
On November 4, 1997 the Company declared a dividend of $0.05 per share
payable on December 29, 1997, to shareholders of record as of December 5, 1997.
10. STOCK REPURCHASE
On May 5, 1997 the Company's Board of Directors authorised the repurchase of up
to $20 million of the Company's Common Stock. As at November 14, 1997 the
Company had repurchased 500,000 shares at a total cost of $10,020,000.
The stock is to be held in trust for the satisfaction of employees' and
directors' long-term compensation plans or for any other corporate purposes.
8
<PAGE>
TERRA NOVA (BERMUDA) HOLDINGS LTD.
AND SUBSIDIARIES
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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 ("Octavian"), Terra Nova Capital Limited
("Terra Nova Capital") and Corifrance. This discussion should be read in
conjunction with the audited consolidated financial statements of Bermuda
Holdings as of December 31, 1996 and for each of the three years during the
period ended December 31, 1996 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, 1997 and 1996 are set forth in the following table:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
------------------------------------- -------------------------------------
1997 1996 1997 1996
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ ------- ------ ------- ------ -------
(DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gross Premiums Written
Non-marine property $ 44,846 44.7% $ 31,832 52.0% $198,996 46.0% $176,472 54.5%
Non-marine casualty $ 22,148 22.1 $ 11,432 18.7% 97,028 22.5 51,201 15.8
Marine & Aviation 33,372 33.2 17,993 29.4 136,101 31.5 94,776 29.3
Life (1) -- -- (73) (0.1) -- -- 1,228 0.4
-------- ------- -------- ----- -------- ----- -------- -----
Total $100,366 100.0% $ 61,184 100.0% $432,125 100.0% $323,677 100.0%
======== ======= ======== ===== ======== ===== ======== =====
Net Premiums Written
Non-marine property $ 38,214 42.2% $ 24,313 47.9% $174,702 47.4% $147,978 53.6%
Non-marine casualty 20,542 22.8 11,578 22.9 88,120 23.9 46,204 16.8
Marine & Aviation 31,702 35.0 14,775 29.2 105,956 28.7 80,427 29.2
Life (1) -- -- (13) -- -- -- 1,228 0.4
-------- ------- -------- ----- -------- ----- -------- -----
Total $ 90,458 100.0% $ 50,653 100.0% $368,778 100.0% $275,837 100.0%
======== ======= ======== ===== ======== ===== ======== =====
Net Premiums Earned
Non-marine property $ 47,737 46.9% $ 32,477 47.9% $130,690 47.3% $ 94,720 45.1%
Non-marine casualty 24,308 23.8 14,408 21.2 65,805 23.8 40,032 19.0
Marine & Aviation 29,812 29.3 21,001 30.9 79,746 28.9 74,146 35.3
Life (1) -- (13) -- -- -- 1,228 0.6
-------- ------- -------- ----- -------- ----- -------- -----
Total $101,857 100.0% $ 67,873 100.0% $276,241 100.0% $210,126 100.0%
======== ======= ======== ===== ======== ===== ======== =====
Losses and Loss Adjustment Expense Ratios
Non-marine property 61.3% 57.4% 63.3% 60.1%
Non-marine casualty 63.6 78.1 75.3 81.7
Marine & Aviation 57.5 58.6 57.5 62.6
Life (1) NA NM NA 76.6
------- ----- ----- -----
Total 60.7% 62.2% 64.5% 65.2%
======= ===== ===== =====
Underwriting Expense Ratios
Non-marine property 35.3% 31.0% 33.4% 31.9%
Non-marine casualty 38.6 34.4 29.6 29.0
Marine & Aviation 38.2 37.1 39.5 34.6
Life (1) NA NM NA 20.2
------- ----- ----- -----
Total 36.9% 33.5% 34.2% 32.2%
======= ===== ===== =====
Combined Ratios
Non-marine property 96.6% 88.4% 96.7% 92.0%
Non-marine casualty 102.2 112.5 104.9 110.7
Marine & Aviation 95.7 95.7 97.0 97.2
Life (1) NA NM NA 96.8
------- ----- ----- -----
Total 97.6% 95.7% 98.7% 97.4%
======= ===== ===== =====
</TABLE>
(1) The Company ceased writing new life insurance business on March 1, 1996.
9
<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, 1997 COMPARED WITH THREE MONTHS ENDED SEPTEMBER
30, 1996
Gross Premiums Written; Net Premiums Written; Net Premiums Earned. Gross
premiums written increased by 64.0%, to $100.4 million in 1997 from $61.2
million in 1996. The overall increase in gross premiums written of $39.2
million was mainly a consequence of Terra Nova Capital writing gross premiums of
$39.4 million in 1997 compared to $5.3 million in 1996, due to increasing its
participation on syndicates managed by Octavian from 11.1% in 1996 to 39.5% in
1997 (excluding the dedicated corporate syndicate 1227). The majority of the
business written by Terra Nova Capital is UK motor, UK casualty, marine and
aviation business.
Reinsurance ceded decreased by 5.9% to $9.9 million in 1997 from $10.5 million
in 1996 owing to timing differences in the purchase of reinsurance in 1997
compared to 1996. As a result of the higher gross premiums written and a
decrease in reinsurance ceded, net premiums written increased by 78.6% to $90.5
million in 1997 from $50.7 million in 1996.
Net premiums earned increased by 50.1% to $101.9 million in 1997 from $67.9
million in 1996. The increase was attributable to the Company's share of the
Octavian syndicates' earned premiums and a large increase in business written.
Net Investment Income. Net investment income increased by 8.2%, to $21.5
million in 1997 from $19.8 million in 1996 resulting from an increase
of 8.3% in average invested assets, attributable to the IPO in April 1996, the
debt issue in August 1997 and relatively stable portfolio yields. The average
investment yield before realized gains and losses was 6.3% in both 1997 and
1996.
Realized Net Capital Gains on Sales of Investments. Realized net capital
gains on sales of investments increased by $5.3 million to $4.2 million in 1997
from a loss of $1.1 million in 1996. the majority of gains in 1997 and 1996
arose from equity securities sold during the period.
Foreign Exchange Losses. Foreign exchange losses of $0.6 million in 1997
arose from foreign currency exchange during the quarter together with the
translation of foreign currency assets and liabilities into U.S. dollars, the
Company's functional currency.
Agency Income. This income consists of fees and profit commissions earned by
Octavian in respect of the managing of certain Lloyd's syndicates.
Losses and Loss Adjustment Expenses. Losses and LAE increased by 46.5% to
$61.9 million in 1997 from $42.2 million in 1996. As a percentage of net
premiums earned, losses and LAE decreased 1.5 percentage points, to 60.7% in
1997 from 62.2% in 1996. The decrease is due to favourable loss development on
both current and prior years more than offsetting weakening premium rates.
Acquisition Costs. Acquisition costs, comprising commissions and other
underwriting expenses, increased by 65.4% to $34.1 million in 1997 from $20.6
million in 1996. Acquisition costs as a percentage of net premiums earned
increased by 3.1 percentage points, to 33.5% in 1997 from 30.4% in 1996,
reflecting the higher proportion of insurance business written in 1997 and the
establishment of three new syndicates at Octavian in 1997.
Other Operating Expenses. Other operating expenses increased by 67.1% to $3.5
million in 1997 from $2.1 million in 1996. Other operating expenses as a
percentage of net premiums earned increased to 3.4% in 1997 from 3.1% in 1996,
primarily due to the greater proportion of Terra Nova Capital business earned in
1997 which has a higher other operating expense ratio.
10
<PAGE>
TERRA NOVA (BERMUDA) HOLDINGS LTD.
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Net Interest Expense. Net interest expense increased to $3.3 million in 1997
from $2.7 million in 1996 owing to interest arising on the $75 million 7.2%
Senior Notes issued on August 26, 1997, in addition to interest on the $100
million 10.75% Senior Notes issued on June 30, 1995.
Agency Expenses. These expenses consist of costs incurred by octavian in
managing certain Lloyd's syndicates.
Other Expenses. Other expenses decreased by 14.3% to $1.4 million in 1997
from $1.7 million in 1996.
Income from Operations before Income Taxes and Minority Interests. Income
from operations before income taxes and minority interests increased by 33.6% to
$23.4 million in 1997 from $17.5 million in 1996. This increase was mainly due
to higher realized gains in 1997 compared to 1996.
Income Tax Expense. Income tax expense increased by 43.0% to $4.4 million in
1997 from $3.1 million in 1996, due to an increase in realized gains arising in
the United Kingdom subsidiaries more than offsetting a reduction in the rate of
United Kingdom corporate tax from 33% to 31%.
Net Income. Net income increased by $4.6 million to $19.0 million in 1997
from $14.4 million in 1996 as a result of the factors described above.
Combined Ratios. The Company's combined ratios were 97.6% for 1997 and 95.7%
for 1996. The increase was primarily due to the rise in the Company's expense
ratio, for the reasons described above.
11
<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, 1997 COMPARED WITH NINE MONTHS ENDED SEPTEMBER
30, 1996
Gross Premiums Written; Net Premiums Written; Net Premiums Earned. Gross
premiums written increased by 33.5% to $432.1 million in 1997 from $323.7
million in 1996. The increase in gross written premiums arises from:
(a) Terra Nova Capital writing gross premiums of $122.0 million (excluding
"orphaned" syndicate business) in 1997 compared to $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 and future years of account. The
majority of the business written by the Octavian Syndicates is UK motor, UK
casualty, marine and aviation business;
(b) $12.1 million of non-recurring premiums relating to reinsurance to
close of "orphaned" syndicates from the 1993 underwriting year.
Reinsurance ceded increased by 32.4% to $63.3 million from $47.8 million.
The increase was primarily attributable to Terra Nova Capital ceding $30.5
million of reinsurance premiums in 1997 compared to $6.6 million ceded in
1996, due to its increased participation in syndicates managed by Octavian. As
a percentage of gross premiums written, reinsurance ceded was 14.7% in 1997, in
line with the 14.8% in 1996. As a consequence of the higher gross premiums
written and stable proportion of reinsurance ceded, net premiums written
increased by 33.7% to $368.8 million in 1997 from $275.8 million in 1996.
Net premiums earned increased by 31.5% to $276.2 million in 1997 from
$210.1 million in 1996. The increase in net premiums earned was attributable to
the comparable increase in net premiums written, as described above.
Net Investment income. Net investment income increased by 6.6% to $62.5
million in 1997 from $58.7 million in 1996, resulting from an increase of 11.4%
in average invested assets attributable to the IPO in April 1996 and the $75
million Senior Notes issue in August 1997, partially offset by lower portfolio
yields. The average investment yield in 1997 was 6.2% compared to 6.4% for the
same period in 1996.
Realized Gains on Sale of Investments. Realized gains on sale of
investments increased by 6.1% to a gain of $11.7 million in 1997 from a gain of
$11.1 million in 1996. The majority of gains in 1997 and 1996 arose from equity
securities sold during the period.
Foreign Exchange Gains (Losses). Foreign exchange gains of $0.2 million in
1997 and losses of $0.6 million in 1996 arose from foreign currency exchange
transactions during the nine months together with the translation of foreign
currency assets and liabilities into US dollars, the Company's functional
currency.
Agency Income. This income consists of fees received and profit
commissions earned by Octavian in respect of the managing of certain Lloyd's
syndicates.
Losses and Loss Adjustment Expenses. Losses and loss adjustment expenses
increased by 30.0% to $178.1 million in 1997 from $137.0 million in 1996.
As a percentage of net premiums earned, losses and LAE decreased 0.7 percentage
points to 64.5% in 1997 from 65.2% in 1996. The relative stability is due to an
absence of large losses, favourable overall loss experience and stable results
for prior years in 1997 and 1996.
Acquisition Costs. Acquisition costs, comprising commissions and other
underwriting expenses, increased by 36.1% to $83.9 million in 1997
from $61.6 million in 1996. Acquisition costs as a percentage of net premiums
earned increased by 1.1 percentage points to 30.4% in 1997 from 29.3% in 1996,
reflecting the higher proportion of insurance business written in 1997.
12
<PAGE>
TERRA NOVA (BERMUDA) HOLDINGS LTD.
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Other Operating Expenses. Other operating expenses increased by 77.3%
to $10.7 million in 1997 from $6.0 million in 1996. Other operating expenses as
a percentage of net premiums earned increased from 2.9% in 1996 to 3.9% in
1997, primarily due to the greater proportion of Terra Nova Capital business
earned in 1997 which has a higher other operating expense ratio.
Net Interest Expense. Net interest expense increased to $8.7 million
in 1997 from $8.1 million in 1996 owing to interest arising on the $75 million
7.2% Senior Notes issued on August 26, 1997, in addition to interest on the $100
million 10.75% Senior Notes issued on June 30, 1995.
Other Expenses. Other expenses decreased
marginally to $4.2 million in 1997 from $4.3 million in 1996.
Income from Operations before Income Taxes and Minority Interests.
Income from operations before income taxes and minority interests increased by
6.9% to $67.1 million in 1997 from $62.8 million in 1996. The increase was
primarily due higher investment income and higher realized investment gains
partially offset by lower underwriting profits in 1997 compared to 1996.
Income Tax Expense. Income tax expense increased by 1.7% to $13.4
million in 1997 from $13.2 million in 1996, as a consequence of the increase in
operating income of the United Kingdom subsidiaries being offset by a reduction
in the United Kingdom corporate tax rate.
Net Income. Net income increased by 8.3% to $53.7 million in 1997
from $48.6 million in 1996 as a result of the factors described above.
Combined Ratios. The Company's combined ratio was 98.7% for 1997 and
97.4% for 1996. the increase was primarily due to the rise in the Company's
expense ratio, for the reasons described above.
LIQUIDITY AND CAPITAL RESOURCES
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, Octavian and Corifrance.
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, Octavian and Corifrance. The payment
of dividends and other payments by Terra Nova, Terra Nova Capital and Octavian
are subject to restrictions under UK law and Terra Nova (Bermuda), Bermuda law
and Corifrance, French law.
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 shareholders' equity of Terra Nova at September 30, 1997 was
$272.5 million. The increase of $19.4 million in the nine months to September
30, 1997 was due to the issue of $15.0 million of share capital to UK Holdings
in September, unrealized gains on investments (net of tax) of $11.0 million and
net income of $31.1 million, partially offset by $37.7 million of dividends paid
to UK Holdings. The shareholders' equity of Terra Nova (Bermuda) at September
30, 1997 was $256.3 million. The increase of $32.9 million during 1997 was due
to $25.7 million of net income and unrealized gains on investments of $7.2
million.
13
<PAGE>
TERRA NOVA (BERMUDA) HOLDINGS LTD.
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
For the nine months ended September 30, 1997 the cash flow provided by
operating activities of the Company was $25.7 million compared to $18.3 million
in 1996.
The increase in the 1997 operating cashflow is
primarily a consequence of:
(a) Terra Nova experiencing lower cash outflows on its discounted LMX
business in 1997 compared to 1996 and improved operating cash flows at
Terra Nova Capital due to it increasing its participation on syndicates
managed by Octavian in 1997, partially offset by higher expense payments
at Lloyd's partially offset by
(b) a tax repayment of $11.5 million plus interest on the overdue amount of
$5.3 million from the UK Inland Revenue in March 1996.
Total investments and cash were $1,424.3 million at September 30, 1997. At
September 30, 1997, 82.9%, 10.8% and 6.3% of total investments and cash were
held in fixed maturities, common stocks and cash and cash equivalents,
respectively. At September 30, 1997, approximately 92% of the Company's fixed
income investments were rated "AA" or better by S&P. The Company's investment
portfolio earned interest and dividend income, net of investment management
fees, of 6.2% and 6.4% in the nine months ended September 30, 1997 and 1996,
respectively. The Company had realized investment gains of $11.7 million and
$11.1 million in the nine months ended September 30, 1997 and 1996,
respectively.
On August 28, 1997 the Company filed a Form 8-K in respect of the issue of
$75 million 7.2% Senior Notes due 2007, fully and unconditionally guaranteed by
Bermuda Holdings.
On September 8, 1997 the Company announced that it had purchased all of the
issued and outstanding shares of Compagnie de Reassurance d'Ile de France,
Corifrance. Corifrance is a French reinsurance company which transacts business
internationally.
Certain information contained herein is 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.
FOREIGN CURRENCY
The Company's assets, liabilities, revenues and expenses, except for the
majority of corporate overheads which are paid in British pounds, are
predominantly in U.S. dollars. Accordingly, the Company's functional currency
is the U.S. dollar. Certain other net translation adjustments are shown as a
separate component of shareholders' equity.
14
<PAGE>
TERRA NOVA (BERMUDA) HOLDINGS LTD.
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
DIVIDEND POLICY
On February 10, 1997 the Company declared a dividend of $0.02 per share
payable on March 27, 1997 to shareholders of record as of March 6, 1997.
On May 5, 1997 the Company declared a dividend of $0.05 per share payable
on June 27, 1997, to shareholders of record as of June 6, 1997.
On August 4, 1997 the Company declared a dividend of $0.05 per share
payable on September 26, 1997 to shareholders of record as of September 5, 1997.
On November 4, 1997 the Company declared a dividend of $0.05 per share
payable on December 29, 1997 to shareholders of record as of December 5, 1997.
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.
15
<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 and Fully Diluted
Earnings Per Common Share and Common Share Equivalents.
EXHIBIT 27.1 Financial Data Schedule
b) FORM 8-K DATE OF REPORT AUGUST 28, 1997
NEWS RELEASE
16
<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, 1997 By: /s/ WILLIAM O. BAILEY
----------------- ---------------------
William O. Bailey
Chairman, President and
Chief Executive Officer
Date: November 14, 1997 By: /s/ WILLIAM J. WEDLAKE
----------------- ----------------------
William J. Wedlake
Chief Financial Officer,
Senior Vice President and
Principal Accounting Officer
17
<PAGE>
TERRA NOVA (BERMUDA) HOLDINGS LTD.
AND SUBSIDIARIES
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
- --------- ----------- __________
<S> <C> <C>
11.1 Statement regarding Computation of Primary and Fully Diluted Earnings 19-22
Per Common Share and Common Share Equivalents
27.1 Financial Data Schedule
Form 8K
</TABLE>
18
<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,
1997 1996
------------------- -------------------
<S> <C> <C>
Earnings per common share and common share equivalents
- -- Primary
Weighted average common shares outstanding 25,874,208 22,342,562
Weighted average common shares outstanding
(under as if converted method) -- --
Average stock options and warrants outstanding
(net of repurchased shares under the treasury
stock method) 196,747 371,062
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 26,070,955 22,713,624
=========== ===========
Net income $53,656,854 $48,475,445
=========== ===========
Primary earnings per common share
and common share equivalent $2.06 $2.13
=========== ===========
</TABLE>
19
<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,
1997 1996
<S> <C> <C>
Earnings per common share and common share equivalents
- -- Primary
Weighted average common shares outstanding 25,901,389 25,823,308
Weighted average common shares outstanding
(under as if converted method) -- --
Average stock options and warrants outstanding
(net of repurchased shares under the treasury
stock method) (102,458) 383,782
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 25,798,931 26,207,090
----------- -----------
Net income $19,009,853 $14,449,621
=========== ===========
Primary earnings per common share
and common share equivalent $0.74 $0.55
=========== ===========
</TABLE>
20
<PAGE>
EXHIBIT 11.1
------------
TERRA NOVA (BERMUDA) HOLDINGS LTD.
AND SUBSIDIARIES
COMPUTATION OF FULLY DILUTED EARNINGS PER COMMON SHARE
AND COMMON SHARE EQUIVALENTS
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
1997 1996
<S> <C> <C>
Earnings per common share and common share equivalents
- -- Fully Diluted
Weighted average common shares outstanding 25,874,208 21,663,276
Weighted average common shares outstanding
(under as if converted method) -- 1,148,916
Average stock options and warrants outstanding
(net of repurchased shares under the treasury
stock method) 229,641 391,994
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 26,103,849 23,204,186
=========== ===========
Net income $53,656,854 $49,064,445
=========== ===========
Fully diluted earnings per common share
and common share equivalent $2.06 $2.11
=========== ===========
</TABLE>
21
<PAGE>
EXHIBIT 11.1
------------
TERRA NOVA (BERMUDA) HOLDINGS LTD.
AND SUBSIDIARIES
COMPUTATION OF FULLY DILUTED EARNINGS PER COMMON SHARE
AND COMMON SHARE EQUIVALENTS
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
1997 1996
------------------- -------------------
<S> <C> <C>
Earnings per common share and common share equivalents
- --Fully Diluted
Weighted average common shares outstanding 25,898,286 25,823,308
Weighted average common shares outstanding
(under as if converted method) -- --
Average stock options and warrants outstanding
(net of repurchased shares under the treasury
stock method) (72,362) 398,779
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 25,825,924 26,222,087
=========== ===========
Net income $19,009,853 $14,449,621
=========== ===========
Fully diluted earnings per common share and
common share equivalent $0.74 $0.55
=========== ===========
</TABLE>
22
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997
<PERIOD-START> JUL-01-1997 JAN-01-1997
<PERIOD-END> SEP-30-1997 SEP-30-1997
<DEBT-HELD-FOR-SALE> 1,181,058 1,181,058
<DEBT-CARRYING-VALUE> 0 0
<DEBT-MARKET-VALUE> 0 0
<EQUITIES> 153,010 153,010
<MORTGAGE> 0 0
<REAL-ESTATE> 0 0
<TOTAL-INVEST> 1,334,068 1,334,068
<CASH> 90,237 90,237
<RECOVER-REINSURE> 38,238 38,238
<DEFERRED-ACQUISITION> 85,676 85,676
<TOTAL-ASSETS> 2,168,036 2,168,036
<POLICY-LOSSES> 1,080,084 1,080,084
<UNEARNED-PREMIUMS> 316,964 316,964
<POLICY-OTHER> 0 0
<POLICY-HOLDER-FUNDS> 0 0
<NOTES-PAYABLE> 175,000 175,000
0 0
0 0
<COMMON> 150,114 150,114
<OTHER-SE> 309,418 309,418
<TOTAL-LIABILITY-AND-EQUITY> 2,168,036 2,168,036
101,857 276,241
<INVESTMENT-INCOME> 21,461 62,524
<INVESTMENT-GAINS> 4,221 11,733
<OTHER-INCOME> 2,870 10,229
<BENEFITS> 61,875 178,147
<UNDERWRITING-AMORTIZATION> 34,104 83,868
<UNDERWRITING-OTHER> 3,500 10,714
<INCOME-PRETAX> 23,387 67,087
<INCOME-TAX> 4,378 13,430
<INCOME-CONTINUING> 19,009 53,657
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 19,009 53,657
<EPS-PRIMARY> 0.74 2.06
<EPS-DILUTED> 0.74 2.06
<RESERVE-OPEN> 823,979 823,979
<PROVISION-CURRENT> 93,380 209,652
<PROVISION-PRIOR> 0 0
<PAYMENTS-CURRENT> 6,575 8,000
<PAYMENTS-PRIOR> 54,316 167,777
<RESERVE-CLOSE> 857,854 857,854
<CUMULATIVE-DEFICIENCY> 0 0
<FN>
FOREIGN EXCHANGE MOVEMENT DURING THE YEAR HAS BEEN ALLOCATED TO PRIOR YEAR PAID
CLAIMS.
</TABLE>
