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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 29, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to __________
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Commission file number 0-27394
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GE GLOBAL INSURANCE HOLDING CORPORATION
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(Exact name of registrant as specified in its charter)
DELAWARE 95-3435367
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5200 METCALF, OVERLAND PARK, KANSAS 66201
(Address of principal executive offices) (Zip Code)
(913) 676-5200
(Registrant's telephone number, including area code)
--------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [x] No [ ]
At July 31, 1996, 1,000 shares of common stock with a par value of $5,000
were outstanding.
REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION H(1)(a)
AND (b) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM 10-Q WITH THE REDUCED
DISCLOSURE FORMAT.
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TABLE OF CONTENTS
PAGE
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PART I - FINANCIAL INFORMATION.
Item 1. Financial Statements............................................................1
Item 2. Management's Discussion and Analysis of Results of Operations...................5
Exhibit 12. Computation of Ratio of Earnings to Fixed Charges...............................6
PART II - OTHER INFORMATION.
Item 6. Exhibits and Reports on Form 8-K................................................7
Signatures. ................................................................................8
Index to Exhibits. ................................................................................9
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<TABLE>
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
GE GLOBAL INSURANCE HOLDING CORPORATION
AND SUBSIDIARIES
CONDENSED, CONSOLIDATED STATEMENT OF CURRENT AND RETAINED EARNINGS
(Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ----------------
(In millions) JUNE 29, 1996 JUNE 30, 1995 JUNE 29, 1996 JUNE 30, 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
REVENUES
Net premiums written $ 811 $ 664 $2,900 $1,682
====== ====== ====== ======
Net premiums earned $1,052 $ 757 $2,288 $1,436
Net investment income 211 152 414 291
Net realized gains on investments 34 56 120 97
Other revenues (6) 6 6 13
------ ------ ------ ------
Total revenues 1,291 971 2,828 1,837
------ ------ ------ ------
COSTS AND EXPENSES
Claims, claim expenses and policy benefits 758 580 1,710 1,082
Acquisition costs 258 173 512 314
Other operating costs and expenses 90 52 193 106
------ ------ ------ ------
Total costs and expenses 1,106 805 2,415 1,502
------ ------ ------ ------
EARNINGS BEFORE INCOME TAXES AND
MINORITY INTEREST 185 166 413 335
Provision for income taxes 28 36 98 70
Minority interest in net earnings of
consolidated subsidiaries 23 24 45 47
------ ------ ------ ------
NET EARNINGS 134 106 270 218
Dividends on preferred stock (2) - (4) -
Retained earnings at beginning of period 2,877 2,449 2,743 2,337
------ ------ ------ ------
RETAINED EARNINGS AT END OF PERIOD $3,009 $2,555 $3,009 $2,555
====== ====== ====== ======
</TABLE>
See Notes to Condensed, Consolidated Financial Statements.
1
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<TABLE>
<CAPTION>
ITEM 1. FINANCIAL STATEMENTS (CONTINUED).
GE GLOBAL INSURANCE HOLDING CORPORATION
AND SUBSIDIARIES
CONDENSED, CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(In millions) JUNE 29, 1996 DECEMBER 31, 1995
------------- -----------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Investments:
Fixed maturity securities available-for-sale, at fair value $12,582 $12,991
Equity securities, at fair value 1,999 1,822
Other invested assets 528 581
------- -------
Total investments 15,109 15,394
Cash 600 455
Premiums receivable 3,333 3,298
Other receivables 1,416 1,507
Reinsurance recoverables 2,384 2,936
Deferred insurance acquisition costs 631 474
Other assets 1,685 1,549
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TOTAL ASSETS $25,158 $25,613
======= =======
LIABILITIES AND EQUITY
Claims and claim expenses $11,286 $11,842
Accumulated contract values 1,786 1,809
Future policy benefits for life and health contracts 627 719
Unearned premiums 1,995 1,328
Other reinsurance balances 1,568 1,901
Other liabilities 1,917 2,012
Short-term borrowings - 600
Long-term borrowings 555 -
------- -------
Total liabilities 19,734 20,211
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Minority interest in equity of consolidated subsidiaries 1,199 1,211
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Common stock 5 5
Preferred stock 150 150
Paid-in capital 845 845
Unrealized gains on investment securities 215 436
Foreign currency translation adjustments 1 12
Retained earnings 3,009 2,743
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Total stockholder's equity 4,225 4,191
------- -------
TOTAL LIABILITIES AND EQUITY $25,158 $25,613
======= =======
</TABLE>
See Notes to Condensed, Consolidated Financial Statements.
2
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<CAPTION>
ITEM 1. FINANCIAL STATEMENTS (CONTINUED).
GE GLOBAL INSURANCE HOLDING CORPORATION
AND SUBSIDIARIES
CONDENSED, CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
SIX MONTHS ENDED
----------------
(In millions) JUNE 29, 1996 JUNE 30, 1995
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<S> <C> <C>
CASH FROM OPERATING ACTIVITIES $351 $362
---- ----
CASH FLOWS FROM INVESTING ACTIVITIES
Fixed maturity securities available-for-sale:
Purchases (2,963) (2,384)
Sales 2,578 2,093
Maturities 270 308
Equity securities:
Purchases (801) (472)
Sales 758 425
Net (purchases) sales of short-term investments 19 (206)
Other investing activities 137 (18)
---- ----
Cash used for investing activities (2) (254)
---- ----
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid (4) -
Change in contract deposits 37 32
Net contract accumulation receipts/(payments) 21 (126)
Contribution to capital 1 -
Principal payments on short-term borrowings (600) -
Proceeds from long-term borrowings 555 -
---- ----
Cash from (used for) financing activities 10 (94)
Effect of exchange rate changes on cash (214) 135
---- ----
INCREASE IN CASH 145 149
Cash at beginning of period 455 341
---- ----
Cash at end of period $600 $490
==== ====
</TABLE>
See Notes to Condensed, Consolidated Financial Statements.
3
<PAGE>
ITEM 1. FINANCIAL STATEMENTS (CONTINUED).
GE GLOBAL INSURANCE HOLDING CORPORATION
AND SUBSIDIARIES
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. The accompanying condensed, consolidated quarterly financial statements
represent the adding together of GE Global Insurance Holding
Corporation and its wholly-owned subsidiary, Employers Reinsurance
Corporation and its consolidated subsidiaries (collectively called "the
Corporation"). All significant intercompany transactions have been
eliminated. Certain prior-period data have been reclassified to conform
to the current presentation.
2. The condensed, consolidated quarterly financial statements are
unaudited. These statements include all adjustments (consisting of
normal recurring accruals) considered necessary by management to
present a fair statement of the results of operations, financial
position and cash flows. The results reported in these condensed,
consolidated quarterly financial statements should not be regarded as
necessarily indicative of results that may be expected for the entire
year.
3. A newly issued accounting standard was adopted in the first quarter of
1996 and did not have a material effect on the financial position or
results of operations of the Corporation. Statement of Financial
Accounting Standards (SFAS) No. 121, ACCOUNTING FOR THE IMPAIRMENT OF
LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF, requires
that certain long-lived assets be reviewed for impairment when events
or circumstances indicate that the carrying amounts of the assets may
not be recoverable. If such review indicates that the carrying amount
of an asset exceeds the sum of its expected future cash flows, the
asset's carrying value is written down to fair value. Long-lived assets
to be disposed of are reported at the lower of carrying amount or fair
value less cost to sell.
4
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS.
OVERVIEW
Net earnings for the first half of 1996 were $270 million, a $52 million
increase from the first half of 1995. The increase was primarily the result of
premium and investment income from the 1995 acquisitions of over 93% of Frankona
Ruckversicherungs-Aktien-Gesellschaft and certain assets representing a majority
of the reinsurance business of Aachener Ruckversicherungs-Gesellschaft
Aktiengesellschaft (the "Acquired Businesses").
The significant increase in 1996 first half net premiums written is not
proportional to the increase in net premiums earned because a large proportion
of the direct policies reinsured by the Acquired Businesses renew on January 1
of each year and will be earned ratably over the calendar year.
OPERATING RESULTS
NET PREMIUMS WRITTEN increased $1,218 million for the first half of 1996,
including $1,335 million from the Acquired Businesses. The offsetting $117
million decrease is primarily the result of a decrease in domestic net premiums
written associated with the Corporation's termination of certain property and
casualty reinsurance contracts and a slight decrease in reinsurance rates.
NET PREMIUMS EARNED increased $852 million over the first half of the prior
year, primarily attributable to $961 million of the Acquired Businesses,
partially offset by a slight decrease in domestic net premiums written.
NET INVESTMENT INCOME increased $123 million for the first half of 1996,
with most of the increase attributable to the Acquired Businesses.
NET REALIZED GAINS ON INVESTMENTS increased $23 million over the first half
of the prior year, primarily because of the Acquired Businesses.
CLAIMS, CLAIM EXPENSES AND POLICY BENEFITS increased $628 million for the
first half of 1996, an increase that was more than accounted for by the Acquired
Businesses.
ACQUISITION COSTS increased $198 million over the first half of the prior
year, an increase that was more than accounted for by the Acquired Businesses
and was in line with changes in net premiums earned.
OTHER OPERATING COSTS AND EXPENSES increased $87 million for the first half
of 1996, with most of the increase related to the Acquired Businesses.
INCOME TAX EXPENSE increased $28 million over the first half of the prior
year, including $38 million related to the Acquired Businesses. The offsetting
$10 million decrease comprised $15 million resulting from the decline in
underwriting results reduced by $5 million associated with an increase in the
effective tax rate caused by the shift from tax-exempt investment income to
taxable realized gains.
5
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PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a. EXHIBITS.
Exhibit 12. Computation of ratio of earnings to fixed charges
Exhibit 27. Financial Data Schedule (filed electronically only)
b. REPORTS ON FORM 8-K.
None.
7
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GE GLOBAL INSURANCE HOLDING CORPORATION
---------------------------------------
(Registrant)
Date: August 13, 1996 By: /s/ JAMES DORE
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James Dore
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
8
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GE GLOBAL INSURANCE HOLDING CORPORATION
AND SUBSIDIARIES
INDEX TO EXHIBITS
EXHIBIT NO. Page
----------- ----
12 Computation of ratio of earnings to fixed charges...............6
27 Financial Data Schedule (filed electronically only)
9
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EXHIBIT 12
GE GLOBAL INSURANCE HOLDING CORPORATION
AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
SIX MONTHS ENDED JUNE 29, 1996
(Unaudited)
(In millions)
Earnings:
Earnings before income taxes and minority interest (1) $413
Add: Fixed charges (2) 20
----
$433
====
Fixed charges:
Dividends on subsidiary's preferred stock (3) 52
Interest expense 20
----
$ 72
====
Ratio of earnings to fixed charges 6.01
====
(1) Minority interest includes dividends on subsidiary's preferred stock.
(2) The fixed charges adjustment to earnings before income taxes excludes the
dividends on subsidiary's preferred stock as this amount was not deducted
in the determination of earnings before income taxes.
(3) The fixed charges amount for dividends on subsidiary's preferred stock
represents the pretax earnings amount which would be required to cover such
fixed charges as calculated below:
Subsidiary's Preferred Stock Dividend Requirement
-------------------------------------------------
100% - Income Tax Rate
The income tax rate is based on the relationship of the provision for
income tax expense to earnings before income taxes for the respective
period.
6
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-29-1996
<DEBT-HELD-FOR-SALE> 12,582
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 1,999
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 15,109
<CASH> 600
<RECOVER-REINSURE> 2,384
<DEFERRED-ACQUISITION> 631
<TOTAL-ASSETS> 25,158
<POLICY-LOSSES> 13,699
<UNEARNED-PREMIUMS> 1,995
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 1,568
<NOTES-PAYABLE> 555
0
150
<COMMON> 5
<OTHER-SE> 4070
<TOTAL-LIABILITY-AND-EQUITY> 25,158
2,288
<INVESTMENT-INCOME> 414
<INVESTMENT-GAINS> 120
<OTHER-INCOME> 6
<BENEFITS> 1,710
<UNDERWRITING-AMORTIZATION> 512
<UNDERWRITING-OTHER> 193
<INCOME-PRETAX> 413
<INCOME-TAX> 98
<INCOME-CONTINUING> 270
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 270
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
