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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 September 28, 1996
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period form _________ 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)
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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 October 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..........................................................1-4
Item 2. Management's Discussion and Analysis of Results of Operations.................5-6
Exhibit 12. Computation of Ratio of Earnings to Fixed Charges...............................7
PART II - OTHER INFORMATION.
Item 6. Exhibits and Reports on Form 8-K................................................8
Signatures. ................................................................................9
Index to Exhibits. ...............................................................................10
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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 Nine Months Ended
(In millions) September 28, September 30, September 28, September 30,
------------- ------------- ------------- -------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues
Net premiums written $ 777 $ 810 $3,677 $2,492
====== ====== ====== ======
Net premiums earned $1,075 $1,230 $3,363 $2,666
Net investment income 206 187 620 478
Net realized gains on investments 43 42 163 139
Other revenues 21 9 27 22
------ ------ ------ ------
Total revenues 1,345 1,468 4,173 3,305
------ ------ ------ ------
Costs and Expenses
Claims, claim expenses and policy benefits 705 966 2,415 2,048
Acquisition costs 307 264 819 578
Other operating costs and expenses 116 79 309 185
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Total costs and expenses 1,128 1,309 3,543 2,811
------ ------ ------ ------
Earnings before income taxes and
minority interest 217 159 630 494
Provision for income taxes 49 16 147 86
Minority interest in net earnings of
consolidated subsidiaries 22 24 67 71
------ ------ ------ ------
Net earnings 146 119 416 337
Dividends on preferred stock (2) - (6) -
Retained earnings at beginning of period 3,009 2,555 2,743 2,337
------ ------ ------ ------
Retained earnings at end of period $3,153 $2,674 $3,153 $2,674
====== ====== ====== ======
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See Notes to Condensed, Consolidated Financial Statements.
1
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Item 1. Financial Statements (Continued).
GE GLOBAL INSURANCE HOLDING CORPORATION
AND SUBSIDIARIES
Condensed, Consolidated Statement of Financial Position
(In millions) September 28, 1996 December 31, 1995
------------------ -----------------
(Unaudited)
<S> <C> <C>
Assets
Investments:
Fixed maturity securities available-for-sale, at fair value $13,192 $12,991
Equity securities, at fair value 2,046 1,822
Other invested assets 687 581
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Total investments 15,925 15,394
Cash 591 455
Premiums receivable 2,642 3,298
Other receivables 1,369 1,507
Reinsurance recoverables 2,459 2,936
Deferred insurance acquisition costs 566 474
Other assets 1,517 1,549
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Total assets $25,069 $25,613
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Liabilities and equity
Claims and claim expenses $11,308 $11,842
Accumulated contract values 1,786 1,809
Future policy benefits for life and health contracts 787 719
Unearned premiums 1,610 1,328
Other reinsurance balances 1,085 1,901
Other liabilities 2,298 2,012
Short-term borrowings - 600
Long-term borrowings 556 -
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Total liabilities 19,430 20,211
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Minority interest in equity of consolidated subsidiaries 1,205 1,211
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Common stock 5 5
Preferred stock 150 150
Paid-in capital 845 845
Unrealized gains on investment securities 284 436
Foreign currency translation adjustments (3) 12
Retained earnings 3,153 2,743
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Total stockholder's equity 4,434 4,191
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Total liabilities and equity $25,069 $25,613
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See Notes to Condensed, Consolidated Financial Statements.
2
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Item 1. Financial Statements (Continued).
GE GLOBAL INSURANCE HOLDING CORPORATION
AND SUBSIDIARIES
Condensed, Consolidated Statement of Cash Flows
(Unaudited)
Nine Months Ended
(In millions) September 28, 1996 September 30, 1995
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<S> <C> <C>
Cash from operating activities $ 617 $ 747
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Cash Flows From Investing Activities
Fixed maturity securities available-for-sale:
Purchases (4,652) (3,723)
Sales 3,649 2,912
Maturities 428 493
Equity securities:
Purchases (973) (948)
Sales 904 813
Net purchases of short-term investments (137) (85)
Business acquisitions, net of cash acquired - (807)
Other investing activities 134 (18)
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Cash used for investing activities (647) (1,363)
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Cash Flows From Financing Activities
Change in contract deposits 388 27
Net contract accumulation receipts/(payments) 2 (184)
Proceeds from short-term borrowings - 600
Principal payments on short-term borrowings (600) -
Proceeds from long-term borrowings 556 -
Contribution to capital - 300
Proceeds from issuance of preferred stock - 150
Dividends paid (6) -
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Cash from financing activities 340 893
------ ------
Effect of exchange rate changes on cash (174) 101
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Increase in cash 136 378
Cash at beginning of period 455 341
------ ------
Cash at end of period $ 591 $ 719
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</TABLE>
See Notes to Condensed, Consolidated Financial Statements.
3
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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 nine months of 1996 were $416 million, a $79 million
increase over the first nine months of 1995. The increase was primarily the
result of premium and investment income from the 1995 acquisitions of Frankona
Ruckversicherungs-Aktien-Gesellschaft and certain assets representing a majority
of the reinsurance business of Aachener Ruckversicherungs-Gesellschaft
Aktiengesellschaft (the "Acquired Businesses").
The Company's two primary business segments are property and casualty
insurance/reinsurance and life reinsurance. The Company's business is conducted
throughout the world utilizing its headquarters, subsidiaries and various branch
locations.
Property and casualty insurance/reinsurance is the largest of the two business
segments and typically the underwriting performance of this business is measured
in terms of a combined ratio. The combined ratio is the sum of the loss ratio
and the underwriting expense ratio. The combined ratio (calculated in accordance
with generally accepted accounting principles) for the property and casualty
insurance/reinsurance operations was 102.0% for the nine months ended September
28, 1996 compared to 106.1% for the comparable period in 1995. The primary
reason for the improvement in the combined ratio in 1996 is a general decrease
in international incurred losses, both frequency and severity of claims.
The life reinsurance segment typically measures performance based on revenues
and earnings before income taxes and minority interest. Revenues include life
insurance premiums, net investment income, realized investment gains, and income
from certain investment-related products. For the nine months ended September
28, 1996, the life reinsurance segment generated revenues and earnings before
income taxes and minority interest of $646 million and $129 million,
respectively, compared to $404 million and $116 million, respectively, for the
same period in 1995. These increases are primarily attributable to the Acquired
Businesses.
Operating Results
Net premiums written increased $1,185 million over the first nine months of
1995, including $1,294 million related to the Acquired Businesses. The
offsetting $109 million decrease is primarily the result of lower domestic
property and casualty net premiums written associated with the Corporation's
termination of certain property and casualty reinsurance contracts and a slight
decline in reinsurance rates.
Net premiums earned increased $697 million over the first nine months of 1995,
primarily attributable to $945 million related to the Acquired Businesses,
offset by the impact of the decreases occurring in domestic property and
casualty net premiums written. The significant increase in 1996 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.
Net investment income increased $142 million over the first nine months of 1995,
with most of the increase attributable to the Acquired Businesses.
5
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Item 2. Management's Discussion and Analysis of Results of Operations (cont'd).
Net realized gains on investments increased $24 million over the first nine
months of 1995, largely because of the Acquired Businesses.
Claims, claim expenses and policy benefits increased $367 million over the first
nine months of 1995, primarily related to the Acquired Businesses, partially
offset by a slight decrease in domestic property and casualty reinsurance claims
and claim expenses.
Acquisition costs increased $241 million over the first nine months of 1995, an
increase that was primarily attributable to the Acquired Businesses and was in
line with changes in net premiums earned.
Other operating costs and expenses increased $124 million over the first nine
months of 1995, with most of the increase related to the Acquired Businesses.
Income tax expense increased $61 million over the first nine months of 1995,
primarily related to the Acquired Businesses.
6
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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.
8
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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
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(Registrant)
Date: November 12, 1996 By: /s/ JAMES DORE
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James Dore,
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
9
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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.............7
27 Financial Data Schedule (filed electronically only)
10
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EXHIBIT 12
GE GLOBAL INSURANCE HOLDING CORPORATION
AND SUBSIDIARIES
Computation of Ratio of Earnings to Fixed Charges
Nine Months Ended September 28, 1996
(Unaudited)
(In millions)
Earnings:
Earnings before income taxes and minority interest (1) $630
Add: Fixed charges (2) 31
----
$661
====
Fixed charges:
Dividends on subsidiary's preferred stock (3) $ 78
Interest expense 31
----
$109
====
Ratio of earnings to fixed charges 6.06
====
(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.
7
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-28-1996
<DEBT-HELD-FOR-SALE> 13,192
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 2,046
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 15,925
<CASH> 591
<RECOVER-REINSURE> 2,459
<DEFERRED-ACQUISITION> 566
<TOTAL-ASSETS> 25,069
<POLICY-LOSSES> 13,881
<UNEARNED-PREMIUMS> 1,610
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 1,085
<NOTES-PAYABLE> 556
0
150
<COMMON> 5
<OTHER-SE> 4,279
<TOTAL-LIABILITY-AND-EQUITY> 25,069
3,363
<INVESTMENT-INCOME> 620
<INVESTMENT-GAINS> 163
<OTHER-INCOME> 27
<BENEFITS> 2,415
<UNDERWRITING-AMORTIZATION> 819
<UNDERWRITING-OTHER> 309
<INCOME-PRETAX> 630
<INCOME-TAX> 147
<INCOME-CONTINUING> 416
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<EXTRAORDINARY> 0
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<NET-INCOME> 416
<EPS-PRIMARY> 0
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