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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 27, 1997
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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 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)
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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 15, 1997, 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...............................7
PART II - OTHER INFORMATION.
Item 1. Legal Proceedings...............................................................8
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
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(In millions) September 27, 1997 September 28, 1996 September 27, 1997 September 28, 1996
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Revenues
Net premiums earned $ 996 $1,075 $3,554 $3,363
Net investment income 242 206 677 620
Net realized gains on investments 74 43 262 163
Other revenues 49 21 84 27
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Total revenues 1,361 1,345 4,577 4,173
------ ------ ------ ------
Costs and Expenses
Claims, claim expenses and policy benefits 729 705 2,663 2,415
Insurance acquisition costs 271 307 823 819
Other operating costs and expenses 123 116 360 309
Minority interest in net earnings of
consolidated subsidiaries 20 22 62 67
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Total costs and expenses 1,143 1,150 3,908 3,610
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Earnings before income taxes 218 195 669 563
Provision for income taxes 51 49 189 147
------ ------ ------ ------
Net earnings 167 146 480 416
Dividends on preferred stock (2) (2) (6) (6)
Retained earnings at beginning of period 3,554 3,009 3,245 2,743
------ ------ ------ ------
Retained earnings at end of period $3,719 $3,153 $3,719 $3,153
====== ====== ====== ======
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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 27, 1997 December 31, 1996
------------------ -----------------
(Unaudited)
<S> <C> <C>
Assets
Investments:
Fixed maturity securities available-for-sale, at fair value $14,176 $13,572
Equity securities, at fair value 2,854 2,303
Other invested assets 813 604
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Total investments 17,843 16,479
Cash 312 377
Premiums receivable 2,750 2,645
Other receivables 1,187 1,220
Reinsurance recoverables 2,357 2,358
Deferred insurance acquisition costs 743 495
Other assets 1,731 1,814
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Total assets $26,923 $25,388
======= =======
Liabilities and equity
Claims and claim expenses $11,173 $10,869
Accumulated contract values 1,549 1,643
Future policy benefits for life and health contracts 1,432 831
Unearned premiums 1,180 1,170
Other reinsurance balances 1,496 1,836
Other liabilities 2,973 2,517
Long-term borrowings 556 556
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Total liabilities 20,359 19,422
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Minority interest in equity of consolidated subsidiaries 1,176 1,206
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Common stock 5 5
Preferred stock 150 150
Paid-in capital 845 845
Unrealized gains on investment securities 734 500
Foreign currency translation adjustments (65) 15
Retained earnings 3,719 3,245
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Total stockholder's equity 5,388 4,760
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Total liabilities and equity $26,923 $25,388
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</TABLE>
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
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(In millions) September 27, 1997 September 28, 1996
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Cash from operating activities $ 494 $ 617
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Cash Flows From Investing Activities
Fixed maturity securities available-for-sale:
Purchases (4,654) (4,652)
Sales 3,556 3,649
Maturities 511 428
Equity securities:
Purchases (940) (973)
Sales 794 904
Net purchases of short-term investments (169) (137)
Other investing activities (57) 134
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Cash used for investing activities (959) (647)
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Cash Flows From Financing Activities
Change in contract deposits 505 388
Net contract accumulation receipts (payments) (1) 2
Principal payments on short-term borrowings - (600)
Proceeds from long-term borrowings - 556
Dividends paid (6) (6)
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Cash from financing activities 498 340
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Effect of exchange rate changes on cash (98) (174)
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Increase (decrease) in cash (65) 136
Cash at beginning of period 377 455
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Cash at end of period $ 312 $ 591
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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. The Corporation has adopted Statement of Financial Accounting Standards
(SFAS) No. 125, Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities. Among other things, the new
statement distinguishes transfers of financial assets that are sales
from transfers that are secured borrowings, based on the control of
the transferred assets. SFAS No. 125 is effective for all transfers of
financial assets occurring after December 31, 1996. The adoption of
this statement did not have an effect on the financial position or
results of operations of the Corporation.
4. There are no pending legal proceedings beyond the ordinary course of
business that could have a material financial effect on the Company,
except for an action in connection with a dispute, valued at
approximately $50 million, under specific retrocession agreements
relating to disability insurance assumed by the Company from various
insurers. On October 4, 1997, an arbitration panel ruling was issued
relieving the retrocessionaire, St. Paul Fire and Marine Insurance
Company, from certain liabilities under the treaties. As a result,
the Company has determined that approximately $38.5 million of
previously recorded reinsurance recoverables are not collectible. The
Company's reserves were adequate to absorb this loss.
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 1997 were $480 million, a $64 million
increase over the first nine months of 1996, reflecting growth in underwriting
origination volume, including investment-related life and financial reinsurance
products classified as other revenues; continued growth in the investment
portfolios; and a higher level of net realized gains on investments.
The Company's two primary business segments are property and casualty
insurance/reinsurance and life reinsurance. Business is conducted throughout the
world utilizing the Company's network of local offices. As reflected below, the
strengthening of the U.S. dollar during 1997 impacted individual operating line
items, however, the overall impact on net earnings was not significant.
Property and casualty insurance/reinsurance (P&C) is the largest of the two
business segments. Typically, the underwriting performance of P&C business is
measured in terms of a combined ratio and earnings before income taxes. The
combined ratio (calculated in accordance with generally accepted accounting
principles) is the sum of the loss ratio and the underwriting expense ratio. For
the first nine months of 1997, the P&C combined ratio was 105.0% compared to
101.9% for the same period in 1996. The higher combined ratio primarily
reflects increased underwriting expenses and the impact of competitive market
conditions. Earnings before income taxes from P&C operations increased $64
million in the first nine months of 1997, primarily due to an increase in both
net investment income and net realized gains on investments, partially offset
by an increase in the combined ratio.
The life reinsurance segment typically measures performance based on revenues
and earnings before income taxes. Revenues include life insurance premiums, net
investment income, net realized gains on investments and fee income from certain
investment-related products. For the first nine months of 1997, the life
operations generated revenues and earnings before income taxes of $1,169 million
and $121 million, respectively, compared to $646 million and $79 million,
respectively, for the same period in 1996. The $523 million increase in revenues
primarily reflects three significant quota share reinsurance contracts entered
into in 1997. The primary reasons for the $42 million increase in earnings
before income taxes are an increase in both net investment income and net
realized gains on investments.
Operating Results
Net premiums earned increased $191 million or 6% over the first nine months of
1996, primarily attributable to a significant increase in life net premiums
earned, partially offset by a decrease in property and casualty net premiums
earned and the impact of foreign currency translation. The significant increase
in life net premiums earned principally reflects three significant domestic
quota share reinsurance contracts entered into in 1997.
5
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Item 2. Management's Discussion and Analysis of Results of Operations (cont'd).
Net investment income increased $57 million or 9% over the first nine months of
1996, primarily attributable to the continued growth in the investment
portfolios, partially offset by the impact of foreign currency translation.
Net realized gains on investments increased $99 million or 61% over the first
nine months of 1996, primarily due to restructuring certain investment
portfolios and capitalizing on favorable market conditions that existed in 1997,
partially offset by the impact of foreign currency translation.
Other revenues increased $57 million over the first nine months of 1996,
primarily attributable to fees generated from investment-related life
reinsurance products and financial reinsurance transactions.
Claims, claim expenses and policy benefits increased $248 million or 10% over
the first nine months of 1996, reflecting increased premium volume in 1997,
partially offset by the impact of foreign currency translation.
Insurance acquisition costs increased $4 million over the first nine months of
1996, primarily related to the corresponding increase in net premiums earned,
partially offset by the impact of foreign currency translation.
Other operating costs and expenses increased $51 million or 17% over the first
nine months of 1996. The increase primarily reflected costs associated with the
Company's continued global expansion activities, partially offset by the impact
of foreign currency translation.
Provision for income taxes was $189 million for the first nine months of 1997
(an effective tax rate of 28.3%), compared to $147 million for the first nine
months of 1996 (an effective tax rate of 26.1%). The increase in the 1997
effective tax rate as compared to 1996 resulted primarily from increased
taxes on foreign earnings and a change in the relative levels of net realized
gains on investments.
6
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
There are no pending legal proceedings beyond the ordinary course of business
that could have a material financial effect on the Company, except for an action
in connection with a dispute, valued at approximately $50 million, under
specific retrocession agreements relating to disability insurance assumed by the
Company from various insurers. On October 4, 1997, an arbitration panel ruling
was issued relieving the retrocessionaire, St. Paul Fire and Marine Insurance
Company, from certain liabilities under the treaties. As a result, the Company
has determined that approximately $38.5 million of previously recorded
reinsurance recoverables are not collectible. The Company's reserves were
adequate to absorb this loss.
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
---------------------------------------
(Registrant)
Date: October 27, 1997 By: /s/ ROBERT DELLINGER
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Robert Dellinger
Senior 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
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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 27, 1997
(Unaudited)
(In millions)
Earnings:
Earnings before income taxes $669
Fixed charges:
Minority interest in net earnings of
consolidated subsidiaries (1) 62
Interest expense 35
----
$766
====
Fixed charges:
Minority interest in net earnings of
consolidated subsidiaries (2) $ 86
Interest expense 35
----
$121
====
Ratio of earnings to fixed charges 6.33
====
(1) Minority interest in net earnings of consolidated subsidiaries includes
dividends on subsidiary's preferred stock.
(2) The fixed charges amount for minority interest in net earnings of
consolidated subsidiaries 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 taxes 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-31-1997
<PERIOD-END> SEP-27-1997
<DEBT-HELD-FOR-SALE> 14,176
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 2,854
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 17,843
<CASH> 312
<RECOVER-REINSURE> 2,357
<DEFERRED-ACQUISITION> 743
<TOTAL-ASSETS> 26,923
<POLICY-LOSSES> 14,154
<UNEARNED-PREMIUMS> 1,180
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 1,496
<NOTES-PAYABLE> 556
0
150
<COMMON> 5
<OTHER-SE> 5,233
<TOTAL-LIABILITY-AND-EQUITY> 26,923
3,554
<INVESTMENT-INCOME> 677
<INVESTMENT-GAINS> 262
<OTHER-INCOME> 84
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<UNDERWRITING-AMORTIZATION> 823
<UNDERWRITING-OTHER> 360
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<INCOME-TAX> 189
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