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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 28, 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 July 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 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 Six months ended
-------------------------------- -------------------------------
(In millions) June 28, 1997 June 29, 1996 June 28, 1997 June 29, 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues
Net premiums earned $1,214 $1,052 $2,558 $2,288
Net investment income 211 211 435 414
Net realized gains on investments 100 34 188 120
Other revenues 22 (6) 35 6
------ ------ ------ ------
Total revenues 1,547 1,291 3,216 2,828
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Costs and Expenses
Claims, claim expenses and policy benefits 879 758 1,934 1,710
Insurance acquisition costs 304 258 552 512
Other operating costs and expenses 118 90 237 193
Minority interest in net earnings of
consolidated subsidiaries 21 23 42 45
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Total costs and expenses 1,322 1,129 2,765 2,460
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Earnings before income taxes 225 162 451 368
Provision for income taxes 70 28 138 98
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Net earnings 155 134 313 270
Dividends on preferred stock (2) (2) (4) (4)
Retained earnings at beginning of period 3,401 2,877 3,245 2,743
------ ------ ------ ------
Retained earnings at end of period $3,554 $3,009 $3,554 $3,009
====== ====== ====== ======
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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) June 28, 1997 December 31, 1996
------------- -----------------
(Unaudited)
<S> <C> <C>
Assets
Investments:
Fixed maturity securities available-for-sale, at fair value $14,285 $13,572
Equity securities, at fair value 2,564 2,303
Other invested assets 908 604
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Total investments 17,757 16,479
Cash 185 377
Premiums receivable 2,519 2,645
Other receivables 1,202 1,220
Reinsurance recoverables 2,563 2,358
Deferred insurance acquisition costs 719 495
Other assets 1,815 1,814
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Total assets $26,760 $25,388
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Liabilities and equity
Claims and claim expenses $11,175 $10,869
Accumulated contract values 1,630 1,643
Future policy benefits for life and health contracts 1,439 831
Unearned premiums 1,186 1,170
Other reinsurance balances 1,479 1,836
Other liabilities 2,988 2,517
Long-term borrowings 556 556
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Total liabilities 20,453 19,422
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Minority interest in equity of consolidated subsidiaries 1,177 1,206
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Common stock 5 5
Preferred stock 150 150
Paid-in capital 845 845
Unrealized gains on investment securities 606 500
Foreign currency translation adjustments (30) 15
Retained earnings 3,554 3,245
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Total stockholder's equity 5,130 4,760
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Total liabilities and equity $26,760 $25,388
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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)
Six months ended
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(In millions) June 28, 1997 June 29, 1996
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<S> <C> <C>
Cash from operating activities $ 379 $ 351
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Cash Flows From Investing Activities
Fixed maturity securities available-for-sale:
Purchases (3,481) (2,963)
Sales 2,534 2,578
Maturities 315 270
Equity securities:
Purchases (614) (801)
Sales 611 758
Net (purchases) sales of short-term investments (275) 19
Other investing activities (38) 137
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Cash used for investing activities (948) (2)
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Cash Flows From Financing Activities
Change in contract deposits 435 37
Net contract accumulation receipts 46 21
Principal payments on short-term borrowings - (600)
Proceeds from long-term borrowings - 555
Contribution to capital - 1
Dividends paid (4) (4)
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Cash from financing activities 477 10
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Effect of exchange rate changes on cash (100) (214)
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Increase (decrease) in cash (192) 145
Cash at beginning of period 377 455
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Cash at end of period $ 185 $ 600
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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
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Item 2. Management's Discussion and Analysis of Results of Operations.
Overview
Net earnings for the first six months of 1997 were $313 million, a $43 million
increase over the first six months of 1996. The increase was primarily the
result of increased net premiums earned and net investment income resulting from
origination volume and continued growth in the investment portfolios, in
addition to a higher level of net realized gains on investments. These increases
were partially offset by increased claims, claim expenses and policy benefits
and insurance acquisition costs, primarily related to the corresponding increase
in net premiums earned, and increased other operating costs and expenses.
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.
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 six months of 1997, the P&C combined ratio was 103.3% compared to
102.9% for the same period in 1996. The primary reason for the slight increase
in the 1997 combined ratio was an increase in underwriting expenses. Earnings
before income taxes from P&C operations increased $74 million in the first six
months of 1997, primarily due to an increase in both net investment income and
net realized gains on investments.
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 six months of 1997, the life
operations generated revenues and earnings before income taxes of $791 million
and $72 million, respectively, compared to $410 million and $63 million,
respectively, for the same period in 1996. The $381 million increase in revenues
primarily reflects three significant quota share reinsurance contracts obtained
in 1997. The primary reasons for the $9 million increase in earnings before
income taxes are an increase in both net investment income and net realized
gains on investments, partially offset by an increase in other operating costs
and expenses.
Operating Results
Net premiums earned increased $270 million or 12% over the first six months of
1996, primarily attributable to a significant increase in domestic life net
premiums earned, partially offset by a decrease in domestic property and
casualty net premiums earned. The significant increase in domestic life net
premiums earned principally reflects three significant quota share reinsurance
contracts obtained in 1997.
Net investment income increased $21 million or 5% over the first six months of
1996, with most of the increase attributable to the continued growth in the
investment portfolios.
Net realized gains on investments increased $68 million or 57% over the first
six months of 1996, primarily as a result of restructuring certain investment
portfolios and capitalizing on favorable market conditions that existed in 1997.
Other revenues increased $29 million over the first six months of 1996,
primarily attributable to an increase in the fees generated from
investment-related products and financial reinsurance transactions.
5
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Item 2. Management's Discussion and Analysis of Results of Operations (cont'd).
Claims, claim expenses and policy benefits increased $224 million or 13% over
the first six months of 1996, which corresponds to the 12% increase in net
premiums earned.
Insurance acquisition costs increased $40 million or 8% over the first six
months of 1996, primarily related to the corresponding increase in net premiums
earned.
Other operating costs and expenses increased $44 million or 23% over the first
six months of 1996. The increase primarily reflected costs associated with the
Company's continued global expansion activities.
Provision for income taxes was $138 million for the first six months of 1997 (an
effective tax rate of 30.6%), compared to $98 million for the first six months
of 1996 (an effective tax rate of 26.6%). The increase in the 1997 effective tax
rate as compared to 1996 resulted primarily from an increase in the effective
tax rate for operations in foreign tax jurisdictions and a change in the
relative levels of net realized gains on investments in such periods.
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: July 30, 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
Six months ended June 28, 1997
(Unaudited)
(In millions)
Earnings:
Earnings before income taxes $451
Fixed charges:
Minority interest in net earnings of
consolidated subsidiaries (1) 42
Interest expense 23
----
$516
====
Fixed charges:
Minority interest in net earnings of
consolidated subsidiaries (2) $ 60
Interest expense 23
----
$ 83
====
Ratio of earnings to fixed charges 6.22
====
(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
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<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-28-1997
<DEBT-HELD-FOR-SALE> 14,285
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 2,564
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 17,757
<CASH> 185
<RECOVER-REINSURE> 2,563
<DEFERRED-ACQUISITION> 719
<TOTAL-ASSETS> 26,760
<POLICY-LOSSES> 14,244
<UNEARNED-PREMIUMS> 1,186
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 1,479
<NOTES-PAYABLE> 556
0
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