<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
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 March 28, 1998
--------------
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
---------------------------------------
(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 April 30, 1998, 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.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C>
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
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
<TABLE>
<CAPTION>
GE GLOBAL INSURANCE HOLDING CORPORATION
AND SUBSIDIARIES
Condensed, Consolidated Statement of Current and Retained Earnings
(Unaudited)
Three months ended
------------------------------------
(In millions) March 28, 1998 March 29, 1997
-------------- --------------
<S> <C> <C>
Revenues
Net premiums written $1,444 $1,409
====== ======
Net premiums earned $1,207 $1,344
Net investment income 236 224
Net realized gains on investments 124 88
Other revenues 28 13
------ ------
Total revenues 1,595 1,669
------ ------
Costs and Expenses
Claims, claim expenses and policy benefits 848 1,055
Insurance acquisition costs 308 248
Other operating costs and expenses 127 119
Minority interest in net earnings of
consolidated subsidiaries 21 21
------ ------
Total costs and expenses 1,304 1,443
------ ------
Earnings before income taxes 291 226
Provision for income taxes 86 68
------ ------
Net earnings 205 158
Dividends on preferred stock (2) (2)
Retained earnings at beginning of period 3,660 3,245
------ ------
Retained earnings at end of period $3,863 $3,401
====== ======
</TABLE>
See Notes to Condensed, Consolidated Financial Statements.
1
<PAGE>
Item 1. Financial Statements (Continued).
<TABLE>
<CAPTION>
GE GLOBAL INSURANCE HOLDING CORPORATION
AND SUBSIDIARIES
Condensed, Consolidated Statement of Financial Position
(In millions) March 28, 1998 December 31, 1997
-------------- -----------------
(Unaudited)
<S> <C> <C>
Assets
Investments:
Fixed maturity securities available-for-sale, at fair value $14,768 $14,816
Equity securities, at fair value 2,790 2,513
Other invested assets 711 1,014
------- -------
Total investments 18,269 18,343
Cash 340 269
Premiums receivable 2,313 2,279
Other receivables 1,264 1,189
Reinsurance recoverables 3,030 2,791
Deferred insurance acquisition costs 941 844
Other assets 2,084 1,817
------- -------
Total assets $28,241 $27,532
======= =======
Liabilities and equity
Claims and claim expenses $10,957 $10,961
Accumulated contract values 2,312 2,305
Future policy benefits for life and health contracts 1,650 1,604
Unearned premiums 1,599 1,244
Other reinsurance balances 1,246 1,125
Other liabilities 3,018 3,186
Long-term borrowings 556 556
------- -------
Total liabilities 21,338 20,981
------- -------
Minority interest in equity of consolidated subsidiaries 1,176 1,177
------- -------
Common stock 5 5
Preferred stock 150 150
Paid-in capital 845 845
Accumulated non-owner changes in equity 864 714
Retained earnings 3,863 3,660
------- -------
Total stockholder's equity 5,727 5,374
------- -------
Total liabilities and equity $28,241 $27,532
======= =======
</TABLE>
See Notes to Condensed, Consolidated Financial Statements.
2
<PAGE>
Item 1. Financial Statements (Continued).
<TABLE>
<CAPTION>
GE GLOBAL INSURANCE HOLDING CORPORATION
AND SUBSIDIARIES
Condensed, Consolidated Statement of Cash Flows
(Unaudited)
Three months ended
------------------------------------
(In millions) March 28, 1998 March 29, 1997
-------------- --------------
<S> <C> <C>
Cash from operating activities $ 146 $ 203
----- -------
Cash Flows From Investing Activities
Fixed maturity securities available-for-sale:
Purchases (900) (1,361)
Sales 766 1,135
Maturities 145 182
Equity securities:
Purchases (325) (298)
Sales 388 286
Net (purchases) sales of short-term investments 307 (345)
Cash paid for acquisitions and in force
reinsurance transactions (143) -
Other investing activities 2 (21)
----- -------
Cash from (used for) investing activities 240 (422)
----- -------
Cash Flows From Financing Activities
Change in contract deposits (324) 41
Net contract accumulation receipts (payments) 20 (9)
Proceeds from short-term borrowings 51 -
Dividends paid (2) (2)
----- -------
Cash from (used for) financing activities (255) 30
----- -------
Effect of exchange rate changes on cash (60) (65)
----- -------
Increase (decrease) in cash 71 (254)
Cash at beginning of period 269 377
----- -------
Cash at end of period $ 340 $ 123
===== =======
</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. Statement of Financial Accounting Standards No. 130, Reporting
Comprehensive Income, was adopted as of January 1, 1998. This statement
requires reporting of changes in share owners' equity that do not
result directly from transactions with share owners. An analysis of
these changes follows:
Three months ended
---------------------------------
(In millions) March 28, 1998 March 29, 1997
-------------- --------------
Net earnings $205 $ 158
Unrealized gains on investment
securities 187 (143)
Foreign currency translation
adjustments (37) (63)
---- -----
Total $355 $ (48)
==== =====
4
<PAGE>
Item 2. Management's Discussion and Analysis of Results of Operations.
Overview
Net earnings for the first three months of 1998 were $205 million, a $47 million
increase over the first three months of 1997, reflecting a higher level of net
realized gains on investments, increased investment income due to continued
growth in the investment portfolios and growth in underwriting origination
volume, including investment-related life and financial reinsurance products
whose fee income is classified as other revenues.
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
continued strengthening of the U.S. dollar during 1998 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 is the sum of the loss ratio and the underwriting expense ratio.
For the first three months of 1998, the P&C combined ratio was 101.3% compared
to 102.9% for the same period in 1997. The lower combined ratio primarily
reflects a general improvement in incurred loss development caused by a decline
in both the frequency and severity of claims. Earnings before income taxes from
P&C operations increased $52 million in the first three months of 1998,
primarily due to an increase in net realized gains on investments and the
decrease 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 three months of 1998, the life
operations generated revenues and earnings before income taxes of $359 million
and $37 million, respectively, compared to $429 million and $24 million,
respectively, for the same period in 1997. The $70 million decrease in revenues
primarily reflects two significant quota share reinsurance contracts entered
into in 1997 that did not recur in 1998. The primary reasons for the $13 million
increase in earnings before income taxes are an increase in net investment
income and in fees generated from investment-related life reinsurance products
and financial reinsurance transactions.
Operating Results
Net premiums written increased $35 million or 2% over the first three months of
1997, primarily attributable to new P&C business written associated with the
acquisition of the renewal rights of business from Industrial Risk Insurers
("IRI") and Coregis Insurance Company ("Coregis"). This increase was partially
offset by two significant life quota share reinsurance contracts obtained in
1997 that did not recur in 1998 and the impact of foreign currency translation.
Net premiums earned decreased $137 million or 10% over the first three months of
1997, primarily attributable to two significant life quota share reinsurance
contracts obtained in 1997 that did not recur in 1998 and the impact of foreign
currency translation. This decrease was partially offset by the new business
associated with IRI and Coregis. The decrease in net premiums earned does not
coincide with the increase in net premiums written due to a change in the
product mix of P&C and life business and the fundamental difference in the
earned premium recognition policies between P&C and life business.
5
<PAGE>
Item 2. Management's Discussion and Analysis of Results of Operations (cont'd).
Net investment income increased $12 million or 5% over the first three months of
1997, 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 $36 million or 41% over the first
three months of 1997, primarily due to restructuring certain investment
portfolios and capitalizing on favorable market conditions that existed in 1998.
Other revenues increased $15 million over the first three months of 1997,
primarily attributable to fees generated from investment-related life
reinsurance products and financial reinsurance transactions.
Claims, claim expenses and policy benefits decreased $207 million or 20% over
the first three months of 1997 compared to a 10% decrease in net premiums
earned. The decrease in claims, claim expenses and policy benefits was greater
than the decrease in net premiums earned primarily due to a change in the
product mix of business related to the decrease in life reinsurance business
which incorporated a high loss ratio and low commission ratio.
Insurance acquisition costs increased $60 million or 24% over the first three
months of 1997 compared to a 10% decrease in net premiums earned. The increase
in the insurance acquisition costs compared to the decrease in net premiums
earned was primarily due to a change in the product mix of business.
Specifically, the 1997 period included a relatively higher proportion of life
reinsurance business which incorporated a low commission ratio and a high loss
ratio.
Other operating costs and expenses increased $8 million or 7% over the first
three months of 1997. The increase primarily reflects operating costs associated
with the Company's acquisition of the business related to IRI and Coregis,
partially offset by the impact of foreign currency translation.
Provision for income taxes was $86 million for the first three months of 1998
(an effective tax rate of 29.6%), compared to $68 million for the first three
months of 1997 (an effective tax rate of 30.1%). The decrease in the 1998
effective tax rate primarily reflects decreased taxes on foreign earnings,
substantially offset by a change in the relative levels of net realized gains on
investments subject to statutory rates.
6
<PAGE>
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
<PAGE>
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: May 12, 1998 By: /s/ ROBERT J. DELLINGER
-------------------------------------------------
Robert J. Dellinger
Senior Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
9
<PAGE>
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
<PAGE>
EXHIBIT 12
GE GLOBAL INSURANCE HOLDING CORPORATION
AND SUBSIDIARIES
Computation of Ratio of Earnings to Fixed Charges
Three months ended March 28, 1998
(Unaudited)
(In millions)
Earnings:
Earnings before income taxes $291
Fixed charges:
Minority interest in net earnings of
consolidated subsidiaries (1) 21
Interest expense (2) 12
----
$324
====
Fixed charges:
Minority interest in net earnings of
consolidated subsidiaries (3) $ 30
Interest expense (2) 12
----
$ 42
====
Ratio of earnings to fixed charges 7.71
====
(1) Minority interest in net earnings of consolidated subsidiaries includes
dividends on subsidiary's preferred stock.
(2) Interest expense includes an amount for one-third of the rental expense,
which the Company believes is a reasonable approximation of the interest
factor for such rentals.
(3) 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-28-1998
<DEBT-HELD-FOR-SALE> 14,768
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 2,790
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 18,269
<CASH> 340
<RECOVER-REINSURE> 3,030
<DEFERRED-ACQUISITION> 941
<TOTAL-ASSETS> 28,241
<POLICY-LOSSES> 14,919
<UNEARNED-PREMIUMS> 1,599
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 1,246
<NOTES-PAYABLE> 556
0
150
<COMMON> 5
<OTHER-SE> 5,572
<TOTAL-LIABILITY-AND-EQUITY> 28,241
1,207
<INVESTMENT-INCOME> 236
<INVESTMENT-GAINS> 124
<OTHER-INCOME> 28
<BENEFITS> 848
<UNDERWRITING-AMORTIZATION> 308
<UNDERWRITING-OTHER> 127
<INCOME-PRETAX> 291
<INCOME-TAX> 86
<INCOME-CONTINUING> 205
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<NET-INCOME> 205
<EPS-PRIMARY> 0
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</TABLE>
