<PAGE>
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 27, 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 July 31, 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 Six months ended
------------------------------- -------------------------------
(In millions) June 27, 1998 June 28, 1997 June 27, 1998 June 28, 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues
Net premiums written $1,396 $1,183 $2,840 $2,592
====== ====== ====== ======
Net premiums earned $1,434 $1,214 $2,641 $2,558
Net investment income 234 211 470 435
Net realized gains on investments 92 100 216 188
Other revenues 33 22 61 35
------ ------ ------ ------
Total revenues 1,793 1,547 3,388 3,216
------ ------ ------ ------
Costs and Expenses
Claims, claim expenses and policy benefits 1,025 879 1,873 1,934
Insurance acquisition costs 354 304 662 552
Other operating costs and expenses 126 118 253 237
Minority interest in net earnings of
consolidated subsidiaries 22 21 43 42
------ ------ ------ ------
Total costs and expenses 1,527 1,322 2,831 2,765
------ ------ ------ ------
Earnings before income taxes 266 225 557 451
Provision for income taxes 70 70 156 138
------ ------ ------ ------
Net earnings 196 155 401 313
Dividends on preferred stock (2) (2) (4) (4)
Retained earnings at beginning of period 3,863 3,401 3,660 3,245
------ ------ ------ ------
Retained earnings at end of period $4,057 $3,554 $4,057 $3,554
====== ====== ====== ======
</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) June 27, 1998 December 31, 1997
------------- -----------------
(Unaudited)
<S> <C> <C>
Assets
Investments:
Fixed maturity securities available-for-sale, at fair value $14,949 $14,816
Equity securities, at fair value 2,834 2,513
Other invested assets 778 1,014
------- -------
Total investments 18,561 18,343
Cash 260 269
Premiums receivable 2,557 2,279
Other receivables 1,341 1,189
Reinsurance recoverables 2,963 2,791
Deferred insurance acquisition costs 986 844
Other assets 2,058 1,817
------- -------
Total assets $28,726 $27,532
======= =======
Liabilities and equity
Claims and claim expenses $10,860 $10,961
Accumulated contract values 2,294 2,305
Future policy benefits for life and health contracts 1,706 1,604
Unearned premiums 1,567 1,244
Other reinsurance balances 1,681 1,125
Other liabilities 2,949 3,186
Long-term borrowings 556 556
------- -------
Total liabilities 21,613 20,981
------- -------
Minority interest in equity of consolidated subsidiaries 1,177 1,177
------- -------
Common stock 5 5
Preferred stock 150 150
Paid-in capital 845 845
Accumulated non-owner changes in equity 879 714
Retained earnings 4,057 3,660
------- -------
Total stockholder's equity 5,936 5,374
------- -------
Total liabilities and equity $28,726 $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)
Six months ended
-----------------------------------
(In millions) June 27, 1998 June 28, 1997
------------- -------------
<S> <C> <C>
Cash from operating activities $ 218 $ 379
------- -------
Cash Flows From Investing Activities
Fixed maturity securities available-for-sale:
Purchases (2,178) (3,481)
Sales 1,720 2,534
Maturities 379 315
Equity securities:
Purchases (585) (614)
Sales 676 611
Net (purchases) sales of short-term investments 251 (275)
Cash paid for acquisitions and in force
reinsurance transactions (143) -
Other investing activities (9) (38)
------- -------
Cash from (used for) investing activities 111 (948)
------- -------
Cash Flows From Financing Activities
Change in contract deposits (367) 435
Net contract accumulation receipts (payments) (10) 46
Proceeds from short-term borrowings 15 -
Dividends paid (4) (4)
------- -------
Cash from (used for) financing activities (366) 477
------- -------
Effect of exchange rate changes on cash 28 (100)
------- -------
Increase (decrease) in cash (9) (192)
Cash at beginning of period 269 377
------- -------
Cash at end of period $ 260 $ 185
======= =======
</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:
Six months ended
-------------------------------
(In millions) June 27, 1998 June 28, 1997
------------- -------------
Net earnings $401 $313
Unrealized gains on investment
securities 174 106
Foreign currency translation
adjustments (9) (45)
---- ----
Total $566 $374
==== ====
4. On July 31, 1998, the Company entered into a stock purchase agreement
to acquire 100% of the outstanding shares of Kemper Reinsurance
Company, a property and casualty reinsurance company principally doing
business through intermediaries. The cash consideration of $463.5
million is expected to be financed by utilizing existing unused credit
facilities. The acquisition will be accounted for as a purchase;
accordingly, the purchase price will be allocated to the underlying
assets and liabilities based on their respective estimated fair values
at the date of the acquisition. In anticipation of closing, the Company
has transferred $100 million into an escrow account to secure its
performance under the stock purchase agreement, which amount will
either be credited at closing against the purchase price payment due or
forfeited if, in certain circumstances, the Company fails to perform
under the terms of the agreement.
4
<PAGE>
Item 2. Management's Discussion and Analysis of Results of Operations.
Overview
Net earnings for the first six months of 1998 was $401 million, an $88 million
increase over the first six months of 1997, reflecting growth in underwriting
origination volume, including investment-related life and financial reinsurance
products whose fee income is classified as other revenues, increased investment
income due to 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
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 larger 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 six months of 1998, the P&C combined ratio was 100.0% compared to
103.3% 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 $110 million in the first six months of 1998, primarily due
to the decrease in the combined ratio and an increase in 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 1998, the life
operations generated revenues and earnings before income taxes of $719 million
and $68 million, respectively, compared to $791 million and $72 million,
respectively, for the same period in 1997. The decrease in both revenues and
earnings before income taxes primarily reflects three significant quota share
reinsurance contracts entered into in 1997 that did not recur in 1998.
Operating Results
Net premiums written increased $248 million or 10% over the first six months of
1997, primarily attributable to growth in various product lines, including new
P&C business 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 three significant quota share life
reinsurance contracts obtained in 1997 that did not recur in 1998 and the impact
of foreign currency translation.
Net premiums earned increased $83 million or 3% over the first six months of
1997, primarily attributable to growth in various product lines, including new
P&C business associated with IRI and Coregis. This increase was partially offset
by three significant quota share life reinsurance contracts obtained in 1997
that did not recur in 1998 and the impact of foreign currency translation. The
resulting change in product mix creates a lower proportion of premiums earned to
premiums written due to 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 $35 million or 8% over the first six 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 $28 million or 15% over the first
six months of 1997, primarily due to restructuring certain investment portfolios
and capitalizing on favorable market conditions that existed in 1998.
Other revenues increased $26 million over the first six 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 $61 million or 3% over the
first six months of 1997 which does not correspond with the 3% increase in net
premiums earned. This condition is primarily due to the change in product mix
related to the decrease in life reinsurance business which incorporated a high
loss ratio and low commission ratio, coupled with favorable loss development in
certain P&C product lines.
Insurance acquisition costs increased $110 million or 20% over the first six
months of 1997 which exceeded the 3% increase in net premiums earned primarily
due to the change in life reinsurance product mix toward higher commission
business. In addition, 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 $16 million or 7% over the first
six 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 $156 million for the first six months of 1998 (an
effective tax rate of 28.0%), compared to $138 million for the first six months
of 1997 (an effective tax rate of 30.6%). The lower effective tax rate primarily
reflects decreased taxes on foreign earnings as a result of additional foreign
tax credit capacity attributable to the Company's life insurance subsidiary's
inclusion in the consolidated federal income tax return of GE Company beginning
in the fourth quarter of 1997.
Subsequent Event
As more fully described in Note 4 of the Notes to Condensed, Consolidated
Financial Statements, on July 31, 1998, the Company entered into a stock
purchase agreement to acquire 100% of the outstanding shares of Kemper
Reinsurance Company, a property and casualty reinsurance company principally
doing business through intermediaries.
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: August 3, 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
Six months ended June 27, 1998
(Unaudited)
(In millions)
Earnings:
Earnings before income taxes $557
Fixed charges:
Minority interest in net earnings of
consolidated subsidiaries (1) 43
Interest expense (2) 24
----
$624
====
Fixed charges:
Minority interest in net earnings of
consolidated subsidiaries (3) $ 59
Interest expense (2) 24
----
$ 83
====
Ratio of earnings to fixed charges 7.52
====
(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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-27-1998
<DEBT-HELD-FOR-SALE> 14,949
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 2,834
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 18,561
<CASH> 260
<RECOVER-REINSURE> 2,963
<DEFERRED-ACQUISITION> 986
<TOTAL-ASSETS> 28,726
<POLICY-LOSSES> 14,860
<UNEARNED-PREMIUMS> 1,567
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 1,681
<NOTES-PAYABLE> 556
0
150
<COMMON> 5
<OTHER-SE> 5,781
<TOTAL-LIABILITY-AND-EQUITY> 28,726
2,641
<INVESTMENT-INCOME> 470
<INVESTMENT-GAINS> 216
<OTHER-INCOME> 61
<BENEFITS> 1,873
<UNDERWRITING-AMORTIZATION> 662
<UNDERWRITING-OTHER> 253
<INCOME-PRETAX> 557
<INCOME-TAX> 156
<INCOME-CONTINUING> 401
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 401
<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>
