<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 September 25, 1999
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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 26, 1999, 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>
<CAPTION>
TABLE OF CONTENTS
Page
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<S> <C>
PART I - FINANCIAL INFORMATION.
Item 1. Financial Statements...................................................................................... 1
Item 2. Management's Discussion and Analysis of Results of Operations............................................. 6
Exhibit 12. Computation of Ratio of Earnings to Fixed Charges......................................................... 9
PART II - OTHER INFORMATION.
Item 6. Exhibits and Reports on Form 8-K.......................................................................... 10
Signatures. .......................................................................................................... 11
Index to Exhibits. .......................................................................................................... 12
</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 Nine months ended
--------------------------------- ---------------------------------
(In millions) Sept. 25, 1999 Sept. 26, 1998 Sept. 25, 1999 Sept. 26, 1998
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenues
Net premiums written $1,787 $1,398 $5,368 $4,238
====== ====== ====== ======
Net premiums earned $1,622 $1,269 $5,018 $3,910
Net investment income 294 250 867 720
Net realized gains on investments 244 158 580 374
Other revenues 93 35 180 96
------ ------ ------ ------
Total revenues 2,253 1,712 6,645 5,100
------ ------ ------ ------
Costs and Expenses
Claims, claim expenses and policy benefits 1,339 902 3,896 2,775
Insurance acquisition costs 391 329 1,247 991
Other operating costs and expenses 194 137 539 390
Minority interest in net earnings of
consolidated subsidiaries 22 21 66 64
------ ------ ------ ------
Total costs and expenses 1,946 1,389 5,748 4,220
------ ------ ------ ------
Earnings before income taxes 307 323 897 880
Provision for income taxes 87 95 254 251
------ ------ ------ ------
Net earnings 220 228 643 629
Dividends on preferred stock (1) (2) (5) (6)
Retained earnings at beginning of period 4,580 4,057 4,161 3,660
------ ------ ------ ------
Retained earnings at end of period $4,799 $4,283 $4,799 $4,283
====== ====== ====== ======
</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) September 25, 1999 December 31, 1998
------------------ -----------------
(Unaudited)
<S> <C> <C>
Assets
Investments:
Fixed maturity securities available-for-sale, at fair value $17,858 $18,161
Equity securities, at fair value 3,028 2,722
Other invested assets 1,094 1,104
------- -------
Total investments 21,980 21,987
Cash 412 258
Premiums receivable 3,028 2,886
Other receivables 1,404 1,714
Reinsurance recoverables 6,025 3,915
Deferred insurance acquisition costs 1,638 1,203
Other assets 3,389 3,084
------- -------
Total assets $37,876 $35,047
======= =======
Liabilities and equity
Claims and claim expenses $17,721 $15,852
Accumulated contract values 2,076 2,271
Future policy benefits for life and health contracts 2,092 1,664
Unearned premiums 2,627 2,165
Other reinsurance balances 2,033 1,487
Other liabilities 3,346 3,855
Long-term borrowings 956 557
------- -------
Total liabilities 30,851 27,851
------- -------
Minority interest in equity of consolidated subsidiaries 1,179 1,176
------- -------
Accumulated non-owner changes in equity:
Accumulated unrealized gains on investment securities - net 133 932
Accumulated foreign currency translation adjustments (86) (73)
------- -------
Total accumulated non-owner changes in equity 47 859
Preferred stock 150 150
Common stock 5 5
Paid-in capital 845 845
Retained earnings 4,799 4,161
------- -------
Total stockholder's equity 5,846 6,020
------- -------
Total liabilities and equity $37,876 $35,047
======= =======
</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)
Nine months ended
-----------------------------------------
(In millions) September 25, 1999 September 26, 1998
------------------ ------------------
<S> <C> <C>
Cash from operating activities $ 779 $ 380
------- -------
Cash Flows From Investing Activities
Fixed maturity securities available-for-sale:
Purchases (7,403) (3,479)
Sales 6,258 2,816
Maturities 982 590
Equity securities:
Purchases (2,312) (1,080)
Sales 2,224 1,206
Net (purchases) sales of short-term investments (138) 81
Cash paid for acquisitions and in force
reinsurance transactions (257) (143)
Other investing activities 153 (111)
------- -------
Cash used for investing activities (493) (120)
------- -------
Cash Flows From Financing Activities
Change in contract deposits 45 (328)
Net contract accumulation receipts (payments) (175) 6
Proceeds from short-term borrowings 90 168
Principal payments on short-term borrowings (421) -
Proceeds from long-term borrowings 400 -
Dividends paid (5) (6)
------- -------
Cash used for financing activities (66) (160)
------- -------
Effect of exchange rate changes on cash (66) (41)
------- -------
Increase in cash 154 59
Cash at beginning of period 258 269
------- -------
Cash at end of period $ 412 $ 328
======= =======
</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 of
GE Global Insurance Holding Corporation ("GE Global Insurance") include the
accounts and operations, after intercompany eliminations, of GE Global
Insurance and its wholly-owned subsidiaries, Employers Reinsurance
Corporation and GE Reinsurance Corporation (formerly Kemper Reinsurance
Company). GE Global Insurance and its consolidated subsidiaries are
collectively referred to as "the Company."
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. In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, Accounting for
Derivative Instruments and Hedging Activities (the "Statement"). The
Statement requires that, upon adoption, all derivative instruments
(including certain derivative instruments embedded in other contracts) be
recognized in the balance sheet at fair value, and that changes in such fair
values be recognized in earnings unless specific hedging criteria are met.
Changes in the values of derivatives that meet these hedging criteria will
ultimately offset related earnings effects of the hedged items; effects of
certain changes in fair value are recorded in equity pending recognition in
earnings. In June 1999, the FASB delayed the required effective date of the
new standard to January 1, 2001. The impact of adoption will be determined
by several factors, including the specific hedging instruments in place and
their relationships to hedged items, as well as market conditions.
Management has not estimated the effect of adoption as it believes that such
determination will not be meaningful until closer to the adoption date.
4. Changes in stockholder's equity that did not result directly from
transactions with the share owner were as follows:
Nine months ended
-----------------------------------------
(In millions) September 25, 1999 September 26, 1998
------------------ ------------------
Net earnings $ 643 $629
Net unrealized losses on
investment securities (799) (43)
Foreign currency translation
adjustments (13) (73)
----- ----
Total $(169) $513
===== ====
4
<PAGE>
Item 1. Financial Statements (Continued).
GE GLOBAL INSURANCE HOLDING CORPORATION
AND SUBSIDIARIES
Notes to Condensed, Consolidated Financial Statements (Continued)
5. The Company's operating segment activity is summarized as follows:
Nine months ended
-----------------------------------------
(In millions) September 25, 1999 September 26, 1998
------------------ ------------------
Revenues
Property/Casualty $5,347 $4,015
Life 1,298 1,085
------ ------
Total revenues $6,645 $5,100
====== ======
Earnings before income taxes
Property/Casualty $ 695 $ 784
Life 202 96
------ ------
Total earnings before income taxes $ 897 $ 880
====== ======
5
<PAGE>
Item 2. Management's Discussion and Analysis of Results of Operations.
Overview
Net earnings for the first nine months of 1999 was $643 million, a $14 million
increase over the first nine months of 1998, reflecting increased net investment
income and a higher level of net realized gains on investments, offset by
increased frequency and severity of property-related losses. These results
reflect nine months of net earnings for the Medical Protective Corporation and
Kemper Reinsurance Company acquisitions completed in the fourth quarter of 1998
in addition to approximately seven months of net earnings for the Eagle Star
Reinsurance Company Limited acquisition completed on March 4, 1999.
The Company's two business segments are (1) property and casualty
insurance/reinsurance ("P&C") and (2) life reinsurance. Business is conducted
throughout the world utilizing the Company's network of local offices. Although
the weakening and strengthening of the U.S. dollar during 1999 and 1998,
respectively, had a slight impact on the individual revenue and expense
categories, the overall impact on net earnings was not significant. The
Company's operating segment activity is summarized as follows:
Nine months ended
-----------------------------------------
(In millions) September 25, 1999 September 26, 1998
------------------ ------------------
Revenues
Property/Casualty $5,347 $4,015
Life 1,298 1,085
------ ------
Total revenues $6,645 $5,100
====== ======
Earnings before income taxes
Property/Casualty $ 695 $ 784
Life 202 96
------ ------
Total earnings before income taxes $ 897 $ 880
====== ======
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 nine months
of 1999, the P&C combined ratio was 108.9%, compared to 100.0% for the same
period in 1998. The higher combined ratio in 1999 primarily reflects an increase
in both the frequency and severity of property-related incurred losses. Earnings
before income taxes from P&C operations decreased $89 million or 11% in the
first nine months of 1999, primarily attributable to the increase in the
combined ratio, offset by increases in 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 consist of net premiums earned, net
investment income, net realized gains on investments and other revenues,
including fees generated from investment-related life reinsurance products and
financial reinsurance transactions. For the first nine months of 1999, the life
operations generated revenues and earnings before income taxes of $1,298 million
and $202 million, respectively, compared to $1,085 million and $96 million,
respectively, for the same period in 1998. The increase in both revenues and
earnings before income taxes primarily reflects growth in underwriting
origination volume and increases in net investment income and net realized gains
on investments.
6
<PAGE>
Item 2. Management's Discussion and Analysis of Results of Operations (Cont'd).
Operating Results
Net premiums written increased $1,130 million or 27% in 1999, primarily
attributable to growth in various product lines, including new P&C business
associated with acquisitions.
Net premiums earned increased $1,108 million or 28% in 1999, primarily
attributable to growth in various product lines, including new P&C business
associated with acquisitions.
Net investment income increased $147 million or 20% in 1999, primarily
attributable to acquisitions.
Net realized gains on investments increased $206 million or 55% in 1999,
primarily attributable to capitalizing on favorable market conditions and
restructuring certain investment portfolios.
Other revenues increased $84 million or 88% in 1999, primarily attributable to
acquisitions and increases in revenues generated from investment-related life
reinsurance products and financial reinsurance transactions.
Claims, claim expenses and policy benefits increased $1,121 million or 40% in
1999, primarily attributable to the growth in net premiums earned discussed
above and the higher loss ratio caused by an increase in property-related
incurred losses.
Insurance acquisition costs increased $256 million or 26% in 1999, which is
comparable to the corresponding 28% increase in net premiums earned discussed
above.
Other operating costs and expenses increased $149 million or 38% in 1999,
primarily attributable to the operating costs associated with acquisitions.
Provision for income taxes was $254 million for the first nine months of 1999
(an effective tax rate of 28.3%), compared to $251 million for the first nine
months of 1998 (an effective tax rate of 28.5%). The slightly lower effective
tax rate in 1999 primarily reflects a one-time reduction in foreign deferred
income taxes resulting from a tax reorganization completed in the second quarter
of 1999, substantially offset by increased taxes on foreign earnings as a result
of a reduction in foreign tax credit.
7
<PAGE>
Item 2. Management's Discussion and Analysis of Results of Operations (Cont'd).
Other Matters
Year 2000
As discussed in the Company's Annual Report on Form 10-K for the year ended
December 31, 1998, the Company, in conjunction with GE Company and GE Capital
Services, is applying a Six Sigma quality approach to identify and mitigate Year
2000 issues in its information systems, products and services, facilities and
suppliers. Each business within the GE Company structure has a Year 2000 leader
who oversees a multi-functional project team responsible for remediation and
contingency planning, applying a Six Sigma quality approach in four phases: (1)
define/measure - identify and inventory possible sources of Year 2000 issues;
(2) analyze - determine the nature and extent of Year 2000 issues and develop
project plans to address those issues; (3) improve - execute project plans and
perform a majority of the testing; and (4) control - complete testing, continue
monitoring readiness and complete necessary contingency plans. As of the end of
June 1999, virtually all significant information systems, products and services,
facilities and suppliers were in the control phase. As a final step in the
control phase, the Company, in conjunction with GE Company and GE Capital
Services, has developed, tested and is prepared to implement contingency plans
to minimize disruption of critical business processes. The specific actions
identified in such contingency plans differ depending on circumstances, but most
often include manual work-arounds, deployment of backup or secondary
technologies, rearranging work schedules and substitution of suppliers, as
appropriate. While management does not expect significant disruptions of
critical business processes caused by internal Year 2000 issues, the likelihood
of externally-caused disruptions and the ability of the contingency plans to
minimize such externally-caused disruptions is not determinable. The total
estimate of Year 2000 expenditures, adjusted for increases related to acquired
companies, is in line with previous projections. The activities related to Year
2000 efforts necessarily involve estimates and projections of activities and
resources that will be required in the future. These estimates and projections
could change as work progresses.
8
<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.
10
<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: October 26, 1999 By: /s/ ROBERT J. DELLINGER
-------------------------------------------------
Robert J. Dellinger
Senior Vice President and Chief Financial Officer
(Principal Financial Officer)
Date: October 26, 1999 By: /s/ WILLIAM J. STEILEN
-------------------------------------------------
William J. Steilen
Vice President and Controller
(Principal Accounting Officer)
11
<PAGE>
GE GLOBAL INSURANCE HOLDING CORPORATION
AND SUBSIDIARIES
Index to Exhibits
Exhibit No. Page
- ----------- ----
12 Computation of ratio of earnings to fixed charges............ 9
27 Financial Data Schedule (filed electronically only)
12
<PAGE>
EXHIBIT 12
GE GLOBAL INSURANCE HOLDING CORPORATION
AND SUBSIDIARIES
Computation of Ratio of Earnings to Fixed Charges
Nine months ended September 25, 1999
(Unaudited)
(In millions)
Earnings:
Earnings before income taxes $ 897
Fixed charges:
Minority interest in net earnings of
consolidated subsidiaries (1) 66
Interest expense (2) 81
------
$1,044
======
Fixed charges:
Minority interest in net earnings of
consolidated subsidiaries (3) $ 92
Interest expense (2) 81
------
$ 173
======
Ratio of earnings to fixed charges 6.03
======
(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.
9
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-25-1999
<DEBT-HELD-FOR-SALE> 17,858
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 3,028
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 21,980
<CASH> 412
<RECOVER-REINSURE> 6,025
<DEFERRED-ACQUISITION> 1,638
<TOTAL-ASSETS> 37,876
<POLICY-LOSSES> 21,889
<UNEARNED-PREMIUMS> 2,627
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 2,033
<NOTES-PAYABLE> 956
0
150
<COMMON> 5
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5,018
<INVESTMENT-INCOME> 867
<INVESTMENT-GAINS> 580
<OTHER-INCOME> 180
<BENEFITS> 3,896
<UNDERWRITING-AMORTIZATION> 1,247
<UNDERWRITING-OTHER> 539
<INCOME-PRETAX> 897
<INCOME-TAX> 254
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