<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-Q
---------------
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 27, 1999
--------------
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 May 11, 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.
<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............................................. 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
---------------------------------
(In millions) March 27, 1999 March 28, 1998
-------------- --------------
<S> <C> <C>
Revenues
Net premiums written $1,840 $1,444
====== ======
Net premiums earned $1,674 $1,207
Net investment income 278 236
Net realized gains on investments 170 124
Other revenues 37 28
------ ------
Total revenues 2,159 1,595
------ ------
Costs and Expenses
Claims, claim expenses and policy benefits 1,185 848
Insurance acquisition costs 428 308
Other operating costs and expenses 166 127
Minority interest in net earnings of
consolidated subsidiaries 22 21
------ ------
Total costs and expenses 1,801 1,304
------ ------
Earnings before income taxes 358 291
Provision for income taxes 109 86
------ ------
Net earnings 249 205
Dividends on preferred stock (2) (2)
Retained earnings at beginning of period 4,161 3,660
------ ------
Retained earnings at end of period $4,408 $3,863
====== ======
</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 27, 1999 December 31, 1998
-------------- -----------------
(Unaudited)
<S> <C> <C>
Assets
Investments:
Fixed maturity securities available-for-sale, at fair value $18,444 $18,161
Equity securities, at fair value 3,030 2,722
Other invested assets 1,168 1,104
------- -------
Total investments 22,642 21,987
Cash 626 258
Premiums receivable 3,620 2,886
Other receivables 1,437 1,714
Reinsurance recoverables 4,890 3,915
Deferred insurance acquisition costs 1,298 1,203
Other assets 3,175 3,084
------- -------
Total assets $37,688 $35,047
======= =======
Liabilities and equity
Claims and claim expenses $17,270 $15,852
Accumulated contract values 2,221 2,271
Future policy benefits for life and health contracts 1,821 1,664
Unearned premiums 2,400 2,165
Other reinsurance balances 1,942 1,487
Other liabilities 3,756 3,855
Long-term borrowings 955 557
------- -------
Total liabilities 30,365 27,851
------- -------
Minority interest in equity of consolidated subsidiaries 1,180 1,176
------- -------
Accumulated non-owner changes in equity:
Accumulated unrealized gains on investment securities - net 832 932
Accumulated foreign currency translation adjustments (97) (73)
------- -------
Total accumulated non-owner changes in equity 735 859
Preferred stock 150 150
Common stock 5 5
Paid-in capital 845 845
Retained earnings 4,408 4,161
------- -------
Total stockholder's equity 6,143 6,020
------- -------
Total liabilities and equity $37,688 $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)
Three months ended
---------------------------------
(In millions) March 27, 1999 March 28, 1998
-------------- --------------
<S> <C> <C>
Cash from operating activities $ 655 $ 146
------- -----
Cash Flows From Investing Activities
Fixed maturity securities available-for-sale:
Purchases (2,019) (900)
Sales 1,800 766
Maturities 421 145
Equity securities:
Purchases (601) (325)
Sales 450 388
Net (purchases) sales of short-term investments (79) 307
Cash paid for acquisitions and in force
reinsurance transactions (239) (143)
Other investing activities 22 2
------- -----
Cash from (used for) investing activities (245) 240
------- -----
Cash Flows From Financing Activities
Change in contract deposits 30 (324)
Net contract accumulation receipts (payments) (36) 20
Proceeds from short-term borrowings 112 51
Principal payments on short-term borrowings (498) -
Proceeds from long-term borrowings 400 -
Dividends paid (2) (2)
------- -----
Cash from (used for) financing activities 6 (255)
------- -----
Effect of exchange rate changes on cash (48) (60)
------- -----
Increase in cash 368 71
Cash at beginning of period 258 269
------- -----
Cash at end of period $ 626 $ 340
======= =====
</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 issued SFAS 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. The Company expects to adopt the
Statement on January 1, 2000. 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 effects 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:
Three months ended
---------------------------------
(In millions) March 27, 1999 March 28, 1998
-------------- --------------
Net earnings $ 249 $205
Unrealized gains (losses) on
investment securities (100) 187
Foreign currency translation
adjustments (24) (37)
----- ----
Total $ 125 $355
===== ====
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:
Three months ended
---------------------------------
(In millions) March 27, 1999 March 28, 1998
-------------- --------------
Revenues
Property/Casualty $1,746 $1,236
Life 413 359
------ ------
Total revenues $2,159 $1,595
====== ======
Earnings before income taxes
Property/Casualty $ 304 $ 254
Life 54 37
------ ------
Total earnings before income taxes $ 358 $ 291
====== ======
5
<PAGE>
Item 2. Management's Discussion and Analysis of Results of Operations.
Overview
Net earnings for the first three months of 1999 was $249 million, a $44 million
increase over the first three months of 1998, reflecting increased underwriting
profit as a result of growth in underwriting origination volume, increased net
investment income due to continued growth in the investment portfolios and a
higher level of net realized gains on investments. These results reflect a full
quarter of net earnings for the Medical Protective Corporation and Kemper
Reinsurance Company acquisitions completed in the fourth quarter of 1998 in
addition to approximately one month 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:
Three months ended
---------------------------------
(In millions) March 27, 1999 March 28, 1998
-------------- --------------
Revenues
Property/Casualty $1,746 $1,236
Life 413 359
------ ------
Total revenues $2,159 $1,595
====== ======
Earnings before income taxes
Property/Casualty $ 304 $ 254
Life 54 37
------ ------
Total earnings before income taxes $ 358 $ 291
====== ======
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 1999, the P&C combined ratio was 100.9% compared to 101.3% for the same
period in 1998. The lower combined ratio in 1999 primarily reflects a general
reduction in casualty incurred losses, partially offset by an increase in
property incurred losses. Earnings before income taxes from P&C operations
increased $50 million or 20% in the first three months of 1999, primarily
attributable to the decrease in the combined ratio and 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 three months of 1999, the life
operations generated revenues and earnings before income taxes of $413 million
and $54 million, respectively, compared to $359 million and $37 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 realized gains on investments and other
revenues.
6
<PAGE>
Item 2. Management's Discussion and Analysis of Results of Operations (Cont'd).
Operating Results
Net premiums written increased $396 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 $467 million or 39% in 1999, primarily
attributable to growth in various product lines, including new P&C business
associated with acquisitions.
Net investment income increased $42 million or 18% in 1999, primarily
attributable to acquisitions.
Net realized gains on investments increased $46 million or 37% in 1999,
primarilty attributable to restructuring certain investment portfolios and
capitalizing on favorable market conditions.
Other revenues increased $9 million or 32% in 1999, primarily attributable to an
increase in revenues generated from investment-related life reinsurance products
and financial reinsurance transactions.
Claims, claim expenses and policy benefits increased $337 million or 40% in
1999, which is relatively consistent with the corresponding 39% increase in net
premiums earned discussed above.
Insurance acquisition costs increased $120 million or 39% in 1999, which is
relatively consistent with the corresponding 39% increase in net premiums earned
discussed above.
Other operating costs and expenses increased $39 million or 31% in 1999,
primarily attributable to the operating costs associated with acquisitions.
Provision for income taxes was $109 million for the first three months of 1999
(an effective tax rate of 30.5%), compared to $86 million for the first three
months of 1998 (an effective tax rate of 29.6%). The slightly higher effective
tax rate in 1999 primarily reflects increased taxes on foreign earnings as a
result of a reduction in foreign tax credit availability.
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, as well as to assess the extent to which Year 2000 issues will affect
its customers. That approach includes a fourth and final phase - the control
phase - for the completion, testing and continued monitoring of Year 2000
readiness and the completion of necessary contingency plans. The Company, in
conjunction with GE Company and GE Capital Services, is developing, testing and
implementing contingency plans to ameliorate any potential internal or external
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 the Company
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 ameliorate the effects of any 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: May 11, 1999 By: /s/ ROBERT J. DELLINGER
-------------------------------------------------
Robert J. Dellinger
Senior Vice President and Chief Financial Officer
(Principal Financial Officer)
Date: May 11, 1999 By: /s/ TAMMIE A. WAHAUS
-------------------------------------------------
Tammie A. Wahaus
Second 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
Three months ended March 27, 1999
(Unaudited)
(In millions)
Earnings:
Earnings before income taxes $358
Fixed charges:
Minority interest in net earnings of
consolidated subsidiaries (1) 22
Interest expense (2) 23
----
$403
====
Fixed charges:
Minority interest in net earnings of
consolidated subsidiaries (3) $ 32
Interest expense (2) 23
----
$ 55
====
Ratio of earnings to fixed charges 7.33
====
(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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-27-1999
<DEBT-HELD-FOR-SALE> 18,444
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 3,030
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 22,642
<CASH> 626
<RECOVER-REINSURE> 4,890
<DEFERRED-ACQUISITION> 1,298
<TOTAL-ASSETS> 37,688
<POLICY-LOSSES> 21,312
<UNEARNED-PREMIUMS> 2,400
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 1,942
<NOTES-PAYABLE> 955
0
150
<COMMON> 5
<OTHER-SE> 5,988
<TOTAL-LIABILITY-AND-EQUITY> 37,688
1,674
<INVESTMENT-INCOME> 278
<INVESTMENT-GAINS> 170
<OTHER-INCOME> 37
<BENEFITS> 1,185
<UNDERWRITING-AMORTIZATION> 428
<UNDERWRITING-OTHER> 166
<INCOME-PRETAX> 358
<INCOME-TAX> 109
<INCOME-CONTINUING> 249
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 249
<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>
