<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 July 1, 2000
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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 26, 2000, 1,000 shares of common stock with a par value of $5,000 per
share 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......................................................... 8
PART II - OTHER INFORMATION.
Item 6. Exhibits and Reports on Form 8-K.......................................................................... 9
Signatures. .......................................................................................................... 10
Index to Exhibits. .......................................................................................................... 11
</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) July 1, 2000 June 26, 1999 July 1, 2000 June 26, 1999
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
Revenues
Net premiums written $1,934 $1,741 $3,789 $3,581
====== ====== ====== ======
Net premiums earned $1,925 $1,722 $3,663 $3,396
Net investment income 326 295 616 573
Net realized gains on investments 311 166 346 336
Other revenues 75 50 182 87
------ ------ ------ ------
Total revenues 2,637 2,233 4,807 4,392
------ ------ ------ ------
Costs and Expenses
Claims, claim expenses and policy benefits 1,700 1,372 3,061 2,557
Insurance acquisition costs 469 428 940 856
Other operating costs and expenses 189 179 385 345
Minority interest in net earnings of
consolidated subsidiaries 22 22 44 44
------ ------ ------ ------
Total costs and expenses 2,380 2,001 4,430 3,802
------ ------ ------ ------
Earnings before income taxes 257 232 377 590
Provision for income taxes 62 58 78 167
------ ------ ------ ------
Net earnings 195 174 299 423
Dividends on preferred stock (2) (2) (4) (4)
Retained earnings at beginning of period 4,732 4,408 4,630 4,161
------ ------ ------ ------
Retained earnings at end of period $4,925 $4,580 $4,925 $4,580
====== ====== ====== ======
</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) July 1, 2000 December 31, 1999
------------ -----------------
(Unaudited)
<S> <C> <C>
Assets
Investments:
Fixed maturity securities available-for-sale, at fair value $18,256 $17,268
Equity securities, at fair value 775 3,104
Other invested assets 1,157 1,167
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Total investments 20,188 21,539
Cash 654 359
Premiums receivable 3,723 3,580
Other receivables 1,691 1,435
Reinsurance recoverables 6,829 6,029
Deferred insurance acquisition costs 1,574 1,418
Other assets 3,475 3,201
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Total assets $38,134 $37,561
======= =======
Liabilities and equity
Claims and claim expenses $18,339 $18,134
Accumulated contract values 2,219 2,164
Future policy benefits for life and health contracts 2,334 2,230
Unearned premiums 2,565 2,534
Other reinsurance liabilities 2,263 1,874
Other liabilities 2,022 2,915
Long-term borrowings 1,653 956
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Total liabilities 31,395 30,807
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Minority interest in equity of consolidated subsidiaries 1,178 1,179
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Accumulated non-owner changes in equity:
Accumulated unrealized gains on investment securities - net (162) 51
Accumulated foreign currency translation adjustments - net (202) (106)
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Total accumulated non-owner changes in equity (364) (55)
Preferred stock 150 150
Common stock 5 5
Paid-in capital 845 845
Retained earnings 4,925 4,630
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Total stockholder's equity 5,561 5,575
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Total liabilities and equity $38,134 $37,561
======= =======
</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) July 1, 2000 June 26, 1999
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<S> <C> <C>
Cash from (used for) operating activities $ (568) $ 401
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Cash flows from investing activities
Fixed maturity securities available-for-sale:
Purchases (4,179) (4,206)
Sales 2,340 3,606
Maturities 383 515
Equity securities:
Purchases (854) (1,142)
Sales 3,150 1,038
Net purchases of short-term investments 19 89
Cash paid for acquisitions and in-force
reinsurance transactions - (239)
Other investing activities 3 69
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Cash from (used for) investing activities 862 (270)
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Cash flows from financing activities
Change in contract deposits (33) 45
Net contract accumulation payments 60 (68)
Proceeds from short-term borrowings 82 59
Principal payments on short-term borrowings (695) (422)
Proceeds from long-term borrowings 691 400
Dividends paid (4) (4)
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Cash from financing activities 101 10
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Effect of exchange rate changes on cash (100) (102)
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Increase in cash 295 39
Cash at beginning of period 359 258
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Cash at end of period $ 654 $ 297
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</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, GE Reinsurance Corporation and Medical Protective Corporation.
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. The Financial Accounting Standards Board ("FASB") has issued, then
subsequently amended, Statement of Financial Accounting Standards ("SFAS")
No. 133, Accounting for Derivative Instruments and Hedging Activities,
effective for the Company on January 1, 2001. Upon adoption, all derivative
instruments (including certain derivative instruments embedded in other
contracts) will be recognized in balance sheets at fair value, and changes
in such fair values must be recognized immediately in earnings unless
specific hedging criteria are met. Changes in the values of derivatives
meeting these hedging criteria will ultimately offset related earnings
effects of the hedged items; effects of qualifying changes in fair value
are to be recorded in equity pending recognition in earnings. Management
has not determined the total probable effects on its financial statements
of adopting SFAS No. 133, as amended, and does not believe that an estimate
of such effects would be meaningful at this time.
4. Changes in stockholder's equity that did not result directly from
transactions with the share owner were as follows:
Six months ended
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(In millions) July 1, 2000 June 26, 1999
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Net earnings $299 $423
Net unrealized losses on
investment securities (213) (435)
Foreign currency translation
adjustments (96) (38)
---- ----
Total $(10) $(50)
==== ====
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:
Six months ended
--------------------------------
(In millions) July 1, 2000 June 26, 1999
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Revenues
Property/Casualty $3,778 $3,585
Life 1,029 807
------ ------
Total revenues $4,807 $4,392
====== ======
Earnings before income taxes
Property/Casualty $ 269 $ 479
Life 108 111
------ ------
Total earnings before income taxes $ 377 $ 590
====== ======
5
<PAGE>
Item 2. Management's Discussion and Analysis of Results of Operations.
Overview
Net earnings for the first six months of 2000 was $299 million, a $124 million
decrease from the first six months of 1999, reflecting a deterioration of
underwriting results, including adverse development on prior year recorded
losses, somewhat offset by an increase in other revenues, primarily as a result
of higher levels of income associated with equity-method investments.
The Company's two business segments are (1) property and casualty
insurance/reinsurance and (2) life reinsurance. Business is conducted throughout
the world utilizing the Company's network of local offices. Although the
weakening of the U.S. dollar during 2000 and 1999 had an 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:
Six months ended
--------------------------------
(In millions) July 1, 2000 June 26, 1999
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Revenues
Property/Casualty $3,778 $3,585
Life 1,029 807
------ ------
Total revenues $4,807 $4,392
====== ======
Earnings before income taxes
Property/Casualty $ 269 $ 479
Life 108 111
------ ------
Total earnings before income taxes $ 377 $ 590
====== ======
Typically, the underwriting performance of property and casualty 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 2000, the property and casualty combined ratio was
115.8%, compared to 106.1% for the same period in 1999. The significantly higher
combined ratio in 2000 primarily reflects the effects of continued insufficient
pricing within the overall property and casualty insurance/reinsurance industry
and, to a lesser extent, adverse development on prior year recorded losses.
Earnings before income taxes from property and casualty operations decreased
$210 million or 44% in the first six months of 2000, primarily attributable to
the significant increase in the combined ratio.
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 six months of 2000, the life
operations generated revenues and earnings before income taxes of $1,029 million
and $108 million, respectively, compared to $807 million and $111 million,
respectively, for the same period in 1999. The increase in revenues primarily
reflects growth in underwriting origination volume and an increase in other
revenues.
6
<PAGE>
Item 2. Management's Discussion and Analysis of Results of Operations (Cont'd).
Operating Results
Net premiums written increased $208 million or 6% in 2000, primarily
attributable to the March 4, 1999 acquisition of Eagle Star Reinsurance Company
Limited ("Eagle Star Re") and growth in various product lines, with the largest
growth occuring in the Specialty and Life lines of business. This increase was
somewhat offset by higher levels of ceded premiums under aggregate excess
retrocession programs.
Net premiums earned increased $267 million or 8% in 2000, primarily attributable
to the March 4, 1999 acquisition of Eagle Star Re and growth in various product
lines, with the largest growth occuring in the Specialty and Life lines of
business. This increase was somewhat offset by higher levels of ceded premiums
under aggregate excess retrocession programs.
Net investment income increased $43 million or 8% in 2000, primarily
attributable to the increasing interest rate environment and a repositioning of
the investment security portfolio to include a higher proportion of fixed
maturity securities.
Net realized gains on investments increased $10 million or 3% in 2000, primarily
attributable to capitalizing on favorable market conditions and a repositioning
of certain investment portfolios.
Other revenues increased $95 million or 109% in 2000, primarily attributable to
higher levels of income associated with equity-method investments.
Claims, claim expenses and policy benefits increased $504 million or 20% in
2000, primarily attributable to the increase in net premiums earned discussed
above and a higher combined ratio in the property/casualty segment (115.8% in
2000 as compared to 106.1% for the comparable period in 1999), reflecting the
effects of continued insufficient pricing within the overall property and
casualty insurance/reinsurance industry and, to a lesser extent, adverse
development on prior year recorded losses.
Insurance acquisition costs increased $84 million or 10% in 2000, which is
generally consistent with the corresponding increase in net premiums earned
discussed above, excluding the effects of the higher levels of ceded premiums
under aggregate excess retrocession programs.
Other operating costs and expenses increased $40 million or 12% in 2000,
primarily attributable to increases in goodwill amortization and interest
expense.
Provision for income taxes was $78 million for the first six months of 2000 (an
effective tax rate of 20.7%), compared to $167 million for the first six months
of 1999 (an effective tax rate of 28.3%). The lower effective tax rate in 2000
primarily reflects the impact of tax-exempt investment income on a lower base of
pre-tax income.
7
<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.
9
<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: July 26, 2000 By: /s/ MARC A. MEICHES
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Marc A. Meiches
Senior Vice President and Chief Financial Officer
(Principal Financial Officer)
Date: July 26, 2000 By: /s/ WILLIAM J. STEILEN
-------------------------------------------------
William J. Steilen
Vice President and Controller
(Principal Accounting Officer)
10
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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............ 8
27 Financial Data Schedule (filed electronically only)
11
