<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 30, 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 October 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 Nine months ended
---------------------------------- ----------------------------------
(In millions) Sept. 30, 2000 Sept. 25, 1999 Sept. 30, 2000 Sept. 25, 1999
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenues
Net premiums written $1,967 $1,787 $5,756 $5,368
====== ====== ====== ======
Net premiums earned $1,908 $1,622 $5,571 $5,018
Net investment income 348 294 964 867
Net realized gains on investments 52 244 398 580
Other revenues 107 93 289 180
------ ------ ------ ------
Total revenues 2,415 2,253 7,222 6,645
------ ------ ------ ------
Costs and Expenses
Claims, claim expenses and policy benefits 1,672 1,339 4,733 3,896
Insurance acquisition costs 455 391 1,395 1,247
Other operating costs and expenses 205 194 590 539
Minority interest in net earnings of
consolidated subsidiaries 22 22 66 66
------ ------ ------ ------
Total costs and expenses 2,354 1,946 6,784 5,748
------ ------ ------ ------
Earnings before income taxes 61 307 438 897
Provision for income taxes (73) 87 5 254
------ ------ ------ ------
Net earnings 134 220 433 643
Dividends on preferred stock (1) (1) (5) (5)
Retained earnings at beginning of period 4,925 4,580 4,630 4,161
------ ------ ------ ------
Retained earnings at end of period $5,058 $4,799 $5,058 $4,799
====== ====== ====== ======
</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 30, 2000 December 31, 1999
------------------ -----------------
(Unaudited)
<S> <C> <C>
Assets
Investments:
Fixed maturity securities available-for-sale, at fair value $18,863 $17,268
Equity securities, at fair value 781 3,104
Other invested assets 1,550 1,167
------- -------
Total investments 21,194 21,539
Cash 374 359
Premiums receivable 3,944 3,580
Other receivables 1,474 1,435
Reinsurance recoverables 6,569 6,029
Deferred insurance acquisition costs 1,447 1,418
Other assets 3,587 3,201
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Total assets $38,589 $37,561
======= =======
Liabilities and equity
Claims and claim expenses $17,983 $18,134
Accumulated contract values 2,184 2,164
Future policy benefits for life and health contracts 2,451 2,230
Unearned premiums 2,632 2,534
Other reinsurance liabilities 2,419 1,874
Other liabilities 2,313 2,915
Long-term borrowings 1,653 956
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Total liabilities 31,635 30,807
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Minority interest in equity of consolidated subsidiaries 1,177 1,179
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Accumulated non-owner changes in equity:
Accumulated unrealized gains (losses) on investment securities - net (80) 51
Accumulated foreign currency translation adjustments - net (201) (106)
------- -------
Total accumulated non-owner changes in equity (281) (55)
Preferred stock 150 150
Common stock 5 5
Paid-in capital 845 845
Retained earnings 5,058 4,630
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Total stockholder's equity 5,777 5,575
------- -------
Total liabilities and equity $38,589 $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)
Nine months ended
-----------------------------------------
(In millions) September 30, 2000 September 25, 1999
------------------ ------------------
<S> <C> <C>
Cash from (used for) operating activities $ (153) $ 779
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Cash flows from investing activities
Fixed maturity securities available-for-sale:
Purchases (6,730) (7,403)
Sales 3,918 6,258
Maturities 869 982
Equity securities:
Purchases (1,050) (2,312)
Sales 3,343 2,224
Net purchases of short-term investments (390) (138)
Cash paid for acquisitions and in-force
reinsurance transactions - (257)
Other investing activities 24 153
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Cash used for investing activities (16) (493)
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Cash flows from financing activities
Change in contract deposits (21) 45
Net contract accumulation receipts (payments) 26 (175)
Proceeds from short-term borrowings 236 90
Principal payments on short-term borrowings (629) (421)
Proceeds from long-term borrowings 691 400
Dividends paid (5) (5)
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Cash from (used for) financing activities 298 (66)
------- -------
Effect of exchange rate changes on cash (114) (66)
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Increase in cash 15 154
Cash at beginning of period 359 258
------- -------
Cash at end of period $ 374 $ 412
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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 the balance sheet at their fair values;
changes in such fair values must be recognized immediately in earnings
unless specific hedging criteria are met. Effects of qualifying changes in
fair value will be recorded in equity pending recognition in earnings as
offsets to the related earnings effects of the hedged items. Management
estimates that, at September 30, 2000, the effects on its financial
statements of adopting SFAS No. 133, as amended, would have been to change
net earnings and share owner's equity by less than $10 million each.
However, the transition effect as of January 1, 2001, cannot be estimated
at this time because it is subject to the following unknown variables as of
that date: (1) actual derivatives and related hedged positions, (2) market
values of derivatives and hedged positions, and (3) further interpretation
of SFAS No. 133 by the FASB.
4. Changes in stockholder's equity that did not result directly from
transactions with the share owner were as follows:
Nine months ended
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(In millions) September 30, 2000 September 25, 1999
------------------ ------------------
Net earnings $433 $643
Net unrealized losses on
investment securities (131) (799)
Foreign currency translation
adjustments (95) (13)
---- -----
Total $207 $(169)
==== =====
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 30, 2000 September 25, 1999
------------------ ------------------
Revenues
Property/Casualty $5,602 $5,347
Life 1,620 1,298
------ ------
Total revenues $7,222 $6,645
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Earnings before income taxes
Property/Casualty $ 238 $ 695
Life 200 202
------ ------
Total earnings before income taxes $ 438 $ 897
====== ======
5
<PAGE>
Item 2. Management's Discussion and Analysis of Results of Operations.
Overview
Net earnings for the first nine months of 2000 was $433 million, a $210 million
decrease from the first nine months of 1999. This decrease reflects a
deterioration of underwriting results, including adverse development on prior
year recorded losses and a decrease in net realized gains on investments,
primarily attributable to more favorable market conditions in 1999. Partially
offsetting these reductions in net earnings were an increase in other revenues,
primarily as a result of higher levels of income associated with equity-method
investments and tax benefits attributable to a step-up in the tax basis of
certain assets following the conversion of a corporate subsidiary to a
partnership for German tax purposes.
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:
Nine months ended
-----------------------------------------
(In millions) September 30, 2000 September 25, 1999
------------------ ------------------
Revenues
Property/Casualty $5,602 $5,347
Life 1,620 1,298
------ ------
Total revenues $7,222 $6,645
====== ======
Earnings before income taxes
Property/Casualty $ 238 $ 695
Life 200 202
------ ------
Total earnings before income taxes $ 438 $ 897
====== ======
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 nine months of 2000, the property and casualty combined ratio was
117.1%, compared to 108.9% 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
$457 million or 66% in the first nine 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 nine months of 2000, the life
operations generated revenues and earnings before income taxes of $1,620 million
and $200 million, respectively, compared to $1,298 million and $202 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 $388 million or 7% in 2000, primarily
attributable to growth in various product lines, with the largest growth
occuring in the Specialty and Life lines of business. This increase was
partially offset by higher levels of ceded premiums under aggregate excess
retrocession programs.
Net premiums earned increased $553 million or 11% in 2000, primarily
attributable to growth in various product lines, with the largest growth
occuring in the Specialty and Life lines of business. This increase was
partially offset by higher levels of ceded premiums under aggregate excess
retrocession programs.
Net investment income increased $97 million or 11% in 2000, primarily
attributable to the increasing interest rate environment and a repositioning of
the investment portfolio to include a higher proportion of fixed maturity
securities.
Net realized gains on investments decreased $182 million or 31% in 2000,
primarily attributable to more favorable market conditions in 1999, partially
offset by the repositioning of certain investment portfolios in 2000.
Other revenues increased $109 million or 61% in 2000, primarily attributable to
higher levels of income associated with equity-method investments.
Claims, claim expenses and policy benefits increased $837 million or 21% in
2000, primarily attributable to the increase in net premiums earned discussed
above and a higher combined ratio in the property/casualty segment (117.1% in
2000 as compared to 108.9% 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 $148 million or 12% in 2000, which is
generally consistent with the corresponding increase in net premiums earned
discussed above.
Other operating costs and expenses increased $51 million or 9% in 2000,
primarily attributable to increases in goodwill amortization and interest
expense.
Provision for income taxes was $5 million for the first nine months of 2000 (an
effective tax rate of 1.1%), compared to $254 million for the first nine months
of 1999 (an effective tax rate of 28.3%). The significantly lower effective tax
rate in 2000 primarily reflects the impact of tax-exempt investment income on a
lower base of pre-tax income, coupled with the recognition of tax benefits
attributable to a step-up in the tax basis of certain assets following the
conversion of a corporate subsidiary to a partnership for German tax purposes.
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: October 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: October 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
