<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 April 1, 2000
-------------
OR
[] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________to________
---------------
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 15, 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.
<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......................................................... 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
---------------------------------
(In millions) April 1, 2000 March 27, 1999
------------- --------------
<S> <C> <C>
Revenues
Net premiums written $1,855 $1,840
====== ======
Net premiums earned $1,738 $1,674
Net investment income 290 278
Net realized gains on investments 35 170
Other revenues 107 37
------ ------
Total revenues 2,170 2,159
------ ------
Costs and Expenses
Claims, claim expenses and policy benefits 1,361 1,185
Insurance acquisition costs 471 428
Other operating costs and expenses 196 166
Minority interest in net earnings of
consolidated subsidiaries 22 22
------ ------
Total costs and expenses 2,050 1,801
------ ------
Earnings before income taxes 120 358
Provision for income taxes 16 109
------ ------
Net earnings 104 249
Dividends on preferred stock (2) (2)
Retained earnings at beginning of period 4,630 4,161
------ ------
Retained earnings at end of period $4,732 $4,408
====== ======
</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) April 1, 2000 December 31, 1999
------------- -----------------
(Unaudited)
<S> <C> <C>
Assets
Investments:
Fixed maturity securities available-for-sale, at fair value $17,965 $17,268
Equity securities, at fair value 1,865 3,104
Other invested assets 1,397 1,167
------- -------
Total investments 21,227 21,539
Cash 445 359
Premiums receivable 3,617 3,580
Other receivables 1,475 1,435
Reinsurance recoverables 6,143 6,029
Deferred insurance acquisition costs 1,527 1,418
Other assets 3,495 3,201
------- -------
Total assets $37,929 $37,561
======= =======
Liabilities and equity
Claims and claim expenses $18,380 $18,134
Accumulated contract values 2,126 2,164
Future policy benefits for life and health contracts 2,228 2,230
Unearned premiums 2,606 2,534
Other reinsurance balances 1,751 1,874
Other liabilities 2,962 2,915
Long-term borrowings 956 956
------- -------
Total liabilities 31,009 30,807
------- -------
Minority interest in equity of consolidated subsidiaries 1,178 1,179
------- -------
Accumulated non-owner changes in equity:
Accumulated unrealized gains on investment securities - net 127 51
Accumulated foreign currency translation adjustments (117) (106)
------- -------
Total accumulated non-owner changes in equity 10 (55)
Preferred stock 150 150
Common stock 5 5
Paid-in capital 845 845
Retained earnings 4,732 4,630
------- -------
Total stockholder's equity 5,742 5,575
------- -------
Total liabilities and equity $37,929 $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)
Three months ended
---------------------------------
(In millions) April 1, 2000 March 27, 1999
-------------- --------------
<S> <C> <C>
Cash from (used for) operating activities $ (233) $ 655
------- -------
Cash Flows From Investing Activities
Fixed maturity securities available-for-sale:
Purchases (2,197) (2,019)
Sales 1,124 1,800
Maturities 271 421
Equity securities:
Purchases (683) (601)
Sales 2,003 450
Net purchases of short-term investments (189) (79)
Cash paid for acquisitions and in-force
reinsurance transactions - (239)
Other investing activities (28) 22
------- -------
Cash from (used for) investing activities 301 (245)
------- -------
Cash Flows From Financing Activities
Change in contract deposits (1) 30
Net contract accumulation payments (37) (36)
Proceeds from short-term borrowings 159 112
Principal payments on short-term borrowings (48) (498)
Proceeds from long-term borrowings - 400
Dividends paid (2) (2)
------- -------
Cash from financing activities 71 6
------- -------
Effect of exchange rate changes on cash (53) (48)
------- -------
Increase in cash 86 368
Cash at beginning of period 359 258
------- -------
Cash at end of period $ 445 $ 626
======= =======
</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 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. Certain siginficant refinements and
interpretations of SFAS No. 133 are being deliberated by the FASB, and the
effects on accounting for the company's financial instruments will depend
to some degree on the results of such deliberations. Management has not
determined the total probable effects on its financial statements of
adopting SFAS No. 133, and does not believe that an estimate of such
effects would be meaningful at this time.
4
<PAGE>
Item 1. Financial Statements (Continued).
GE GLOBAL INSURANCE HOLDING CORPORATION
AND SUBSIDIARIES
Notes to Condensed, Consolidated Financial Statements (Continued)
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) April 1, 2000 March 27, 1999
------------- --------------
Net earnings $ 104 $ 249
Net unrealized gains (losses) on
investment securities 76 (100)
Foreign currency translation
adjustments (11) (24)
----- -----
Total $ 169 $ 125
===== =====
5. The Company's operating segment activity is summarized as follows:
Three months ended
---------------------------------
(In millions) April 1, 2000 March 27, 1999
------------- --------------
Revenues
Property/Casualty $1,666 $1,746
Life 504 413
------ ------
Total revenues $2,170 $2,159
====== ======
Earnings before income taxes
Property/Casualty $ 69 $ 304
Life 51 54
------ ------
Total earnings before income taxes $ 120 $ 358
====== ======
5
<PAGE>
Item 2. Management's Discussion and Analysis of Results of Operations.
Overview
Net earnings for the first three months of 2000 was $104 million, a $145 million
decrease from the first three months of 1999, reflecting: (1) a deterioration of
underwriting results, including adverse development on prior year recorded
losses and (2) a significant decrease in the level of net realized gains on
investments, due primarily to a decision to restructure the domestic investment
portfolio to substantially reduce the level of equity security holdings,
somewhat offset by (3) 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 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) April 1, 2000 March 27, 1999
------------- --------------
Revenues
Property/Casualty $1,666 $1,746
Life 504 413
------ ------
Total revenues $2,170 $2,159
====== ======
Earnings before income taxes
Property/Casualty 69 $ 304
Life 51 54
------ ------
Total earnings before income taxes $ 120 $ 358
====== ======
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 three months of 2000, the property and casualty combined ratio was
112.4%, compared to 100.9% 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
$235 million or 77% in the first three months of 2000, primarily attributable to
the significant increase in the combined ratio and the decrease in 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 2000, the life
operations generated revenues and earnings before income taxes of $504 million
and $51 million, respectively, compared to $413 million and $54 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 $15 million or 1% 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
substantially offset by higher levels of ceded premiums under aggregate excess
retrocession programs.
Net premiums earned increased $64 million or 4% 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 substantially offset by higher levels of ceded
premiums under aggregate excess retrocession programs.
Net investment income increased $12 million or 4% in 2000, primarily
attributable to the increasing interest rate environment, partially offset by a
slight reduction in the overall size of the investment portfolio.
Net realized gains on investments decreased $135 million or 79% in 2000,
primarily attributable to management's decision to restructure the domestic
investment portfolio to substantially reduce the level of equity security
holdings.
Other revenues increased $70 million or 189% in 2000, primarily attributable to
higher levels of income associated with equity-method investments.
Claims, claim expenses and policy benefits increased $176 million or 15% in
2000, primarily attributable to the March 4, 1999 acquisition of Eagle Star Re
and adverse development on prior year recorded losses.
Insurance acquisition costs increased $43 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 $30 million or 18% in 2000,
primarily attributable to increases in goodwill amortization, salaries expense
and interest expense.
Provision for income taxes was $16 million for the first three months of 2000
(an effective tax rate of 13.3%), compared to $109 million for the first three
months of 1999 (an effective tax rate of 30.5%). 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.
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: May 15, 2000 By: /s/ ROBERT J. DELLINGER
-------------------------------------------------
Robert J. Dellinger
Senior Vice President and Chief Financial Officer
(Principal Financial Officer)
Date: May 15, 2000 By: /s/ WILLIAM J. STEILEN
-------------------------------------------------
William J. Steilen
Vice President and Controller
(Principal Accounting Officer)
10
<PAGE>
GE GLOBAL INSURANCE HOLDING CORPORATION
AND SUBSIDIARIES
Index to Exhibits
Exhibit No. Page
- ----------- ----
12 Computation of ratio of earnings to fixed charges............ 8
27 Financial Data Schedule (filed electronically only)
11
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 12
GE GLOBAL INSURANCE HOLDING CORPORATION
AND SUBSIDIARIES
Computation of Ratio of Earnings to Fixed Charges
(unaudited)
Year ended December 31, Three months ended
-------------------------------------------- ------------------
(In millions) 1999 1998 1997 1996 1995 April 1, 2000
-------------------------------------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Earnings:
Earnings before income taxes $ 988 $1,070 $ 882 $780 $561 $120
Fixed charges:
Minority interest in net earnings of
consolidated subsidiaries (1) 88 85 83 84 95 22
Interest expense (2) 112 61 47 47 20 30
------ ------ ------ ---- ---- ----
$1,188 $1,216 $1,012 $911 $676 $172
====== ====== ====== ==== ==== ====
Fixed charges:
Minority interest in net earnings of
consolidated subsidiaries (3) $121 $117 $113 $110 $115 $30
Interest expense (2) 112 61 47 47 20 30
---- ---- ---- ---- ---- ===
$233 $178 $160 $157 $135 $60
==== ==== ==== ==== ==== ===
Ratio of earnings to fixed charges 5.10 6.83 6.33 5.80 5.01 2.87
==== ==== ==== ==== ==== ====
</TABLE>
(1) Minority interest in net earnings of consolidated subsidiaries includes
earnings from purchased affiliates and 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 pre-tax earnings amount which
would be required to cover such fixed charges as calculated below:
Earnings From Purchased Affiliates or
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.
8
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> APR-01-2000
<DEBT-HELD-FOR-SALE> 17,965
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 1,865
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 21,227
<CASH> 445
<RECOVER-REINSURE> 6,143
<DEFERRED-ACQUISITION> 1,527
<TOTAL-ASSETS> 37,929
<POLICY-LOSSES> 22,734
<UNEARNED-PREMIUMS> 2,606
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 1,751
<NOTES-PAYABLE> 956
0
150
<COMMON> 5
<OTHER-SE> 5,587
<TOTAL-LIABILITY-AND-EQUITY> 37,929
1,738
<INVESTMENT-INCOME> 290
<INVESTMENT-GAINS> 35
<OTHER-INCOME> 107
<BENEFITS> 1,361
<UNDERWRITING-AMORTIZATION> 471
<UNDERWRITING-OTHER> 196
<INCOME-PRETAX> 120
<INCOME-TAX> 16
<INCOME-CONTINUING> 104
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 104
<EPS-BASIC> 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>
