SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
CURRENT REPORT
Pursuant to Section 13 of 15(d) of the
Securities Exchange Act of 1934
Date of Report: December 28, 1994
(Date of earliest event reported)
General Re Corporation
(Exact name of Registrant as specified in its charter)
Delaware 1-8026 06-1026471
(State of (Commission File (I.R.S. Employer
Incorporation) No.) Identification No.)
Financial Center
Post Office Box 10351
Stamford, Connecticut
(Address of principal executive office)
Registrant's Telephone Number
Including Area Code: (203) 328-5000
Item 5. Other Events
On December 28, 1994, General Re Corporation circulated to its directors and
domestic and foreign employees of its operating subsidiaries the employee
publication attached hereto as Exhibit A.
Signature
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 hereunto duly authorized.
General Re Corporation
By
Charles F. Barr
Vice President,
General Counsel and Secretary
Exhibit A
Operations Report
Vol. III, No. 3
December 1994
Third Quarter 1994
Chairman's Message
Results in the quarter were good. General Re posted record quarterly
operating income and an underwriting profit in the third quarter.
Domestic underwriting results for the quarter were in line with those in
the second quarter and were significantly improved over the
unsatisfactory underwriting results in the first quarter, which included
losses from the Northridge earthquake.
Our combined underwriting ratio for domestic property/casualty
operations in the third quarter of 1994 was 98.8%, compared with 113.9%
and 98.5% in the first and second quarters of 1994, respectively, and
100.7% in the third quarter of 1993.
In late September, we announced some of the details of our agreement
with Colonia Konzern regarding Cologne Re. These details are posted in
the GRN Corporate News Database on Lotus Notes, but to summarize
briefly: we agreed to pay DM 922 million (about $600 million at current
exchange rates) in cash and issue a DM 475 million (about $300 million)
10 year note at an 8% interest rate to pay for a controlling interest in
the Joint Venture that will own 75% of the common stock of Cologne Re.
We have already begun to work with our Cologne Re colleagues to plan
our alliance. In October, we traveled to Cologne, Germany, to hold the
first meeting of the Executive Council. We met with Dr. Peter
Lutke-Bornefeld, Mr. Wilhelm Zeller and Dr. Lothar Meyer of Cologne Re
to begin to set the stage for our efforts to make General Re and Cologne
Re the premier global reinsurer. The Executive Council has also
organized and staffed five other Councils that are charged with detailed
planning. These councils will start appropriate dialogue between Senior
Managers of the two companies on designated topics. At the outset, the
five councils are: Finance, New Products, Underwriting, Life and Health,
and the Business Franchise Council. In addition, there are (nine) other
liaisons or shared technologies that have been set up (e.g., Technology,
Human Resources).
We will begin to include results of Cologne Re in our financial
results in the second quarter of 1995. The Treasurer's Department and
Cologne Re's Finance staff have been working extremely hard to begin to
produce financial statements for Cologne Re that are prepared in
accordance with U.S. GAAP. This is a large project. Indeed, all the
Councils have important tasks, and we must all be ready to help our
colleagues here in the U.S. and in Cologne as we work to achieve our
vision of becoming the premier global reinsurance organization.
Ron Ferguson
LOGO
General Reinsurance Corporation, the largest professional reinsurer
domiciled in the U.S., reinsures all lines of property and casualty
insurance.
Property Facultative
Property Facultative and Ocean Marine continued to experience
profitable growth throughout the U.S. in the third quarter. Claims
activity is even with our experience for the comparable time period last
year. Tropical Storm Alberto, which caused flooding in Georgia,
Florida, and Alabama, resulted in some claims activity.
Our growth momentum continues as activity levels rise in all branches.
As a department, we are continually looking for ways to encourage this
growth and make doing business with Property Fac more hassle free. To
facilitate this goal, the "Hassle Free Cup Challenge" was introduced in
the third quarter. Everyone in the department has been charged with
developing and initiating one hassle free idea by year-end. A database
was created in Lotus Notes to give the department a place to exchange
ideas and relay proposals. To date, the response has been excellent
with an outpouring of creative plans. More importantly, this format has
made us all reflect on how we can make life more hassle free for
everyone involved.
The use of the Lotus Notes database would not have been possible
without the successful completion of the LAN roll out in the third
quarter. We are learning from, and enjoying, the enhanced
communications which this system brings to all of us.
Casualty Facultative
Our Casualty Facultative third quarter activity levels and volume
continue to reflect outstanding efforts by our marketing and
underwriting staff. Program and Individual Risk submission activity
remains strong. Our success ratios continue to be acceptable, resulting
in an overall growth trend that is in line with our Casualty Facultative
Strategic Plan.
Our emerging team environment is beginning to produce results. We
have seen strong growth in multi-disciplinary marketing activities which
have created solid opportunities with new and existing clients. Our
success in this area will continue to expand through exposure to the
Executive Marketing Program and the integration of additional teams in
the coming months.
Development of our support technologies continues. The portfolio
management system, known as Keystone, will benefit the treaty and
program areas. It has been advanced to a prototype stage and is being
refined for release in the first quarter of 1995. The Individual Risk
Underwriting System, known as PREGO, is progressing at an equally rapid
pace and is expected to reach the prototype stage by the first quarter.
The implementation of these two support systems will lower the costs,
reduce the turnaround time associated with these business areas and
provide additional underwriting tools for our underwriters.
Treaty
As we conclude the third quarter, we are pleased to report the
addition of three new treaty clients and new business from seven
existing clients. Through nine months of 1994, our totals in these two
categories are ten and twenty-one respectively. Despite a continuing
highly competitive environment, we are ahead of the comparable period
for 1993 in both new clients and number of existing clients generating
new business.
We are also seeing a high level of year-end new business activity.
This is very encouraging since much of this activity is coming from
existing GRC clients. It is probably an indication of client
satisfaction with the General Re Brand of Reinsurance. In total, there
are almost forty opportunities in the pipeline.
The increasing use of the team approach, leveraging GRC's many
resources to address client needs, is clearly a significant factor
contributing to the new business activity. Further, it is satisfying to
see the growing number of Treaty opportunity leads coming from our
Facultative colleagues. These events are tangible evidence of the
effectiveness of GRC's EMP program and the benefits from organizational
change occurring throughout the Company.
Even with all the effort going into production activities at this time
of the year, Quality Project activity continues at a high level. One of
our objectives is to involve all Treaty personnel in some kind of
Quality initiative. Currently, more than fifteen Quality projects and
workshops are in progress and a dozen others already have been completed
this year.
Underwriting Services
The blueprint for USD in a team/business unit environment is taking
shape. A number of initiatives are underway to facilitate the testing
of a set of decision processes in the first quarter of 1995.
USD's major initiatives are:
o The development of a set of management reports that will make it
possible to hold business units and team leaders accountable for
results.
o The continued development of the Underwriting Desktop which will
facilitate the use of a number of risk analysis tools in a team
environment.
o The establishment of parameters for these rating tools, our
reinsurance products, and lines of business.
o Accreditation standards for the use of rating tools and
structuring of transactions.
o A detailed plan to roll out this set of processes with an emphasis
on communication which will begin in the 4th Quarter of 1994.
While change is never without its uncertainty, we are excited about
the opportunity to reinvent USD and, in the process, make a more
meaningful contribution to our internal and external clients' risk
transfer and risk management needs.
LOGO
General Star Management Company provides specialty insurance on
both an excess and surplus lines basis and an admitted basis through
wholesale brokers.
General Star's success during the first six months of 1994 continued
through the third quarter. This has been driven by three key elements:
growth of written premium, control of direct expenses, and claims
management. Attention to these three areas has resulted in very
satisfactory results in the third quarter and a combined ratio that
remains below 100.
Through the end of September, the growth in gross written premiums is
tracking with projections made by the General Star underwriting
department managers in late 1993. The market continues to demonstrate
competitive pressures and uneven pricing levels. We still do not see
any signs of tightening within the E & S market.
The hard work and dedication of all General Star employees has
resulted in increased efficiency throughout the organization; we're
working together to control expenses and work smarter. It is gratifying
to see these efforts produce favorable results.
Favorable actuarial results and careful claims handling are also
contributing to the overall success of the Company. This demonstrates
the benefit of continued, close cooperation between the General Star
underwriting and claims areas.
LOGO
Genesis Underwriting Management Company specializes in providing
excess insurance and reinsurance to companies with self-insurance
programs through retail brokers and corporate risk managers.
Although gross and net premiums registered during the third quarter
were 9.6% and 27.2% below that of the third quarter of 1993 (primarily
as a result of shrinkage in excess workers' compensation) year-to-date
premiums were approximately 10% ahead of prior year. This is in line
with our expectations.
New business submissions for the quarter were roughly even with prior
years and are about 8% ahead on a cumulative basis. The actual number
of quotations issued has increased by 25%, and we have noted a favorable
improvement in the ratio of quotations to total submissions. We believe
that this is a good indicator of improving productivity as some of our
targeted marketing activities have begun to pay off.
During the third quarter, we completed a comprehensive review of our
accounting and processing systems to determine how to streamline our
business further. We expect shortly to initiate development work on a
system designed to eliminate redundant entry for accounting, policy
processing and certain of our internal management reports.
Additionally, we will continue to examine LAN technology for our field
administration units.
LOGO
Herbert Clough acts as a broker that places reinsurance on behalf of
General Re Group clients and retrocessions for the General Re Group.
Clough's results continue to be encouraging. Retro has been
successful in enhancing the Property Contingent covers and has
developed substantial additional capacity on these covers. Work
continues on preparing for the January 1st renewals.
The good news in this quarter was that there were not any major
natural catastrophes _ although we were, of course, prepared to deal
with them if one or more did occur. Our next task is to continue to
differentiate our clients in the marketplace and negotiate appropriate
terms on 1995 placements.
During the third quarter, Clough invited Jim Hamilton and the Office
of Quality to brief us on Quality initiatives. As a result of this, we
are currently exploring several Quality initiatives.
General Re Financial Products
LOGO
GRFP is a derivative products dealer providing interest-rate and
currency swaps, interest-rate caps and floors, swap options and other
derivative products.
GRFP's third quarter trading revenue was flat with second quarter
trading revenue and year-to-date revenue was down 6% for the comparable
1993 period. Volatile interest rates and currency movements within the
European markets continued to cause declines in new capital issues,
adversely affecting trading volume. Continued negative publicity
related to derivatives in the U.S. was probably another reason for a
decline in business.
Despite level quarterly trading revenues, GRFP's quarterly net
earnings increased over the prior quarter's earnings.
LOGO
GRN International Insurance Operations
In the third quarter, premiums written grew 32% to $53 million. Year
to date, international premiums are $351 million, up 73% from the nine
months of 1993. Premium growth in the quarter was a bit slower than
prior quarters due largely to a retrocession booked on London's books in
the third quarter. Underlying factors for growth such as increased
market presence and acceptance of General Re Brand reinsurance, along
with improved conditions in the international reinsurance marketplace,
continued in the quarter. Underwriting results of the international
operations were much improved from the disappointing results in the
second quarter. Operating income was $9 million in the quarter vs.
operating income of $.2 million in the third quarter of last year.
In the third quarter, the operations of General Reinsurance Limited
(London) and General Reinsurance Corporation (Europe) were combined
under a new banner of General Re Europe Limited. This will allow
General Re to better serve the reinsurance needs of continental Europe
and United Kingdom clients.
Also in the quarter, T Hoffman, Ernie Frohboese, Joe Brandon and Tad
Montross presented a seminar on insurance and reinsurance in Shanghai
and Beijing, China. The presentation, made to groups of Chinese
insurance company officials, insurance students and government
officials, included the fundamentals of insurance company operations _
investments, underwriting and financial management. Other General Re
colleagues that participated in the trip were Alan MacDonald and Paul
Miller from General Re Australasia, Charles Meek of GRC and Susan Ip
from GRFP in Japan.
Michael Pero, formerly President of Engineering Insurance Group,
joined the International Department in Stamford. He is working with our
overseas subsidiaries in developing engineering insurances globally for
the Group.
LOGO
GRN Investments
The Investment Department invests and manages the General Re Group's
assets held as reserves and surplus. Through General Re Asset
Management (GRAM), the Investment Department also manages assets for our
clients.
Investment returns on the short-term securities and tax-exempt bond
portfolios, as shown below, were above market benchmarks for the 1, 3
and 5 year periods ending September 30, 1994. Returns on the domestic
stock and taxable bonds portfolios slipped slightly over the past year
but were comfortably ahead of their comparative indices for the 3 and 5
year periods. For the 1 year period, performance of the tax-exempt bond
portfolio was particularly strong on a relative basis, with total
returns 175 basis points above the Lehman municipal bond index.
During the third quarter, GRAM was successful in bringing three new
investment management clients on board. This brings us to a total of 12
GRAM clients aggregating over $950 million in assets under management.
TOTAL RETURN**
(Periods Ended September 30, 1994)
1 Year 3 Years 5 Years
GRN Index* GRN Index* GRN Index*
Short-Term
Securities 4.11% 3.88% 4.98% 3.85% 6.41% 5.46%
Domestic Taxable
Bonds (3.37)% (1.65)% 6.94% 6.20% 8.55% 8.13%
Tax-Exempt Bonds
(.77)% (2.52)% 7.00% 6.57% 8.06% 7.81%
Domestic Stocks
2.86 % 3.66% 9.88% 9.13% 10.87% 9.12%
*Indices
Grouping Index
Short-Term One month commercial paper
Taxable Bond Shearson Intermediate government corporate index
Tax-Exempt Bond Lehman municipal bond index
Domestic Stocks S&P 500
**Calculated as the pre tax aggregate of dividends, coupons, net realized
capital gains and the change in unrealized capital gains.
CHART
General Re Corporation
Quarterly Closing Stock Price
through December 13, 1994
CHART
Quarterly Combined Ratio
General Re vs. U.S. Reinsurance Industry
FINANCIAL HIGHLIGHTS
QUARTER YEAR TO DATE
% %
3Q 94 3Q 93 CHANGE 1994 1993 CHANGE
Domestic Statutory Underwriting Ratios
Loss Ratio 65.7 % 68.5 % 74.9 % 70.6 %
Expense Ratio 33.1 32.2 28.9 31.8
Combined Ratio 98.8 100.7 103.8 102.4
Underwriting Ratio measures the ratio of underwriting profit or loss to
premiums. It is comprised of Loss Ratio (losses incurred) Expense Ratio
(underwriting expenses divided by premiums written expressed as a
percentage). A combined ratio below 100% generally indicates an underwriting
profit.
Net Premiums Written (in millions)
Domestic $758.2 $612.0 23.9 $1,944.6 $1,695.9 14.7
Overseas 52.6 39.9 31.8 350.9 203.0 72.9
Consolidated $810.8 $651.9 24.4 $2,295.5 $1,898.9 20.9
Net Premiums Written are gross premiums less reinsurance premiums ceded.
Domestic premium includes all net premiums written by General Reinsurance
and its subsidiaries (General Star & Genesis companies). Overseas premium is
made up of net premiums from General Re (Europe), General Re Limited,
General Re Australasia, General Re Compania de Reaseguros and Engineering
Insurance Group.
Earnings Per Share
Net Income $2.29 $2.03 12.8 $ 5.57 $ 6.29 (11.4)
Less Realized Gains .17 .23 (26.1) .34 .92 (63.0)
Less Cumulative Effect of
Accounting Changes - - - - .17 (100.0)
Operating Income $2.12 $1.80 17.8 $5.23 $5.20 0.6
Net Income is Operating Income plus net Realized Investment Gains, plus the
cumulative effect of any accounting charges. Realized gains arise from the
sale of invested assets when the sale price is higher than the accounting
book value. Losses are realized when the proceeds from the sale of
investments are less than the book value. Operating Income is after-tax
earnings from operations (underwriting, investment and other).
Balance Sheet (in millions) 9/30/94 12/31/93 % Change
Shareholders' Equity $4,846.3 $4,760.5 1.8
Statutory Surplus - Domestic Property/Casualty 3,776.0 3,835.6 (1.6)
Net Loss Reserves - Domestic Property/Casualty 7,031.2 6,802.9 3.4
Total Assets 21,824.1 20,750.2 5.2
Shareholders' Equity, also referred to as net worth, represents a company's
residual value after liabilities are subtracted from assets. Shareholders'
equity is also referred to as Book Value. Book Value per Share is presented
below. "Adjusted" Book Value increases the value of the bond assets on the
balance sheet to reflect their current market value. Shareholders' equity is
a GAAP accounting term that is similar to Statutory Surplus.
9/30/94 12/31/93 % Change
Book Value per Share $59.23 $56.92 4.1
Operating Return on Equity 12.2% 13.4 %
End of Period Stock Price $105.88 $107.00 (1.0)
Editorial Staff: Kathryn Callahan Jones, Larry Caruso, Judy Hall, Debbie Nelson