GENERAL RE CORPORATION
Financial Centre
P.O. Box 10350
Stamford, CT 06904-2350
May 15, 1996
Securities and Exchange Commission
450 Fifth Street, NW
Washington, D.C. 20549
Gentlemen/Ladies:
Pursuant to the requirements of the Securities Exchange Act of 1934, we are
transmitting herewith the attached Form 10-Q.
Very truly yours,
Elizabeth A. Monrad
Form 10 - Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31, 1996
Commission File Number 1-8026
GENERAL RE CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 06-1026471
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Financial Centre, P.O. Box 10350
Stamford, Connecticut 06904-2350
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, with area code (203) 328-5000
None
(Former name, former address and former fiscal year,
if changed since last report)
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 * No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock:
Class Outstanding at March 31, 1996
Common Stock, $.50 par value 80,422,596 Shares
GENERAL RE CORPORATION
INDEX
PAGE NO.
PART I. FINANCIAL INFORMATION
Consolidated Statements of Income
Quarter ended March 31, 1996 and 1995 3
Consolidated Balance Sheets
March 31, 1996 and December 31, 1995 4
Consolidated Statements of Common Stockholders' Equity
Quarter ended March 31, 1996 and 1995 5
Consolidated Statements of Cash Flows
Quarter ended March 31, 1996 and 1995 6
Notes to Consolidated Interim Financial Statements 7 - 8
Management's Discussion and Analysis
of Financial Condition and Results
of Operations 9 - 15
PART II. OTHER INFORMATION 16 - 17
2
GENERAL RE CORPORATION
Consolidated Statements of Income
(in millions, except share data)
(Unaudited)
Quarter ended
March 31,
1996 1995
Premiums and other revenues
Net premiums written
Property/casualty $1,210 $1,007
Life/health 251 -
Total net premiums written $1,461 $1,007
Net premiums earned
Property/casualty $1,294 $955
Life/health 245 -
Total net premiums earned 1,539 955
Net investment income 285 193
Other revenues 68 52
Net realized gains on investments 50 7
Total revenues 1,942 1,207
Expenses
Claims and claim expenses 908 662
Life/health benefits 180 -
Acquisition costs 355 229
Other operating costs and expenses 152 98
Total expenses 1,595 989
Income before income taxes and minority interest 347 218
Income tax expense 87 35
Income before minority interest 260 183
Minority interest 23 -
NET INCOME $237 $183
Share Data
Net income per common share $2.87 $2.20
Dividend per common share $ .51 $ .49
Average shares outstanding 81,457,455 81,918,805
See notes to the consolidated interim financial statements.
3
GENERAL RE CORPORATION
Consolidated Balance Sheets
(in millions, except share data)
(Unaudited)
Assets March 31, 1996 Dec. 31, 1995
Investments:
Fixed maturities:
Available-for-sale (cost: $14,756 in 1996; $14,342 in 1995) $15,402 $15,225
Trading (cost: $2,662 in 1996; $2,316 in 1995) 2,607 2,317
Equity securities, at fair value (cost: $2,314 in 1996; $2,363 in 1995) 3,813 3,706
Short-term investments, at amortized cost which approximates fair value 1,760 1,449
Other invested assets 841 797
Total investments 24,423 23,494
Cash 323 258
Accrued investment income 329 390
Accounts receivable 2,104 2,368
Funds held by reinsured companies 2,161 2,180
Reinsurance recoverable 2,864 2,794
Deferred acquisition costs 401 434
Securities purchased under agreements to resell 110 66
Trading account assets 2,336 2,434
Other assets 1,489 1,528
Total assets $36,540 $35,946
Liabilities
Claims and claim expenses $14,306 $14,252
Policy benefits for life/health contracts 2,340 2,263
Unearned premiums 1,812 1,913
Other reinsurance balances 3,060 3,056
Notes payable and commercial paper 155 155
Income taxes 651 634
Securities sold under agreements to repurchase 2,283 1,263
Securities sold but not yet purchased 329 614
Trading account liabilities 2,577 2,627
Other liabilities 1,341 1,357
Minority interest 1,218 1,224
Total liabilities 30,072 29,358
Cumulative convertible preferred stock (shares issued: 1,720,888
in 1996 and 1,724,037 in 1995; no par value) 147 147
Loan to employee savings and stock ownership plan (146) (146)
1 1
Common stockholders' equity
Common stock (102,827,344 shares issued in 1996 and 1995; par value $.50) 51 51
Paid-in capital 650 635
Unrealized appreciation of investments, net of deferred income taxes 1,418 1,468
Currency translation adjustments, net of deferred income taxes (23) (11)
Retained earnings 6,179 5,986
Less common stock in treasury, at cost (shares held: 22,404,748 in 1996
and 20,714,069 in 1995) (1,808) (1,542)
Total common stockholders' equity 6,467 6,587
Total liabilities, cumulative convertible preferred stock and
common stockholders' equity $36,540 $35,946
See notes to the consolidated interim financial statements.
4
GENERAL RE CORPORATION
Consolidated Statements of Common Stockholders' Equity
(in millions)
(Unaudited)
Quarter ended
March 31,
1996 1995
Common stock:
Beginning of period $ 51 $ 51
Change for the period - -
End of period 51 51
Paid-in capital:
Beginning of period 635 604
Stock issued under stock option and other incentive arrangements 13 3
Other 2 2
End of period 650 609
Unrealized appreciation of investments, net of deferred income taxes:
Beginning of period 1,468 421
Change for the period (80) 385
Applicable income taxes 30 (135)
End of period 1,418 671
Currency translation adjustments, net of deferred income taxes:
Beginning of period (11) (20)
Change for the period (12) (1)
End of period (23) (21)
Retained earnings:
Beginning of period 5,986 5,330
Net income 237 183
Dividends paid on common stock (41) (40)
Dividends paid on preferred stock, net of income taxes (3) (3)
Other - 1
End of period 6,179 5,471
Common stock in treasury:
Beginning of period (1,542) (1,527)
Cost of shares acquired during period (270) -
Issued under stock option and other incentive arrangements 4 3
End of period (1,808)(1,524)
Total common stockholders' equity $6,467 $5,257
See notes to the consolidated interim financial statements.
5
GENERAL RE CORPORATION
Consolidated Statements of Cash Flows
(in millions)
(Unaudited)
Quarter ended
March 31,
1996 1995
Cash flows from operating activities
Net income $237 $183
Adjustments to reconcile net income to net cash provided
by operating activities:
Change in claim and claim expense liabilities 54 431
Change in policy benefits for life/health contracts 77 -
Change in reinsurance recoverable (70) (116)
Change in unearned premiums (79) 50
Amortization of acquisition costs 355 229
Acquisition costs deferred (322) (240)
Trading account activities
Change in trading account securities (944) (1,524)
Securities purchased under agreements to resell (44) 452
Securities sold under agreements to repurchase 1,020 628
Change in other trading balances 21 470
Other changes in assets and liabilities 298 (243)
Net realized gains on investments (50) (7)
Net cash from operating activities 553 313
Cash flows from investing activities
Fixed maturities: held-to-maturity
Purchases - (18)
Calls and maturities - 92
Sales - -
Fixed maturities: available-for-sale
Purchases (2,368) (1,150)
Calls and maturities 278 43
Sales 1,743 803
Equity securities:
Purchases (265) (166)
Sales 195 112
Net purchases of short-term investments 104 (11)
Net purchases of other invested assets (5) (26)
Net cash used in investing activities (318) (321)
Cash flows from financing activities
Commercial paper (repayment) borrowing, net - (31)
Change in contract deposits 117 68
Cash dividends paid to common stockholders (41) (40)
Acquisition of treasury stock (263) -
Other 17 6
Net cash (used in) from financing activities (170) 3
Change in cash 65 (5)
Cash, beginning of period 258 242
Cash, end of period $323 $237
See notes to the consolidated interim financial statements.
6
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
1. General - The interim financial statements have been prepared on the basis
of generally accepted accounting principles and, in the opinion of management,
reflect all adjustments (consisting of normal, recurring accruals) necessary for a fair
presentation of results for such periods. The results of operations for any interim
period are not necessarily indicative of results for the full year. These financial
statements should be read in conjunction with the financial statements and related
notes in the Corporation's 1996 Annual Report filed on Form 10-K. Certain
reclassifications have been made to 1995 balances to conform to the 1996
presentation. The operating results of the Corporation's international reinsurance
operations are reported on a quarter lag.
2. Cologne Re - As a result of the ownership and control structure, the
Corporation's consolidated statements of income and cash flows include the results
from operations and cash flows of Cologne Re and the related joint-venture
company, GR-CK. These results and cash flows were not included in the
comparable 1995 amounts, since the formation of GR-CK did not occur until
December 28, 1994 and the Corporation reports the results of Cologne Re and
GR-CK on a one quarter lag. The minority interest included in the Corporation's
statement of income and balance sheet relates to the economic interest of Cologne
Re not owned by GR-CK and the Class A shares of GR-CK, which are not owned
by the Corporation.
3. Income Taxes - The Corporation's effective income tax rate differs from
current statutory rates principally due to tax-exempt interest income and dividends
received deductions. The Corporation paid income taxes of $31 million and $17
million in the quarters ended March 31, 1996 and 1995, respectively.
4. Reinsurance Ceded - The Corporation utilizes reinsurance to reduce its
exposure to large losses. The income statement amounts for premiums written,
premiums earned, claims and claim expenses incurred and life/health benefits are
reported net of reinsurance. Direct, assumed, ceded and net amounts for the
quarters ended March 31, 1996 and 1995 were as follows (in millions):
Property/Casualty Life/Health Claims and Life/Health
Written Earned Written Earned Claim Expenses Benefits
1996
Direct $111 $103 - - $65 -
Assumed 1,285 1,402 $289 $299 1,021 $240
Ceded (186) (211) (38) (54) (178) (60)
Net $1,210 $1,294 $251 $245 $908 $180
1995
Direct $129 $113 - - $ 90 -
Assumed 1,050 1,013 - - 666 -
Ceded (172) (171) - - (94) -
Net $1,007 $955 - - $662 -
7
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(continued)
5. Allowance for Doubtful Accounts - The Corporation establishes an
allowance for uncollectible reinsurance recoverables and other doubtful
receivables. The allowance was approximately $138 million and $135 million
at March 31, 1996 and December 31, 1995, respectively.
6. Per Common Share Data - Income per common share is based on net
income less preferred dividends divided by the weighted average common shares
outstanding during the period. The weighted average number of common shares
outstanding was 81,457,455 and 81,918,805 for the quarters ended March 31,
1996 and 1995.
7. New Accounting Standards - In October 1995, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standards
No. 123, Accounting for Stock-Based Compensation. The Statement establishes
financial accounting and reporting standards for stock-based employee compensation
plans and is effective in 1996. The Statement defines a fair-value based method of
accounting for stock option plans whereby compensation cost is measured at the
grant date based on the value of the award and is recognized over the service
period. Under the new Statement, companies may continue to measure
compensation cost of stock-based plans using the current accounting prescribed
by Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees. Companies electing to remain with the accounting in Opinion No. 25
must make pro forma disclosures of net income and earnings per share as if the
fair-value based method of accounting defined in the Statement were applied.
The Corporation has elected to continue its current method of accounting
for stock-based compensation plans. The fair-value based disclosures, which are
only required in full-year financial statements, will be included in the Corporation's
1996 Annual Report on Form 10-K.
In March 1995, the FASB issued Statement No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of.
The Statement established accounting standards for impairment of long-lived assets,
certain identifiable intangibles and goodwill. The Statement requires that long-lived
assets and intangibles be reviewed for impairment using an estimate of future
undiscounted cash flows compared to the carrying amount of the assets. The
Statement was effective January 1, 1996 and had no effect on the results from
operations, financial position or cash flows of the Corporation in the first quarter
of 1996.
8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Consolidated
Income from operations, excluding after-tax realized gains/losses, was $2.58 per
share in the first quarter of 1996, an increase of 20.0 percent from the $2.15 per
share earned in the comparable period in 1995. Net income for the first quarter
of 1996 included after-tax realized gains of $.29 per share, compared with a gain of
$.05 per share in the first quarter of 1995. The improved results in the first quarter
of 1996 were primarily attributable to underwriting profits in the United States,
acceptable margins in the international property/casualty and life/health operations
and improved profitability at GRFP. Due to the Corporation's reporting of its
international operations on a quarter lag, the results for the first quarter of 1995
do not include Cologne Re and the related joint-venture company, GR-CK, since
the formation of GR-CK did not occur until December 28, 1994.
Consolidated net premiums written for the first quarter of 1996 were $1,461
million, an increase of 45.1 percent from $1,007 million in 1995. United States
property/casualty premiums written were $689 million in the first quarter of 1996,
compared with $686 million in 1995, an increase of 0.5 percent. Included in net
premiums written in the first quarter of 1995 was approximately $40 million for
a large quota share treaty contract that was not renewed in 1996. Excluding the
impact of this contract, total United States property/casualty premiums grew
6.7 percent. The international property/casualty subsidiaries' net premiums
written were $521 million in the first quarter of 1996, an increase of $200 million
from the comparable amount in 1995. In the first quarter of 1995, the Corporation's
wholly owned European operations began to include estimated premiums and losses
for the current underwriting year in its financial results. Excluding Cologne Re's
premiums and the impact of estimating current year's underwriting in 1995,
international net premiums written increased 3.0 percent in the first quarter.
Net premiums written for the life/health segment, which consists of Cologne Re's
United States and international life/health operations, were $251 million for the
first quarter of 1996.
Consolidated pretax net investment income was $285 million in the first quarter
of 1996, compared with $193 million in 1995. The consolidation of Cologne Re
increased consolidated net pretax investment income in the first quarter of 1996
by $79 million. Net investment income for the United States property/casualty
operations of $169 million in the first quarter of 1996, declined compared with
$178 million in the first quarter of 1995 due principally to the effect of tax-exempt
bond calls, the reallocation of investments from taxable to tax-exempt bonds and
the repurchase of common shares. Net investment income for the international
property/casualty operations was $98 million in the first quarter of 1996, compared with
$11 million in the first quarter of 1995. Net investment income for the
life/health operations was $14 million in the first quarter of 1996.
The consolidated effective tax rate was 25.1 percent for the first quarter of 1996,
compared with 15.9 percent in the first quarter of 1995. The increase in the
consolidated effective tax rate was the result of the increase in taxable income
in the international and financial services subsidiaries.
9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
The Corporation's net cash flow from consolidated operations was $553 million in
the first quarter of 1996, compared to $313 million in the same period in
1995. Cash flows from operations for the United States property/casualty
operations were $275 million and $311 million in the first quarters of 1996 and
1995, respectively. The financial services operations had net cash flows from
operations of $63 million in the first quarter of 1996, compared to $30 million in
the first quarter of 1995. The international property/casualty and life/health
operations had cash flow from operating activities of $215 million for the first
quarter of 1996, compared with a cash outflow of $28 million in 1995.
At March 31, 1996, total consolidated assets were $36,540 million, compared
with $35,946 million at December 31, 1995. The growth in total assets was due
to increases of $772 million in the financial services segment, $138 million in the
international property/casualty and life/health operations and a reduction of $316
million in the United States property/casualty operations. The increase in the
financial services assets primarily relates to the purchase of investment securities
to hedge open swap positions and an increase in the gross unrealized gain on the
swap mark-to-market balance. The growth in the assets of the international
property/casualty and life/health operations was due to operating cash flow
and investment appreciation. The decrease in the United States property/casualty
assets was primarily the result of using operating cash flow to repurchase the
Corporation's common stock and a decline in the unrealized appreciation of the
bond portfolio, partially offset by an increase in the unrealized appreciation of the
equity portfolio.
During the first quarter of 1996, total invested assets increased by $929 million
to $24,423 million. The growth in invested assets was due to increases of $683
million in the financial services segment, $319 million in the international
property/casualty and life/health operations and a decrease of $73 million in the
United States property/casualty operations.
The consolidated gross liability for claims and claim expenses for property/casualty
operations was $14,306 million at March 31, 1996, an increase of $54 million over
the year-end 1995 liability. The asset for reinsurance recoverable on unpaid claims
was $2,504 million at March 31, 1996, compared to $2,514 million at December
31, 1995. At March 31, 1996, the gross liability for claims and claim expenses
and the related asset for reinsurance recoverables include $1,881 million and $594
million, respectively, for environmental and latent injury claims. These amounts
include provisions for both reported and incurred but not reported claims.
Common stockholders' equity at March 31, 1996 was $6,467 million, a decrease
of 1.8 percent from the $6,587 million at December 31, 1995. The decrease in
common stockholders' equity during the first quarter of 1996 was principally the
result of net income of $237 million offset by common share repurchases of $270
million, a decrease in after-tax unrealized investment gains of $51 million,
unrealized foreign currency translation losses of $12 million and common and
preferred stock dividends of $44 million. On a per share basis, common
stockholders' equity increased from $80.22 at December 31, 1995 to $80.41
at March 31, 1996.
10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Dividends paid to common stockholders were $41 million and $40 million in the
first quarter of 1996 and 1995, respectively. The Corporation repurchased
1,832,100 shares of common stock during the first quarter of 1996 for aggregate
consideration of $270 million, which equates to an average cost of $147.31 per
share. From January 1, 1996 through May 3, 1996, the Corporation has
purchased 2,874,900 common shares at a total cost of $420 million. These
purchases completed the $300 million of share repurchases authorized by the
Corporation's Board of Directors in February 1996. In addition to specific
repurchase programs, the Corporation has standing authority to repurchase
shares in anticipation of share issuances under various compensation plans.
During the second quarter of 1995, Cologne Re completed a rights offering that
raised DM 437 million ($317 million at the June 30, 1995 exchange rate), which
increased its capital under United States generally accepted accounting principles
by 62.9 percent over the amount reported at December 31, 1994. In connection
with Cologne Re's rights offering, GR-CK subscribed for its pro rata share,
approximately DM 297 million ($215 million at the June 30, 1995 exchange rate),
of the offering. In addition, the Corporation has purchased through March 31,
1996 an additional 137,354 ordinary and preference shares of Cologne Re for
aggregate consideration of $72 million. These purchases maintained GR-CK's
66.3 percent ownership interest of Cologne Re and, in addition, gave the
Corporation a direct interest of 7.4 percent in Cologne Re, bringing the
Corporation's total consolidated interest to 73.7 percent at March 31, 1996.
The Corporation's financial statements include the additional percentage ownership
in Cologne Re.
At March 31, 1996, the Corporation had $150 million of senior debt outstanding
which matures in September 2009. This debt is rated AAA by Standard and Poor's
Corporation and Aa1 by Moody's Investors Services. From time to time the
Corporation also issues short-term commercial paper to provide additional
financial flexibility for its operations. Commercial paper offered by the
Corporation is rated A1+ by Standard & Poor's Corporation and Prime 1 by
Moody's Investors Service. At March 31, 1996, no short-term commercial paper
was outstanding.
United States Property/Casualty
First Quarter
(in millions) 1996 1995
Income before income taxes $190 $188
Pretax realized gains 10 12
Income before income taxes and realized gains $180 $176
Net premiums written $689 $686
Net underwriting gain (loss) 8 (8)
Net investment income 169 178
Combined underwriting ratio 98.9% 101.1%
Operating cash flow $275 $311
11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Pretax income for the United States property/casualty operations, excluding
realized gains, increased 2.2 percent in the first quarter of 1996 compared with
the first quarter of 1995. The improvement in pretax income for the segment was
primarily due to improvement of $16 million in the underwriting result which was
offset by a decline in investment income and other revenues. In the first quarter of
1996, the GAAP combined underwriting ratio for the United States property/casualty
operations was 98.9 percent, compared with 101.1 percent for the first quarter
of 1995 and 99.6 percent for the full year 1995.
Net premiums written for the United States property/casualty operations were
$689 million in the first quarter of 1996, up slightly from $686 million in the first
quarter of 1995. The growth in 1996's first quarter premiums was adversely
impacted by the nonrenewal of a large quota share treaty which contributed
approximately $40 million of net premiums written in the first quarter of 1995.
Adjusting for the nonrenewal of this treaty, total net premiums grew by 6.7
percent in the quarter. Net premiums written by General Reinsurance Corporation's
treaty and facultative operations, excluding the nonrenewal of the quota share
contract, increased by 5.9 percent during the quarter. For the General Star
companies, which write primary and excess specialty insurance, net premiums
written increased by 14.8 percent for the quarter. For the Genesis operations,
which provide direct excess insurance, net premiums written increased by 8.1
percent for the first quarter of 1996 compared to the same period in 1995.
Pretax investment income for the United States property/casualty operations
decreased 5.2 percent compared to the first quarter of 1995. On an after-tax
basis, net investment income increased slightly from $144 million to $145 million
during the quarter. Average yields for the United States fixed income portfolio
declined during the quarter in various sectors; tax-exempt securities' average
yield declined 13 basis points, short term funds declined 18 basis points and
common equities fell 25 basis points. The overall annualized pretax yield on the
United States invested asset portfolio was 5.2 percent in the first quarter of 1996
compared with 6.2 percent in 1995. The pretax and after-tax yield for the first
quarter of 1996 on the segment's fixed maturity portfolio was 6.8 percent and
5.8 percent, respectively, compared with 7.4 percent and 6.1 percent, respectively,
in the first quarter of 1995.
During the first quarter of 1996, the Corporation had approximately $175 million
of calls and maturities on grandfathered tax-exempt bonds. These bonds had an
average yield of approximately 8.0 percent and the proceeds from the calls were
reinvested at an average yield of approximately 5.2 percent. In addition, based on
the Corporation's current investment portfolio and the current yield curve, the
Corporation presently anticipates additional calls during 1996 of approximately
$340 million of grandfathered tax-exempt bonds with an average yield of
approximately 8.1 percent, which will adversely affect average portfolio yields
and investment income.
The gross liability for claims and claim expenses for the United States
property/casualty operations was $9,446 million at March 31, 1996, an
increase of $90 million, or 1.0 percent, over the year-end 1995 liability. The asset
for reinsurance recoverable on unpaid claims was $1,980 million at March 31,
1996, compared to $1,971 million at December 31, 1995. At March 31, 1996,
total assets of the United States property/casualty operations were $17,104 million,
compared with $17,420 million at December 31, 1995.
12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
International Property/Casualty
First Quarter
(in millions) 1996 1995
Income before income taxes and minority interest $115 $20
Pretax realized gains (losses) 36 (5)
Income before income taxes, minority interest and
realized gains (losses) $79 $25
Net premiums written $521 $321
Net underwriting (loss) gain (11) 14
Net investment income 98 11
Combined underwriting ratio 101.7% 94.9%
Operating cash flow $215 $(28)
The international property/casualty operations' income before income taxes,
minority interest and realized gains increased 217.3 percent for the first quarter
of 1996 compared with the first quarter of 1995. As stated earlier, the results of
the international property/casualty segment include the operations of Cologne Re
and GR-CK during the first quarter of 1996 and do not include their results in the
first quarter of 1995. For the first quarter of 1996, income for the international
property/casualty operations increased as compared to 1995's first quarter due
to improved underwriting results in the Corporation's wholly owned international
subsidiaries and the inclusion of the results of GR-CK and Cologne Re.
International net premiums written were $521 million in the first quarter of 1996,
compared with $321 million in the first quarter of 1995. During 1995, the
Corporation combined its subsidiaries located in the United Kingdom and
Switzerland to enhance client service and to improve the capital efficiency of its
European operations. In the first quarter of 1995, the combined operations began
to include estimated premiums, commissions and losses for the current underwriting
year in its financial results. This change increased net premiums written for the first
quarter of 1995 and significantly impacts comparisons between 1996 premiums
written and 1995. Excluding Cologne Re's premiums and the change in estimation
method, the international property/casualty segment's net premiums grew by 3.0
percent for the first quarter of 1996.
Pretax investment income for the international property/casualty operations was
$98 million for the first quarter of 1996, compared with $11 million in the same
period of 1995. The increase in investment income is due to including the
investment income of Cologne Re and GR-CK and growth in the wholly owned
subsidiaries' investment portfolio. Excluding the effect of Cologne Re and GR-CK,
the international property/casualty segment's net investment income for the first
quarter of 1996 grew by $11 million. The overall annualized pretax yield on the
invested asset portfolio was 6.0 percent in the first quarter of 1996, compared
with 7.1 percent in the same period in 1995. The decline in investment yield was
due principally to the inclusion of Cologne Re's shorter-duration portfolio and
Cologne Re's contractual sharing of investment income with ceding companies
under certain reinsurance agreements.
13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
At March 31, 1996, total assets of the international property/casualty operations
were $13,253 million, compared with $13,115 million at December 31, 1995.
The increase in total assets in 1996 was due to the continued growth of the
international operations' underwriting portfolios and unrealized appreciation in
their investment portfolios. The gross liability for claims and claim expenses was
$4,860 million at March 31, 1996 compared with $4,896 million at December 31,
1995. The asset for reinsurance recoverable on unpaid claims was $525 million at
March 31, 1996, compared to $544 million at December 31, 1995.
Financial Services
Financial services operations include the Corporation's derivative products,
investment management, insurance brokerage and management, reinsurance
brokerage, underwriting services and real estate management subsidiaries. In
August 1996, the Corporation acquired all of the outstanding stock of New
England Asset Management, which provides investment management services
primarily for insurance companies. Through the combination of this and existing
investment management operations, the Corporation has 48 insurance company
clients and approximately $10 billion of client assets under management.
Pretax income for the financial services operations was $27 million in the first
quarter of 1996, compared with $10 million in the first quarter of 1995. The
increase in the segment's pretax income for the quarter over the comparable
quarter of 1995 was primarily due to growth in revenues and income for General
Re Financial Products Corporation ("GRFP"). Pretax income of the other operations in the
financial services segment also grew during the quarter. The increase in GRFP's
income for the quarter compared to 1995's first quarter was primarily due to a
significant increase in transaction revenue, particularly in specialty products and swap transactions outside of North America.
At March 31, 1996, total assets of the financial services operations were $6,183
million, compared with $5,411 million at December 31, 1995. GRFP's market
exposures arising from derivative products are managed through the purchase
and sale of government securities, futures and forward contracts or offsetting
derivatives transactions. The amount and nature of the financial services segment's
assets and liabilities are significantly affected by the risk management strategies
utilized by GRFP to reduce market, currency rate, and interest rate risk. The
purchase of government securities financed through collateralized repurchase
agreements and the sale of government securities, whose proceeds are invested
in reverse repurchase agreements, may cause short-term fluctuations in GRFP's
assets and liabilities. The use of these transactions to offset GRFP's market
exposures will increase or decrease the amount of GRFP's trading account
assets or liabilities. While these risk management strategies may have a
significant impact on the amount of assets and liabilities, they generally do not
have a material effect on the Corporation's results from operations or common
stockholders' equity.
14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
During the first quarter of 1996, total invested assets of the financial services
operations increased $683 million to $3,161 million. Securities purchased under
agreements to resell, which represent short-term liquid investment of excess funds,
increased $44 million in the first quarter of 1996 to $110 million. Securities sold
under agreements to repurchase, which are short-term borrowings of funds,
increased $1,020 million in the first quarter of 1996 to $2,283 million.
Securities sold, but not yet purchased, which decreased by $285 million during
1996, represent obligations of the Corporation to deliver the specified security
at the contracted price, thereby creating a liability to purchase the security in
the market at prevailing prices. Accordingly, the Corporation's ultimate
obligation to satisfy the sale of securities sold, but not yet purchased may
exceed the amount recognized in the balance sheet. The Corporation controls
this risk and other market risks associated with its derivative products operations
through, among other techniques, strict market position limits, marking the
trading portfolio to market on a daily basis, ongoing monitoring and analysis
of its market exposures, and periodically stress testing the portfolio.
Life/Health
This segment includes the United States and international life/health operations
of Cologne Re. For the first quarter of 1996, the life/health operations' income
before taxes and minority interest was $14 million. This compares with $15
million, $17 million and $19 million, in the second through fourth quarters of 1995,
respectively. Pretax income for the first quarter is primarily comprised of
underwriting income of $1 million and investment income of $14 million.
Life/health premiums written were $251 million for the first quarter of 1996
compared with $220 million, $236 million and $253 million in the second
through fourth quarters of 1995. During the first quarter, the United States
underwriting result experienced unfavorable mortality experience due to a few
large individual claims.
The liability for policy benefits for life/health contracts was $2,340 million at
March 31, 1996, compared with $2,263 million at December 31, 1995. The
asset for reinsurance recoverable on unpaid losses was $216 million at March 31,
1996, compared to $201 million at December 31, 1995. Cologne Re manages its
invested assets and total assets on an aggregate basis for the life/health and
property/casualty business and does not presently disaggregate these accounts
by segment. The invested asset and total asset disclosures in the international
property/casualty segment include all of Cologne Re's invested assets.
15
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit #11 - Statement re: computation of earnings per share
(b) Reports on Form 8-K
None
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.
GENERAL RE CORPORATION
(Registrant)
Date: May 15, 1996 JOSEPH P. BRANDON
Joseph P. Brandon
Vice President and Chief Financial Officer
(Principal Financial Officer)
Date: May 15, 1996 ELIZABETH A. MONRAD
Elizabeth A. Monrad
Vice President and Treasurer
(Principal Accounting Officer)
16
GENERAL RE CORPORATION
COMPUTATION of EARNINGS PER SHARE
(in millions, except per share data)
Quarter Ended
March 31,
Earnings Per Share of Common Stock 1996 1995
Net income (applicable to
common stock) (a) $234 $180
Average number of common shares
outstanding 81,457,455 81,918,805
Net income per share $2.87 $2.20
(a) After deduction of preferred stock dividends of $3 million for the quarters
ended March 31, 1996 and 1995.
(b) Fully diluted earnings per share are not reported because the effect of
potentially dilutive securities was not significant.
17