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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
------------------------------
Commission file number 1-8026
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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 x No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at June 30, 1997
Common Stock, $.50 par value 79,612,665 Shares
---------------------------- -----------------
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GENERAL RE CORPORATION
INDEX
PART I. FINANCIAL INFORMATION
PAGE
Item 1. Financial Statements
Consolidated Statements of Income
Three and six months ended June 30, 1997 and 1996 3
Consolidated Balance Sheets
June 30, 1997 and December 31, 1996 4
Consolidated Statements of Common Stockholders' Equity
Six months ended June 30, 1997 and 1996 5
Consolidated Statements of Cash Flows
Six months ended June 30, 1997 and 1996 6
Notes to Consolidated Interim Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 6. Exhibits and Reports on Form 8-K
(a) Reports on Form 8-K (none) 18
(b) Exhibit 10.7 - Employment Agreement 19
(c) Exhibit 11 - Statement Re: Computation of Per
Share Earnings 25
2
GENERAL RE CORPORATION
Consolidated Statements of Income
(in millions, except per share data)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
1997 1996 1997 1996
---- ---- ---- ----
Premiums and other revenues
Net premiums written
Property/casualty $1,551 $1,579 $2,814 $2,789
Life/health 284 259 582 510
------ ------ ------- -------
Total net premiums written $1,835 $1,838 $3,396 $3,299
====== ====== ====== ======
Net premiums earned
Property/casualty $1,389 $1,424 $2,759 $2,718
Life/health 280 254 566 499
------ ------ ------ ------
Total net premiums earned 1,669 1,678 3,325 3,217
Investment income 316 288 634 573
Other revenues 96 78 183 146
Net realized gains (losses)
on investments (7) 30 4 80
------ ----- ---- -----
Total revenues 2,074 2,074 4,146 4,016
----- ----- ----- -----
Expenses
Claims and claim expenses 962 1,004 1,929 1,912
Life/health benefits 207 184 407 364
Acquisition costs 372 389 726 744
Other operating costs and expenses 203 173 409 320
Goodwill amortization 7 4 14 9
------ ------ ------- -------
Total expenses 1,751 1,754 3,485 3,349
----- ----- ----- -----
Income before income taxes and
minority interest 323 320 661 667
Income tax expense 74 74 155 161
-- -- --- ---
Income before minority interest 249 246 506 506
Minority interest 16 22 29 45
-- -- -- --
Net income $233 $224 $477 $461
==== ==== ==== ====
Share Data:
Net income per common share $2.88 $2.80 $5.85 $5.67
===== ===== ===== =====
Dividend per share to common
stockholders $.55 $.51 $1.10 $1.02
==== ==== ===== =====
Average common shares outstanding 80.1 79.3 80.6 80.4
==== ==== ==== ====
See notes to the consolidated interim financial
statements.
3
GENERAL RE CORPORATION
Consolidated Balance Sheets
(in millions, except share data)
(Unaudited)
June 30, 1997 Dec. 31, 1996
ASSETS
Investments:
Fixed maturities:
Available-for-sale (cost: $15,845 in 1997;
$16,473 in 1996) $16,505 $17,168
Trading (cost: $1,981 in 1997; $2,994 in 1996) 1,959 2,967
Preferred equities, at fair value (cost: $1,082
in 1997; $771 in 1996) 1,117 789
Common equities, at fair value (cost: $2,005 in
1997; $1,941 in 1996) 4,245 3,675
Short-term investments, at amortized cost which
approximates fair value 1,401 1,267
Other invested assets 720 696
-------- --------
Total investments 25,947 26,562
Cash 369 365
Accrued investment income 366 405
Accounts receivable 2,853 2,832
Funds held by reinsured companies 468 474
Reinsurance recoverable 2,953 2,935
Deferred acquisition costs 481 457
Trading account assets 3,623 4,085
Securities purchased under agreement to resell 243 -
Goodwill 1,007 1,052
Other assets 1,057 994
-------- --------
Total assets $39,367 $40,161
======= =======
LIABILITIES
Claims and claim expenses $16,103 $15,977
Policy benefits for life/health contracts 894 751
Unearned premiums 1,987 1,957
Other reinsurance balances 3,172 3,388
Notes payable and commercial paper 288 430
Income taxes 813 728
Securities sold under agreements to repurchase 1,347 1,985
Securities sold but not yet purchased 753 869
Trading account liabilities 3,439 3,907
Other liabilities 1,767 1,675
Minority interest 1,070 1,166
------- -------
Total liabilities 31,633 32,833
------ ------
Cumulative convertible preferred stock (shares
issued: 1,705,926 in 1997 and 1,711,907 in 1996;
no par value) 146 146
Loan to employee savings and stock ownership plan (144) 144)
------ ------
2 2
-------- --------
COMMON STOCKHOLDERS' EQUITY
Common stock (102,827,344 shares issued in 1997
and 1996; par value $.50) 51 51
Paid-in capital 1,072 1,041
Unrealized appreciation of investments, net of
deferred income taxes 1,949 1,625
Currency translation adjustments, net of
deferred income taxes (16) (53)
Retained earnings 7,092 6,708
Less common stock in treasury, at cost (shares
held: 23,214,679 in 1997and 21,262,113 in 1996) (2,416) (2,046)
------- -------
Total common stockholders' equity 7,732 7,326
------- -------
Total liabilities, cumulative convertible
preferred stock and common stockholders' equity $39,367 $40,161
======= =======
See notes to the consolidated interim financial statements.
4
GENERAL RE CORPORATION
Consolidated Statements of Common Stockholders' Equity
(in millions)
(Unaudited)
Six months ended
June 30,
1997 1996
---- ----
Common stock:
Beginning of period $51 $51
Change for the period - -
--- ---
End of period 51 51
-- --
Paid-in capital:
Beginning of period 1,041 635
Stock issued under stock option and other
incentive arrangements 23 16
Other 8 3
-------- -----
End of period 1,072 654
----- ---
Unrealized appreciation of investments,
net of deferred income taxes:
Beginning of period 1,625 1,468
Change for the period 508 (171)
Deferred income taxes (184) 61
------ -------
End of period 1,949 1,358
----- -----
Currency translation adjustments,
net of deferred income taxes:
Beginning of period (53) (11)
Change for the period 37 (34)
-- ---
End of period (16) (45)
--- ---
Retained earnings:
Beginning of period 6,708 5,986
Net income 477 461
Dividends on common stock (88) (81)
Dividends on preferred stock, net of
income taxes (5) (5)
------- -------
End of period 7,092 6,361
----- -----
Common stock in treasury:
Beginning of period (2,046) (1,542)
Cost of shares acquired during period (377) (547)
Stock issued under stock option and other
incentive arrangements 7 7
--------- ---------
End of period (2,416) (2,082)
------ ------
Total common stockholders' equity $7,732 $6,297
====== ======
See notes to the consolidated interim financial statements.
5
GENERAL RE CORPORATION
Consolidated Statements of Cash Flows
(in millions)
(Unaudited)
Six months ended
June 30,
1997 1996
---- ----
Cash flows from operating activities:
Net income $477 $461
Adjustments to reconcile net income to net cash
provided by operating activities:
Change in claim and claim expense liabilities 126 449
Change in policy benefits for life/health
contracts 143 115
Change in reinsurance recoverable (18) (73)
Change in unearned premiums 30 80
Amortization of acquisition costs 726 744
Acquisition costs deferred (750) (749)
Trading account activities
Change in trading account securities 1,037 (1,154)
Securities purchased under agreements
to resell (243) (91)
Securities sold under agreements to
repurchase (638) 1,344
Change in other trading balances (228) (19)
Other changes in assets and liabilities (120) (172)
Realized gains on investments (4) (80)
---- ----
Net cash from operating activities 538 855
--- ---
Cash flows from investing activities:
Fixed maturities: available-for-sale
Purchases (3,067) (4,066)
Calls and maturities 246 461
Sales 3,332 3,043
Preferred and common equities
Purchases (682) (584)
Sales 263 378
Net (purchases) sales of short-term investments (55) 328
Net purchases of other invested assets (33) (14)
--- -----
Net cash from (used in) investing
activities 4 (454)
---- ----
Cash flows from financing activities:
Commercial paper borrowing, net (140) 225
Change in contract deposits 34 130
Cash dividends paid to common stockholders (88) (81)
Acquisition of treasury stock (375) (548)
Other 31 22
----- -----
Net cash used in financing activities (538) (252)
---- ----
Change in cash 4 149
Cash, beginning of period 365 258
--- ---
Cash, end of period $369 $407
==== ====
See notes to the consolidated interim financial statements.
6
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
1. General - The interim financial statements of General Re Corporation and
its subsidiaries ("General Re") 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 General Re's
1996 Annual Report filed on Form 10-K. Certain reclassifications have been
made to 1996 balances to conform to the 1997 presentation. The operating
results of General Re's international reinsurance operations are reported
on a quarter lag.
2. National Re - The comparable 1996 second quarter and year-to-date amounts
do not include the assets, liabilities, operating results and cash flows
for National Re Corporation, since it was acquired on October 3, 1996.
3. Income Taxes - General Re's effective income tax rate differs from current
statutory rates principally due to tax-exempt interest income and dividends
received deductions. General Re paid income taxes of $163 million and $136
million in the six months ended June 30, 1997 and 1996, respectively.
4. Reinsurance Ceded - General Re 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 six months ended June 30, 1997 and 1996 were as follows (in
millions):
Property/Casualty Life/Health Claims and Life/Health
Written Earned Written Earned Claim Expenses Benefits
-------- ------- ------- ------ -------------- --------
1997
----
Direct $237 $255 - - $208 -
Assumed 2,996 2,919 $649 $614 1,933 $442
Ceded (419) (415) (67) (48) (212) (35)
------ ------- ----- ----- ------- -----
Net $2,814 $2,759 $582 $566 $1,929 $407
====== ====== ==== ==== ====== ====
1996
Direct $225 $211 - - $152 -
Assumed 3,006 2,949 $573 $562 2,153 $448
Ceded (442) (442) (63) (63) (393) (84)
------ ------- ----- ----- ------- -----
Net $2,789 $2,718 $510 $499 $1,912 $364
====== ====== ==== ==== ====== ====
7
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (continued)
5. 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 common shares
outstanding were 80,114,284 and 80,603,471 for the three and six months
ended June 30, 1997 and 79,254,137 and 80,355,796 for the same periods in
1996.
6. New Accounting Standards - In February 1997, the Financial
Accounting Standards Board issued Statement of Financial Accounting
Standards No. 128, Earnings Per Share. The statement establishes a new
standard for computing and presenting earnings per share data. The
statement is effective for financial statements issued for both interim and
annual periods ending after December 15, 1997. This statement supersedes
APB Opinion No. 15, Earnings Per Share, and requires dual presentation of
basic and diluted earnings per share on the face of the income statement.
Basic earnings per share exclude dilution and are computed by dividing
income available to common stockholders by the weighted-average number of
common shares outstanding for the period. Diluted earnings per share
include the effect of all potentially dilutive securities. All prior period
earnings per share data presented must be restated.
General Re's primary earnings per share for the three and six months ended
June 30, 1997 are the same as basic earnings per share calculated under the
new statement. Fully diluted earnings per share are not currently presented
because the dilution effects are not material. If General Re had adopted
the statement, diluted earnings per share would have been $2.81 and $5.72
per share for the three and six months ended June 30, 1997, and $2.74 and
$5.56 per share for the same periods in 1996.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income.
This statement establishes standards for the reporting and display of
comprehensive income and its components in the consolidated financial
statements. The purpose of reporting comprehensive income is to report the
change in equity of a business enterprise for the period from transactions
and other events and circumstances from nonowner sources. It includes all
changes in equity during a period except those resulting from investments
by owners and distributions to owners. These items include currency
translation adjustments and unrealized appreciation of investments, which
are currently reported as separate components of equity in the balance
sheet. The statement is effective in 1999 and will change the presentation
of information in the financial statements but will not have any effect on
the financial position or results from operations of General Re.
Also in June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 131, Disclosure about
Segments of an Enterprise and Related Information. This statement requires
that companies report certain information about their operating segments in
the interim and annual financial statements, including information about
the products and services from which revenues are derived, the geographic
areas of operation, and information about major customers. Operating
segments are determined by the way management decides how to allocate
resources and how it assesses performance. Descriptive information about
the method used to identify the reportable operating segments must also be
disclosed. The statement also requires a reconciliation of revenues, net
income, and assets and other amounts disclosed for the segments to the
corresponding amounts in the consolidated financial statements. The
statement is effective for year end 1998. The financial position and
operating results of General Re will not be affected by this statement.
8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CONSOLIDATED
Income from operations, excluding after-tax realized gains and losses, was $2.96
per share in the second quarter of 1997, an increase of 11.7 percent from the
$2.65 per share earned in the comparable period in 1996. Net income for the
second quarter of 1997 was $2.88 per share, compared with $2.80 per share in
1996. Net income for the second quarter of 1997 included after-tax realized
losses of $.08 per share, compared with after-tax realized gains of $.15 per
share in the second quarter of 1996. These improved results in the second
quarter of 1997 were primarily due to growth in North American property/casualty
investment income and increased earnings in the financial services operations.
For the first six months of 1997, income from operations, excluding after-tax
realized gains and losses, was $5.86 per share compared with $5.23 per share in
1996, an increase of 12.0 percent. Net income for the first six months of 1997
was $5.85 per share, compared with $5.67 per share for the same period in 1996.
Included in net income were after-tax realized losses of $.01 per share in the
first six months of 1997, compared with after-tax realized gains of $.44 per
share in the same period of 1996. Growth in North American investment income,
increased profitability in the global life/health operations, and higher trading
revenues in the financial services operations were the primary contributors to
the increased earnings for the first six months of 1997.
Consolidated net premiums written for the second quarter of 1997 were $1,835
million, a decrease of 0.2 percent from $1,838 million in 1996. Consolidated net
premiums written for the first six months of 1997 increased 2.9 percent from
$3,299 million in 1996 to $3,396 million in 1997. Excluding the effect of
foreign exchange, consolidated net premiums written increased 5.4 percent and
7.2 percent in the second quarter and first six months of 1997, respectively.
Consolidated pretax investment income was $316 million in the second quarter of
1997, compared with $288 million in the same period of 1996. For the first six
months, consolidated pretax investment income was $634 million and $573 million
in 1997 and 1996, respectively. The 10.7 percent increase in consolidated pretax
investment income in the first six months of 1997 was due to higher invested
assets in existing operations and investment income from National Re, partially
offset by a decline in global interest rates and the strengthening of the U.S.
dollar, principally against the German mark.
The consolidated effective tax rate was 22.7 percent for the second quarter of
1997, compared with 23.1 percent in the second quarter of 1996. For the first
six months the effective tax rate was 23.4 percent and 24.1 percent in 1997 and
1996, respectively. The decrease in the consolidated effective tax rate was
principally the result of a decrease in realized investment gains earned by
international subsidiaries in higher tax rate jurisdictions.
Excluding the financial services operations, consolidated net cash flow from
operations was $581 million in the first six months of 1997, compared to $746
million in the same period in 1996. The decline of $165 million in the first six
months of 1997 was principally due to higher paid losses and a loss commutation
in the North American operations and the effect of the strengthening U.S. dollar
which lowered reported international cash flow.
9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
At June 30, 1997 insurance invested assets were $23,660 million, an increase of
$492 million compared to $23,168 million at December 31, 1996. The increase in
insurance invested assets was primarily the result of operating cash flow and
unrealized appreciation in the equity portfolio, reduced by common stock
repurchases and dividend payments. The financial services operations had $2,287
million of invested assets at June 30, 1997, a decrease of $1,107 million
compared to December 31, 1996. The decrease in financial services invested
assets in the first six months of 1997 results from changes in the hedging needs
and activities of General Re Financial Products Corporation ("GRFP"). At June
30, 1997 consolidated invested assets were $25,947 million, a decrease of $615
million compared to $26,562 million at December 31, 1996.
The consolidated gross liability for claims and claim expenses for the
property/casualty operations was $16,103 million at June 30, 1997, an increase
of $126 million over the year-end 1996 liability. The asset for reinsurance
recoverable on unpaid claims was $2,573 million at June 30, 1997, compared to
$2,572 million at December 31, 1996. At June 30, 1997, the gross liability for
claims and claim expenses and the related asset for reinsurance recoverables
include $2,018 million and $608 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 June 30, 1997 was $7,732 million, an increase of
5.5 percent from the $7,326 million at December 31, 1996. The increase in common
stockholders' equity during the first six months of 1997 was principally the
result of net income of $477 million, an increase in after-tax unrealized
investment gains of $324 million, a decrease in unrealized foreign currency
translation losses of $37 million and the reissuance of common stock of $30
million under employee compensation and benefit plans, partially offset by
common share repurchases of $377 million and common and preferred stock
dividends of $93 million. On a per share basis, common stockholders' equity was
$97.12 at June 30, 1997, an increase of 8.1 percent from $89.82 at December 31,
1996.
General Re repurchased 2,252,600 shares of common stock during the first six
months of 1997 for aggregate consideration of $377 million. On April 9, 1997,
General Re's Board of Directors approved a new repurchase program for $500
million. In addition to specific repurchase programs, General Re has standing
authority to repurchase shares in anticipation of share issuances under various
compensation plans. Since the inception of the repurchase program in 1987,
General Re has repurchased 29,386,100 common shares for total consideration of
$2.7 billion.
At June 30, 1997, General Re had $275 million of senior debt outstanding, of
which $150 million was issued by the holding company, General Re Corporation and
is rated AAA by Standard & Poor's and Aa1 by Moody's, and $125 million was
issued by National Re and is rated AA by Standard and Poor's and Aa2 by Moody's.
General Re periodically issues commercial paper to provide additional financial
flexibility for its operations. Commercial paper offered by General Re has been
rated A1+ by Standard & Poor's and Prime 1 by Moody's. At June 30, 1997, no
commercial paper was outstanding. In July 1997, General Re increased its
available lines of credit to $1.8 billion. These credit lines enhance General
Re's financial flexibility and support the commercial paper program. The credit
lines consist of a five-year credit facility of $1.0 billion and a 364-day
facility for the remaining $0.8 billion. The credit agreements with the banks
require General Re to maintain a minimum consolidated tangible net worth, as
defined, of $2.7 billion. All available lines of credit were unused at June 30,
1997.
10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Pretax income discussed in each of the segment sections that follow is before
minority interest deductions and goodwill amortization, both of which are deemed
corporate expenses that have not been allocated to the segments.
NORTH AMERICAN PROPERTY / CASUALTY
(in millions)
Second Quarter Year-to-date
-------------- ------------
1997 1996 1997 1996
---- ---- ---- ----
Income before income taxes and realized gains $211 $178 $416 $359
Net premiums written 728 690 1,523 1,378
Net underwriting income 6 6 12 14
Combined ratio 99.3% 99.2% 99.3% 99.1%
Investment income $200 $172 $399 $340
Other income 5 1 5 5
Operating cash flow 136 75 253 350
Pretax income for the North American property/casualty operations, excluding
realized gains/losses, increased 18.8 percent in the second quarter of 1997, as
compared to the same quarter of 1996, and increased 16.1 percent for the first
six months of 1997. The 1997 results include the income from National Re. The
growth in pretax income was due to increased investment income primarily
resulting from a $1.4 billion increase in the fixed income portfolio,
principally due to inclusion of National Re's invested assets. The underwriting
results were substantially unchanged for the quarter and were not significantly
affected by catastrophes in either 1997 or 1996.
Net premiums written for the North American property/casualty operations were
$728 million in the second quarter of 1997 and $1,523 million in the first six
months of 1997, representing an increase of 5.5 percent and 10.4 percent from
the comparable 1996 amounts. Excluding premiums from National Re, net premiums
written decreased by 1.3 percent for the quarter and increased by 0.9 percent
for the first six months of 1997. Portfolio business includes reinsurance
treaties and programs. Programs are similar to treaties in that they reinsure a
group of policies, but exhibit the higher risk volatility characteristics more
often associated with facultative reinsurance, and accordingly are structured on
a per policy rather than per occurrence basis. General Re continues to
experience favorable portfolio premium growth from regional and specialty
companies. For the first six months of 1997, portfolio business with regional
and specialty companies increased approximately 30 percent. The National Re
acquisition was responsible for approximately two thirds of the increase. This
growth was offset by a continued decline in portfolio business from large
national companies. In 1995, business with large national companies represented
approximately 35 percent of General Re's portfolio business. In the first half
of 1997, this business comprised 23 percent of the portfolio business.
The wholesale nature of reinsurance transactions periodically results in
somewhat volatile premium trends between quarters and years. The addition or
loss of a large contract may significantly affect General Re's premium growth,
although large contracts generally have a smaller effect on earnings than on
premium trends.
11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
General Re's treaty contracts usually include short-term cancellation
provisions. Its largest treaty has annualized premiums written of approximately
$250 million and contributed approximately one half of one percent of General
Re's 1996 net income. General Re expects that this contract will be terminated
prior to year end.
For the General Star companies, which primarily write excess, surplus and
specialty insurance, net premiums written declined by 13.5 percent for the
quarter and 4.6 percent year-to-date. This decline was primarily due to lower
net premiums written in the commercial liability and general liability lines of
business. General Star is experiencing increased competition from standard
companies for business that was previously written in the excess and surplus
lines market. For the Genesis operations, which provide direct excess insurance
and reinsurance to companies with self-insurance programs, net premiums written
increased by 1.3 percent for the quarter and 1.6 percent year-to-date. The slow
growth in Genesis premiums results principally from lower growth in professional
liability net premiums.
Pretax investment income for the North American property/casualty operations
increased 16.7 percent compared to the second quarter of 1996 and 17.4 percent
year-to-date. On an after-tax basis, net investment income of $169 million for
the second quarter increased 14.7 percent from $147 million in the second
quarter of 1996. Investment income for the North American property/casualty
operations grew due to the inclusion of National Re's fixed income portfolio and
approximately $833 million of positive operating cash flow in the prior twelve
months, offset by share repurchases and common dividends. Excluding the effect
of the National Re transaction, after-tax investment income increased 11.3
percent in the quarter.
North American investment income of $200 million in the second quarter of 1997
increased slightly from $199 million in the first quarter of 1997. The overall
annualized pretax yield on the North American property/casualty invested asset
portfolio was 5.2 percent in the first six months of 1997, compared with 5.4
percent in the same period in 1996. The annualized pretax and after-tax yield in
the first six months of 1997 on the segment's fixed maturity portfolio was 6.5
percent and 5.5 percent, respectively, compared with 6.6 percent and 5.6 percent
in the same period in 1996.
Operating cash flow for the North American property/casualty operations was $253
million in the first six months of 1997, compared to $350 million in the same
period. This decrease is partially due to two commutations in the first quarter
which accounted for $51 million of the paid losses in the period. In addition,
the first quarter experienced an increased number of large claim payments which
were not concentrated in any particular line of business or accident year. The
commutation activity and increased loss payments did not continue in the second
quarter. Due to the nature of General Re's reinsurance operations, paid claims
may be volatile from quarter to quarter.
North American property/casualty invested assets were $15,293 million at June
30, 1997, an increase of 2.8 percent from December 31, 1996. The increase in
invested assets was primarily the result of positive operating cash flow,
unrealized appreciation in the equity portfolio, reduced by repurchases of
General Re's common stock and common stock dividends. During the first six
months of 1997, calls and maturities on grandfathered tax-exempt bonds were
approximately $32 million and preferred equity calls were $90 million. The bonds
had an average yield of approximately 7.9 percent and the proceeds from the
calls were reinvested at an average yield of approximately 5.6 percent. The
preferred equities had an average yield of approximately 7.9 percent and the
12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
proceeds from the calls were reinvested at an average yield of approximately 7.6
percent. Based on its current investment portfolio and the current yield curve,
General Re presently anticipates additional calls and maturities through the end
of 1997 of approximately $55 million of grandfathered tax-exempt bonds and $110
million of preferred equities, both with an average yield of approximately 7.7
percent. Reinvestment of these funds may adversely affect average portfolio
yields and investment income.
The gross liability for claims and claim expenses for the North American
property/casualty operations was $10,833 million at June 30, 1997, an increase
of $66 million, or 0.6 percent compared to the year-end 1996 liability. The
asset for reinsurance recoverable on unpaid claims was $2,027 million at June
30, 1997, compared to $2,025 million at December 31, 1996.
INTERNATIONAL PROPERTY / CASUALTY
(in millions)
Second Quarter Year-to-date
-------------- ------------
1997 1996 1997 1996
---- ---- ---- ----
Income before income taxes and realized gains $78 $76 $149 $159
Net premiums written 823 889 1,291 1,411
Net underwriting income (loss) (12) (18) (32) (29)
Combined ratio 102.0% 102.6% 102.7% 102.2%
Investment income $91 $97 $184 $196
Other income (loss) (1) (3) (3) (8)
Operating cash flow 100 181 328 396
Income before income taxes and realized gains of the international
property/casualty operations increased 2.2 percent for the second quarter of
1997, compared with the second quarter of 1996 but declined 6.4 percent compared
with the first six months of 1996. For the first six months of 1997, income for
the international property/casualty operations declined due to lower
underwriting and investment income. The comparisons for second quarter and
year-to-date 1997 were adversely affected by the strengthening of the U.S.
dollar (11.3 percent and 9.1 percent, respectively) relative to the German mark.
The combined ratio in the international property/casualty operations was 102.0
percent in the second quarter, which compares favorably to the 102.6 percent for
the second quarter of 1996 and 102.1 percent reported for the year 1996. For the
first six months of 1997 and 1996, the combined ratio was 102.7 percent and
102.2 percent, respectively.
International net premiums written were $823 million in the second quarter of
1997 and $1,291 million for the first six months of 1997, compared with $889
million and $1,411 million respectively in 1996. Excluding the effect of foreign
exchange, international property/casualty premiums written increased 1.9 percent
and decreased 0.7 percent in the second quarter and first six months of 1997,
respectively. The relatively flat premium growth in international premiums was
due to increased competition.
13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Pretax investment income for the international property/casualty operations was
$91 million for the second quarter of 1997, compared with $97 million in the
same period of 1996. The decline in investment income was due to a decline in
global interest rates over the past two years and the effect of foreign
exchange. Excluding the effect of foreign exchange, after-tax investment income
was flat compared with 1996. The overall annualized pretax yield on the invested
asset portfolio was 5.6 percent in the first six months of 1997 compared with
6.0 percent in the same period in 1996.
The international property/casualty and global life/health operations had cash
flow from operating activities of $328 million for the first six months of 1997,
compared with $396 million in 1996. The decline in operating cash flow was
principally due to the impact of foreign exchange and lower underwriting cash
flow.
International property/casualty and life/health invested assets were $8,367
million at June 30, 1997 compared with $8,290 million at December 31, 1996. The
increase in invested assets was due to investment of operating cash flows offset
by the stronger U.S. dollar, which appreciated 10.1 percent against the German
mark in the first six months of 1997.
The gross liability for claims and claim expenses was $5,270 million at June 30,
1997 compared with $5,210 million at December 31, 1996. The asset for
reinsurance recoverable on unpaid claims was $546 million at June 30, 1997 and
December 31, 1996. Growth in these amounts was reduced by the effect of foreign
exchange.
GLOBAL LIFE / HEALTH
(in millions)
Second Quarter Year-to-date
-------------- ------------
1997 1996 1997 1996
---- ---- ---- ----
Income before income taxes and realized gains $15 $16 $43 $28
Net premiums written
Life reinsurance 207 193 414 381
Health reinsurance 77 66 168 129
---- -- --- -----
Total life/health net premiums written 284 259 582 510
Net underwriting income (loss) (1) 4 9 6
Investment income 18 13 36 27
Other income (loss) (2) (2) (1) (5)
This segment includes the global life/health operations of Cologne Re. Income
before income taxes and realized gains for the first six months of 1997
increased 55.9 percent compared with the first six months of 1996 due to
increases in both underwriting and investment income. Income before income taxes
and realized gains for the second quarter of $15 million decreased slightly from
the $16 million in the comparable quarter of 1996.
Life reinsurance premiums written were $207 million for the second quarter of
1997, compared with $193 million in the second quarter of 1996. For the first
six months, life reinsurance premiums written were $414 million and $381 million
in 1997 and 1996, respectively. Life reinsurance grew in several markets,
including the
14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
United States, Australia and certain European countries. Excluding the effect of
changes in currency exchange rates, global life reinsurance premiums increased
approximately 17.3 percent and 16.7 percent in the second quarter of 1997 and
the first six months of 1997, respectively. The increase in health reinsurance
premiums in both the second quarter and first half of 1997 was primarily due to
a new block of individual health business written in the United States.
Investment income for the global life/health operations was $18 million and $36
million in the second quarter and first six months of 1997, respectively,
compared to $13 million and $27 million in 1996. The increase in investment
income was due to the significant growth in premium volume.
The liability for policy benefits for life/health contracts was $894 million at
June 30, 1997, compared with $751 million at December 31, 1996. The asset for
reinsurance recoverable on unpaid losses was $297 million at June 30, 1997,
compared to $228 million at December 31, 1996. 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 assets and total assets disclosures in the international
property/casualty segment includes the assets of the global life/health segment.
FINANCIAL SERVICES
(in millions)
Second Quarter Year-to-date
-------------- ------------
1997 1996 1997 1996
---- ---- ---- ----
Income before income taxes and realized gains $33 $24 $63 $50
Total revenues (excluding realized gains) 82 62 164 127
Investment income 7 6 15 10
Financial services operations include General Re's derivative products,
investment management, insurance brokerage and management, reinsurance
brokerage, and real estate management operations. In the second quarter and
first six months of 1997, financial services revenues of $82 million and $164
million, respectively, increased 32.7 percent and 31.3 percent from the $62
million and $125 million in the second quarter and first six months of 1996. The
growth in 1997 revenues was principally attributable to GRFP. The financial
services segment's investment income was $7 million and $6 million in the
second quarter of 1997 and 1996 and $15 million and $10 million for the first
six months of 1997 and 1996, respectively.
Invested assets held for trading purposes decreased $1,107 million to $2,287
million at June 30, 1997. The decrease primarily relates to the hedging
activities of GRFP. At June 30, 1997, total assets of the financial services
operations were $6,868 million, compared with $8,038 million at December 31,
1996. 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 its market, currency, and interest rate risks. 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 purchase of government securities,
usually financed through collateralized repurchase agreements (securities sold
under agreements to repurchase), and the sale of government securities, whose
proceeds are invested in reverse
15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
repurchase agreements (securities purchased under agreements to resell), are
used to offset GRFP's market exposures. While the use of these instruments for
risk management activities may cause significant short-term fluctions in GRFP's
assets and liabilities, they do not have a material effect on General Re's
results from operations or common stockholders' equity.
SAFE HARBOR DISCLOSURE
In connection with the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995 (the "Act"), General Re sets forth below
cautionary statements identifying important factors that could cause its actual
results to differ materially from those which might be projected, forecasted, or
estimated in its forward-looking statements, as defined in the Act, made by or
on behalf of General Re in press releases, written statements or documents filed
with the Securities and Exchange Commission, or in its communications and
discussions with investors and analysts in the normal course of business through
meetings, phone calls and conference calls. Such statements may include, but are
not limited to, projections of premium revenue, investment income, other
revenue, losses, expenses, earnings (including earnings per share), cash flows,
plans for future operations, common stockholders' equity, financing needs,
capital plans, dividends, plans relating to products or services of General Re,
and estimates concerning the effects of litigation or other disputes, as well as
assumptions for any of the foregoing and are generally expressed with words such
as "believes," "estimates," "expects," "anticipates," "plans," "projects,"
"forecasts," "goals," "could have," "may have" and similar expressions.
Forward-looking statements involve known and unknown risks, uncertainties and
other factors which may cause General Re's results to differ materially from
such forward-looking statements and include, but are not limited to, the
following:
1) Changes in the level of competition in the North American and
international reinsurance or primary insurance markets that adversely
affect the volume or profitability of General Re's property/casualty or
life/health businesses. These changes include, but are not limited to,
the intensification of price competition, the entry of new competitors,
existing competitors exiting the market, and the development of new
products by new and existing competitors;
2) Changes in the demand for reinsurance, including changes in ceding
companies' retentions, and changes in the demand for excess and
surplus lines insurance coverages in North America;
3) The ability of General Re to execute its growth strategies in its
property/casualty, life/health and financial services operations;
4) The ability of General Re to retain a significant portion of National
Re's book of business;
5) Catastrophe losses in General Re's North American or international
property/casualty businesses;
6) Adverse development on property/casualty claim and claim expense
liabilities related to business written in prior years, including, but
not limited to, evolving case law and its effect on environmental and
other latent injury claims, changing government regulations, newly
identified toxins, newly reported claims, new theories of liability, or
new insurance and reinsurance contract interpretations;
16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
7) Changes in inflation that affect the profitability of General Re's
current property/casualty and life/health businesses or the adequacy of
its property/casualty claim and claim expense liabilities and
life/health policy benefit liabilities related to prior years'
business;
8) Changes in General Re's property/casualty and life/health businesses
retrocessional arrangements;
9) Lower than estimated retrocessional or reinsurance recoveries on
unpaid losses, including, but not limited to, losses due to a
decline in the creditworthiness of General Re's retrocessionaires or
reinsurers;
10) Increases in interest rates, which cause a reduction in the market
value of General Re's interest rate sensitive investments, including,
but not limited to, its fixed income investment portfolio, and its
common stockholders' equity;
11) Decreases in interest rates causing a reduction of income earned on new
cash flow from operations and the reinvestment of the proceeds from
sales, calls or maturities of existing investments;
12) Declines in the value of General Re's common equity investments;
13) Changes in mortality or morbidity levels that affect General Re's
life/health business;
14) Changes in the demand for financial services operations' products,
including derivatives offered by GRFP;
15) Credit losses on General Re's investment portfolio; credit and
market losses on GRFP's portfolio of derivatives and other
transactions;
16) Adverse results in litigation matters, including, but not
limited to, litigation related to environmental,
asbestos and other potential mass tort claims; and
17) Gains or losses related to foreign currency exchange rate fluctuations.
In addition to the factors outlined above that are directly related to General
Re's businesses, General Re is also subject to general business risks,
including, but not limited to, adverse state, federal or foreign legislation and
regulation, adverse publicity or news coverage, changes in general economic
factors, and the loss of key employees.
17
OTHER INFORMATION
Item 1. Legal Proceedings
On July 1, 1996, U.S. Aviation Underwriters, Inc. ("USAU"), a subsidiary of
General Re, and the former Chief Executive Officer of USAU, were found guilty of
mail fraud in connection with the allocation of legal liability between two
policyholders arising from the settlement of claims for a December 7, 1987
airline crash. USAU's sentence included a $20.5 million fine, payable in
installments over the five year probation period and restitution in accordance
with previously paid civil settlements. These amounts were accrued in prior
periods. USAU is appealing both its conviction and sentence.
Payment of the fine by USAU is stayed pending the determination of the appeal.
Item 6. Exhibits and Reports on Form 8-K
(a) Reports on Form 8-K - none
(b) Exhibit 10.7 - Employment Agreement
(c) Exhibit 11 - Statement Re: Computation of Per Share Earnings
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:August 14, 1997 JOSEPH P. BRANDON
Joseph P. Brandon
Vice President and Chief Financial Officer
(Principal Financial Officer)
Date:August 14, 1997 ELIZABETH A. MONRAD
Elizabeth A. Monrad
Vice President and Treasurer
(Principal Accounting Officer)
18
Exhibit 10.7
June 30, 1997
Ronald E. Ferguson
Chairman and Chief Executive Officer
General Re Corporation
695 E. Main Street
Stamford, CT 06901
Dear Ron:
As we discussed, in light of your outstanding contributions and our mutual
desire to have you continue working for General Re, we have decided to
memorialize the terms of your employment as follows:
1. You will continue to serve on a full-time* basis as Chairman and Chief
Executive Officer of General Re Corporation (the Company) until June 30,
2002 (the Employment Period). During the Employment Period, you will
report to the Board of Directors. (*This, however, does not preclude
service on other Boards - subject to the approval of the General Re
Corporation Compensation and Personnel Committee.)
2. Your annual salary will not be less than the current level and may be
adjusted upward.
3. You will be eligible to participate in the Company's Annual Incentive
Plan (AIP) and long term incentive plan as amended from time to time by
the Company or any new compensation plan which becomes available to the
Company's most senior executives.
4. You will continue to receive other benefits including medical, life and
disability insurance and programs that the Company generally offers to
its most senior executives.
5. Unless terminated in accordance with the following, the Company will
continue to employ you as its Chairman and Chief Executive Officer and
you will continue in that capacity.
(a) Death or Disability. Your employment shall terminate automatically
upon your death during the Employment Period and you will receive
service credit for the remaining term of this Agreement in the
calculation of your surviving spouse pension benefit. If the
Compensation and Personnel Committee determines in good faith that
a Disability (as defined below) has
19
occurred during the Employment Period, it may give you written
notice of its intention to terminate your employment. In such
event, your employment with the Company shall terminate effective
on the 30th day after your receipt of such notice (the Disability
Effective Date), provided that, within 30 days after such receipt,
that you shall not have returned to full-time performance of your
duties. For purposes of this Agreement, Disability shall mean your
absence from your duties with the Company on a full-time basis for
120 consecutive business days as a result of incapacity due to
mental or physical illness which is determined to be total and
permanent by a physician selected by the Company or its insurers
and acceptable to you (such agreement as to acceptability shall
not to be unreasonably withheld).
(b) Cause. The Company may terminate your employment during the
Employment Period for Cause. For purposes of this Agreement, Cause
shall mean (i) your repeated material breaches of the your
obligations under this agreement (other than as a result of
incapacity due to physical or mental illness) which breaches (A)
are demonstrably willful and deliberate, and (B) are committed in
bad faith or without reasonable belief that such breaches are in
the best interests of the Company and (C) are not remedied in a
reasonable period of time after your receipt of written notice
from the Company specifying such breaches or (ii) your conviction
of a felony involving moral turpitude.
(c) Without cause. In case of any termination of your employment
without cause, your base salary at the rate then in effect shall
be continued for a Severance Period equal to the greater of three
years from the date of termination or the remainder of the
Employment Period. Bonuses will be paid pro rata through the
termination date. During the Severance Period, bonuses will be
paid at the average of the prior three years' payouts and normal
medical and life insurance (including Split Dollar Life
Insurance) benefits will be provided during the Severance Period.
During the Severance Period you will continue to accrue credited
service under and participate in all pension and benefit plans as
though a regular employee. During the Severance Period,
nonqualified stock options, Restricted Stock, Performance Bonus
Plan, and Share Partnership Plan will continue to vest and be
exercisable. At the conclusion of the Severance Period all
remaining unvested benefits will vest. Your receipt of the above
is contingent on all of the following:
i. Continued compliance with the restrictive covenants set
forth in paragraphs 6 and 7 below.
ii. Delivery of a general release in favor of the Company.
iii. Continued cooperation at the Company's request in managing
claims, arbitration, litigation
and government proceedings by or against the Company.
iv. Refraining from disparaging the Company and its subsidiaries.
20
For purposes of paragraph 5(c) a termination without cause shall
include (i) an involuntary assignment of duties materially
inferior from your position under this agreement, (ii) a downward
adjustment of your salary below the amount specified in Paragraph
2 of the agreement or, (iii) an involuntary relocation of your
regular assigned workplace by more than an additional 50 miles
from your current residence. If any of the above events occur and
are not cured within 30 days of receiving written notice from you,
a termination without cause shall be deemed to have occurred.
(d) Change in Control. In the event that there is a change in
control of the Company (as defined in the Severance Agreement
executed on May 15, 1996 between you and the Company) during the
term of this Agreement and within two years after the change in
control your employment is terminated (other than by death,
disability, for cause or voluntary) it shall be treated as a
termination "without cause" as provided in Paragraph 5(c) of this
Agreement, except (i) you shall be entitled to the severance
payments provided for under the Severance Agreement, in lieu of
the severance payments provided in Paragraph 5 (c) of this
Agreement. (ii) you shall immediately upon termination be entitled
to the unreduced pension benefits provided for in paragraph 9 of
this Agreement, and (iii) all other provisions of the Severance
Agreement including but not limited to Paragraph 4 of the
Severance Agreement shall be applicable.
6. You agree that for a period of one (1) year following any
voluntary termination of your employment or for the Severance
Period (as defined herein) following an involuntary termination
of your employment under this Agreement other than for cause, you
will not, directly or indirectly: (i) employ, hire or cause to be
employed or hired any person who is employed by the Company or
any of its subsidiaries on the termination date of such your
employment; or (ii) cause, invite, solicit, entice or induce any
such person to terminate his employment with the Company or any
of its subsidiaries or (iii) without written approval of the
Company enter into any employment or consultation arrangement
either as a sole proprietor or in association with any person or
entity where such arrangement or entity is materially competitive
with the Company or its subsidiaries. If you enter into such
employment or activities without permission of the Company you
will not be entitled to compensation under this Agreement to the
extent such benefits have not been paid as of the commencement of
the competitive arrangement.
7. You agree that during the Employment Period, and thereafter, you shall
not disclose directly or indirectly to any person, corporation, firm,
partnership or other entity ( a Person) or any officer, director,
stockholder, partner, associate, employee, agent or representative of any
Person, any confidential information or trade secrets of the Company or
of any subsidiary, except in the performance of your duties hereunder, by
court order, or with the prior written consent of the Company. Further,
on the termination of your employment for any reason, you agree not to
remove or retain any business related letters, papers, documents,
21
instruments or copies thereof or any other confidential information of
any type or description without the express consent of the Board.
8. Protection of Unfunded Plans. At all times during the Employment
Period, the Company shall have established and made contributions
to a grantor trust or trusts, the assets of which are (i)
sufficient to provide, on an actuarial basis as determined by the
Company at least once a year, all benefits accrued and
compensation deferred by you pursuant to the Unfunded Plans (as
hereinafter defined), together with all interest and other
credited earnings thereon, (ii) subject to the claims of the
Company's creditors in the event of bankruptcy or insolvency. The
foregoing is not intended to cause any of the Unfunded Plans to
cease to be an unfunded plan for purposes of the Employee
Retirement Income Security Act of 1974 (ERISA), as amended or the
Internal Revenue Code of 1986, as amended (IRC). You shall have
no beneficial interest in the assets of any such grantor trust,
and your rights to benefits pursuant to the Unfunded Plans shall
at all times be those of a general creditor of the Company. As
used in this paragraph 8, the term Unfunded Plans means the Cash
Bonus Plans, the Supplemental Executive Retirement Plan (SERP)
including the excess benefit savings plan, the Share Partnership
Plan (SPP), and any successor or replacement plans thereto.
9. At the conclusion of the Employment Period or the Severance Period if
that comes later, you will be treated as a normal retiree with an
actuarially undiminished pension.
10. Notwithstanding the foregoing, you shall be entitled to elect that the
SERP shall be paid in accordance with any optional form of benefit
available under the Company's qualified retirement plan or as provided in
Addendum #1 to this Agreement. You hereby specifically acknowledge
paragraph 2.3 of Article II of the Supplemental Benefits Equalization
Plan as last amended November, 1995 and the fact that the Company has the
right to seek injunctive relief if that paragraph is violated in a
material way after you have elected and received a lump sum pay out under
the SERP.
11. If any portion of this Agreement is so broad in scope of duration as to
be unenforceable, such portion shall be interpreted to be only so broad
as is enforceable.
12. This is the complete agreement between you and the Company with respect
to the subjects covered, except that the Severance Agreement between you
and the Company dated May 15, 1996, will remain in effect as will the
various stock option, share units, restricted stock and indemnity
agreements, without duplication of benefits. Any inconsistency between
such Severance Agreement or other agreements and this Agreement shall be
resolved in the manner most favorable to you. This Agreement may only be
amended in signed written form having been approved by the Compensation
and Personnel Committee of the Company's Board of Directors.
22
13. In case of any dispute between the Company and you relating to this
Agreement or the employment relationship such dispute shall be settled by
arbitration in Stamford, Connecticut in accordance with the Commercial
Arbitration Rules of the American Arbitration Association. Judgment upon
any award rendered may be entered in any court having jurisdiction.
Agreed:
/s/ 6/30/97
Ronald E. Ferguson
Chairman & Chief Executive Officer
General Re Corporation
For the Company /s/ 6/30/97
Theron S. Hoffman
Vice President, General Re Corporation
/s/ 7/7/97
Andrew W. Mathieson
Chairman, Compensation & Personnel Committee
Board of Directors
General Re Corporation
Addendum #1
You may elect (the Executive's Lump Sum Election) to receive payment of the
actuarial equivalent of your Normal Supplement or Early Retirement Supplement
(as provided for in the Agreement), as the case may be (the Executive's Benefit)
and the benefit payable to your wife after your death pursuant to paragraph 5 of
the Agreement (the Survivor's Benefit) in a lump sum in cash or in up to five
equal annual cash installments on or commencing on the date of your retirement
or the first day of any month thereafter, not later than the second anniversary
of the date of your retirement. If you die after retirement with an Executive's
Lump Sum Election in effect but prior to the payment of the full amount of the
lump sum or annual installments due thereunder, payment of the unpaid amount
thereof shall be made to your surviving spouse, designated beneficiary or estate
in accordance with your election. Payment made in accordance with this addendum
to you, your surviving spouse, designated beneficiary or estate shall constitute
full and complete satisfaction of the Company's obligation in respect of the
Executive's Benefit and the Survivor's Benefit.
If you do not make the Executive's Lump Sum Election, your surviving spouse may
elect (the Survivor's Lump Sum Election) to receive the actuarial equivalent of
the Survivor's Benefit, if any, in a lump sum in cash or in up to five equal
annual cash installments. A lump sum or installments so elected by your
surviving spouse shall be paid on or commencing on the first day of the month
next following the month of your death, or the first day of any month thereafter
not later than the first day of the month coincident with or next following the
second anniversary of your death.
23
The Executive's Lump Sum Election and the Survivor's Lump Sum Election shall be
made, and may be rescinded, in the same manner and at the same times as are
prescribed for the analogous elections under the Company's Executive Qualified
Pension Plan (QPP) or any successor or replacement plan (the QPP) or, at any
time when there is no QPP in effect, in accordance with procedures specified by
the Compensation and Personnel Committee of the Board of Directors of the
Company (the Committee). The amount of any lump sum or installment payments of
the Employee's Benefit or Survivor's Benefit shall be computed in the same
manner as is prescribed for the analogous computations under the Qualified
Pension Plan or, (subject to paragraph 9 of the Agreement) at any time when
there is not QPP in effect or there are no analogous computations provided under
the QPP, as specified by the Committee.
The Committee may, in its sole discretion, defer the payment of any lump sum or
annual installment of the Executive's Benefit to you (putting such deferred
funds in an appropriate Rabbi Grantor Trust), if you are, at the time such
amount would otherwise be paid, a covered employee as defined in Section 162(m)
of the IRC as amended, and if such payment would be subject to such Sections
limitation on deductibility; provided, however, that such payment shall not be
deferred to a date later than the earliest date in the year in which such
payment would not be subject to such limitation; and further provided that the
Company shall, at the time of payment of any amount so deferred to you, or your
surviving spouse or estate, pay interest thereon from the original due date
thereof at a rate equal to the "prime rate" as reported in the Wall Street
Journal on the first business day of each calendar quarter, compounded
quarterly.
Agreed:
/s/ 6/30/97
Ronald E. Ferguson
Chairman & Chief Executive Officer
General Re Corporation
For the Company /s/ 6/30/97
Theron S. Hoffman
Vice President, General Re Corporation
/s/ 7/7/97
Andrew W. Mathieson
Chairman, Compensation & Personnel Committee
Board of Directors
General Re Corporation
24
Exhibit 11
Computation of Per Share Earnings
Three Months Ended Six Months Ended
June 30, June 30,
Earnings Per Share of Common Stock
(in millions, except share data) 1997 1996 1997 1996
- -------------------------------- ---- ---- ---- ----
Net income (applicable to common
stock)(1) $231 $222 $472 $456
Average number of common shares
outstanding 80,114,284 79,254,137 80,603,471 80,355,796
========== ========== ========== ==========
Net income per share (2) $2.88 $2.80 $5.85 $5.67
===== ===== ===== =====
(1) After deduction of preferred stock dividends of $2 million and $5
million for the three and six months ended June 30, 1997 and 1996.
(2) Fully diluted earnings per share are not reported because the effect
of potentially dilutive securities are not material.
25