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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ...................... TO .....................
COMMISSION FILE NUMBER 1-8278
RELIANCE GROUP HOLDINGS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 13-3082071
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
PARK AVENUE PLAZA
55 EAST 52ND STREET
NEW YORK, NEW YORK
(ADDRESS OF PRINCIPAL EXECUTIVE 10055
OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 909-1100
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE ON WHICH
TITLE OF EACH CLASS REGISTERED
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New York Stock Exchange and Pacific
Common Stock, $.10 Par Value Exchange
9% Senior Notes, Due November 15, 2000 New York Stock Exchange
9 3/4% Senior Subordinated Debentures,
Due November 15, 2003 New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
None
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 by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of March 15, 1999, 116,118,031 shares of the common stock of Reliance
Group Holdings, Inc. were outstanding, and the aggregate market value of the
voting stock held by nonaffiliates was approximately $561,139,223.
DOCUMENTS INCORPORATED BY REFERENCE:
(1) Reliance Group Holdings, Inc. 1998 Annual Report--Parts I, II and
IV.
(2) Reliance Group Holdings, Inc. Proxy Statement for the Annual
Meeting of Stockholders to be held May 13, 1999--Part III.
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PART I
ITEM 1. BUSINESS.
GENERAL
Reliance Group Holdings, Inc. (the "Company" or "Reliance Group Holdings")
is a holding company whose principal business is the ownership of Reliance
Insurance Company and its property and casualty insurance subsidiaries (the
"Reliance Insurance Group"). The Reliance Insurance Group underwrites a broad
range of commercial line property and casualty insurance and also underwrites
personal automobile coverage. The Company also owns RCG Information Technology,
Inc. ("RCG Information Technology"), an information technology consulting
company.
On February 27, 1998, the Company completed the sale of its title insurance
companies, Commonwealth Land Title Insurance Company and Transnation Title
Insurance Company and their respective subsidiaries ("Commonwealth/Transnation
Title") to Lawyers Title Corporation, whose name was changed to LandAmerica
Financial Group, Inc. ("LandAmerica") on that date. As consideration for the
sale, the Company received $266.6 million in cash, 4,039,473 shares of
LandAmerica common stock and 2,200,000 shares of LandAmerica 7% cumulative
convertible preferred stock having a stated value of $110,000,000 and which is
initially convertible into 4,824,561 shares of LandAmerica common stock. Such
shares of common stock and preferred stock are subject to various terms,
conditions and restrictions with regard to sale, conversion and voting. The
total sale proceeds were $662.1 million. The Company owns approximately 26% of
LandAmerica's outstanding common stock and, on a diluted basis, 44% of
LandAmerica's common stock, assuming the conversion of the preferred stock, and
has three representatives on LandAmerica's 14-member board of directors.
Accordingly, the Company accounts for its investment in LandAmerica by the
equity method of accounting and has classified LandAmerica as an investee
company. The transaction resulted in an after-tax gain of $242.9 million, of
which $133.6 million was recognized in 1998. The deferred gain of approximately
$109.3 million will be recognized as the equity securities received from
LandAmerica are sold. See Note 2 to the Company's consolidated financial
statements (the "Consolidated Financial Statements"), which information is
incorporated herein by reference, and "Investee Companies".
Reliance Insurance Company has conducted business since 1817, making it one
of the oldest property and casualty insurance companies in the United States.
The Reliance Insurance Group consists of Reliance National, Reliance Insurance,
Reliance Reinsurance, Reliance Surety and Reliance Direct, each of which has a
distinct operating identity and is managed separately. Reliance National offers,
through brokers and agents, a broad range of commercial property and casualty
insurance products and services primarily for large companies and specialty
lines customers. Reliance National also offers, through agents, non-standard
automobile and smaller account workers' compensation insurance, as well as
insurance programs for groups with common insurance needs. Reliance National
selects market segments where it can provide specialized coverages and services.
It conducts business nationwide and in certain international markets. In 1998,
Reliance National accounted for 50% of the net premiums written by the Reliance
Insurance Group. Reliance Insurance provides, through agents and brokers,
commercial property and casualty insurance coverages for mid-sized companies
primarily in the United States. Reliance Insurance also offers traditional and
specialized coverages for more complex risks. In 1998, Reliance Insurance
accounted for 32% of the net premiums written by the Reliance Insurance Group.
Reliance Reinsurance offers, primarily through brokers, treaty and facultative
reinsurance, including products for agricultural-related risks, for small to
medium sized regional and specialty insurance companies located in the United
States. Reliance Surety is a leading writer of surety bonds and fidelity bonds
in the United States and conducts its business through agents and brokers.
Reliance Direct was formed in 1997 to market and underwrite preferred personal
automobile insurance on a direct basis. In the first quarter of 1999, the
Reliance Insurance Group commenced a review of its personal automobile lines of
business to determine the feasibility of combining the personal automobile
businesses of Reliance National and Reliance Direct into a single operating
unit. As a result, the Reliance Insurance Group has determined that it will
create Reliance Personal Insurance ("Reliance Personal"), a new unit designed to
serve both the standard and non-standard markets for personal automobile
insurance. Accordingly, the Company is reviewing the form in which it will
present the results of the Reliance Insurance Group's operating units in future
periods.
1
RCG Information Technology provides computer-related services to corporate
clients primarily in the United States and had revenues of $247.7 million in
1998.
Business segment information for the years ended December 31, 1998, 1997
and 1996 is set forth in Note 18 to the Consolidated Financial Statements, which
information is incorporated herein by reference. All financial information in
this Annual Report on Form 10-K is presented in accordance with generally
accepted accounting principles ("GAAP") unless otherwise specified.
The Company owns all of the common stock of Reliance Financial Services
Corporation ("Reliance Financial") which in turn owns all of the common stock of
Reliance Insurance Company. The common stock of Reliance Insurance Company is
pledged to secure certain indebtedness. See Note 8 to the Consolidated Financial
Statements, which information is incorporated herein by reference. Reliance
Insurance Company indirectly owns all of the common stock of RCG Information
Technology.
OPERATING UNITS
Property and Casualty Insurance. The following table sets forth the amount
of net premiums written in each line of business for the years ended
December 31, 1998, 1997 and 1996 by Reliance National, Reliance Insurance,
Reliance Reinsurance, Reliance Surety and Reliance Direct.
1998 1997 1996
------------------------------------- ------------------------------------- -------------------
RELIANCE RELIANCE RELIANCE RELIANCE RELIANCE RELIANCE
NATIONAL INSURANCE OTHER(1) TOTAL NATIONAL INSURANCE OTHER(1) TOTAL NATIONAL INSURANCE
-------- --------- -------- ------ -------- --------- -------- ------ -------- ---------
(IN MILLIONS, EXCEPT PERCENTAGES)
General Liability............. $ 347 $ 118 $ -- $ 465 $311 $ 112 $ -- $ 423 $368 $ 99
Commercial Auto............... 109 226 -- 335 97 198 -- 295 86 179
Workers' Compensation......... 156 148 -- 304 128 148 -- 276 127 123
Multiple Peril................ 17 209 -- 226 18 203 -- 221 20 192
Reinsurance................... -- -- 217 217 -- -- 159 159 -- --
Surety........................ -- -- 204 204 -- -- 177 177 -- --
Non-Standard Auto............. 201 -- -- 201 98 -- -- 98 -- --
Ocean and Inland Marine....... 126 41 -- 167 150 41 -- 191 83 46
Accident and Health........... 154 -- -- 154 92 -- -- 92 62 --
Fire and Allied............... 36 24 -- 60 20 26 -- 46 22 42
Preferred Personal Auto....... -- -- 26 26 -- -- 1 1 -- --
Other......................... 68 9 2 79 73 12 2 87 66 21
------ ----- ---- ------ ---- ----- ---- ------ ---- -----
Total....................... $1,214 $ 775 $449 $2,438 $987 $ 740 $339 $2,066 $834 $ 702
------ ----- ---- ------ ---- ----- ---- ------ ---- -----
------ ----- ---- ------ ---- ----- ---- ------ ---- -----
Percent of Total.............. 50% 32% 18% 100% 48% 36% 16% 100% 45% 38%
------ ----- ---- ------ ---- ----- ---- ------ ---- -----
------ ----- ---- ------ ---- ----- ---- ------ ---- -----
1996
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OTHER(1) TOTAL
-------- ------
General Liability............. $ -- $ 467
Commercial Auto............... -- 265
Workers' Compensation......... -- 250
Multiple Peril................ -- 212
Reinsurance................... 151 151
Surety........................ 159 159
Non-Standard Auto............. -- --
Ocean and Inland Marine....... -- 129
Accident and Health........... -- 62
Fire and Allied............... -- 64
Preferred Personal Auto....... -- --
Other......................... -- 87
---- ------
Total....................... $310 $1,846
---- ------
---- ------
Percent of Total.............. 17% 100%
---- ------
---- ------
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(1) Consists of Reliance Reinsurance, Reliance Surety, Reliance Direct and
Other.
For information about the net premiums earned, underwriting gain (loss) and
combined ratios for the years ended December 31, 1998, 1997 and 1996 for
Reliance National, Reliance Insurance, Reliance Reinsurance, Reliance Surety and
Reliance Direct, see "Reliance Group Holdings, Inc. and Subsidiaries Financial
Review" on page 26 of the Reliance Group Holdings 1998 Annual Report, which
information is incorporated herein by reference.
The following table sets forth underwriting results for the Reliance
Insurance Group for the years ended December 31, 1998, 1997 and 1996.
YEAR ENDED DECEMBER 31,
------------------------------------
1998 1997 1996
-------- -------- --------
(IN MILLIONS, EXCEPT RATIOS)
Net premiums written... $2,438.3 $2,065.8 $1,846.2
Underwriting loss(1)... (52.1) (31.7) (38.4)(2)
Combined ratio......... 102.1% 100.9% 101.6%(2)
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(1) Includes catastrophe losses (net of reinsurance) for the years ended
December 31, 1998, 1997 and 1996 of $33.3 million, $11.1 million and
$19.9 million, respectively.
(2) Excludes a charge of $134.0 million (7.4 combined ratio points) to
increase net loss reserves for asbestos-related and environmental
pollution claims for business written in or before 1987. The actual
underwriting loss was $172.4 million and the combined ratio was 109.0%.
2
The following table sets forth certain financial information of the
Reliance Insurance Group based upon statutory accounting practices and
shareholder's equity of Reliance Insurance Company, the principal operating
subsidiary of the Company, based upon GAAP (in thousands):
STATUTORY ACCOUNTING GAAP
---------------------------------------------------------------------------- -------------
NET TOTAL POLICY- COMMON
YEAR ENDED PREMIUMS UNEARNED LOSS ADMITTED TOTAL HOLDERS' SHAREHOLDER'S
DECEMBER 31, WRITTEN PREMIUMS RESERVES ASSETS LIABILITIES SURPLUS EQUITY
- - ------------ ---------- ---------- ---------- ---------- ----------- ---------- -------------
1998........ $2,464,813 $1,117,095 $3,175,171 $6,665,158 $ 4,917,733 $1,747,425 $ 1,916,051
1997........ 2,081,991 980,146 3,172,266 5,955,177 4,652,687 1,302,490 1,704,256
1996........ 1,848,159 885,799 3,228,792 5,669,276 4,482,220 1,187,056 1,410,484
The Reliance Insurance Group writes insurance in every state of the United
States, the District of Columbia, Puerto Rico, Guam and the Virgin Islands. In
1998, California, New York, Florida, Texas and Pennsylvania accounted for
approximately 15%, 10%, 8%, 6% and 5%, respectively, of direct premiums written.
No other state accounted for more than 5% of direct premiums written by the
Reliance Insurance Group. The Reliance Insurance Group writes insurance
primarily through agents and brokers and also underwrites personal lines
automobile insurance utilizing the Internet, direct mail and other direct
marketing channels.
The Reliance Insurance Group also writes insurance in the European
Community through Reliance National offices in the United Kingdom, the
Netherlands, Sweden, Spain and Germany, in the Americas through Reliance
National offices in Canada, Mexico, Argentina and Brazil, in the Pacific Rim
through a Reliance National office in Singapore, and in Asia through a Reliance
National office in South Korea and a joint venture insurance operation in Hong
Kong called Lippo Reliance Insurance Company Ltd. The Reliance Insurance Group
also writes insurance through Reliance National offices in Switzerland and in
South Africa. In addition, the Reliance Insurance Group has cooperation
agreements between Reliance National and each of Huatai Insurance Company and
Tian An Insurance Company, both in China. The Reliance Insurance Group's
foreign-sourced net written premiums were $284.2 million, $271.2 million and
$195.7 million for the years ended December 31, 1998, 1997 and 1996,
respectively.
Aon Group, Inc., a worldwide insurance brokerage firm, accounted for 11.8%
of the direct premiums written in 1998 by the Reliance Insurance Group.
A. M. Best & Company, Inc. ("Best"), publisher of Best's Insurance Reports,
Property-Casualty, has assigned an "A- (Excellent)" rating to the Reliance
Insurance Group. Best's ratings are based on an analysis of the financial
strength, operating performance and market profile of an insurance company as
they relate to Best's quantitative and qualitative standards. An "A-
(Excellent)" rating is assigned to those companies which have, on balance,
excellent financial strength, operating performance and market profile when
compared to the standards established by Best. Standard & Poor's ("S&P") has
assigned an "A" rating to the claims-paying ability of the Reliance Insurance
Group. An "A" rating is assigned to those companies which have strong financial
security characteristics, but are somewhat more likely to be affected by adverse
business conditions than are insurers with higher ratings. The Best and S&P
ratings are not designed for the protection of investors and do not constitute
recommendations to buy, sell or hold any security. Although the Best and S&P
ratings of the Reliance Insurance Group are not as high as many of the insurance
companies with which the Reliance Insurance Group competes, management believes
that the current ratings are adequate to enable the Reliance Insurance Group to
compete successfully.
Reliance National. Reliance National offers a broad range of commercial
insurance products and services, both on a primary and assumed basis, with a
focus on large accounts and specialty lines customers. Reliance National selects
market segments where it can provide specialized coverages, such as directors
and officers liability insurance, or specialized services, such as providing
captive insurance arrangements to the alternative risk markets. During 1998,
Reliance National provided non-standard personal automobile insurance. It also
provides traditional commercial insurance products. In 1998, Reliance National
accounted for 50% of the net premiums written by the Reliance Insurance Group.
Reliance National, which conducts business nationwide and in certain
international locations, is headquartered in New York City and has 88 offices in
twenty-four states and fourteen countries. Reliance National distributes its
products through insurance brokers and agents. Net
3
premiums written by Reliance National were $1.2 billion, $987.3 million and
$833.7 million for the years ended December 31, 1998, 1997 and 1996,
respectively.
Reliance National is organized into eight major divisions. Each division is
comprised of departments which focus on particular types of businesses, programs
or market segments. Each department makes use of underwriters, actuaries, claims
personnel and other professionals to market, structure, price and service its
products. Reliance National's eight major divisions are:
o Casualty Risk Services, Reliance National's largest division, which
writes workers' compensation, commercial automobile and general liability
coverages primarily to Fortune 1,000 companies, multinationals and the
construction industry. These coverages are primarily provided on a large
deductible basis and to the alternative risk markets through captive
reinsurance arrangements. This division also provides environmental
pollution coverages primarily on a claims-made basis for consultants,
contractors, transporters and certain other insureds, and operates
CyberComp, which permits Reliance National to utilize the Internet to
write, through agents, guaranteed cost workers' compensation coverages
for smaller accounts.
o Non-Standard Automobile, which primarily writes personal automobile
insurance for drivers unable to obtain insurance in the standard
automobile insurance market. In 1999, these operations will be
consolidated into Reliance Personal.
o International, which writes predominantly commercial casualty and
property insurance products, including commercial automobile and
specialized coverages such as excess casualty, directors and officers
liability insurance, fidelity insurance and accident and health coverage
in certain international markets. This division also writes ocean marine
coverages in domestic and certain international markets.
o International Reinsurance and Special Risk, which writes aviation and
space satellite risk coverages, as well as certain non-traditional
insurance products, in domestic and certain international markets.
o Accident and Health, which writes high limit disability, group accident,
blanket special risk and medical excess of loss programs.
o Financial Products, which writes directors and officers liability
insurance, errors and omissions insurance, employment practices liability
insurance and fidelity and fiduciary coverages in the domestic market.
o Excess and Surplus Lines, which primarily writes professional liability
insurance to architects, engineers, lawyers, healthcare providers and
other professionals, and writes excess and umbrella coverages.
o Property/Custom Casualty, which primarily writes commercial property,
casualty and inland marine coverages focusing on excess and specialty
commercial accounts.
Reliance National formed a Credit Insurance division in 1998, which is
expected to commence the writing of premiums in 1999. This division plans to
write a range of consumer insurance products including credit life insurance,
disability insurance and unemployment insurance.
Reliance National attempts to limit its exposure to losses through the use
of claims-made policies, policies written on a large deductible basis and by
purchasing reinsurance. Policies written on a "claims-made" basis accounted for
approximately 20%, 23% and 26% of Reliance National's net premiums written
during 1998, 1997 and 1996, respectively. Policies written on a "claims-made"
basis provide coverage only for claims made against the insured during the
policy period or within an established reporting period, as opposed to
"occurrence" basis policies which provide coverage for events that occur during
the policy period without regard for when the claim is reported. Claims-made
policies mitigate the "long tail" nature of the risks insured. Policies written
on a large deductible basis accounted for approximately 9%, 9% and 14% of
Reliance National's net premiums written during 1998, 1997 and 1996,
respectively. Under policies written on a large deductible basis, the insured
pays, or reimburses the insurer for, all of its losses up to the deductible
amount. Under a large deductible policy, the insured may also pay for a portion
of the allocated loss adjustment expenses within the deductible amount. The use
of large deductible policies results in lower premiums and losses for Reliance
National as payments or reimbursements for losses made by an insured under a
large deductible policy are generally not considered premiums or losses to an
insurer. With large deductible policies, Reliance National
4
provides insurance and loss control management services while reducing its
underwriting risk. Reliance National assumes a credit risk in connection with
large deductible policies and, therefore, insureds with such policies undergo
extensive credit analysis by a centralized credit department that is independent
from the underwriting process. Collateral in the form of bank letters of credit,
trust accounts or cash is generally provided by the insured to cover a
significant portion of Reliance National's credit exposure.
To further limit exposures, a substantial majority of Reliance National's
net premiums written during 1998 were for policies with net retentions equal to
or lower than $1.5 million per risk. By reinsuring a large proportion of its
business, Reliance National seeks to limit its exposure to losses on each line
of business it writes.
Reliance Insurance. Reliance Insurance offers commercial lines property
and casualty insurance products, primarily focusing on the diverse needs of
mid-sized companies nationwide. Reliance Insurance conducts business through 37
offices and distributes its products through approximately 1,400 agents and
brokers. Reliance Insurance's insureds are primarily closely held companies with
100 to 1,000 employees and annual sales of $5 million to $300 million. Reliance
Insurance underwrites a variety of commercial insurance coverages, including
commercial automobile, multiple peril, workers' compensation and general
liability. In 1998, Reliance Insurance accounted for 32% of the net premiums
written by the Reliance Insurance Group. Reliance Insurance is headquartered in
Philadelphia and operates in 50 states, the District of Columbia, Puerto Rico,
Guam and the Virgin Islands. Net premiums written by Reliance Insurance were
$775.5 million, $740.4 million and $702.4 million for the years ended December
31, 1998, 1997 and 1996, respectively.
Reliance Insurance's three major divisions are:
o Commercial Accounts, which focuses on accounts with annual premiums of up
to $1 million. This division writes a broad range of traditional
commercial coverages, primarily on a guaranteed cost basis.
o Specialty, which provides underwriting for industry segments with special
exposures and in 1998 wrote specific business segments: transportation,
manufacturing, contracting, public entities and social services. In 1999,
the manufacturing and contracting segments are expected to be
consolidated into the Commercial Accounts Division.
o Large Accounts, which focuses on casualty exposures of accounts with
annual premiums in excess of $1 million where it is able to offer more
flexible coverages through the use of large deductible and
retrospectively rated policies. With retrospectively rated policies, the
insured effectively pays for a large portion or, in many cases, all of
its losses. The Large Accounts division primarily provides workers'
compensation insurance and approximately 39% of its business was written
on a large deductible and retrospectively rated basis. Accounts with
large deductible and retrospectively rated policies undergo extensive
credit analysis by a centralized credit department that is independent
from the underwriting process. Collateral in the form of bank letters of
credit, trust accounts or cash is generally provided by the insured to
cover a significant portion of Reliance Insurance's credit exposure.
The Commercial Accounts and Large Accounts divisions provide their products
and services through a decentralized network of regional and branch offices.
This organization allows the Commercial Accounts and Large Accounts divisions to
place major responsibility and accountability for underwriting, sales and
customer service close to the insured. The Specialty division has a centralized
underwriting and customer service operation with a decentralized network of
sales representatives throughout the country. Reliance Insurance manages claims
for all of its divisions through a decentralized network of regional and branch
offices, which allows the point of service to be close to the insured.
Reliance Reinsurance. Reliance Reinsurance provides casualty reinsurance
on both a treaty (blocks of risk) and facultative (individual risks) basis and
property reinsurance on a treaty basis. The business of Reliance Reinsurance is
primarily conducted on a treaty basis. All treaty business is marketed through
reinsurance brokers who negotiate contracts of reinsurance on behalf of the
primary insurer or ceding reinsurer, while facultative business is produced both
directly and through reinsurance brokers. While Reliance Reinsurance's treaty
clients include all types and sizes of insurers, it typically targets treaty
reinsurance for small to medium sized regional and specialty insurance
companies, as well as captives, risk retention groups and other alternative risk
markets, providing both pro rata and excess of loss coverage. Reliance
Reinsurance believes that this market is subject to less competition and
provides an opportunity to develop and market innovative programs where pricing
is not the
5
key competitive factor. Reliance Reinsurance typically avoids participating in
large capacity reinsurance treaties where price is the predominant competitive
factor. It generally writes reinsurance in the "lower layers", the first
$1 million of primary coverage, where losses are more predictable and
quantifiable. Reliance Reinsurance also operates an Agriculture division
reinsuring insurers whose products include crop insurance and other products for
agricultural-related risks. It also formed, in 1998, a unit to structure
specialized loss portfolio transfers and other financing programs for its
clients' insurance liabilities, principally in run-off situations. Reliance
Reinsurance conducts its business nationwide through three offices and is
headquartered in Philadelphia. Net premiums written by Reliance Reinsurance were
$217.3 million, $159.0 million and $151.1 million for the years ended
December 31, 1998, 1997 and 1996, respectively.
Reliance Surety. Reliance Surety is a leading writer of surety and
fidelity bonds in the United States. Reliance Surety concentrates on writing
performance and payment bonds for contractors of public works projects,
commercial real estate and multi-family housing. It also writes commercial
surety, financial institution and commercial fidelity bonds. Reliance Surety
performs extensive credit analysis on its clients and actively manages claims to
minimize losses and maximize recoveries. Reliance Surety has enjoyed long
relationships with a large majority of the contractors and accounts it has
insured. Reliance Surety recently established a Specialty Division to serve the
large contractor market. Its Firemark and Express Surety operations target
smaller contractors and accounts, a market traditionally less fully serviced by
national surety companies. Reliance Surety is headquartered in Philadelphia and
conducts business nationwide through 33 branch offices and distributes its
products through approximately 3000 agents and brokers. In addition, Reliance
Surety has a presence in London. Net premiums written by Reliance Surety were
$204.4 million, $176.5 million and $159.2 million for the years ended December
31, 1998, 1997 and 1996, respectively.
Surety bonds guarantee the payment or performance of one party (called the
principal) to another party (called the obligee). This guarantee is typically
evidenced by a written agreement by the surety (e.g., Reliance Surety) to
discharge the payment or performance obligations of the principal pursuant to
the underlying contract between the obligee and the principal. Fidelity bonds
insure against losses arising from employee dishonesty. Financial institution
fidelity bonds insure against losses arising from employee dishonesty and other
specifically named theft and fraud perils.
Reliance Direct. Reliance Direct was formed in 1997 to market and
underwrite preferred personal automobile insurance on a direct basis. Net
premiums written by Reliance Direct were $26.2 million and $1.1 million for the
years ended December 31, 1998 and 1997, respectively. In 1999, these operations
will be consolidated into Reliance Personal.
Information Technology Consulting Services. RCG Information Technology
provides a full range of information technology services to corporate clients
primarily in the United States, including clients in the following sectors:
financial services, energy, computer services, health care, pharmaceuticals,
telecommunications, public entities, publishing, electronics, travel and food
and beverage. Such services include: staff augmentation; systems analysis,
design and integration; enterprise resource planning and implementation;
imaging; client-server technologies; testing and quality assurance; work-flow
management; outsourcing; and management consulting. RCG Information Technology
has 19 offices in the United States and two offices overseas in the Philippines
and South Africa. RCG Information Technology recruits computer professionals
both in the United States and internationally to meet demands for its services,
and has established recruiting capabilities through its domestic offices and its
overseas offices. RCG Information Technology had revenues of $247.7 million,
$191.9 million and $136.7 million for the years ended December 31, 1998, 1997
and 1996, respectively, and its pretax operating income was $19.4 million, $5.6
million and $2.7 million for the years ended December 31, 1998, 1997 and 1996,
respectively.
INSURANCE CEDED AND ASSUMED
The Reliance Insurance Group's insurance operations purchase reinsurance to
limit the Company's exposure to losses. The Reliance Insurance Group enters into
reinsurance arrangements that are both facultative (individual risks) and treaty
(blocks of risk). Limits and retentions, which may change from time to time, are
based on a number of factors, including the previous loss history of the
operating unit, policy limits and exposure data, industry studies as to
potential severity, and market terms, conditions and capacity. Where
appropriate, the
6
Reliance Insurance Group limits its exposure to individual risks by purchasing
excess of loss and quota share reinsurance, with treaty structures and net
retentions varying with the specific requirements of the line of business or
program being reinsured. In many cases, the Reliance Insurance Group purchases
additional facultative reinsurance to further reduce its retentions below treaty
levels.
The Reliance Insurance Group also assumes insurance ceded from other
insurers. The total premiums assumed from other insurers were $875.5 million,
$447.9 million and $356.5 million for the years ended December 31, 1998, 1997
and 1996, respectively. In addition to the growth in Reliance Reinsurance's
business, especially its agricultural business, the growth in assumed premiums
is attributable to captive and fronting arrangements with primary insurers in
which Reliance National, for a fee, assumes risk from such primary insurers and,
in turn, cedes all or a portion of such risk to a reinsurer. In such cases, a
third party generally underwrites the risks and investigates, adjusts and
settles the claims.
Reinsurers of the Reliance Insurance Group. Premiums ceded by the Reliance
Insurance Group to reinsurers were $2.4 billion, $1.9 billion and $1.6 billion
in 1998, 1997 and 1996, respectively. The Reliance Insurance Group is subject to
credit risk with respect to its reinsurers, as the ceding of risk to reinsurers
does not relieve the Reliance Insurance Group of its liability to insureds or
cedents, even though the reinsuring company assumes the related liability. At
December 31, 1998, the Reliance Insurance Group had aggregate reinsurance
recoverables of $5.0 billion, representing estimated amounts recoverable from
reinsurers pertaining to paid claims, unpaid claims, claims incurred but not
reported and unearned premiums. The Reliance Insurance Group holds substantial
amounts of collateral, consisting of letters of credit, trust accounts and cash,
to secure recoverables from unauthorized reinsurers. The Company had
$6.4 million reserved for potentially unrecoverable reinsurance at December 31,
1998.
In 1998, Reliance National entered into reinsurance fronting arrangements
as part of a workers' compensation insurance facility created and managed by
Unicover Managers, Inc., a third party manager of reinsurance pools. Under these
arrangements, Reliance National reinsures workers' compensation policies, the
occupational accident portion of which is then 100 percent reinsured by (also
referred to as "retroceded to") a number of other reinsurance companies
("retrocessional reinsurers"), many of which are life insurance companies.
Reliance National understands that several of its retrocessional reinsurers, or
their reinsurers, are projected to sustain substantial losses on this business.
In letters from certain retrocessional reinsurers and in published reports,
issues have been raised as to whether these retrocessional reinsurers will
attempt to avoid their obligations and as to whether one of them has become
financially impaired. In addition, the Insurance Department of the State of
Connecticut recently issued two bulletins asserting that life insurance
companies domiciled in Connecticut are not authorized to reinsure the
occupational accident portion of workers' compensation policies, although in the
second bulletin the Department makes it clear that it does not purport to
invalidate existing reinsurance contracts. Based on its review and assessment of
the information currently available to it, the Company believes that it has
valid and enforceable retrocessional reinsurance contracts with its
retrocessional reinsurers, and that ultimately it will recover the full amount
of such coverage.
7
In 1998, the Reliance Insurance Group did not cede more than 5% of gross
written premiums to any one reinsurer and no one reinsurer accounted for more
than 10% of total ceded premiums. The Reliance Insurance Group's ten largest
reinsurers, based on 1998 ceded premiums, are as follows:
1998
CEDED BEST
PREMIUM RATING
------------- ------
(IN MILLIONS)
American Re-Insurance Company..................... $ 239.9 A++
Lincoln National Life Insurance Company........... 114.6 A
Swiss Reinsurance America Corporation............. 100.4 A+
Commercial Risk Re-Insurance Company.............. 91.5 A
Connecticut General Life Insurance Company........ 71.0 A+
Employers Reinsurance Corporation................. 67.2 A++
Phoenix Home Life Mutual Insurance Company........ 65.8 A
Kemper Reinsurance Company........................ 61.1 A
Hertz International Reinsurance Ltd............... 59.1 (1)
General Reinsurance Corporation................... 56.3 A++
- - ------------------
(1) An unrated captive reinsurer that is not affiliated with the Company.
Recoverables from such reinsurer are fully collateralized.
The Reliance Insurance Group maintains no "Funded Cover" reinsurance
agreements. "Funded Cover" reinsurance agreements are multi-year retrospectively
rated, non-cancelable reinsurance agreements which do not meet relevant
accounting standards for risk transfer and under which the reinsured must pay
additional premiums in subsequent years if losses in the current year exceed
levels specified in the reinsurance agreement.
8
PROPERTY AND CASUALTY LOSS RESERVES
The Reliance Insurance Group's staff of over 100 actuaries regularly
performs comprehensive analyses of reserves and reviews the pricing and
reserving methodologies of the Reliance Insurance Group. Although the Company
believes, in light of present facts and current legal interpretations, that the
Reliance Insurance Group's overall property and casualty reserve levels are
adequate to meet its obligations under existing policies, due to the inherent
uncertainty and complexity of the reserving process, the ultimate liability may
be more or less than such reserves.
The following tables present information relating to the liability for unpaid
claims and related expenses ("loss reserves") for the Reliance Insurance Group.
The table below provides a reconciliation of the beginning to ending liability
balances for the years ended December 31, 1998, 1997 and 1996.
YEAR ENDED DECEMBER 31,
--------------------------------------
1998 1997 1996
---------- ---------- ----------
(IN THOUSANDS)
Loss reserves, beginning of year........ $6,559,508 $6,048,240 $5,695,678
Less reinsurance recoverables......... 3,317,190 2,736,634 2,516,243
---------- ---------- ----------
Net loss reserves, beginning of year.... 3,242,318 3,311,606 3,179,435
---------- ---------- ----------
Provision for policy claims and related
expenses:
Provision for insured events of the
current year....................... 1,549,907 1,299,066 1,211,672
Increase (decrease) in provision for
insured events
of prior years...................... (32,959) (35,980) 138,665(1)
---------- ---------- ----------
Total provision.................. 1,516,948 1,263,086 1,350,337
---------- ---------- ----------
Payments for policy claims and related
expenses:
Attributable to insured events of the
current year.......................... 490,146 367,763 298,838
Attributable to insured events of
prior years........................... 1,046,583 963,135 926,996
---------- ---------- ----------
Total payments................... 1,536,729 1,330,898 1,225,834
---------- ---------- ----------
Foreign currency translation............ (2,491) (1,476) 7,668
---------- ---------- ----------
Net loss reserves, end of year.......... 3,220,046 3,242,318 3,311,606
Plus reinsurance recoverables......... 3,953,840 3,317,190 2,736,634
---------- ---------- ----------
Loss reserves, end of year.............. $7,173,886 $6,559,508 $6,048,240
---------- ---------- ----------
---------- ---------- ----------
- - ------------------
(1) The 1996 increase in provision for insured events of prior years included a
pretax charge of $134.0 million to increase net loss reserves for
asbestos-related and environmental pollution claims for business written in
or before 1987.
The provision for policy claims and related expenses for 1998 and 1997
included favorable development in workers' compensation partially offset by
adverse development in the commercial automobile line. The redundancy in
workers' compensation is due, in part, to favorable development in
retrospectively rated policies, which was more than offset by a corresponding
reduction in premiums earned. The 1998 redundancy also includes favorable
development in the general liability and multiple peril lines of business and
adverse development in the ocean marine line of business. The provision for
insured events of prior years for 1996 included adverse development related to
asbestos-related and environmental pollution claims, which primarily affected
general liability, multiple peril and reinsurance lines of business, and
included a pretax charge of $134.0 million to increase net loss reserves for
asbestos-related and environmental pollution claims for business written in or
before 1987. The 1996 provision also included adverse development in the
commercial automobile line, offset by favorable development in workers'
compensation.
The table below summarizes the development of the estimated liability for
loss reserves (net of reinsurance recoverables) as of December 31 of each of the
prior ten years. The amounts shown on the top line of the table represent the
estimated liability for loss reserves (net of reinsurance recoverables) for
claims that are unpaid at
9
the particular balance sheet date, including losses that had been incurred but
not reported to the Reliance Insurance Group. The upper portion of the table
indicates the loss reserves as they are reestimated in subsequent periods as a
percentage of the originally recorded reserves. These estimates change as losses
are paid and more accurate information becomes available about remaining loss
reserves. A redundancy exists when the original loss reserve estimate is
greater, and a deficiency exists when the original loss reserve estimate is
less, than the reestimated loss reserve at December 31, 1998. A redundancy or
deficiency indicates the cumulative percentage change, as of December 31, 1998,
of originally recorded loss reserves. The lower portion of the table indicates
the cumulative amounts paid as of successive periods as a percentage of the
original loss reserve liability. In calculating the percentage of cumulative
paid losses to the loss reserve liability in each year, unpaid losses of General
Casualty Company of Wisconsin, a former wholly-owned subsidiary, and its
subsidiaries ("General Casualty") at April 30, 1990 (the date of sale of General
Casualty), relating to 1988 through 1989, were deducted from the original
liability in each year. Each amount in the following table includes the effects
of all changes in amounts for prior periods. The table does not present accident
or policy year development data. For the years 1988 through 1995, the Company
had experienced deficiencies in its estimated liability for loss reserves and
for 1996 and 1997 the Company experienced redundancies. The table includes
provisions specifically made to strengthen prior-years' loss reserves of
$134.0 million in 1996 and $156.0 million in 1991. The Company's loss reserves
from 1988 to 1995 had been adversely affected by a number of factors beyond the
Company's control as follows: (i) significant increases in claim settlements
reflecting, among other things, inflation in medical costs; (ii) increases in
the costs of settling claims, particularly legal expenses; (iii) more frequent
resort to litigation in connection with claims; and (iv) a widening
interpretation of what constitutes a covered claim.
DECEMBER 31,
----------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PERCENTAGES)
Net liability for unpaid claims
and
related expenses (loss
reserves)(1)..................... $3,220,046 $3,242,318 $3,311,606 $3,179,435 $3,127,781 $2,931,528 $2,702,992 $2,375,235
Net liability reestimated as of:
One year later................... -- 99.0% 98.9% 104.4% 101.2% 100.8% 101.5% 101.3%
Two years later.................. -- -- 97.3% 104.4% 104.8% 101.7% 103.1% 104.4%
Three years later................ -- -- -- 102.5% 103.6% 104.2% 104.0% 105.7%
Four years later................. -- -- -- -- 101.3% 103.0% 107.2% 106.7%
Five years later................. -- -- -- -- -- 100.7% 106.2% 110.5%
Six years later.................. -- -- -- -- -- -- 103.9% 109.7%
Seven years later................ -- -- -- -- -- -- -- 107.8%
Eight years later................ -- -- -- -- -- -- -- --
Nine years later................. -- -- -- -- -- -- -- --
Ten years later.................. -- -- -- -- -- -- -- --
Redundancy (Deficiency)........... 1.0% 2.7% (2.5%) (1.3%) (.7%) (3.9%) (7.8%)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Paid (cumulative) as of:
One year later................... -- 32.3% 29.1% 29.2% 27.8% 26.6% 28.7% 29.0%
Two years later.................. -- -- 48.6% 48.7% 46.8% 44.9% 48.0% 48.6%
Three years later................ -- -- -- 62.2% 59.8% 58.4% 61.1% 62.1%
Four years later................. -- -- -- -- 69.1% 67.3% 70.5% 71.6%
Five years later................. -- -- -- -- -- 73.7% 76.5% 78.1%
Six years later.................. -- -- -- -- -- -- 80.9% 82.7%
Seven years later................ -- -- -- -- -- -- -- 86.2%
Eight years later................ -- -- -- -- -- -- -- --
Nine years later................. -- -- -- -- -- -- -- --
Ten years later.................. -- -- -- -- -- -- -- --
DECEMBER 31
----------------------------------
1990 1989 1988
---------- ---------- ----------
Net liability for unpaid claims
and related expenses (loss
reserves)(1)..................... $1,893,421 $1,962,822 $1,644,057
Net liability reestimated as of:
One year later................... 114.4% 104.8% 104.8%
Two years later.................. 115.2% 117.0% 113.5%
Three years later................ 119.6% 118.2% 121.8%
Four years later................. 120.7% 120.9% 123.2%
Five years later................. 122.0% 122.2% 127.8%
Six years later.................. 127.0% 123.8% 128.7%
Seven years later................ 126.2% 129.1% 130.7%
Eight years later................ 124.9% 128.5% 138.0%
Nine years later................. -- 127.4% 137.7%
Ten years later.................. -- -- 136.6%
Redundancy (Deficiency)........... (24.9%) (27.4%) (36.6%)
---------- ---------- ----------
Paid (cumulative) as of:
One year later................... 36.6% 40.7% 41.6%
Two years later.................. 57.9% 65.4% 71.6%
Three years later................ 72.8% 82.2% 86.4%
Four years later................. 83.0% 91.3% 97.2%
Five years later................. 90.3% 97.8% 103.0%
Six years later.................. 95.5% 103.1% 107.3%
Seven years later................ 99.2% 106.8% 111.5%
Eight years later................ 102.2% 109.9% 114.3%
Nine years later................. -- 112.3% 117.2%
Ten years later.................. -- -- 119.4%
- - ------------------
(1) The gross liability for unpaid claims and related expenses was $7.2 billion
at December 31, 1998. The gross liability for unpaid claims and related
expenses for years 1997 and prior was redundant by $126.3 million at
December 31, 1998.
10
The difference between the property and casualty liability for loss
reserves at December 31, 1998 and 1997 reported in the Consolidated Financial
Statements (net of reinsurance recoverables) and the liability which would be
reported in accordance with statutory accounting practices is as follows:
DECEMBER 31,
------------------------
1998 1997
---------- ----------
(IN THOUSANDS)
Net liability reported under statutory accounting practices........................... $3,175,171 $3,172,266
Adjustment for GAAP basis accrual of estimated salvage and subrogation recoveries..... (16,325) (9,325)
Additional discount of workers' compensation reserves................................. 61,200 79,377
---------- ----------
Net liability reported on a GAAP basis................................................ $3,220,046 $3,242,318
---------- ----------
---------- ----------
The difference between the property and casualty liability for gross loss
reserves at December 31, 1998 and 1997 reported in the Consolidated Financial
Statements and the liability which would be reported in accordance with
statutory accounting practices is as follows:
DECEMBER 31,
------------------------
1998 1997
---------- ----------
(IN THOUSANDS)
Liability reported under statutory accounting practices............................... $6,963,729 $6,386,144
Adjustment for GAAP basis accrual of estimated salvage and subrogation recoveries..... (21,925) (13,884)
Additional discount of workers' compensation reserves................................. 232,082 187,248
---------- ----------
Liability reported on a GAAP basis.................................................... $7,173,886 $6,559,508
---------- ----------
---------- ----------
Property and casualty loss reserves are based on an evaluation of reported
claims, in addition to statistical projections of claims incurred but not
reported and loss adjustment expenses. Estimates of salvage and subrogation are
deducted from the liability for unpaid claims. Also considered are other factors
such as the promptness with which claims are reported, the history of the
ultimate liability for such claims compared with initial and intermediate
estimates, the type of insurance coverage involved, the experience of the
property and casualty industry and other economic indicators, when applicable.
The establishment of loss reserves requires an estimate of the ultimate
liability based primarily on past experience. The Reliance Insurance Group
applies a variety of generally accepted actuarial techniques to determine the
estimates of ultimate liability. The techniques recognize, among other factors,
the Reliance Insurance Group's and the industry's experience with similar
business, historical trends in reserving patterns and loss payments, pending
levels of unpaid claims, the cost of claim settlements, the Reliance Insurance
Group's product mix and the economic environment in which property and casualty
companies operate. Estimates are continually reviewed and adjustments of the
probable ultimate liability based on subsequent developments and new data are
included in operating results for the periods in which they are made. In
general, reserves are initially established based upon the actuarial and
underwriting data utilized to set pricing levels, and are reviewed as additional
information, including claims experience, becomes available. The establishment
of loss reserves makes no provision for the broadening of coverage by
legislative action or judicial interpretation or for extraordinary future
emergence of new classes of losses not sufficiently represented in the Reliance
Insurance Group's historical data base, or which are not yet able to be
quantified. The Reliance Insurance Group regularly analyzes its reserves and
reviews its pricing and reserving methodologies, using Reliance Insurance Group
actuaries, so that future adjustments to prior year reserves can be minimized.
However, given the complexity of this process, reserves require continual
updates and the ultimate liability may be more or less than such estimates
indicate. Estimation of loss reserves for long tail lines of business is more
difficult than for short tail lines because long tail claims may not become
apparent for a number of years, and a relatively higher proportion of ultimate
losses are considered incurred but not reported. As a result, variation in loss
development is more likely in long tail lines of business. The Reliance
Insurance Group attempts to reduce these variations in certain of its long tail
lines, primarily directors and officers liability and professional liability, by
writing policies on a claims-made basis.
11
The Reliance Insurance Group also limits the potential loss from a single event
through the extensive use of reinsurance.
From time to time, the Reliance Insurance Group consults with independent
actuarial firms concerning reserving practices and levels. The subsidiaries of
the Reliance Insurance Group are required by state insurance regulators to file,
along with their statutory reports, an actuarial reserve opinion setting forth
an actuary's assessment of its reserve status. Since 1992, the Reliance
Insurance Group has used an independent actuarial firm to meet such
requirements.
In calculating the liability for loss reserves, the Reliance Insurance
Group discounts both direct workers' compensation pension claims and the
reserves for claims assumed through the participation of the Reliance Insurance
Group in the National Workers' Compensation Reinsurance Pool and the Workers'
Compensation Reinsurance Pool, which are expected to have regular, periodic
payment patterns. These claims are discounted for mortality and for interest
using statutory annual rates ranging from 3.5% to 6%. The discounting of such
claims (net of reinsurance recoverables) resulted in a decrease in the liability
for loss reserves of $197.3 million, $216.7 million and $230.0 million at
December 31, 1998, 1997 and 1996, respectively. The discount in 1998 was
decreased by $9.7 million, in addition to discount amortization of
$9.7 million, resulting in a decrease of pre-tax income of $19.4 million. The
discount in 1997 was decreased by $0.5 million, in addition to discount
amortization of $12.8 million, resulting in a decrease in pre-tax income of
$13.3 million. These decreases in pre-tax income for 1998 and 1997 were more
than offset by favorable prior period reserve development in workers'
compensation. The discount in 1996 was increased by $5.4 million, which was more
than offset by discount amortization of $11.1 million, resulting in a reduction
in pre-tax income of $5.7 million.
The liability for loss reserves includes provisions for inflation in
several ways, depending on how the reserve is established. An explicit provision
for inflation is used where estimates of ultimate loss are based on pricing. A
provision for inflation is also included for certain discounted workers'
compensation claims. In these cases, the provision for inflation is based on
factors supplied by the respective workers' compensation rating bureaus which
have jurisdiction for states which provide for cost-of-living increases in
indemnity benefits. In other reserves, the analysis reflects the effect of
inflationary trends as part of the overall effect on claim costs, as well as
changes in marketing, underwriting, reporting and processing systems, claims
settlement and coverages purchased.
Included in the liability for loss reserves at December 31, 1998 are
$199.2 million ($174.8 million net of reinsurance recoverables) of loss reserves
pertaining to asbestos-related and environmental pollution claims for business
written in or before 1987. The following table presents information relating to
the net loss reserves pertaining to asbestos-related and environmental pollution
claims for business written in or before 1987 for the years ended December 31,
1998, 1997 and 1996:
DECEMBER 31,
--------------------------------------
1998 1997 1996
---------- ---------- ----------
(IN THOUSANDS)
Net loss reserves, beginning of year.................................... $ 192,933 $ 213,047 $ 101,008
Provision for policy claims and related expenses........................ -- -- 135,801
Payments for policy claims and related expenses......................... (18,168) (20,114) (23,762)
---------- ---------- ----------
Net loss reserves, end of year.......................................... $ 174,765 $ 192,933 $ 213,047
---------- ---------- ----------
---------- ---------- ----------
The 1996 provision for policy claims and related expenses includes a pretax
charge of $134.0 million to increase net loss reserves for asbestos-related and
environmental pollution claims for business written in or before 1987. In 1996,
the Company completed a study of its asbestos-related and environmental
pollution reserves. The study entailed a detailed review of the Company's
claims, analysis of new industry data, review of policies and classes of
business written by the Company and industry at large, and new actuarial
methodologies for projecting ultimate losses based on payment patterns and
claims analyses.
Included in the December 31, 1998 net loss reserves pertaining to
asbestos-related and environmental pollution claims for business written in or
before 1987 are $60.6 million of loss costs for claims incurred but not
reported, $43.9 million of loss costs for reported claims and $70.3 million of
related expenses.
12
The following table presents information related to the number of insureds
with asbestos-related and environmental pollution claims outstanding for
business written in or before 1987:
DECEMBER 31,
------------
1998 1997
---- ----
Number of insureds with outstanding claims, beginning of year...................................... 345 402
Additional insureds with claims during the year.................................................... 183 168
Insureds with closed or settled claims during the year............................................. (222) (225)
---- ----
Number of insureds with outstanding claims, end of year............................................ 306 345
---- ----
---- ----
The average net paid loss per insured for asbestos-related and
environmental pollution claims for business written in or before 1987 was
$23,500 and $44,200 for the years 1998 and 1997, respectively.
The Company continues to receive claims asserting injuries from hazardous
materials and alleged damages to cover various clean-up costs. Asbestos-related
and environmental pollution claims primarily affect the Company's general
liability, multiple peril and reinsurance lines of business. For business
written in or before 1987, coverage and claim settlement issues, such as the
determination that coverage exists and the definition of an occurrence, may
cause the actual loss development for asbestos-related and environmental
pollution claims to exhibit more variation than the remainder of the Company's
book of business. On February 26, 1999, the Company received a preliminary
decision in an initial phase of an alternative dispute resolution trial of
certain contested issues between an asbestos producer and certain of its
liability carriers, including the Company. A description of the matter is set
forth in Note 15 to the Consolidated Financial Statements, which information is
incorporated herein by reference.
Since 1987, the Company has generally excluded coverage for most types of
asbestos-related and environmental pollution claims from its general liability
policies, other than policies specifically intended to provide environmental
pollution and asbestos removal coverages. Policies written by the Company after
1987 ("post-1987 A&E business") which specifically intend to provide
environmental pollution coverages are written primarily on a claims-made basis
and those which specifically intend to provide asbestos removal coverages are
written on an occurrence basis, generally with liability limits of $1.1 million
(net of reinsurance), including defense costs.
The liability for loss reserves at December 31, 1998 also included
$56.7 million ($33.7 million net of reinsurance recoverables) of loss reserves
pertaining to post-1987 A&E business. The following table presents information
relating to the net loss reserves pertaining to claims for post-1987 A&E
business for the years ended December 31, 1998, 1997 and 1996:
DECEMBER 31,
------------------------------
1998 1997 1996
-------- ------- -------
(IN THOUSANDS)
Net loss reserves, beginning of year............................................ $ 27,433 $29,388 $24,548
Provision for policy claims and related expenses................................ 24,144 7,094 12,051
Payments for policy claims and related expenses................................. (17,864) (9,049) (7,211)
-------- ------- -------
Net loss reserves, end of year.................................................. $ 33,713 $27,433 $29,388
-------- ------- -------
-------- ------- -------
The December 31, 1998 net loss reserves pertaining to claims for post-1987
A&E business include $14.0 million of loss costs for claims incurred but not
reported, $14.1 million of loss costs for reported claims and $5.6 million of
related expenses.
13
The following table presents information related to the number of insureds
with claims outstanding for post-1987 A&E business:
DECEMBER 31,
--------------
1998 1997
----- -----
Number of insureds with outstanding claims, beginning of year.................................... 381 308
Additional insureds with claims during the year.................................................. 168 180
Insureds with closed or settled claims during the year........................................... (164) (107)
----- -----
Number of insureds with outstanding claims, end of year.......................................... 385 381
----- -----
----- -----
The average net paid loss per insured for claims for post-1987 A&E business
was $82,100 and $64,200 for the years 1998 and 1997, respectively.
Although the Company believes, in light of present facts and current legal
interpretations, that the overall loss reserves of the Reliance Insurance Group
are adequate to meet their obligations under existing policies, due to the
inherent uncertainty and complexity of the reserving process, the ultimate
liability may be more or less than such reserves.
14
PORTFOLIO INVESTMENTS
Investment activities are an integral part of the business of the Reliance
Insurance Group. The Reliance Insurance Group believes that the investment
objectives of safety and liquidity, while seeking to maximize total return, can
be achieved by active portfolio management and intensive monitoring of
investments. Reference is made to "Financial Review--Property and Casualty
Insurance Investment Results", "--Investment Portfolio" and "--Market Risks" on
pages 28-29, 29 and 31-32, respectively, of the Company's 1998 Annual Report and
to Note 3 to the Consolidated Financial Statements, which information is
incorporated herein by reference.
At December 31, 1998, the Reliance Insurance Group's investment portfolio
was $3.9 billion (at cost) with 93% in fixed maturities and short-term
securities (including redeemable preferred stock and cash) and 7% in equity
securities, approximately 36% of which were convertible preferred stock. The
following table details the distribution of the Reliance Insurance Group's
investments at December 31, 1998:
MARKET CARRYING
COST(1) VALUE VALUE
---------- ---------- ----------
(IN THOUSANDS)
Fixed maturities available for sale:
Bonds and notes:
United States government and government agencies and authorities... $ 545,482 $ 552,547 $ 552,547
States, municipalities and political subdivisions.................. 130,982 143,117 143,117
Foreign-government................................................. 47,810 50,934 50,934
Foreign-other...................................................... 154,893 153,789 153,789
Public utilities................................................... 451,046 469,349 469,349
Convertibles and bonds with warrants attached...................... 31,375 30,708 30,708
All other corporate bonds and notes................................ 999,133 995,104 995,104
Redeemable preferred stocks........................................... 326,288 343,316 343,316
---------- ---------- ----------
2,687,009 2,738,864 2,738,864
---------- ---------- ----------
Fixed maturities held for investment:
Bonds and notes:
States, municipalities and political subdivisions.................. 6,709 6,726 6,709
Foreign-government................................................. 123,615 136,020 123,615
Foreign-other...................................................... 14,448 15,243 14,448
Public utilities................................................... 199,574 211,261 199,574
All other corporate bonds and notes................................ 130,567 139,124 130,567
Redeemable preferred stocks........................................... 64,935 69,805 64,935
---------- ---------- ----------
539,848 578,179 539,848
---------- ---------- ----------
Total fixed maturities........................................... 3,226,857 3,317,043 3,278,712
---------- ---------- ----------
Equity securities(2):
Common stocks:
Banks, trusts and insurance companies.............................. 49,683 56,584 56,584
Industrial and other............................................... 82,572 577,172 577,172
Nonredeemable preferred stocks........................................ 130,731 120,787 120,787
---------- ---------- ----------
262,986 754,543 754,543
---------- ---------- ----------
Short-term investments(3)............................................... 448,966 448,966 448,966
---------- ---------- ----------
Total investment portfolio....................................... $3,938,809 $4,520,552 $4,482,221
---------- ---------- ----------
---------- ---------- ----------
COST AND CARRYING
VALUE
-----------------
(IN THOUSANDS)
Mortgage Loans(4)................................................... $ 3,526
Investments in real estate.......................................... 135,746
- - ------------------
(1) With respect to fixed maturities, "cost" is original cost reduced by
repayments and adjusted for amortization of premiums or accretion of
discounts. With respect to equities, "cost" is original cost.
(2) Does not include investment in LandAmerica Financial Group, Inc. which, as
of December 31, 1998, had a carrying value of $415.7 million (excluding the
pretax deferred gain of $158.8 million on the sale of
Commonwealth/Transnation Title) and a market value of $507.1 million, and
investment in Zenith National Insurance Corp. which, as of December 31,
1998, had a carrying value of $166.0 million and a market value of
$152.0 million. See "Investee Companies."
(3) Includes cash of $65.3 million.
(4) In the Consolidated Financial Statements, mortgage loans are included in
premiums and other receivables.
15
The Company seeks to maintain a diversified and balanced fixed maturity
portfolio representing a broad spectrum of industries and types of securities.
The Company holds virtually no investments in commercial real estate mortgages
and has no exposure to derivative securities (other than through its ownership
of any option, warrant or convertible security with an exercise or conversion
price related to an equity security). Purchases of fixed maturity securities are
researched individually based on in-depth analysis and objective predetermined
investment criteria and are managed to achieve a proper balance of safety,
liquidity and investment yields. The Reliance Insurance Group primarily invests
in investment grade securities (those rated "BBB" or better by S&P), and, to a
lesser extent, non-investment grade and non-rated securities.
At December 31, 1998, the aggregate carrying value and market value of
fixed maturities (other than short-term investments and cash) that either have
been rated by S&P in the following categories or are non-rated were as follows:
PERCENT
CARRYING MARKET OF MARKET
VALUE VALUE VALUE
---------- ---------- ---------
(IN THOUSANDS, EXCEPT PERCENTAGES)
AAA to A...................... $1,819,886 $1,846,603 56%
BBB........................... 806,978 818,382 25%
---------- ---------- ---
Total investment grade... 2,626,864 2,664,985 81%
---------- ---------- ---
BB to B....................... 449,913 450,123 13%
CCC to D...................... 9,260 9,260 --
Non-rated..................... 192,675 192,675 6%
---------- ---------- ---
Total.................... $3,278,712 $3,317,043 100%
---------- ---------- ---
---------- ---------- ---
Substantially all of the non-investment grade and non-rated fixed
maturities are classified as "available for sale" and, accordingly, are carried
at quoted market value. All publicly traded investment grade securities are
priced using the Merrill Lynch Matrix Pricing model, which model is one of the
standard methods of pricing such securities in the industry. All publicly traded
non-investment grade securities, except as indicated below, are priced from
broker-dealers who make markets in these and other similar securities. For fixed
maturities not publicly traded, prices are estimated based on values obtained
from independent third parties or quoted market prices of comparable
instruments. Upon sale, such prices may not be realized when the size of a
particular investment in an issue is significant in relation to the total size
of such issue. Non-investment grade securities that are thinly traded are priced
using internally developed calculations. Such securities represent less than 1%
of the Reliance Insurance Group's fixed maturities portfolio.
Equity investments are made after the Reliance Insurance Group's staff of
investment professionals identify companies with strong growth prospects or
equities that appear to be undervalued relative to the issuer's business
fundamentals, such as earnings, cash flows, balance sheet and future prospects.
Subsequent to purchase, the business fundamentals of each equity investment are
carefully monitored.
As of March 15, 1999, the Reliance Insurance Group owned 8,051,927 shares
of common stock of Symbol Technologies, Inc. ("Symbol"), representing 13.7% of
the then outstanding common stock of Symbol. Symbol is the nation's largest
manufacturer of bar code-based data capture systems. As of March 15, 1999, the
market value of the Reliance Insurance Group's investment in Symbol was
$370,389,000 (based upon the closing price of Symbol common stock on such date
as reported by the NYSE), with a cost basis of $27,252,000. Certain executive
officers of the Company serve, at the Company's request, as directors of Symbol.
At December 31, 1998, the Company's real estate operations had holdings
with a carrying value of $135.7 million, which includes office buildings and
other commercial properties with an aggregate carrying value of $76.8 million,
undeveloped land with a carrying value of $36.9 million, and residential real
estate projects under construction with a carrying value of $22.0 million.
16
The following table presents the investment results of the Reliance
Insurance Group's investment portfolio (including Commonwealth/Transnation's
investment portfolio for periods prior to the sale of the title insurance
operations) for each of the years ended December 31, 1998, 1997 and 1996:
YEAR ENDED DECEMBER 31,
----------------------------------------
1998 1997 1996
---------- ---------- ----------
(IN THOUSANDS, EXCEPT PERCENTAGES)
Fixed Maturities:
Average investments(1).................. $3,815,319 $3,764,220 $3,625,144
Net investment income................... 276,303 267,895 260,275
Realized (losses) gains................. (13,131) 476 (5,686)
(Decrease) increase in unrealized
gains................................. (55,448) 103,992 (68,739)
Average annual yield:
Net investment income................. 7.23% 7.12% 7.18%
Realized (losses) gains............... (.34) 0.01 (0.15)
(Decrease) increase in unrealized
gains.............................. (1.45) 2.76 (1.90)
---------- ---------- ----------
Return on fixed maturities.............. 5.44% 9.89% 5.13%
---------- ---------- ----------
---------- ---------- ----------
Equity Securities:(2)
Average investments(1).................. $ 673,009 $ 727,287 $ 703,121
Net investment income................... 17,659 11,017 12,425
Realized gains.......................... 120,316 55,666 58,296
Increase in unrealized gains............ 159,059 51,945 15,939
Average annual yield:
Net investment income................. 2.62% 1.51% 1.77%
Realized gains........................ 17.88 7.66 8.29
Increase in unrealized gains.......... 23.64 7.14 2.27
---------- ---------- ----------
Return on equity securities............. 44.14% 16.31% 12.33%
---------- ---------- ----------
Total weighted average return on fixed
maturities and equity securities(3)... 11.25% 10.93% 6.30%
---------- ---------- ----------
---------- ---------- ----------
- - ------------------
(1) The average is computed by dividing the total market value of investments at
the beginning of the period plus the individual quarter-end balances by five
for the years ended December 31, 1998, 1997 and 1996.
(2) Does not include investments in LandAmerica Financial Group, Inc. for
periods subsequent to the sale of Commonwealth/Transnation Title and
investments in Zenith National Insurance Corp. See "Investee Companies."
(3) The impact on the overall rate of return of a one percent increase or
decrease in the December 31, 1998 fixed maturity portfolio market value
would be approximately 0.72%.
The carrying value and market value at December 31, 1998 of fixed
maturities for which interest is payable on a deferred basis was
$189.9 million.
INVESTEE COMPANIES
As of March 15, 1999, the Reliance Insurance Group owned 4,039,473 shares
of common stock of LandAmerica, representing 26.4% of the outstanding common
stock of LandAmerica, a Virginia-based title insurance company which on a pro
forma basis is the second largest title insurer in the United States based on
revenues, and owned 2,200,000 shares of the 7% cumulative convertible preferred
stock of LandAmerica having an aggregate stated value of $110,000,000 and
initially convertible into 4,824,561 shares of LandAmerica common stock. As of
March 15, 1999, the market value of the Reliance Insurance Group's investment in
LandAmerica was $329,749,000 (based upon the closing price of LandAmerica common
stock on such date as reported by the NYSE and upon an investment bank's
valuation of the preferred stock). The net value of the Reliance Insurance
Group's investment in LandAmerica as of March 15, 1999 was $256,854,000 (net of
a pretax
17
deferred gain of $158,800,000, which is included in "accounts payable and
accrued expenses" in the Company's consolidated balance sheet). Certain
executive officers of the Company serve, at the Company's request, as directors
of LandAmerica. The Company's investment in LandAmerica for periods subsequent
to the sale of Commonwealth/Transnation Title is accounted for by the equity
method. See Notes 2 and 4 to the Consolidated Financial Statements, which
information is incorporated herein by reference.
As of March 15, 1999, the Reliance Insurance Group owned 6,574,445 shares
of common stock of Zenith National Insurance Corp. ("Zenith"), representing
38.3% of the outstanding common stock of Zenith, a California-based insurance
company with significant workers' compensation and standard commercial and
personal lines business. As of March 15, 1999, the market value of the Reliance
Insurance Group's investment in Zenith was $167,648,000 (based upon the closing
price of Zenith common stock on such date as reported by the NYSE), with a
carrying value of $166,014,000. Certain executive officers of the Company serve,
at the Company's request, as directors of Zenith. The Company's investment in
Zenith is accounted for by the equity method. See Note 4 to the Consolidated
Financial Statements, which information is incorporated herein by reference.
On February 22, 1999, Zenith Insurance Company ("Zenith Insurance"), a
wholly owned subsidiary of Zenith, and Nationwide Mutual Insurance Company
("Nationwide"), entered into a Stock Purchase Agreement (the "Agreement")
pursuant to which Zenith Insurance agreed to sell to Nationwide all of the
issued and outstanding capital stock of CalFarm Insurance Company, a wholly
owned subsidiary of Zenith Insurance. The purchase price under the Agreement is
$272 million cash, subject to adjustment in certain circumstances. The
transaction is expected to close in the second quarter of 1999. The Company
expects to realize a gain on the transaction. On March 22, 1999, Zenith
announced that it had received a report from a neutral third party relating to
the determination of the final purchase price of the assets and liabilities that
Zenith Insurance acquired from RISCORP Inc. on April 1, 1998. According to
Zenith, the report indicates that the total purchase price would be $92.3
million, of which $35 million already has been paid by Zenith. Because Zenith
has not yet indicated what changes to its financial statements, if any, may be
necessary or appropriate as a result of the report, the Company cannot yet
assess the impact of the determination of the purchase price upon its investment
in Zenith.
REGULATION
The businesses of the Reliance Insurance Group, in common with those of
other insurance companies, are subject to comprehensive, detailed regulation in
the jurisdictions in which they do business. Such regulation is primarily for
the protection of policyholders rather than for the benefit of investors.
Although their scope varies from place to place, insurance laws in general grant
broad powers to supervisory agencies or officials to examine companies and to
enforce rules or exercise discretion touching almost every significant aspect of
the conduct of the insurance business. These include the licensing of companies
and agents to transact business, the imposition of monetary penalties for rules
violations, varying degrees of control over premium rates, the forms of policies
offered to customers, financial statements, periodic reporting, permissible
investments and adherence to financial standards relating to surplus, dividends
and other criteria of solvency intended to assure the satisfaction of
obligations to policyholders. Other legislation obliges the Reliance Insurance
Group to offer policies or assume risks in various markets which it would not
seek if it were acting solely in its own interest. While such regulation and
legislation is sometimes burdensome, inasmuch as all insurance companies
similarly situated are subject to such controls, the Company does not believe
that the competitive position of the Reliance Insurance Group is affected
adversely.
State holding company acts also regulate changes of control in insurance
holding companies and transactions and dividends between an insurance company
and its parent or affiliates. Although the specific provisions vary, the holding
company acts generally prohibit a person from acquiring a controlling interest
in an insurer incorporated in the state promulgating the act or in any other
controlling person of such insurer unless the insurance authority has approved
the proposed acquisition in accordance with the applicable regulations. In many
states, including Pennsylvania, where Reliance Insurance Company is domiciled,
"control" is presumed to exist if 10% or more of the voting securities of the
insurer are owned or controlled by a party, although the insurance authority may
find that "control" in fact does or does not exist where a person owns or
controls either a lesser or a greater amount of securities. The holding company
acts also impose standards on certain transactions with related companies, which
generally include, among other requirements, that all transactions be fair and
18
reasonable and that certain types of transactions receive prior regulatory
approval either in all instances or when certain regulatory thresholds have been
exceeded.
The Insurance Law of Pennsylvania limits the maximum amount of dividends
which may be paid without approval by the Pennsylvania Insurance Department.
Under such law, Reliance Insurance Company may pay dividends during the year
equal to the greater of (a) 10% of the preceding year-end policyholders' surplus
or (b) the preceding year's statutory net income, but in no event to exceed the
amount of unassigned funds, which are defined as "undistributed, accumulated
surplus including net income and unrealized gains since the organization of the
insurer." In addition, the Pennsylvania law specifies factors to be considered
by the Pennsylvania Insurance Department to allow it to determine that statutory
surplus after the payment of dividends is reasonable in relation to an insurance
company's outstanding liabilities and adequate for its financial needs. Such
factors include the size of the company, the extent to which its business is
diversified among several lines of insurance, the number and size of risks
insured, the nature and extent of the insurance company's reinsurance and the
adequacy of the insurance company's reserves. The maximum dividend permitted by
law is not indicative of an insurer's actual ability to pay dividends, which may
be constrained by business and regulatory considerations, such as the impact of
dividends on surplus, which could affect an insurer's ratings, competitive
position, the amount of premiums that can be written and the ability to pay
future dividends. Furthermore, the Pennsylvania Insurance Department has broad
discretion to limit the payment of dividends by insurance companies. There is no
assurance that Reliance Insurance Company will meet the tests in effect from
time to time under Pennsylvania law for the payment of dividends without prior
Insurance Department approval or that any requested approval will be obtained.
Reliance Insurance Company has been advised by the Pennsylvania Insurance
Department that any required approval will be based upon a solvency standard and
will not be unreasonably withheld. Any significant limitation of Reliance
Insurance Company's dividends would adversely affect the Company's ability to
service its debt and to pay dividends on its common stock.
Regular common stock dividends paid by Reliance Insurance Company were
$136.0 million in 1998, $114.6 million in 1997 and $111.5 million in 1996. In
addition, during 1998, Reliance Insurance Company paid extraordinary dividends
of $135.0 million representing a portion of the gain from the sale of
Commonwealth/Transnation Title. During 1999, $585.3 million would be available
for dividend payments by Reliance Insurance Company under Pennsylvania law.
Maintaining appropriate levels of statutory surplus is considered important
by the Company's management, state insurance regulatory authorities, and the
agencies that rate insurers' claims-paying abilities and financial strength.
Failure to maintain certain levels of statutory capital and surplus could result
in increased scrutiny or, in some cases, action taken by state regulatory
authorities and/or downgrades in an insurer's ratings.
The National Association of Insurance Commissioners (the "NAIC") has a
"risk-based capital" requirement for the property and casualty insurance
industry. "Risk-based capital" refers to the determination of the amount of
statutory capital required for an insurer based on the risks assumed by the
insurer (including, for example, investment risks, credit risks relating to
reinsurance recoverables and underwriting risks) rather than just the amount of
net premiums written by the insurer. A formula that applies prescribed factors
to the various risk elements in an insurer's business is used to determine the
minimum statutory capital requirement for the insurer. An insurer having less
statutory capital than the formula calculates would be subject to varying
degrees of regulatory intervention, depending on the level of capital
inadequacy. All of the Company's statutory insurance companies have statutory
capital in excess of the minimum required risk-based capital.
Reliance Insurance Company had values which in 1998 fell outside of the
usual range for two NAIC financial ratio ranges. Both financial ratio ranges are
intended to permit the NAIC to monitor insurance companies' performance with
respect to such ranges. With respect to the first test, Liabilities to Liquid
Assets, investments in affiliates are excluded from the definition of liquid
assets. Reliance Insurance Company is the ultimate parent company of all of the
property and casualty companies of the Reliance Insurance Group and therefore
the results for this test consistently fall outside the usual range. The Company
believes that it has sufficient marketable assets on hand to make timely payment
of claims and to meet other operating requirements. With respect to the second
test, Estimated Current Reserve Deficiency to Surplus, Reliance Insurance
Company's growth in earned premiums in 1998, in conjunction with a change in the
mix of business to more short-tailed lines, caused test results to fall outside
of the usual range. The Company believes that its value for this range is not
reflective of the adequacy of Reliance Insurance Company's current reserves.
19
From time to time, states have adopted or considered adopting legislation
or regulations which could adversely affect the manner in which the Company sets
rates for policies of insurance, particularly as they relate to personal lines.
No assurance can be given as to what effect the adoption of such legislation or
regulations in the future would have on the ability of the Company to raise its
rates.
COMPETITION
The markets in which the Company's businesses compete are highly
competitive. The property and casualty insurance business is fragmented and no
single company dominates any of the markets in which the Company operates. The
Reliance Insurance Group competes with individual companies and with groups of
affiliated companies with greater financial resources, larger sales forces and
more widespread agency and broker relationships. Competition in the property and
casualty insurance industry is based primarily on price, product design and
service. In addition, because the Reliance Insurance Group sells policies
primarily through agents and insurance brokers who are not obligated to choose
the policies of the Reliance Insurance Group over those of another insurer, the
Reliance Insurance Group must compete for agents and brokers and for the
business they control. Such competition is based upon price, product design,
policyholder service, commissions and service to agents and brokers.
RCG Information Technology competes with other national information
technology services companies, as well as smaller computer professional
supplemental staffing firms. Competition in the information technology
consulting business is based primarily on price, service, quality of the
solutions provided and the availability of qualified computer professionals.
SALE OF DISCONTINUED OPERATION
On December 31, 1997, the Company sold all of the issued and outstanding
common stock of its subsidiary, Prometheus Funding Corp. ("Prometheus"),
formerly known as Frank B. Hall & Co. Inc. ("Hall"), an insurance broker.
Prometheus had previously sold substantially all of its operating assets and
insurance brokerage, employee benefits consulting and related services
businesses. See Note 2 to the Consolidated Financial Statements, which
information is incorporated herein by reference.
ITEM 2. PROPERTIES.
The Company and its consolidated subsidiaries own and lease offices in
various locations primarily in the United States. None of these properties is
material to the Company's business. At December 31, 1998, the Company and its
consolidated subsidiaries employed approximately 6,640 persons full time and
leased approximately 190 properties. Of those properties, approximately 130 are
for Reliance Insurance Group office space, approximately 20 are for RCG
Information Technology office space, and approximately 40 are for office space
of RCG Moody International Limited, a subsidiary of the Company which provides
international inspection and quality assurance services.
ITEM 3. LEGAL PROCEEDINGS.
The Company and its subsidiaries are involved in certain litigation arising
in the course of their businesses, some of which involve claims of substantial
amounts. Although the ultimate outcome of these matters cannot be ascertained at
this time, and the results of legal proceedings cannot be predicted with
certainty, the Company is contesting the allegations of the complaints in each
action pending against it and believes, based on current knowledge and after
consultation with counsel, that the resolution of these matters will not have a
material adverse effect on the Consolidated Financial Statements.
In addition, the Company is subject to the litigation set forth in Note 15
to the Consolidated Financial Statements, which information is incorporated
herein by reference.
20
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted to a vote of security holders in the fourth quarter
of the fiscal year covered by this Annual Report on Form 10-K.
EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below is the name, age and position of each of the executive
officers of the Company:
NAME AND AGE POSITION
------------ --------
Saul P. Steinberg (59)......... Chairman of the Board and Chief Executive
Officer
Robert M. Steinberg (56)....... President, Chief Operating Officer and Director
George E. Bello (63)........... Executive Vice President, Controller and
Director
Lowell C. Freiberg (59)........ Executive Vice President, Chief Financial
Officer and Director
Howard E. Steinberg (54)....... Executive Vice President, General Counsel and
Corporate Secretary
Albert A. Benchimol (41)....... Senior Vice President and Treasurer
Henry A. Lambert (63) ......... Senior Vice President--Real Estate Investments
and Operations
Dennis J. O'Leary (51)......... Senior Vice President--Taxes
Philip S. Sherman (50)......... Senior Vice President--Group Controller
Bruce L. Sokoloff (50)......... Senior Vice President--Administration
James E. Yacobucci (47)........ Senior Vice President--Investments and Director
Paul W. Zeller (50)............ Senior Vice President and Deputy General
Counsel
The association between the Company and each of its executive officers is
described below.
Saul P. Steinberg founded and has been the Chief Executive Officer and a
Director of the Company and predecessors of the Company since 1961.
Mr. Steinberg is a Director of Symbol Technologies, Inc. and Zenith National
Insurance Corp. He is Chairman of the Executive Committee and the Regular
Compensation Committee of the Board of Directors. He is the brother of Robert M.
Steinberg and the brother-in-law of Bruce L. Sokoloff.
Robert M. Steinberg became a Director of the Company in 1981 and President
and Chief Operating Officer in 1982. He has held various positions with
predecessors of the Company since 1965. In October 1984, Mr. Steinberg was
elected Chairman of the Board and Chief Executive Officer of Reliance Insurance
Company. He is a Director of LandAmerica Financial Group, Inc. and Zenith
National Insurance Corp. Mr. Steinberg is a member of the Executive Committee
and the Regular Compensation Committee of the Board of Directors. Mr. Steinberg
is the brother of Saul P. Steinberg and the brother-in-law of Bruce L. Sokoloff.
George E. Bello became Executive Vice President and Controller and a
Director of the Company in 1982. He has held various positions with predecessors
of the Company since 1968. He is a Director of LandAmerica Financial Group,
Inc., Zenith National Insurance Corp. and Horizon Health Corporation. Mr. Bello
is Chairman of the Finance Committee of the Board of Directors.
Lowell C. Freiberg became Executive Vice President of the Company in May
1998, and has served as Chief Financial Officer of the Company since 1985 and as
a Director of the Company since 1982. He also served as Senior Vice President of
the Company from 1982 to May 1998 and as Treasurer of the Company from 1982
until March 1994. Mr. Freiberg has held various positions with predecessors of
the Company since 1969. He is a
21
Director of LandAmerica Financial Group, Inc. and Symbol Technologies, Inc.
Mr. Freiberg is a member of the Finance Committee of the Board of Directors.
Howard E. Steinberg, Esq. became Executive Vice President of the Company in
May 1998 and has served as General Counsel and Corporate Secretary of the
Company since March 1983, when he joined the Company. He also served as Senior
Vice President of the Company from March 1983 to May 1998. Prior to joining the
Company, he was a partner in the law firm of Dewey, Ballantine, Bushby, Palmer &
Wood. Mr. Steinberg also serves as the Chairman of the New York State Thruway
Authority, an unpaid position to which he was appointed in January 1996.
Albert A. Benchimol joined the Company in 1989 as Vice President and
Assistant Treasurer. In 1994, he was elected Treasurer of the Company and in
August 1998 he was elected Senior Vice President.
Henry A. Lambert was elected Senior Vice President--Real Estate Investments
and Operations of the Company in 1982. He has held various positions with
predecessors of the Company since 1977. He is President and Chief Executive
Officer of Reliance Development Group, Inc., the real estate management
subsidiary of the Company.
Dennis J. O'Leary joined the Company in 1985 as Vice President--Director of
Taxes. Prior thereto, he was a partner at the accounting firm of Deloitte &
Touche LLP (formerly Touche Ross & Co.) since 1980 and was associated with the
firm since 1975. In 1987 he was elected Senior Vice President--Taxes.
Philip S. Sherman was elected Vice President--Group Controller of the
Company in l984 and in 1987 he was elected Senior Vice President--Group
Controller. He has held various positions with predecessors of the Company since
l980.
Bruce L. Sokoloff was elected Senior Vice President--Administration of the
Company in 1982. He has held various positions with predecessors of the Company
since 1973. He is a Director of Individual Investor Group, Inc. Mr. Sokoloff is
the brother-in-law of Messrs. Saul P. Steinberg and Robert M. Steinberg.
James E. Yacobucci became a Director of the Company and Senior Vice
President--Investments of Reliance Insurance Company in May 1989. He became
Senior Vice President--Investments of the Company in December 1990.
Paul W. Zeller was elected Vice President of the Company in 1983 and Senior
Vice President in August 1998. He has been Deputy General Counsel of the Company
since March 1984 and has held various positions with predecessors of the Company
since 1981.
Officers are not elected for a fixed term of office but serve at the
discretion of the Board of Directors. Certain executive officers have employment
agreements with the Company.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
See the information in "Market and Dividend Information for Common Stock"
on page 66 of the Reliance Group Holdings 1998 Annual Report, which information
is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA.
See the information in "Reliance Group Holdings, Inc. and Subsidiaries
Selected Financial Data" on pages 21 and 22 of the Reliance Group Holdings 1998
Annual Report, which information is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
See the information in "Reliance Group Holdings, Inc. and Subsidiaries
Financial Review" on pages 25 through 33 of the Reliance Group Holdings 1998
Annual Report, which information is incorporated herein by reference.
22
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
See the information in "Reliance Group Holdings, Inc. and Subsidiaries
Financial Review--Market Risks" on pages 31 and 32 of the Reliance Group
Holdings 1998 Annual Report, which information is incorporated herein by
reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements of the Company and its consolidated subsidiaries,
included on pages 34 through 63 of the Reliance Group Holdings 1998 Annual
Report, which information is incorporated herein by reference, are listed in
Item 14 below.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information regarding the executive officers of the Company is included in
Part I of this report under the caption "Executive Officers of the Registrant."
Information regarding the directors of the Company is incorporated herein
by reference from its Proxy Statement for the Annual Meeting of Stockholders to
be held May 13, 1999, under the caption "Proposal 1--Election of Directors."
ITEM 11. EXECUTIVE COMPENSATION.
See the information in the Company's Proxy Statement for the Annual Meeting
of Stockholders to be held May 13, 1999, under the caption "Executive
Compensation," which information (other than the information under the captions
"Executive Compensation--Report of Compensation Committees of the Board" and
"Executive Compensation--Performance Graph") is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
See the information in the Company's Proxy Statement for the Annual Meeting
of Stockholders to be held May 13, 1999, under the caption "Security Ownership
of Certain Beneficial Owners and Management," which information is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
See the information in the Company's Proxy Statement for the Annual Meeting
of Stockholders to be held May 13, 1999, under the captions "Executive
Compensation--Compensation Committee Interlocks and Insider Participation" and
"Related Party Transactions," which information is incorporated herein by
reference.
23
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(A) 1. FINANCIAL STATEMENTS.
The consolidated financial statements of Reliance Group Holdings, Inc. and
Subsidiaries, which appear on pages 34 through 63 of the Reliance Group Holdings
1998 Annual Report, are incorporated herein by reference.
PAGE REFERENCE
-----------------------
1998
ANNUAL
FORM 10-K REPORT
------------- ------
RELIANCE GROUP HOLDINGS, INC. AND SUBSIDIARIES:
Independent Auditors' Report............................ A-1 64
Consolidated Financial Statements at December 31, 1998
and 1997 and for the three years ended December 31,
1998:
Statement of Income................................ 34
Balance Sheet...................................... 35
Statement of Changes in Shareholders' Equity....... 36
Statement of Cash Flows............................ 37
Notes to Financial Statements (1-19)............... 38-63
2. FINANCIAL STATEMENT SCHEDULES.
I -- Summary of Investments of Insurance Subsidiaries -- Other Than Investments in
Related Parties................................................................ A-2
II -- Condensed Financial Information of the Registrant at December 31, 1998 and 1997
and for the three years ended December 31, 1998:
Statement of Income............................................................ A-3
Balance Sheet.................................................................. A-4
Statement of Cash Flows........................................................ A-5
III -- Supplementary Insurance Information.............................................. A-6
IV -- Reinsurance...................................................................... A-7
VI -- Supplemental Information Concerning Property and Casualty Insurance Operations... A-8
Pursuant to Rule 1-02(w) of Regulation S-X, Reliance Insurance Group's
investment in Zenith National Insurance Corp. met the definition of a
"significant subsidiary" in 1996. Zenith National Insurance Corp. files
financial statements with the Securities and Exchange Commission which should be
referred to for additional information.
3. EXHIBITS
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- - --------- ----------------------
3.1 Reliance Group Holdings' Certificate of Incorporation, as amended
(incorporated by reference to Exhibit 3(a) to Registration Statement
No. 2-77043).
3.2 Amendment to Exhibit 3.1, as filed with the Secretary of State of
the State of Delaware on July 22, 1986 (incorporated by reference
to Exhibit 3.2 to Registration Statement No. 33-7493).
3.3 Amendment to Exhibit 3.1, as filed with the Secretary of State of
the State of Delaware on May 27, 1993 (incorporated by reference to
Exhibit 4.5 to Registration Statement No. 33-67396).
24
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- - --------- ----------------------
3.4 Reliance Group Holdings' Amended and Restated By-Laws (incorporated
by reference to Exhibit 3.2 to Reliance Group Holdings' Form 8-A
filed with the Securities and Exchange Commission on January 11,
1999).
*4.
+10.1 Employment Agreement between Reliance Group Holdings and Saul P.
Steinberg, dated as of February 15, 1996 (and the Schedule attached
thereto pursuant to Instruction 2 to Item 601 of Regulation S-K
listing George E. Bello, Lowell C. Freiberg, Howard E. Steinberg and
Robert M. Steinberg as having employment agreements identical in
all respects to Exhibit 10.1 other than as specified in such
schedule) (incorporated by reference to Exhibit 10.1 to Reliance
Group Holdings' Quarterly Report on Form 10-Q for the quarter ended
March 31, 1996).
+10.2 Amendment, dated as of December 29, 1997, to Employment Agreement
between Reliance Group Holdings and Saul P. Steinberg, dated as of
February 15, 1996 (and the Schedule attached thereto pursuant to
Instruction 2 to Item 601 of Regulation S-K listing George E. Bello,
Lowell C. Freiberg, Howard E. Steinberg and Robert M. Steinberg as
having amendments to their employment agreements identical in all
respects to Exhibit 10.2 other than as specified in such schedule).
+10.3 Employment Agreement between Reliance Insurance Company and Saul P.
Steinberg, dated as of February 15, 1996 (and Schedule attached
thereto pursuant to Instruction 2 to Item 601 of Regulation S-K
listing Robert M. Steinberg as having an employment agreement
identical in all respects to Exhibit 10.3) (incorporated by
reference to Exhibit 10.1 to Reliance Group Holdings' Quarterly
Report on Form 10-Q for the quarter ended March 31, 1996).
+10.4 Employment Agreement between Reliance Group Holdings and Bruce L.
Sokoloff, dated as of May 15, 1996 (incorporated by reference to
Exhibit 10.1 to Reliance Group Holdings' Quarterly Report on
Form 10-Q for the quarter ended June 30, 1996).
+10.5 Amendment, dated as of December 29, 1997, to Employment Agreement
between Reliance Group Holdings and Bruce L. Sokoloff, dated as of
May 15, 1996 (incorporated by reference to Exhibit 10.5 of Reliance
Group Holdings' Annual Report on Form 10-K for the year ended
December 31, 1997).
+10.6 1986 Stock Option Plan of Reliance Group Holdings, as amended
(incorporated by reference to Exhibit 19.2 to Reliance Group
Holdings' Quarterly Report on Form 10-Q for the quarter ended
June 30, 1990).
+10.7 The Reliance Group Holdings, Inc. 1994 Stock Option Plan
(incorporated by reference to Exhibit 10.2 to Reliance Group
Holdings' Quarterly Report on Form 10-Q for the quarter ended
June 30, 1994).
+10.8 Amended and Restated 1994 Stock Option Plan for Non-Employee
Directors (incorporated by reference to Exhibit 10.7 of Reliance
Group Holdings' Annual Report on Form 10-K for the year ended
December 31, 1997).
+10.9 The Reliance Group Holdings, Inc. 1997 Stock Option Plan
(incorporated by reference to Exhibit 10.2 to Reliance Group
Holdings' Quarterly Report on Form 10-Q for the quarter ended
June 30, 1997).
+10.10 The Reliance Group Holdings, Inc. 1998 Stock Option Plan
(incorporated by reference to Exhibit 10.1 to Reliance Group
Holdings' Quarterly Report on Form 10-Q for the quarter ended
June 30, 1998).
- - ------------------
* Neither Reliance Group Holdings nor its subsidiaries is a party to any
instrument relating to long-term debt under which the securities authorized
exceed 10% of the total consolidated assets of Reliance Group Holdings and its
subsidiaries. Copies of instruments relating to long-term debt of lesser
amounts will be provided to the Securities and Exchange Commission upon
request.
+ Management contract or compensatory plan or arrangement required to be filed
as an Exhibit to this Form 10-K pursuant to Item 14(c).
25
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- - --------- ----------------------
+10.11 The Reliance Group Holdings, Inc. 1998 Stock Option Plan for
Non-Employee Directors (incorporated by reference to Exhibit 10.2 to
Reliance Group Holdings' Quarterly Report on Form 10-Q for the
quarter ended June 30, 1998).
+10.12 The Reliance Group Holdings, Inc. Employee Stock Purchase Plan
(incorporated by reference to Exhibit 10.1 to Reliance Group
Holdings' Quarterly Report on Form 10-Q for the quarter ended
June 30, 1997).
+10.13 The Reliance Group Holdings, Inc. Key Employee Share Option Plan
(incorporated by reference to Exhibit 10.11 of Reliance Group
Holdings' Annual Report on Form 10-K for the year ended
December 31, 1997).
+10.14 Reliance Group Holdings, Inc. 1998 Executive Bonus Plan
(incorporated by reference to Exhibit 10.3 of Reliance Group
Holdings' Quarterly Report on Form 10-Q for the quarter ended
June 30, 1998).
+10.15 Amendment to Reliance Group Holdings, Inc. 1998 Executive Bonus
Plan.
+10.16 Reliance Group Holdings, Inc. Executive Bonus Plan for James E.
Yacobucci (incorporated by reference to Exhibit 10.4 of Reliance
Group Holdings' Quarterly Report on Form 10-Q for the quarter ended
June 30, 1998).
+10.17 Reliance National Risk Specialists 1992 Key Management Incentive
Plan (incorporated by reference to Exhibit 10.9 to Reliance
Insurance Company's Annual Report on Form 10-K for the year ended
December 31, 1993).
+10.18 Reliance National Risk Specialists 1993 Key Management Incentive
Plan (incorporated by reference to Exhibit 10.10 to Reliance
Insurance Company's Annual Report on Form 10-K for the year ended
December 31, 1993).
+10.19 Reliance National Risk Specialists 1994 Key Management Incentive
Plan (incorporated by reference to Exhibit 10.14 to Reliance
Insurance Company's Annual Report on Form 10-K for the year ended
December 31, 1994).
+10.20 Reliance National Risk Specialists 1995 Key Management Incentive
Plan (incorporated by reference to Exhibit 10.25 to Reliance Group
Holdings' Annual Report on Form 10-K for the year ended
December 31, 1996).
+10.21 Reliance National Risk Specialists Supplemental Key Management
Incentive Plan (effective for policy years 1993, 1994 and 1995)
(incorporated by reference to Exhibit 10.26 to Reliance Group
Holdings' Annual Report on Form 10-K for the year ended
December 31, 1996).
+10.22 Reliance National Risk Specialists 1996 Key Management Incentive
Plan (incorporated by reference to Exhibit 10.27 to Reliance Group
Holdings' Annual Report on Form 10-K for the year ended
December 31, 1996).
+10.23 Reliance National 1997 Key Management Incentive Plan (incorporated
by reference to Exhibit 10.23 to Reliance Group Holdings' Annual
Report on Form 10-K for the year ended December 31, 1997).
+10.24 Reliance National 1998 Key Management Incentive Plan.
+10.25 Memorandum, dated February 8, 1989, summarizing employment
arrangements between Reliance Insurance Company and Dennis Busti
(incorporated by reference to Exhibit 10.8 to Reliance Insurance
Company's Annual Report on Form 10-K for the year ended
December 31, 1988).
10.26 Asset Purchase Agreement, dated July 24, 1992, between Frank B. Hall
& Co. Inc. ("Hall") and Aon Corporation ("Aon") (incorporated by
reference to Exhibit 2.1 to Reliance Group Holdings' Quarterly
Report on Form 10-Q for the quarter ended June 30, 1992).
10.27 Agreement and Plan of Merger, dated as of July 24, 1992, among
Reliance Group Holdings, Hall and Prometheus Liquidating Corp.
(incorporated by reference to Exhibit 2.2 to Reliance Group
Holdings' Quarterly Report on Form 10-Q for the quarter ended
June 30, 1992).
- - ------------------
+ Management contract or compensatory plan or arrangement required to be filed
as an Exhibit to this Form 10-K pursuant to Item 14(c).
26
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- - --------- ----------------------
10.28 Employee Benefit Agreement, dated July 24, 1992, among Reliance
Group Holdings and Aon (incorporated by reference to Exhibit 28.2 to
Reliance Group Holdings' Quarterly Report on Form 10-Q for the
quarter ended June 30, 1992).
10.29 Amendment, dated November 2, 1992, to Exhibit 10.26 (incorporated by
reference to Exhibit 2.1 to Reliance Group Holdings' Quarterly
Report on Form 10-Q for the quarter ended September 30, 1992).
10.30 Settlement Agreement and Release, dated June 2, 1989, between James
P. Corcoran, Superintendent of Insurance of the State of New York,
as Liquidator of Union Indemnity Insurance Company of New York, Inc.
and Hall (now known as Prometheus Funding Corp.)(incorporated herein
by reference to Exhibit 10.01 to Frank B. Hall & Co. Inc.'s report
on Form 10-Q for the quarter ended June 30, 1989).
10.31 Amendment No. 1, dated April 21, 1997, to Exhibit 10.30
(incorporated by reference to Exhibit 10.1 to Reliance Group
Holdings' Quarterly Report on Form 10-Q for the quarter ended
March 31, 1997).
10.32 Stock Purchase Agreement, dated as of December 31, 1997, among Bear
Stearns Acquisition Corp. XVI, Reliance National (U.K.) Ltd. and
Reliance Insurance Company (incorporated by reference to
Exhibit 10.31 to Reliance Group Holdings' Annual Report on Form 10-K
for the year ended December 31, 1997).
10.33 Amended and Restated Stock Purchase Agreement, dated as of
December 11, 1997 by and among Reliance Insurance Company,
LandAmerica and Lawyers Title Insurance Corporation (incorporated by
reference to Exhibit 2.1 to LandAmerica's Current Report on
Form 8-K filed with the Securities and Exchange Commission on
March 16, 1998).
10.34 Voting and Standstill Agreement, dated as of February 27, 1998, by
and among LandAmerica, Reliance Group Holdings and Reliance
Insurance Company (incorporated by reference to Exhibit 10.26 to
LandAmerica's Annual Report on Form 10-K for the year ended
December 31, 1997).
10.35 Registration Rights Agreement, dated as of February 27, 1998, by and
among LandAmerica and Reliance Insurance Company (incorporated by
reference to Exhibit 10.27 to LandAmerica's Annual Report on
Form 10-K for the year ended December 31, 1997).
10.36 Articles of Amendment to LandAmerica's Articles of Incorporation
(incorporated by reference to Exhibit 4.2 to LandAmerica's Form 8-A
filed with the Securities and Exchange Commission on February 27,
1998).
10.37 Stock Purchase Agreement, dated as of February 22, 1999, between
Zenith Insurance Company and Nationwide Mutual Insurance Company
(incorporated by reference to Zenith's Current Report on Form 8-K
filed with the Securities and Exchange Commission on March 9, 1999).
13.1 Reliance Group Holdings 1998 Annual Report.
21.1 List of Subsidiaries of Reliance Group Holdings.
23.1 Consent of Deloitte & Touche LLP.
27.1 Financial Data Schedule.
**99.1 Annual Report on Form 11-K of Reliance Insurance Company Savings
Incentive Plan for the year ended December 31, 1998.
- - ------------------
** To be filed by Amendment.
(B) REPORTS ON FORM 8-K.
No reports on Form 8-K were filed during the three months ended
December 31, 1998.
27
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) 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, ON THE 31ST DAY OF
MARCH, 1999.
RELIANCE GROUP HOLDINGS, INC.
BY: /s/ SAUL P. STEINBERG
-----------------------------------
SAUL P. STEINBERG
CHAIRMAN OF THE BOARD
AND CHIEF EXECUTIVE OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ SAUL P. STEINBERG Chairman of the Board, March 31, 1999
- - ----------------------- Principal Executive Officer
SAUL P. STEINBERG and Director
/s/ GEORGE E. BELLO Principal Accounting March 31, 1999
- - ----------------------- Officer and Director
GEORGE E. BELLO
/s/ LOWELL C. FREIBERG Principal Financial March 31, 1999
- - ----------------------- Officer and Director
LOWELL C. FREIBERG
/s/ GEORGE R. BAKER Director March 31, 1999
- - -----------------------
GEORGE R. BAKER
/s/ DENNIS A. BUSTI Director March 31, 1999
- - -----------------------
DENNIS A. BUSTI
/s/ THOMAS P. GERRITY Director March 31, 1999
- - -----------------------
THOMAS P. GERRITY
28
SIGNATURE TITLE DATE
--------- ----- -----
/s/ JEWELL J. MCCABE Director March 31, 1999
- - ------------------------
JEWELL J. MCCABE
/s/ IRVING SCHNEIDER Director March 31, 1999
- - ------------------------
IRVING SCHNEIDER
/s/ BERNARD L. SCHWARTZ Director March 31, 1999
- - ------------------------
BERNARD L. SCHWARTZ
/s/ ROBERT M. STEINBERG Director March 31, 1999
- - ------------------------
ROBERT M. STEINBERG
/s/ JAMES E. YACOBUCCI Director March 31, 1999
- - ------------------------
JAMES E. YACOBUCCI
29
INDEPENDENT AUDITORS' REPORT
- - --------------------------------------------------------------------------------
Board of Directors and Shareholders
Reliance Group Holdings, Inc.
New York, New York
We have audited the consolidated financial statements of Reliance Group
Holdings, Inc. and subsidiaries (the "Company") as of December 31, 1998 and
1997, and for each of the three years in the period ended December 31, 1998, and
have issued our report thereon dated February 12, 1999, except as to
note 15(c), as to which the date is February 26, 1999; such consolidated
financial statements and report are included in your 1998 Annual Report to
Shareholders and are incorporated herein by reference. Our audits also included
the financial statement schedules of the Company listed in Item 14. These
financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits. In
our opinion, such financial statement schedules, when considered in relation to
the basic consolidated financial statements taken as a whole, present fairly in
all material respects the information set forth therein.
Deloitte & Touche LLP
New York, New York
February 12, 1999, except as to note 15(c)
of the consolidated financial statements,
as to which the date is February 26, 1999
A-1
SCHEDULE I
ITEM 14(A)2
RELIANCE GROUP HOLDINGS, INC. AND SUBSIDIARIES
SUMMARY OF INVESTMENTS OF INSURANCE SUBSIDIARIES -- OTHER THAN INVESTMENTS IN
RELATED PARTIES
DECEMBER 31, 1998
- - -------------------------------------------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D
- - -------------------------------------------------------------------------------------------------------------------
AMOUNT AT
WHICH
SHOWN IN THE
BALANCE
TYPE OF INVESTMENT COST VALUE SHEET
- - -------------------------------------------------------------------------------------------------------------------
(In thousands)
Fixed maturities available for sale:
Bonds and notes:
United States government and government agencies
and authorities..................................................... $ 545,482 $ 552,547 $ 552,547
States, municipalities and political subdivisions..................... 130,982 143,117 143,117
Foreign -- government................................................. 47,810 50,934 50,934
Foreign -- other...................................................... 154,893 153,789 153,789
Public utilities...................................................... 451,046 469,349 469,349
Convertibles and bonds with warrants attached......................... 31,375 30,708 30,708
All other corporate bonds and notes................................... 999,133 995,104 995,104
Redeemable preferred stocks.............................................. 326,288 343,316 343,316
---------- ---------- ----------
2,687,009 2,738,864 2,738,864
---------- ---------- ----------
Fixed maturities held for investment:
Bonds and notes:
States, municipalities and political subdivisions..................... 6,709 6,726 6,709
Foreign -- government................................................. 123,615 136,020 123,615
Foreign -- other...................................................... 14,448 15,243 14,448
Public utilities...................................................... 199,574 211,261 199,574
All other corporate bonds and notes................................... 130,567 139,124 130,567
Redeemable preferred stocks.............................................. 64,935 69,805 64,935
---------- ---------- ----------
539,848 578,179 539,848
---------- ---------- ----------
Equity securities:
Common stocks:
Banks, trusts and insurance companies................................. 49,683 56,584 56,584
Industrial and other.................................................. 82,572 577,172 577,172
Nonredeemable preferred stocks........................................... 130,731 120,787 120,787
---------- ---------- ----------
262,986 754,543 754,543
---------- ---------- ----------
Short-term investments..................................................... 383,658 383,658 383,658
---------- ---------- ----------
Cash....................................................................... 65,308 65,308 65,308
---------- ---------- ----------
$4,520,552
----------
----------
Mortgage loans(1).......................................................... 3,526 3,526
Investments in real estate(2).............................................. 134,480 134,480
---------- ----------
---------- ----------
$4,076,815 $4,620,227
---------- ----------
---------- ----------
- - ------------------
(1) In the consolidated financial statements, mortgage loans are included in
premiums and other receivables.
(2) Excludes investments in real estate held by non-insurance subsidiaries with
a cost and carrying value of $1,266,000.
A-2
SCHEDULE II
ITEM 14(A)2
RELIANCE GROUP HOLDINGS, INC.
(PARENT COMPANY)
STATEMENT OF INCOME
YEAR ENDED DECEMBER 31 1998 1997 1996
- - -----------------------------------------------------------------------------
(In thousands)
REVENUES:
Dividends from subsidiaries........... $ 268,000 $ 315,272 $ 110,000
Interest (including $4,438, $4,598 and
$6,415 from subsidiaries)........... 4,451 5,214 7,246
Loss on sale of subsidiary............ (5,160) -- --
---------- ---------- ----------
267,291 320,486 117,246
---------- ---------- ----------
EXPENSES:
Interest (including $5,681, $8,032 and
$21,212 to subsidiaries)............ 62,071 76,032 89,220
General and administrative............ 40,597 42,268 36,081
---------- ---------- ----------
102,668 118,300 125,301
---------- ---------- ----------
164,623 202,186 (8,055)
Income tax benefit.................... 37,609 40,219 42,488
---------- ---------- ----------
INCOME BEFORE EQUITY IN SUBSIDIARIES
AND INVESTEE COMPANIES.............. 202,232 242,405 34,433
Equity in subsidiaries (net income
less dividends received)............ 109,983 (12,907) 4,866
Equity in investee companies.......... 22,000 7,675 8,908
Loss on sale of discontinued
operation........................... -- (1,312) --
---------- ---------- ----------
INCOME BEFORE EXTRAORDINARY ITEM AND
CUMULATIVE
EFFECT OF ACCOUNTING CHANGE......... 334,215 235,861 48,207
Extraordinary item--early
extinguishment of debt.............. (7,766) -- --
Cumulative effect of change in
accounting for subsidiaries' process
reengineering costs................. -- (6,442) --
---------- ---------- ----------
NET INCOME............................ $ 326,449 $ 229,419 $ 48,207
---------- ---------- ----------
---------- ---------- ----------
A-3
SCHEDULE II
ITEM 14(A)2
RELIANCE GROUP HOLDINGS, INC.
(PARENT COMPANY)
BALANCE SHEET
ASSETS DECEMBER 31 1998 1997
- - ----------------------------------------------------------------
(In thousands, except per share amount)
Cash.................................. $ 83 $ 147
Investments in subsidiaries........... 1,794,269 1,618,853
Due from subsidiaries................. 73,232 80,849
Excess of cost over fair value of net
assets acquired, less accumulated
amortization........................ 25,426 26,873
Other assets.......................... 39,028 41,353
---------- ----------
$1,932,038 $1,768,075
---------- ----------
---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
- - ----------------------------------------------------------------
Accounts payable and accrued
expenses............................ $ 49,046 $ 46,772
Federal income taxes, including
deferred taxes...................... 96,915 94,346
Debentures............................ 463,480 650,000
Due to subsidiaries................... 7,077 14,442
---------- ----------
616,518 805,560
---------- ----------
Contingencies and commitments
Shareholders' equity:
Common stock, par value $.10 per
share, 225,000 shares authorized,
116,076 and 114,857 shares issued
and outstanding.................. 11,608 11,486
Additional paid-in capital.......... 548,674 542,049
Retained earnings (including
undistributed net income of
subsidiaries of $508,735 and
$376,752)........................ 432,096 142,701
Accumulated other comprehensive
income of subsidiaries........... 323,142 266,279
---------- ----------
1,315,520 962,515
---------- ----------
$1,932,038 $1,768,075
---------- ----------
---------- ----------
A-4
SCHEDULE II
ITEM 14(A)2
RELIANCE GROUP HOLDINGS, INC.
(PARENT COMPANY)
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31 1998 1997 1996
- - -----------------------------------------------------------------------------
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................ $ 326,449 $ 229,419 $ 48,207
Equity in undistributed net income of
subsidiaries and investee
companies........................... (279,699) (190,598) (13,774)
Other -- net.......................... 28,550 9,982 (5,354)
---------- ---------- ----------
75,300 48,803 29,079
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Other -- net.......................... 4,287 (8,386) (555)
---------- ---------- ----------
4,287 (8,386) (555)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in amounts due
from/to subsidiaries -- net......... 147,968 (6,199) 2,160
Issuance of common stock.............. 5,631 2,451 5,838
Dividends............................. (37,054) (36,706) (36,525)
Repurchases of debt................... (196,196) -- --
---------- ---------- ----------
(79,651) (40,454) (28,527)
---------- ---------- ----------
Decrease in cash...................... (64) (37) (3)
Cash, beginning of year............... 147 184 187
---------- ---------- ----------
Cash, end of year..................... $ 83 $ 147 $ 184
---------- ---------- ----------
---------- ---------- ----------
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:
In 1998, investments in subsidiaries and due to subsidiaries were reduced by
$135,000,000 and $12,716,000 to reflect a non-cash dividend from subsidiaries
and the elimination of a subsidiary that was sold. In 1997, investments in
subsidiaries and due to subsidiaries were reduced by $202,272,000 to reflect a
non-cash dividend from subsidiaries. Also in 1997, investments in subsidiaries,
due to subsidiaries and due from subsidiaries were reduced to reflect the
elimination of intercompany balances of a dormant subsidiary.
A-5
SCHEDULE III
ITEM 14(A)2
RELIANCE GROUP HOLDINGS, INC. AND SUBSIDIARIES
SUPPLEMENTARY INSURANCE INFORMATION
- - -------------------------------------------------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F COLUMN G
- - -------------------------------------------------------------------------------------------------------------------------
DEFERRED UNPAID POLICY
POLICY CLAIMS AND NET CLAIMS AND
ACQUISITION RELATED UNEARNED PREMIUMS INVESTMENT SETTLEMENT
SEGMENT COSTS EXPENSES PREMIUMS EARNED INCOME EXPENSES
- - -------------------------------------------------------------------------------------------------------------------------
(In thousands)
YEAR ENDED DECEMBER 31, 1998:
Property and casualty.......... $ 295,939 $7,173,886 $1,980,481 $2,304,280 $294,743 $1,516,948
Title.......................... -- -- -- 139,132 5,276 6,676
--------- ---------- ---------- ---------- -------- ----------
$ 295,939 $7,173,886 $1,980,481 $2,443,412 $300,019 $1,523,624
--------- ---------- ---------- ---------- -------- ----------
--------- ---------- ---------- ---------- -------- ----------
Year Ended December 31, 1997:
Property and casualty.......... $ 248,572 $6,559,508 $1,722,258 $1,947,016 $263,981 $1,263,086
Title.......................... -- 272,792 -- 863,746 30,990 41,473
--------- ---------- ---------- ---------- -------- ----------
$ 248,572 $6,832,300 $1,722,258 $2,810,762 $294,971 $1,304,559
--------- ---------- ---------- ---------- -------- ----------
--------- ---------- ---------- ---------- -------- ----------
Year Ended December 31, 1996:
Property and casualty.......... $ 215,438 $6,048,240 $1,468,299 $1,800,854 $257,133 $1,350,337
Title.......................... -- 264,838 -- 780,157 30,455 61,116
--------- ---------- ---------- ---------- -------- ----------
$ 215,438 $6,313,078 $1,468,299 $2,581,011 $287,588 $1,411,453
--------- ---------- ---------- ---------- -------- ----------
--------- ---------- ---------- ---------- -------- ----------
- - ----------------------------------------------------------------------------
COLUMN A COLUMN H COLUMN I COLUMN J
- - ----------------------------------------------------------------------------
AMORTIZATION
OF DEFERRED
POLICY OTHER
ACQUISITION INSURANCE PREMIUMS
SEGMENT COSTS EXPENSES WRITTEN
- - ------------------------------- ------------ ---------- ----------
(In thousands)
YEAR ENDED DECEMBER 31, 1998:
Property and casualty.......... $578,529 $ 253,030 $2,438,310
----------
----------
Title.......................... -- 126,751
-------- ----------
$578,529 $ 379,781
-------- ----------
-------- ----------
Year Ended December 31, 1997:
Property and casualty.......... $487,432 $ 219,698 $2,065,847
----------
----------
Title.......................... -- 789,853
-------- ----------
$487,432 $1,009,551
-------- ----------
-------- ----------
Year Ended December 31, 1996:
Property and casualty.......... $414,636 $ 201,485 $1,846,199
----------
----------
Title.......................... -- 711,185
-------- ----------
$414,636 $ 912,670
-------- ----------
-------- ----------
A-6
SCHEDULE IV
ITEM 14(A)2
RELIANCE GROUP HOLDINGS, INC. AND SUBSIDIARIES
REINSURANCE
- - ------------------------------------------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
- - ------------------------------------------------------------------------------------------------------------------
CEDED ASSUMED PERCENTAGE
TO FROM OF AMOUNT
GROSS OTHER OTHER NET ASSUMED TO
AMOUNT COMPANIES COMPANIES AMOUNT NET
- - ------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
YEAR ENDED DECEMBER 31, 1998:
Premiums:
Property and casualty............................. $3,743,993 $2,315,195 $875,482 $2,304,280 37.99%
Title............................................. 139,253 524 403 139,132 0.29
---------- ---------- -------- ----------
$3,883,246 $2,315,719 $875,885 $2,443,412 35.85
---------- ---------- -------- ----------
---------- ---------- -------- ----------
Year Ended December 31, 1997:
Premiums:
Property and casualty............................. $3,232,403 $1,733,311 $447,924 $1,947,016 23.01
Title............................................. 862,499 1,338 2,585 863,746 0.30
---------- ---------- -------- ----------
$4,094,902 $1,734,649 $450,509 $2,810,762 16.03
---------- ---------- -------- ----------
---------- ---------- -------- ----------
Year Ended December 31, 1996:
Premiums:
Property and casualty............................. $2,894,096 $1,449,731 $356,489 $1,800,854 19.80
Title............................................. 779,318 1,406 2,245 780,157 0.29
---------- ---------- -------- ----------
$3,673,414 $1,451,137 $358,734 $2,581,011 13.90
---------- ---------- -------- ----------
---------- ---------- -------- ----------
A-7
SCHEDULE VI
ITEM 14(A)2
RELIANCE GROUP HOLDINGS, INC. AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION CONCERNING PROPERTY AND CASUALTY INSURANCE OPERATIONS
- - -----------------------------------------------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F COLUMN G COLUMN H
- - -----------------------------------------------------------------------------------------------------------------------
CLAIMS AND
UNPAID SETTLEMENT EXPENSES
DEFERRED CLAIMS (REDUNDANCY)
AFFILIATION POLICY AND DISCOUNT NET INCURRED RELATED TO
WITH ACQUISITION RELATED DEDUCTED IN UNEARNED EARNED INVESTMENT CURRENT PRIOR
REGISTRANT COSTS EXPENSES COLUMN C(a) PREMIUMS PREMIUMS INCOME YEAR YEARS
- - -----------------------------------------------------------------------------------------------------------------------
(In thousands)
Consolidated subsidiaries:
YEAR ENDED
DECEMBER 31,
1998........... $ 295,939 $7,173,886 $197,305 $1,980,481 $2,304,280 $294,743 $1,549,907 ($32,959)
--------- ---------- -------- ---------- ---------- -------- ---------- --------
--------- ---------- -------- ---------- ---------- -------- ---------- --------
Year Ended
December 31,
1997........... $ 248,572 $6,559,508 $216,704 $1,722,258 $1,947,016 $263,981 $1,299,066 ($35,980)
--------- ---------- -------- ---------- ---------- -------- ---------- --------
--------- ---------- -------- ---------- ---------- -------- ---------- --------
Year Ended
December 31,
1996........... $ 215,438 $6,048,240 $229,963 $1,468,299 $1,800,854 $257,133 $1,211,672 $138,665
--------- ---------- -------- ---------- ---------- -------- ---------- --------
--------- ---------- -------- ---------- ---------- -------- ---------- --------
COLUMN A COLUMN I COLUMN J COLUMN K
- - --------------------------------------------------------
AMORTIZATION PAID
OF DEFERRED CLAIMS
AFFILIATION POLICY AND
WITH ACQUISITION SETTLEMENT PREMIUMS
REGISTRANT COSTS EXPENSES WRITTEN
- - --------------------------------------------------------
(In thousands)
Consolidated subsidiaries:
YEAR ENDED
DECEMBER 31,
1998........... $578,529 $1,536,729 $2,438,310
-------- ---------- ----------
-------- ---------- ----------
Year Ended
December 31,
1997........... $487,432 $1,330,898 $2,065,847
-------- ---------- ----------
-------- ---------- ----------
Year Ended
December 31,
1996........... $414,636 $1,225,834 $1,846,199
-------- ---------- ----------
-------- ---------- ----------
- - ------------------
(a) Liabilities for unpaid claims and related expenses for short-duration
contracts which are expected to have fixed, periodic payment patterns are
discounted to present values using statutory annual rates ranging from
3 1/2% to 6%. Discount shown relates to net liabilities for unpaid claims
and related expenses for short-duration contracts which are expected to have
fixed, periodic payment patterns.
A-8
EXHIBITS
TO
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED COMMISSION FILE NUMBER
DECEMBER 31, 1998 1-8278
RELIANCE GROUP HOLDINGS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- - --------- ----------------------
3.1 Reliance Group Holdings' Certificate of Incorporation,
as amended (incorporated by reference to
Exhibit 3(a) to Registration Statement No. 2-77043).
3.2 Amendment to Exhibit 3.1, as filed with the Secretary
of State of the State of Delaware on July 22, 1986
(incorporated by reference to Exhibit 3.2 to
Registration Statement No. 33-7493).
3.3 Amendment to Exhibit 3.1, as filed with the Secretary
of State of the State of Delaware on May 27, 1993
(incorporated by reference to Exhibit 4.5 to
Registration Statement No. 33-67396).
3.4 Reliance Group Holdings' Amended and Restated By-Laws
(incorporated by reference to Exhibit 3.2 to Reliance
Group Holdings' Form 8-A filed with the Securities and
Exchange Commission on January 11, 1999).
*4.
+10.1 Employment Agreement between Reliance Group Holdings
and Saul P. Steinberg, dated as of February 15, 1996
(and the Schedule attached thereto pursuant to
Instruction 2 to Item 601 of Regulation S-K listing
George E. Bello, Lowell C. Freiberg, Howard E.
Steinberg and Robert M. Steinberg as having employment
agreements identical in all respects to Exhibit 10.1
other than as specified in such schedule) (incorporated
by reference to Exhibit 10.1 to Reliance Group
Holdings' Quarterly Report on Form 10-Q for the
quarter ended March 31, 1996).
+10.2 Amendment, dated as of December 29, 1997, to Employment
Agreement between Reliance Group Holdings and Saul P.
Steinberg, dated as of February 15, 1996 (and the
Schedule attached thereto pursuant to Instruction 2 to
Item 601 of Regulation S-K listing George E. Bello,
Lowell C. Freiberg, Howard E. Steinberg and Robert M.
Steinberg as having amendments to their employment
agreements identical in all respects to Exhibit 10.2
other than as specified in such schedule).
+10.3 Employment Agreement between Reliance Insurance Company
and Saul P. Steinberg, dated as of February 15, 1996
(and Schedule attached thereto pursuant to
Instruction 2 to Item 601 of Regulation S-K listing
Robert M. Steinberg as having an employment agreement
identical in all respects to Exhibit 10.3)
(incorporated by reference to Exhibit 10.1 to Reliance
Group Holdings' Quarterly Report on Form 10-Q for the
quarter ended March 31, 1996).
+10.4 Employment Agreement between Reliance Group Holdings
and Bruce L. Sokoloff, dated as of May 15, 1996
(incorporated by reference to Exhibit 10.1 to Reliance
Group Holdings' Quarterly Report on Form 10-Q for the
quarter ended June 30, 1996).
+10.5 Amendment, dated as of December 29, 1997, to Employment
Agreement between Reliance Group Holdings and Bruce L.
Sokoloff, dated as of May 15, 1996 (incorporated by
reference to Exhibit 10.5 of Reliance Group Holdings'
Annual Report on Form 10-K for the year ended
December 31, 1997).
+10.6 1986 Stock Option Plan of Reliance Group Holdings, as
amended (incorporated by reference to Exhibit 19.2 to
Reliance Group Holdings' Quarterly Report on Form 10-Q
for the quarter ended June 30, 1990).
+10.7 The Reliance Group Holdings, Inc. 1994 Stock Option
Plan (incorporated by reference to Exhibit 10.2 to
Reliance Group Holdings' Quarterly Report on Form 10-Q
for the quarter ended June 30, 1994).
- - ------------------
* Neither Reliance Group Holdings nor its subsidiaries is a party to any
instrument relating to long-term debt under which the securities authorized
exceed 10% of the total consolidated assets of Reliance Group Holdings and its
subsidiaries. Copies of instruments relating to long-term debt of lesser
amounts will be provided to the Securities and Exchange Commission upon
request.
+ Management contract or compensatory plan or arrangement required to be filed
as an Exhibit to this Form 10-K pursuant to Item 14(c).
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- - --------- ----------------------
+10.8 Amended and Restated 1994 Stock Option Plan for
Non-Employee Directors (incorporated by reference to
Exhibit 10.7 of Reliance Group Holdings' Annual Report
on Form 10-K for the year ended December 31, 1997).
+10.9 The Reliance Group Holdings, Inc. 1997 Stock Option
Plan (incorporated by reference to Exhibit 10.2 to
Reliance Group Holdings' Quarterly Report on Form 10-Q
for the quarter ended June 30, 1997).
+10.10 The Reliance Group Holdings, Inc. 1998 Stock Option
Plan (incorporated by reference to Exhibit 10.1 to
Reliance Group Holdings' Quarterly Report on Form 10-Q
for the quarter ended June 30, 1998).
+10.11 The Reliance Group Holdings, Inc. 1998 Stock Option
Plan for Non-Employee Directors (incorporated by
reference to Exhibit 10.2 to Reliance Group Holdings'
Quarterly Report on Form 10-Q for the quarter ended
June 30, 1998).
+10.12 The Reliance Group Holdings, Inc. Employee Stock
Purchase Plan (incorporated by reference to
Exhibit 10.1 to Reliance Group Holdings' Quarterly
Report on Form 10-Q for the quarter ended June 30,
1997).
+10.13 The Reliance Group Holdings, Inc. Key Employee Share
Option Plan (incorporated by reference to
Exhibit 10.11 of Reliance Group Holdings' Annual Report
on Form 10-K for the year ended December 31, 1997).
+10.14 Reliance Group Holdings, Inc. 1998 Executive Bonus Plan
(incorporated by reference to Exhibit 10.3 of Reliance
Group Holdings' Quarterly Report on Form 10-Q for the
quarter ended June 30, 1998).
+10.15 Amendment to Reliance Group Holdings, Inc. 1998
Executive Bonus Plan.
+10.16 Reliance Group Holdings, Inc. Executive Bonus Plan for
James E. Yacobucci (incorporated by reference to
Exhibit 10.4 of Reliance Group Holdings' Quarterly
Report on Form 10-Q for the quarter ended June 30,
1998).
+10.17 Reliance National Risk Specialists 1992 Key Management
Incentive Plan (incorporated by reference to
Exhibit 10.9 to Reliance Insurance Company's Annual
Report on Form 10-K for the year ended December 31,
1993).
+10.18 Reliance National Risk Specialists 1993 Key Management
Incentive Plan (incorporated by reference to
Exhibit 10.10 to Reliance Insurance Company's Annual
Report on Form 10-K for the year ended December 31,
1993).
+10.19 Reliance National Risk Specialists 1994 Key Management
Incentive Plan (incorporated by reference to
Exhibit 10.14 to Reliance Insurance Company's Annual
Report on Form 10-K for the year ended December 31,
1994).
+10.20 Reliance National Risk Specialists 1995 Key Management
Incentive Plan (incorporated by reference to
Exhibit 10.25 to Reliance Group Holdings' Annual Report
on Form 10-K for the year ended December 31, 1996).
+10.21 Reliance National Risk Specialists Supplemental Key
Management Incentive Plan (effective for policy years
1993, 1994 and 1995) (incorporated by reference to
Exhibit 10.26 to Reliance Group Holdings' Annual Report
on Form 10-K for the year ended December 31, 1996).
+10.22 Reliance National Risk Specialists 1996 Key Management
Incentive Plan (incorporated by reference to
Exhibit 10.27 to Reliance Group Holdings' Annual Report
on Form 10-K for the year ended December 31, 1996).
+10.23 Reliance National 1997 Key Management Incentive Plan
(incorporated by reference to Exhibit 10.23 to Reliance
Group Holdings' Annual Report on Form 10-K for the year
ended December 31, 1997).
+10.24 Reliance National 1998 Key Management Incentive Plan.
- - ------------------
+ Management contract or compensatory plan or arrangement required to be filed
as an Exhibit to this Form 10-K pursuant to Item 14(c).
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- - --------- ----------------------
+10.25 Memorandum, dated February 8, 1989, summarizing
employment arrangements between Reliance Insurance
Company and Dennis Busti (incorporated by reference to
Exhibit 10.8 to Reliance Insurance Company's Annual
Report on Form 10-K for the year ended December 31,
1988).
10.26 Asset Purchase Agreement, dated July 24, 1992, between
Frank B. Hall & Co. Inc. ("Hall") and Aon Corporation
("Aon") (incorporated by reference to Exhibit 2.1 to
Reliance Group Holdings' Quarterly Report on Form 10-Q
for the quarter ended June 30, 1992).
10.27 Agreement and Plan of Merger, dated as of July 24,
1992, among Reliance Group Holdings, Hall and
Prometheus Liquidating Corp. (incorporated by reference
to Exhibit 2.2 to Reliance Group Holdings' Quarterly
Report on Form 10-Q for the quarter ended June 30,
1992).
10.28 Employee Benefit Agreement, dated July 24, 1992, among
Reliance Group Holdings and Aon (incorporated by
reference to Exhibit 28.2 to Reliance Group Holdings'
Quarterly Report on Form 10-Q for the quarter ended
June 30, 1992).
10.29 Amendment, dated November 2, 1992, to Exhibit 10.26
(incorporated by reference to Exhibit 2.1 to Reliance
Group Holdings' Quarterly Report on Form 10-Q for the
quarter ended September 30, 1992).
10.30 Settlement Agreement and Release, dated June 2, 1989,
between James P. Corcoran, Superintendent of Insurance
of the State of New York, as Liquidator of Union
Indemnity Insurance Company of New York, Inc. and Hall
(now known as Prometheus Funding Corp.)(incorporated
herein by reference to Exhibit 10.01 to Frank B. Hall &
Co. Inc.'s report on Form 10-Q for the quarter ended
June 30, 1989).
10.31 Amendment No. 1, dated April 21, 1997, to
Exhibit 10.30 (incorporated by reference to
Exhibit 10.1 to Reliance Group Holdings' Quarterly
Report on Form 10-Q for the quarter ended March 31,
1997).
10.32 Stock Purchase Agreement, dated as of December 31,
1997, among Bear Stearns Acquisition Corp. XVI,
Reliance National (U.K.) Ltd. and Reliance Insurance
Company (incorporated by reference to Exhibit 10.31 to
Reliance Group Holdings' Annual Report on Form 10-K for
the year ended December 31, 1997).
10.33 Amended and Restated Stock Purchase Agreement, dated as
of December 11, 1997 by and among Reliance Insurance
Company, LandAmerica and Lawyers Title Insurance
Corporation (incorporated by reference to Exhibit 2.1
to LandAmerica's Current Report on Form 8-K filed with
the Securities and Exchange Commission on March 16,
1998).
10.34 Voting and Standstill Agreement, dated as of
February 27, 1998, by and among LandAmerica, Reliance
Group Holdings and Reliance Insurance Company
(incorporated by reference to Exhibit 10.26 to
LandAmerica's Annual Report on Form 10-K for the year
ended December 31, 1997).
10.35 Registration Rights Agreement, dated as of
February 27, 1998, by and among LandAmerica and
Reliance Insurance Company (incorporated by reference
to Exhibit 10.27 to LandAmerica's Annual Report on
Form 10-K for the year ended December 31, 1997).
10.36 Articles of Amendment to LandAmerica's Articles of
Incorporation (incorporated by reference to
Exhibit 4.2 to LandAmerica's Form 8-A filed with the
Securities and Exchange Commission on February 27,
1998).
10.37 Stock Purchase Agreement, dated as of February 22,
1999, between Zenith Insurance Company and Nationwide
Mutual Insurance Company (incorporated by reference to
Zenith's Current Report on Form 8-K filed with the
Securities and Exchange Commission on March 9, 1999).
13.1 Reliance Group Holdings 1998 Annual Report.
21.1 List of Subsidiaries of Reliance Group Holdings.
23.1 Consent of Deloitte & Touche LLP.
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- - --------- ----------------------
27.1 Financial Data Schedule.
**99.1 Annual Report on Form 11-K of Reliance Insurance
Company Savings Incentive Plan for the year ended
December 31, 1998.
- - ------------------
** To be filed by Amendment.