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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994 COMMISSION FILE NUMBER 1-8026
GENERAL RE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 06-1026471
(STATE OF OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
695 EAST MAIN STREET
STAMFORD, CONNECTICUT 06904-2351
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (203) 328-5000
SECURITIES REGISTERED PURSUANT TO SECTION 12 (B) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Common Stock, $.50 par value 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 (229.405 of this chapter) 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. [X]
The aggregate market value on March 1, 1995 of the voting stock held by
non-affiliates of the registrant was $10,423 million.
The number of shares outstanding of each of the issuer's classes of common stock
as of the close of the period covered by this report:
CLASS OUTSTANDING AT MARCH 1, 1995
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Common Stock, $.50 par value 81,937,208
Certain information required by Items 10, 11 and 12 of Form 10-K is incorporated
by reference into Part III hereof from the registrant's proxy statement which
will be filed with the Securities and Exchange Commission within 120 days of the
close of the registrant's fiscal year ended December 31, 1994.
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PART I
ITEM 1. BUSINESS
General Re Corporation (the "Corporation") was established in 1980 to serve as
the parent holding company of General Reinsurance Corporation ("GRC", formed in
1921) and its affiliates, together constituting the General Re Group (the
"Group"). The Corporation operates in three principal businesses: domestic
property/casualty and life reinsurance, international property/casualty and life
reinsurance and financial services. The Group comprises the largest professional
property/casualty reinsurer domiciled in the United States and the third largest
in the world.
Domestic Property/Casualty
The Corporation's largest business (82.2% of 1994 consolidated revenues) is
domestic property/casualty reinsurance. Domestically, the Corporation primarily
operates as a treaty and facultative reinsurer, underwriting property and
casualty business on a direct basis throughout the United States and Canada. The
Corporation predominately writes excess of loss reinsurance across various lines
of business. Casualty reinsurance business represented approximately 55 percent
of the Corporation's domestic property/casualty net premiums written in 1994 and
property reinsurance business represented approximately 34 percent. The
Corporation also writes excess and surplus lines insurance and provides excess
insurance to self-insured programs. These lines represented approximately 11
percent of the domestic property/casualty net premiums in 1994.
It is not possible to determine the number of the Corporation's competitors.
There are virtually no barriers to entry to the reinsurance industry and
competitors may be domestic or foreign, licensed or unlicensed companies.
Reinsurers compete on the basis of reliability, financial strength and
stability, service, business ethics, price, performance, and almost every aspect
of the transaction. Purchasers of reinsurance are themselves insurers and, in
some cases, reinsurers.
U.S. domestic property and casualty insurers, including reinsurers, are subject
to regulation by their states of domicile and by those states in which they are
licensed. The Corporation's principal subsidiary, GRC, is domiciled in Delaware
and licensed in every state but Hawaii. The Corporation's excess and surplus
insurers, the General Star companies, are domiciled in Connecticut and Ohio. The
Genesis companies, which are the Corporation's direct excess and alternative
market insurers, are domiciled in Connecticut and North Dakota.
In addition to solvency regulation, licensed primary insurers are typically
subject to regulatory approval of insurance policy forms and the rates charged
to policyholders; similar approvals are not typically required for either
reinsurance contracts or the rates agreed to between ceding insurers and their
reinsurers. The insurance regulators of every state participate in the National
Association of Insurance Commissioners (the "NAIC"). The NAIC adopts forms,
instructions and accounting procedures for use by U.S. domestic insurers,
including reinsurers, in preparing and filing annual statutory financial
statements. These forms, instructions and procedures are collectively known as
statutory accounting practices ("SAP"). Every state requires use of the NAIC
annual statement form, although some states require or permit variations from
the NAIC form and SAP.
In addition to its activities relating to the annual statement and SAP, the NAIC
develops model laws and regulations for use by its members. In 1989, the NAIC
adopted its Financial Regulation Standards to guide state legislatures and state
regulators in the development of effective insurer solvency regulation. The
standards are viewed by the NAIC as minimum requirements for an effective state
regulatory scheme.
In 1990, the NAIC adopted a formal accreditation program to encourage states to
comply with the standards. Each state insurance department may be reviewed by an
independent accreditation team to determine whether the state's laws and
regulations (including certain NAIC model laws and regulations or their
substantially similar equivalents), and the department's administrative
practices, comply with the standards. Accredited states may refuse to accept
reports of financial examination of insurers issued by non-accredited states;
other sanctions may also be imposed, including a refusal to license insurers
domiciled in non-accredited states. It is
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likely that during 1995 the NAIC will reassess the accreditation program, and
the sanctions, if any, to be imposed on non-accredited states. As of December
1994, the insurance departments of 44 states were accredited, including the
Delaware Insurance Department.
The NAIC developed its Financial Regulation Standards and Accreditation Program
as an effective national system of solvency regulation to demonstrate that
federal involvement in the regulation of the business of insurance is
unnecessary. This action was prompted in part by a series of hearings on state
regulation of insurance held by the Energy and Commerce Oversight Subcommittee
of the U.S. House of Representatives. Legislation mandating a Federal role in
the regulation of insurers and reinsurers was introduced in the 102nd and 103rd
Congress. No similar legislation has been introduced yet in 1995. It is expected
that state regulators and some insurers and reinsurers would vigorously oppose
any new legislation, and prospects for passage of such legislation are
uncertain. The final form of any legislation is also uncertain.
The NAIC has adopted a risk-based capital formula which applies to statutory
annual statements of property/casualty companies beginning with the calendar
year 1994 statement (filed by March 1, 1995). The NAIC has also adopted a
risk-based capital model law which, if adopted by the domiciliary states of the
Corporation's domestic insurance subsidiaries, would supplant current minimum
capital and surplus requirements with the risk-based capital requirement. The
formula has been made a part of the Financial Regulation Standards; the model
law became a part of the standards during 1994, and states must adopt it or a
substantially similar law within two years. If enacted, the model law would
subject an insurer failing its risk-based capital requirement to various levels
of regulatory action. Each of the Corporation's domestic insurance subsidiaries
have filed 1994 statutory annual statements reporting risk-based capital well
above the threshold for regulatory action.
The Corporation is dependent upon the ability of its operating subsidiaries for
the transfer of funds in the form of loans, advances or dividends. The insurance
holding company laws require the filing of annual reports by the insurance
company members of the system and regulate transactions between the holding
company and affiliated insurance companies to the extent that such transactions
must be fair, reasonable and assure the adequacy of insurance companies'
statutory surplus in relation to their liabilities and financial needs.
The laws also subject extraordinary dividends and other extraordinary
distributions to insurance company stockholders to regulatory approval.
Dividends or distributions in a twelve-month period exceeding the greater of 10
percent of an insurance company's surplus as of the prior year end or 100
percent of net income, excluding realized gains, for the previous calendar year
are generally considered extraordinary and require such approval. Based on these
restrictions, ordinary dividend payments by domestic insurance subsidiaries to
the Corporation are limited to $420 million in 1995. Foreign and non-insurance
subsidiaries generally are subject to fewer restrictions on the payment of
dividends.
Reference is made to Management's Discussion and Analysis -- Financial
Condition -- Liabilities for additional discussion of regulatory matters.
International Property/Casualty
The Corporation's international property/casualty underwriting operations
generated revenues of $456 million, or 11.9 percent, of the consolidated total
in 1994. The international operations in 1994 were conducted through
subsidiaries based in the United Kingdom, Australia, Argentina, Spain,
Switzerland and Uruguay. Revenues were also generated in branch offices in
certain other countries. The international property/casualty operations
principally wrote treaty reinsurance in 1994. In recent years, the Corporation
has expanded its facultative writings in these operations.
On December 28, 1994, the Corporation and Colonia Konzern AG ("Colonia") formed
a new company that acquired 75 percent of the common shares and approximately 30
percent of the preferred shares of Kolnische Ruckversicherungs-Gesellschaft AG
("Cologne Re"), which collectively represents a 66.3 percent economic interest
in Cologne Re. In exchange for its Cologne Re shares, Colonia, for itself and as
trustee for Nordstern Allgemeine Versicherungs AG (collectively the "CKAG
Group"), received 100 percent of the Class A shares of the new company, General
Re-CKAG Reinsurance and Investment S.A.R.L. ("GR-CK"). The Corpora-
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tion contributed $884 million (DM 1,377 million) to GR-CK, in exchange for 100
percent of the Class B shares of GR-CK. The Class A shares have 49.9 percent of
the votes of GR-CK and are entitled to an annual Class A dividend, while the
Class B shares have 50.1 percent of the votes of GR-CK and are entitled to the
earnings of GR-CK in excess of the Class A dividend. As a result of the
ownership and control structure of GR-CK and Cologne Re, the Corporation has
consolidated GR-CK and Cologne Re in its financial statements and recorded as
minority interests the share of the CKAG Group in GR-CK and of other
stockholders in Cologne Re.
Cologne Re writes both property/casualty and life reinsurance business
throughout the world with its principal operations located in Germany. In 1994,
Cologne Re wrote approximately DM 4,123 million (U.S. $2,595 million) of net
premiums, of which property/casualty reinsurance premiums were approximately DM
2,742 million, and life and health reinsurance net written premium was
approximately DM 1,381 million. The largest portion of Cologne Re's
property/casualty business is generated from fire and automobile coverages.
Cologne Re's life reinsurance is geographically distributed throughout the world
with the largest percentage of premiums written in the United States and
Germany. The results from Cologne Re's operations did not impact the Corporation
in 1994 as the transaction closed at the end of the year. In future years, the
Corporation's operating results will include its proportional share of Cologne
Re's operations, which will be reported on a quarter lag. Reference is made to
Item 7, Management's Discussion and Analysis, and Note 3, "Reinsurance
Ventures", for additional discussion of this transaction.
Financial Services
The Corporation's financial services operations include derivative products,
insurance brokerage and management, investment management, reinsurance brokerage
and real estate management operations. The financial services operations
generated $226 million, or 5.9 percent, of the Corporation's 1994 revenues.
Other Information
The business of the operating subsidiaries of the Corporation is developed and
served by employees primarily located in the United States, Canada, Argentina,
Australia, Denmark, Egypt, Italy, Germany, Japan, New Zealand, Singapore,
Switzerland, Spain and the United Kingdom. The addition of Cologne Re to the
Corporation added significant operations based in Germany, the United States,
the United Kingdom, Australia, South Africa and Austria. The Corporation
employed 3,282 persons at December 31, 1994; 2,237 employees in North America
and 1,045 employees in international operations, of which 922 are employed by
Cologne Re.
For further information about the Corporation's business, reference is made to
Item 7, Management's Discussion and Analysis, and Note 20, "Segment Information"
included in this report. Reference is also made to the caption,
"Property/Casualty Insurance Reserve Disclosures" on pages 22-25 of this report.
ITEM 2. PROPERTIES
The Corporation and most of its domestic subsidiaries occupy approximately 75
percent of a six story building in Stamford, Connecticut. This building,
consisting of approximately 560,000 square feet of office space and a multiple
level parking garage, with approximately eight acres of land on which it is
located, was originally owned by Elm Street Corporation, a wholly owned
subsidiary of the Corporation. The Corporation has guaranteed the obligations of
Elm Street Corporation in connection with this transaction. On November 12,
1984, the land was leased, the improvements were sold and the land and
improvements were leased back by the Corporation. Under the terms of the lease,
the Corporation has the option to purchase the improvements upon expiration of
the 25 year lease or at an earlier date upon the occurrence of certain events.
GRC Realty Corporation, also a wholly owned subsidiary of the Corporation, has
retained title to the Group's former home office site in Greenwich, Connecticut.
This site consists of approximately four acres of land and an office building
which has about 160,000 square feet of office space that is rented to
non-affiliates. The Greenwich site is subject to a mortgage expiring December
31, 1998, which had a remaining balance of $7 million at December 31, 1994.
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Cologne Re's German operations are principally based in an office building of
approximately 130,000 square feet in Cologne, Germany. The building has an
estimated fair value of $40 million and is owned by Cologne Re. The United
States operations of Cologne Re are based in an office building in Stamford,
Connecticut which had an estimated fair value of $8 million at December 31,
1994.
In addition, the Corporation's domestic and international operations have branch
and affiliate operations conducted from leased premises in various cities in the
United States and foreign countries.
At this time, the Corporation believes its facilities are suitable for its
purposes, having adequate capacity for the Corporation's present and anticipated
needs.
ITEM 3. LEGAL PROCEEDINGS
On September 12, 1994, the Corporation's subsidiary, General Reinsurance
Corporation, along with 31 other insurance companies and insurance industry
organizations, reached a settlement of civil antitrust actions brought by 20
State Attorneys General and several private plaintiffs.
The lawsuit was originally dismissed on motion by the United States District
Court for the Northern District of California on September 20, 1989. The United
States Court of Appeals for the Ninth Circuit reversed the dismissal and
remanded the case to the District Court for further proceedings. On October 5,
1992, the United States Supreme Court granted, in part, defendants' petition for
certiorari. On June 28, 1993, the Supreme Court affirmed in part and reversed in
part the decision of the Court of Appeals and remanded the Case to the Court of
Appeals for further action. On October 6, 1993, the Court of Appeals remanded
the case to the District Court for trial in accordance with the opinion of the
Supreme Court. There has been no finding of any wrongdoing or illegality by any
defendant in this civil action.
The settlement involves a restructuring of the insurance industry's largest loss
and statistical gathering bureau, the Insurance Services Office, whose board of
directors had previously been dominated by insurer representatives, and the
funding by the defendants of a national public risk database and a public entity
risk services institute to assist risk management efforts. The terms of the
settlement, which provide for no admission of wrongdoing, illegality or payment
of damages, will be subject to the approval of the District Court. The effect of
the settlement was not material to the Corporation's results of operations,
financial condition or cash flows.
The Corporation and its subsidiaries have been named as defendants in litigation
in the ordinary course of conducting insurance business. These lawsuits
generally seek to establish liability under insurance or reinsurance contracts
issued by the subsidiaries, and occasionally seek punitive or exemplary damages.
The Corporation's reinsurance subsidiaries are also indirectly involved in
coverage litigation. In those cases, plaintiffs seek coverage for their
liabilities under insurance policies from insurance companies reinsured by the
Corporation's reinsurance subsidiaries. In the judgment of management, none of
these cases, individually or collectively, is likely to result in judgments for
amounts which, net of claim and claim expense liabilities previously established
and applicable reinsurance, would be material to the financial position, results
of operations or cash flow of the Corporation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
EXECUTIVE OFFICERS OF THE CORPORATION.
The Executive Officers of the Corporation as of February 28, 1995 are as
follows:
NAME AGE POSITION
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Ronald E. Ferguson....... 53 Chairman, President and Chief Executive Officer of the
Corporation since 1987 and Vice Chairman of General
Reinsurance Corporation since February, 1995;
previously President and Chief Operating Officer of the
Corporation 1983-1987; Vice President and Group
Executive 1981-1983. Chairman of General Reinsurance
Corporation 1985-1995; Executive Vice President of
General Reinsurance Corporation 1982-1984; Senior Vice
President, General Reinsurance Corporation, Operations
Division 1981-1982. With the Group since 1969.
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NAME AGE POSITION
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John C. Etling........... 59 Vice Chairman of the Corporation since 1987 and Vice
Chairman of General Reinsurance Corporation since
February, 1995; previously Senior Vice President and
Group Executive of the Corporation 1984-1987; Vice
President and Group Executive 1981-1984. President and
Chief Executive Officer, General Reinsurance
Corporation 1983-1995; Executive Vice President General
Reinsurance Corporation 1982-1983; Senior Vice
President of General Reinsurance Corporation,
Underwriting and Marketing Division 1981-1982. With the
Group since 1961.
James E. Gustafson....... 48 Chairman and Chief Executive Officer of General
Reinsurance Corporation since February, 1995;
previously Executive Vice President of General
Reinsurance Corporation 1991-1995; Senior Vice
President and Manager of Underwriting of General
Reinsurance Corporation 1982-1991; President and Chief
Executive Officer of General Re Services Corporation
1987-Present; Vice President of General Reinsurance
Corporation Treaty Underwriting Department 1978-1982.
With the Group since 1969.
Tom N. Kellogg........... 58 President and Chief Operating Officer of General
Reinsurance Corporation since February, 1995;
previously Executive Vice President and Chief Marketing
Officer of General Reinsurance Corporation 1991-1995;
Senior Vice President of General Reinsurance
Corporation Claims, Facultative Casualty, Property and
Ocean Marine 1978-1991. With the Group since 1968.
Charles F. Barr.......... 45 Vice President, General Counsel and Secretary of the
Corporation since 1994; previously Vice President and
Assistant General Counsel of General Reinsurance
Corporation 1992-1994; Second Vice President and
Assistant General Counsel of General Reinsurance
Corporation 1990-1992; Assistant General Counsel
1989-1990. With the Group since 1989. Prior thereto,
Vice President, General Counsel and Secretary, General
Accident Insurance Company of America, 1987-1989; Vice
President and General Counsel United Pacific Life
Insurance Company and Assistant General Counsel,
Reliance Insurance Company, 1981-1987.
Joseph P. Brandon........ 36 Vice President and Chief Financial Officer of the
Corporation since 1991 and Senior Vice President of
General Reinsurance Corporation since 1991; previously
Vice President, Treaty Division of General Reinsurance
Corporation 1990-1991; Second Vice President, Treaty
Division 1989-1990. With the Group since 1989. Prior
thereto, Vice President, American Mutual Insurance
Group, 1986-1989; Coopers & Lybrand, Audit Staff,
1981-1986.
Ernest C. Frohboese...... 54 Vice President of the Corporation since 1990 and Senior
Vice President and Chief Investment Officer of General
Reinsurance Corporation since 1990. With the Group
since 1990. Prior thereto, Senior Vice President and
Chief Investment Officer Capitoline Investment
Services, Inc. 1985-1990; Senior Vice President and
Director of Research, Morgan Keegan, Inc. 1984-1985.
Elizabeth A. Monrad...... 40 Corporate Controller since 1992 and Vice President and
Treasurer of General Reinsurance Corporation since
1992. With the Group since 1992. Prior thereto, with
Coopers & Lybrand, Partner, 1989-1992, Audit Staff,
1980-1989.
The Chairman, President, Secretary and Controller are elected by the Board for
one-year terms. Vice Presidents are appointed and serve at the pleasure of the
Board. Other officers may be appointed by and serve at the pleasure of the Chief
Executive Officer.
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PART II
ITEM 5. MARKET FOR THE CORPORATION'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
(a) The common stock of the Corporation is traded on the New York Stock
Exchange. The following table sets forth information as to the closing price of
the Corporation's common stock on the Exchange during 1994 and 1993.
1994 1993
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HIGH LOW HIGH LOW
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First Quarter........................... $114.00 $102.50 $130.00 $112.13
Second Quarter.......................... 125.38 105.75 123.13 109.13
Third Quarter........................... 115.63 104.88 132.75 115.50
Fourth Quarter.......................... 128.50 105.00 123.88 105.38
(b) The number of holders of record of the Corporation's common stock at
December 31, 1994 was 4,163.
(c) The following table sets forth information as to the cash dividends paid by
the Corporation on shares of its common stock during each of the past two years.
1994 1993
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First Quarter.................................................. $.48 $.47
Second Quarter................................................. .48 .47
Third Quarter.................................................. .48 .47
Fourth Quarter................................................. .48 .47
It is the intention of the Corporation to declare quarterly dividends to the
extent deemed by the Board of Directors to be appropriate. Dividends are paid
principally from amounts received by the Corporation as dividends from General
Reinsurance Corporation and the other operating subsidiaries. The payment of
dividends by General Reinsurance Corporation is subject to certain restrictions.
See page 3 within the section, "Business -- Domestic Property/Casualty".
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ITEM 6. SELECTED FINANCIAL DATA
ELEVEN-YEAR SUMMARY OF SELECTED FINANCIAL DATA
1994 1993 1992 1991 1990
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(IN MILLIONS, EXCEPT PER SHARE AMOUNTS AND
RATIOS)
CONSOLIDATED INFORMATION
Total revenues................................. $ 3,837 $ 3,560 $ 3,387 $ 3,207 $ 2,954
Net premiums written........................... 3,001 2,524 2,349 2,249 2,150
After-tax income before accounting
changes(1).................................. 665 697 596 657 614
Per share................................... 7.97 8.11 6.84 7.46 6.89
Net income..................................... 665 711 657 657 614
Per share................................... 7.97 8.28 7.55 7.46 6.89
After-tax income, excluding realized
gains(1).................................... 621 604 465 563 566
Per share................................... 7.43 7.01 5.30 6.37 6.35
Net investment income before tax............... 749 755 755 752 706
Net investment income after tax................ 622 619 620 618 581
Investments.................................... 18,898 14,346 11,532 10,842 9,510
Total assets................................... 29,597 19,419 14,700 12,416 11,033
Long-term debt................................. 157 192 199 301 302
Common stockholders' equity.................... 4,859 4,761 4,227 3,911 3,270
Return on equity(3)............................ 12.9% 13.4% 11.4% 15.6% 17.8%
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DOMESTIC PROPERTY/CASUALTY OPERATIONS
Net premiums written........................... $ 2,581 $ 2,275 $ 2,177 $ 2,122 $ 2,040
Net investment income before tax............... 686 705 703 703 662
After-tax income, excluding realized
gains(1).................................... 538 556 445 545 551
Statutory surplus.............................. 3,770 3,836 3,452 3,363 2,902
Investments.................................... 11,177 11,601 10,477 10,003 8,848
Claims and claim expense liabilities(4)........ 7,029 6,803 6,635 6,230 5,816
Statutory loss ratio........................... 70.7% 70.6% 78.8% 72.5% 68.2%
Statutory expense ratio........................ 30.6% 30.9% 29.6% 29.7% 30.8%
Statutory combined ratio....................... 101.3% 101.5% 108.4% 102.2% 99.0%
------- ------- ------- ------- -------
INTERNATIONAL PROPERTY/CASUALTY OPERATIONS
Net premiums written........................... $ 420 $ 249 $ 172 $ 127 $ 110
Net investment income before tax............... 52 43 47 44 39
After-tax income, excluding realized
gains(1).................................... 29 14 16 19 16
Investments(5)................................. 757 589 509 469 442
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FINANCIAL SERVICES
Revenues, excluding net realized gains......... $ 229 $ 211 $ 115 $ 100 $ 88
After-tax income, excluding realized
gains(1).................................... 54 34 4 (1) (1)
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COMMON STOCKHOLDERS' INFORMATION
Average common shares outstanding.............. 82.1 84.5 85.7 87.1 88.0
Dividend per common share...................... $ 1.92 $ 1.88 $ 1.80 $ 1.68 $ 1.52
Common stockholders' equity per share.......... 59.35 56.92 49.89 45.14 37.50
Common share price(6): High................... 128.50 132.75 123.13 101.88 93.00
Low.................... 102.50 105.38 78.63 84.88 69.00
Year end............... 123.50 107.00 115.75 101.88 93.00
------- ------- ------- ------- -------
See page 10 and notes to consolidated financial statements.
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ELEVEN-YEAR SUMMARY OF SELECTED FINANCIAL DATA -- (CONTINUED)
1989 1988 1987 1986 1985 1984 CAGR(2)
------- ------ ------ ------ ------ ------ -------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS AND RATIOS)
CONSOLIDATED INFORMATION
Total revenues....................... $ 2,742 $2,719 $3,115 $2,853 $1,772 $1,314 11.3%
Net premiums written................. 1,898 1,903 2,365 2,561 1,646 1,122 10.3
After-tax income before accounting
changes(1)........................ 599 513 469 321 142 44 31.2
Per share......................... 6.52 5.39 4.62 3.14 1.52 0.49 32.2
Net income........................... 599 480 511 329 139 156 15.6
Per share......................... 6.52 5.04 5.04 3.22 1.45 1.74 16.4
After-tax income, excluding realized
gains(1).......................... 559 518 458 298 137 42 30.9
Per share......................... 6.08 5.44 4.52 2.92 1.46 .47 31.8
Net investment income before tax..... 673 570 506 413 301 232 12.4
Net investment income after tax...... 558 494 435 345 254 222 10.9
Investments.......................... 8,799 7,866 6,969 5,978 4,182 3,336 18.9
Total assets......................... 10,390 9,394 8,902 8,078 6,005 5,026 19.4
Long-term debt....................... 263 114 115 115 116 17 24.9
Common stockholders' equity.......... 3,084 2,695 2,563 2,413 1,794 1,368 13.5
Return on equity(3).................. 19.3% 19.7% 18.4% 14.2% 8.7% 3.1% --
------- ------ ------ ------ ------ ------ -------
DOMESTIC PROPERTY/CASUALTY OPERATIONS
Net premiums written................. $ 1,789 $1,780 $2,251 $2,485 $1,591 $1,065 9.3%
Net investment income before tax..... 638 539 479 386 273 213 12.4
After-tax income, excluding realized
gains(1).......................... 524 481 424 264 116 21 38.3
Statutory surplus.................... 2,684 2,319 2,009 1,840 1,091 711 18.2
Investments.......................... 8,417 7,532 6,666 5,725 3,939 3,126 13.6
Claims and claim expense
liabilities(4).................... 5,535 5,218 4,739 4,024 2,913 2,453 11.1
Statutory loss ratio................. 70.6% 70.0% 74.3% 79.6% 84.8% 95.8% --
Statutory expense ratio.............. 29.0% 29.1% 25.5% 23.7% 26.0% 31.2% --
Statutory combined ratio............. 99.6% 99.1% 99.8% 103.3% 110.8% 127.0% --
------- ------ ------ ------ ------ ------ -------
INTERNATIONAL PROPERTY/CASUALTY
OPERATIONS
Net premiums written................. $ 109 $ 123 $ 114 $ 76 $ 55 $ 57 22.1%
Net investment income before tax..... 31 27 24 21 18 13 14.9
After-tax income, excluding realized
gains(1).......................... 26 20 18 16 7 9 12.4
Investments(5)....................... 342 299 279 221 177 161 16.7
------- ------ ------ ------ ------ ------ -------
FINANCIAL SERVICES
Revenues, excluding net realized
gains............................. $ 90 $ 101 $ 106 $ 101 $ 91 $ 53 15.8
After-tax income, excluding realized
gains(1).......................... 9 17 16 18 14 12 16.2%
------- ------ ------ ------ ------ ------ -------
COMMON STOCKHOLDERS' INFORMATION
Average common shares outstanding.... 91.3 95.3 101.4 102.0 93.7 90.2 --
Dividend per common share............ $ 1.36 $ 1.20 $ 1.00 $ 0.88 $ 0.78 $ 0.72 10.5%
Common stockholders' equity per
share............................. 34.28 29.04 26.20 23.47 18.48 15.17 14.6
Common share prices(6): High......... 95.75 59.25 68.38 68.88 52.50 33.38 14.4
Low....... 55.00 45.88 48.75 49.44 30.57 23.25 16.0
Year
end............................... 87.13 55.25 55.88 55.50 50.06 31.88 14.5
------- ------ ------ ------ ------ ------ -------
See page 10 and notes to consolidated financial statements.
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NOTES TO THE ELEVEN-YEAR SUMMARY OF SELECTED FINANCIAL DATA
Only continuing operations are presented. Balance sheet data are as of December
31st.
(1) Excludes the cumulative effect of accounting changes. The balance sheet data
in the table above reflect the adoption of Statement of Financial Accounting
Standards No. 115, "Accounting For Certain Investments in Debt and Equity
Securities" in 1994 and the adoption of Statement of Financial Accounting
Standards No. 113, "Accounting and Reporting for Reinsurance of
Short-Duration and Long-Duration Contracts" in 1993, with reclassifications
made for 1992. Adoption of the Standard did not affect results from
operations or common stockholders' equity. In 1993, the Corporation adopted
the accounting prescribed by the Emerging Issues Task Force for
multiple-year, retrospectively rated reinsurance contracts. The cumulative
effect from prior years recorded in 1993 increased net income by $14 million
or $.17 per share. In 1992, the Corporation adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes". The cumulative
effect from prior years recorded in 1992 increased net income by $61 million
or $.71 per share. In 1984, the Corporation adopted the practice of
discounting certain workers' compensation claims. The cumulative effect of
the change in 1984 was $81 million or $.89 per share.
(2) Represents compound annual growth rate.
(3) Return on equity is income from continuing operations excluding after-tax
realized gains and cumulative effects of accounting changes divided by
average common stockholders' equity at the beginning and end of the year.
(4) Net of reinsurance.
(5) Excludes the investments of Cologne Re and GR-CK of $5,301 million as of
December 31, 1994.
(6) The common share price information is based on the Corporation's daily
closing price on the New York Stock Exchange.
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11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OPERATING RESULTS
Consolidated
Comparison of 1994 with 1993
Net income in 1994 was $665 million or $7.97 per share, a decrease of 3.7
percent over $8.28 per share earned in 1993. These results include after-tax
realized gains of $.54 per share in 1994 and $1.10 per share in 1993. Net income
in 1993 also included a cumulative benefit of $.17 per share resulting from the
adoption of the accounting prescribed by the Emerging Issues Task Force for
multiple-year, retrospectively rated reinsurance contracts. Excluding after-tax
realized gains and cumulative-effect adjustments, after-tax income for the year
ended December 31, 1994 was $7.43 per share, an increase of 6.0 percent over
$7.01 per share in 1993.
Consolidated net premiums written in 1994 were $3,001 million, an increase of
$477 million or 18.9 percent from $2,524 million in 1993. Domestic
property/casualty premium volume was $2,581 million in 1994, compared with
$2,275 million in 1993, an increase of 13.4 percent. Net premiums written in the
international insurance operations were $420 million in 1994, an increase of
69.0 percent over 1993 volume.
Consolidated net investment income was $749 million in 1994, compared with $755
million in 1993. The level of investment income was adversely affected by the
shift in assets from taxable to tax-advantaged securities in response to the
Corporation's tax planning strategies, the use of the Corporation's cash flow
from operations for stock repurchases, and an increase in lower yielding,
short-term securities during the year to fund an investment in Cologne Re. The
consolidated pretax investment yield on invested assets, excluding the invested
assets of General Re Financial Products Corporation ("GRFP"), was 5.9 percent in
1994, compared with 6.5 percent in 1993. Net investment income for the domestic
property/casualty operations was $686 million in 1994, a decrease of 2.7 percent
over $705 million earned in 1993. Net investment income for the international
property/casualty operations increased 20.9 percent to $52 million in 1994,
compared with $43 million in 1993. The financial services operations had
investment income of $11 million in 1994, compared with $7 million in 1993.
Comparison of 1993 with 1992
Net income in 1993 was $711 million or $8.28 per share, an increase of 9.7
percent over $7.55 per share earned in 1992. These results include after-tax
realized gains of $1.10 per share in 1993 and $1.54 per share in 1992. Net
income in 1992 also includes a cumulative benefit of $.71 per share resulting
from the adoption of SFAS 109. Excluding after-tax realized gains and
cumulative-effect adjustments, income for 1993 was $7.01 per share, an increase
of 32.3 percent over $5.30 per share in 1992.
Consolidated net premiums written for 1993 of $2,524 million increased 7.5
percent over $2,349 million in 1992. Domestic property/casualty premium volume
was $2,275 million in 1993, compared with $2,177 million in 1992, an increase of
4.5 percent. The international property/casualty operations net premiums written
were $249 million in 1993, an increase of 44.5 percent from the comparable
amount in 1992.
Consolidated net investment income was $755 million in 1993, unchanged from 1992
levels, as the benefit from increased cash flow from operations available for
investment was offset by lower investment portfolio yields. The consolidated
pretax investment yield on invested assets (excluding GRFP's invested assets) of
6.5 percent in 1993 declined from 7.0 percent in 1992. Investment income for the
domestic property/casualty operations was $705 million in 1993, a slight
increase from the $703 million earned in 1992. Net investment income for the
international property/casualty operations declined 8.5 percent to $43 million
in 1993, compared with $47 million in 1992. The financial services operations
had investment income of $7 million in 1993, compared with $5 million in 1992.
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Domestic Property/Casualty
YEARS ENDED DECEMBER 31
----------------------------
1994 1993 1992
------ ------ ------
(IN MILLIONS)
Income before cumulative effect of accounting changes............ $ 578 $ 649 $ 576
After-tax realized gains......................................... 40 93 131
------ ------ ------
Income, excluding realized gains and accounting changes.......... $ 538 $ 556 $ 445
====== ====== ======
Net premiums written............................................. $2,581 $2,275 $2,177
Net underwriting (loss).......................................... (46) (23) (188)
Net investment income............................................ 686 705 703
Statutory combined underwriting ratio............................ 101.3% 101.5% 108.4%
Domestic property/casualty income, excluding after-tax realized gains and the
cumulative effect of accounting changes, decreased 3.2 percent from 1993's
income, principally the result of catastrophe claims arising from the
Northridge, California earthquake on January 17, 1994 and reduced investment
income, due primarily to lower yields on the portfolio.
The statutory combined underwriting ratio is computed based on the relationship
of losses and underwriting expenses to premiums. This ratio is the Corporation's
principal indicator of underwriting performance, with 100 percent or lower
generally indicating a statutory underwriting profit. In 1994, the combined
ratio for the domestic property/casualty segment was 101.3 percent, compared to
101.5 percent in 1993 and 108.4 percent in 1992. The 1994 underwriting result
fell short of the Corporation's objective of an underwriting profit primarily
due to the Northridge earthquake. Improvement in the 1993 combined ratio over
1992 was largely attributable to lower catastrophe claims in 1993 as Hurricanes
Andrew and Iniki adversely impacted 1992's underwriting result. While the 1993
underwriting result did not meet the Corporation's goal of an underwriting
profit, the improvement over 1992 was achieved in a difficult environment for
both the economy in general, and for insurers and reinsurers, specifically.
Net premiums written in 1994 for the domestic property/casualty operations of
$2,581 million increased 13.4 percent from $2,275 million in 1993. Premium
volume by operating unit expressed as a percentage of total domestic
property/casualty premiums was as follows:
YEARS ENDED DECEMBER 31
-------------------------
1994 1993 1992
----- ----- -----
General Reinsurance Corporation (direct reinsurance)................ 88.6% 89.2% 89.2%
General Star Companies (excess and surplus lines)................... 7.4 6.8 6.3
Genesis Companies (direct excess and alternative markets)........... 4.0 4.0 4.5
----- ----- -----
Total............................................................... 100.0% 100.0% 100.0%
===== ===== =====
While the domestic primary insurance market grew by about 4 percent, General
Reinsurance Corporation's ("GRC") premiums grew by 15.0 percent during 1994. The
Corporation believes that the growth in its premiums written is due to its
marketing efforts, the increase in insurance premiums written by medium and
smaller-sized primary companies that generally purchase relatively more
reinsurance, increased reinsurance cessions by primary companies seeking to
deleverage their capital in response to rating agency concerns and increased
demand by primary companies for reinsurance from better capitalized and more
credit-worthy reinsurers.
For the General Star companies, which write primary and excess specialty
insurance on a licensed and surplus lines basis, premium volume grew 23.4
percent in 1994, due to both increased marketing activities and improved rates
for coverage containing property exposures. General Star produced a statutory
underwriting profit for the tenth consecutive year.
The Genesis companies provide direct excess insurance and excess reinsurance to
self-insured programs. Underwriting results for the Genesis companies improved
during 1994. Premiums increased during the year by 13.0 percent over 1993 levels
due principally to growth in casualty premiums.
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Net premiums written for the domestic property/casualty insurance segment of
$2,275 million in 1993 increased 4.5 percent over $2,177 million in 1992. As
discussed in Note 3 to the consolidated financial statements, North Star
Reinsurance Corporation, a wholly owned subsidiary, was sold to Signet Star
Holdings, Inc. in 1993. The disposal affects premium comparisons relative to
prior years. During 1992, North Star contributed $157 million to the domestic
property/casualty premium volume. During the first quarter of 1993, North Star
had net premiums written of $41 million. After the first quarter of 1993,
however, domestic property/casualty premiums exclude North Star. When North
Star's premiums are excluded from the 1993 and 1992 results, domestic
property/casualty premiums increased by 10.6% in 1993, as compared to 1992, due
primarily to growth in treaty reinsurance, property facultative and General
Star's business. North Star's premiums for 1993 and 1992 are included with GRC
in the preceding table.
International Property/Casualty
YEARS ENDED DECEMBER 31,
--------------------------
1994 1993 1992
---- ---- ----
(IN MILLIONS)
Net income............................................................ $ 35 $ 14 $ 16
After-tax realized gains.............................................. 6 -- 1
---- ---- ----
Income, excluding after-tax realized gains............................ $ 29 $ 14 $ 15
==== ==== ====
Net premiums written.................................................. $420 $249 $172
Net underwriting income (loss)........................................ 6 (13) (20)
Net investment income................................................. 52 43 47
Net income for the international property/casualty operations of $35 million in
1994 increased 152.9 percent over 1993 levels. Included in these results were
after-tax realized gains of $6 million in 1994. Growth in the income for the
international property/casualty operations resulted principally from an
underwriting profit of $6 million in 1994, compared to an underwriting loss of
$13 million in 1993. Underwriting results improved over 1993 due to stronger
pricing and demand in higher margin businesses, particularly in the
Corporation's European operations. International premiums written of $420
million in 1994 increased $171 million, or 69.0 percent, over 1993 premiums of
$249 million. The premium growth reflects continued expansion of existing client
relationships, an increase in reinsurance rates, and development of new
reinsurance relationships, particularly in European operations. In 1994, the
Corporation combined its subsidiaries located in the United Kingdom and
Switzerland to enhance client service and to improve capital efficiency in the
European markets. Premium growth in 1994 also resulted from expanded operations
in Madrid and the opening of new offices in Cologne, Milan, Paris and Singapore
during the past two years.
Net income for the international property/casualty operations of $14 million in
1993 decreased from $16 million in 1992. Included in these results were
after-tax realized gains of $1 million in 1992. Income for the international
property/casualty operations was adversely affected during 1993 by the
strengthening of the U.S. dollar compared to foreign currencies and by
nonrecurring charges related to the expansion of operations. The international
property/casualty underwriting results, while still unprofitable, improved by $7
million over 1992 underwriting result, which was adversely affected by
catastrophic events. International premiums written of $249 million in 1993
increased 44.5 percent over 1992 premium of $172 million.
Cologne Re
On December 28, 1994, the Corporation and Colonia Konzern AG ("Colonia") formed
a new company that acquired 75 percent of the common shares and approximately 30
percent of the preferred shares of Cologne Re, which collectively represent a
66.3 percent economic interest in Cologne Re. In exchange for its Cologne Re
shares, Colonia, for itself and as trustee for Nordstern Allgemeine
Versicherungs AG (collectively, the "CKAG Group"), received 100 percent of the
Class A shares of the new company, General Re-CKAG Reinsurance and Investment
S.A.R.L. ("GR-CK"). The Corporation initially contributed $884 million (DM 1,377
million) to GR-CK in exchange for 100 percent of the Class B shares of GR-CK. On
December 30,
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1994, GR-CK paid $302 million (DM 475 million) to a subsidiary of the
Corporation in exchange for notes having a principal amount of DM 475 million.
The notes pay interest of 8.0 percent annually to GR-CK and are due on December
30, 2004.
The Class A shares have 49.9 percent of the votes of GR-CK and are entitled to
an annual Class A dividend, while the Class B shares have 50.1 percent of the
votes of GR-CK and are entitled to the earnings of GR-CK in excess of the Class
A dividend. The Corporation has an option after seven years to purchase the
Class A shares of GR-CK owned by the CKAG Group at a formula price. The option
has a minimum exercise price of DM 1,306 million and a maximum of DM 1,509
million, subject to certain warranty adjustments that may reduce the exercise
price.
CKAG Group will receive an annual Class A cash dividend which is based on a
formula and is estimated to be approximately DM 36 million. The Corporation will
also receive an annual Class B cash dividend of 50.1 percent of GR-CK's
distributable income, as defined in the joint venture agreement. It is expected
that Cologne Re may increase its capital through an offering of equity
securities in the first half of 1995. In connection with this equity offering,
GR-CK anticipates it will use approximately DM 300 million of its funds to
purchase additional Cologne Re shares. Since the closing occurred at the end of
1994, the transaction did not have a material effect on the Corporation's
results from operations. Due to the ownership and control structure of GR-CK and
Cologne Re, the Corporation has consolidated GR-CK and Cologne Re in its balance
sheet at December 31, 1994.
Financial Services
The financial services operations include the Corporation's derivative products,
insurance brokerage and management, investment management, reinsurance brokerage
and real estate management operations. Net income for the financial services
operations was $52 million in 1994, an increase of 53.2 percent from $34 million
earned in 1993. The increase in 1994 income was principally due to increased
profitability of the Corporation's derivative products subsidiary, GRFP, and new
revenues from General Re Underwriting Services Limited ("GRUS") and General Re
Asset Management Corporation ("GRAM"). GRUS principally provides underwriting
services for Tempest Reinsurance Company Limited, an affiliated Bermuda-based
company specializing in excess property catastrophe reinsurance.
GRFP is engaged as a dealer in derivative financial products, such as interest
rate and foreign currency swaps, foreign exchange contracts, options, and swap
options. GRFP's gross trading revenue was $135 million in 1994, compared with
$142 million in 1993 and $41 million in 1992. During 1994, higher global
interest rates reduced capital market activity, thus lowering demand for
derivative products. In addition, the Corporation believes concerns regarding
the appropriate use of derivative products by certain end users in the United
States reduced the overall market demand for derivative products. Despite these
limiting factors, GRFP's trading revenue in 1994 only decreased 5.2 percent as
compared to 1993.
GRFP closely monitors its derivatives operations and actively manages its open
positions to control its exposures. GRFP hedges its exposure to market risk
(which includes foreign exchange, interest rate, swap spread, volatility, and
yield curve risks) in connection with its dealer activities by purchasing or
selling futures contracts, entering into forward foreign exchange contracts,
purchasing or selling government securities or entering into offsetting
transactions. Market risk is kept within conservative tolerance limits and is
monitored on a daily basis across all swap and option products. In accordance
with mark-to-market accounting, GRFP evaluates and records a fair-value
adjustment against trading revenue to recognize counterparty credit exposure and
future costs associated with administering each contract. The expected credit
exposure for each trade is initially established on the trade date and is
determined through the use of a proprietary credit exposure model that is based
on historical default probabilities, market volatilities and, if applicable, the
legal right of set off. These exposures are continually monitored and adjusted
due to changes in the credit quality of the counterparty, changes in interest
and currency rates or changes in other factors affecting credit exposure. The
fair value allowance for counterparty credit exposures and future administrative
costs on existing contracts was $55 million and $44 million at December 31, 1994
and 1993, respectively. GRFP has not experienced any counterparty defaults or
writeoffs on such contracts.
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15
The Corporation's insurance and reinsurance brokerage operations also
contributed to the increased profitability of the financial services segment in
1994. In addition, investment management fees increased due to growth in the
business of the Corporation's investment management subsidiary, GRAM. The
Corporation's investment management clients are other insurance companies,
primarily reinsurance clients, that seek the Corporation's expertise in managing
insurance company investment portfolios.
Income for the financial services operations of $34 million in 1993 increased
significantly from $4 million earned in 1992. The increase in 1993 income was
principally due to growth in GRFP, which was a startup operation in 1992. The
Corporation's reinsurance brokerage operations also contributed to the improved
results in 1993, in part due to the reinsurance brokerage operation's improved
ability to place catastrophe reinsurance at higher prices.
FINANCIAL CONDITION
Assets
At December 31, 1994, total assets were $29,597 million, compared with $19,419
million at December 31, 1993. Included in the December 31, 1994 balance sheet
was $9,325 million of GR-CK assets related to the Cologne Re joint venture.
Excluding the Cologne Re joint venture, total assets increased during 1994 by
7.4 percent, or $1,435 million, to $20,854 million at December 31, 1994. This
growth in assets was attributable to an increase of $566 million in the total
assets of the domestic property/casualty operations, $223 million in the
international property/casualty operations and $646 million in the financial
services segment.
The Corporation's invested assets increased from $14,346 million at December 31,
1993 to $18,898 million at December 31, 1994. Included in the December 31, 1994
balance sheet are GR-CK invested assets of $5,301 million. Excluding the impact
of the Cologne Re transaction, invested assets decreased by $167 million as a
result of a decrease of $494 million in the financial services operations, which
was partially offset by an increase of $158 million in the domestic
property/casualty segment and an increase of $169 million in the international
property/casualty segment. The after-tax unrealized appreciation on the
Corporation's total investment portfolio was $453 million and $1,137 million at
December 31, 1994 and December 31, 1993, respectively. The decline was
principally due to increased market interest rates and reduced equity values.
Effective January 1, 1994, the Corporation adopted Statement of Financial
Accounting Standards No. 115, Accounting for Certain Investments in Debt and
Equity Securities. The Statement addresses accounting for investments in equity
and debt securities and requires these investments to be classified into three
categories. Debt securities that the Corporation has the positive intent and
ability to hold to maturity are classified as held-to-maturity and reported at
amortized cost. Debt and equity securities that are bought and held principally
for the purpose of selling them in the near term are classified as trading and
reported at fair value, with unrealized gains and losses included in income.
Other debt that is not classified as either held-to-maturity or trading and
equity securities not classified as trading are included in available-for-sale
securities and reported at fair value, with unrealized gains and losses, net of
deferred income taxes, excluded from income and reported in a separate component
of common stockholders' equity. The effect of Statement No. 115 decreased the
reported fair value of invested assets by $123 million at December 31, 1994. The
Statement's adoption had no effect on the Corporation's results from operations.
The overall pretax yield on domestic invested assets (excluding GRFP) was 5.9
percent in 1994, compared to 6.4 percent in 1993. The decline in the domestic
investment portfolio's pretax yield reflects the shift in assets from taxable to
tax-exempt bonds, the decline in market interest rates in recent years and the
increased amount of calls of higher coupon investments during this period. The
increase in market rates of interest during 1994 had a minimal impact on 1994's
investment income.
Included in fixed maturities were mortgage-backed securities ("MBS") of $629
million (3.3 percent of consolidated invested assets) and asset-backed
securities ("ABS") of $244 million (1.3 percent of consolidated invested assets)
at December 31, 1994. These securities have interest and principal repayment
patterns that differ from typical fixed maturities. MBS issued by quasi-federal
agencies, federally supported institutions and corporations can either be direct
pass-throughs of cash flows from the underlying mortgages or can be a
15
16
grouping of underlying mortgages into various principal repayment tranches
("CMO's"). The MBS portfolio is comprised of pass-through securities (56
percent) and CMO's (44 percent) based on December 31, 1994 market values. The
CMO portfolio is comprised almost entirely of planned amortization class
("PAC's") securities which have experienced less volatility in repayment of
principal than other types of CMO securities. ABS are usually collateralized by
credit card or auto loan receivables which are packaged into debt instruments
whose interest and principal payments will vary with the underlying receivable.
Almost all of the MBS and ABS portfolios are publicly traded and market values
were obtained from an external pricing service.
The Corporation continues to place strong emphasis on credit research. Credit
considerations are an important part of the Corporation's fixed maturity
investment strategy. At December 31, 1994, the Corporation had no bond issues in
default. Bonds rated below investment grade represented less than .5 percent of
the portfolio. The overall fixed-maturity portfolio continued to average a
credit rating of AA. The distribution of the Corporation's domestic
fixed-maturity portfolio by credit quality was as follows:
DECEMBER 31, 1994
----------------------
TAXABLE TAX-EXEMPT
------- ----------
AAA........................................................ 59.5% 47.8%
AA......................................................... 11.7 23.6
A.......................................................... 22.4 26.2
BBB........................................................ 5.0 1.1
Below BBB.................................................. 0.3 --
Non-rated.................................................. 1.1 1.3
At December 31, 1994, investments in domestic equity securities totaled $2,367
million, representing 20.4 percent of the domestic portfolio and 48.7 percent of
common stockholders' equity. The domestic equity portfolio is well diversified
and primarily consists of companies with large capitalizations that,
collectively, have a calculated volatility approximating the Standard & Poor's
500 index.
A small portion of the domestic investment portfolio was dedicated to
non-traditional, private investments. These alternative investments, included in
the balance sheet caption, "other invested assets", were $325 million (1.7
percent of consolidated invested assets) at December 31, 1994. Most of these
investments are interests in limited partnerships run by professional managers.
Over time, these investments are expected to provide a higher return than the
overall portfolio. This segment, however, also may entail a greater amount of
risk both in terms of limited liquidity and greater uncertainty of returns
compared to the rest of the Corporation's investment portfolio. The Corporation
evaluates the fair value of these alternative investments on a quarterly basis
by reviewing available financial information of the investee and by performing
other financial analyses in consultation with external advisers. Any changes in
the fair value of limited partnerships are included as unrealized appreciation
or depreciation in common stockholders' equity, unless a decline in fair value
is considered other than temporary, resulting in a charge to income.
The Corporation's international property/casualty subsidiaries held investment
portfolios of $6,060 million at December 31, 1994. These portfolios include
$4,719 million of Cologne Re's investments, $582 million of GR-CK investments
and $759 million in pre-existing international operations. At December 31, 1994,
Cologne Re's portfolio was invested approximately 70 percent in fixed
maturities, 13 percent in equity securities and 17 percent in short-term and
other investments. Cologne Re's investment portfolio is geographically
diversified with most fixed maturities having terms of less than five years.
Cologne Re's investments are primarily managed by internal investment managers
and smaller portfolios are managed by local professional asset managers.
The investments held by GR-CK are all denominated in German marks as stipulated
by the investment guidelines of the joint venture agreement.
The invested assets of the Corporation's pre-existing international subsidiaries
were $759 million at December 31, 1994. This portfolio was invested
approximately 75 percent in fixed maturities, 15 percent in equities
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and 10 percent in short-term investments. The pretax yield on these investments
was 7.6 percent in 1994 and 7.8 percent in 1993. The portfolio of each
subsidiary is managed by local professional asset managers who are overseen by a
local Board of Directors and the Corporation's investment department based in
Stamford.
Liabilities
The Corporation's gross liability for claims and claim expenses, which provides
for future obligations arising from current and prior property/casualty
reinsurance and insurance transactions, amounted to $12,158 million at December
31, 1994. Growth in the liability of $3,706 million during 1994 is due to $3,135
million associated with the Cologne Re joint venture and $571 million from
pre-existing international operations. In addition to the gross liability for
property/casualty claim and claim expenses, the Corporation, through its
interest in Cologne Re, has a gross liability for future policy benefits for
life and health contracts of $1,960 million. The asset for reinsurance
recoverable on paid and unpaid losses was $2,067 million at December 31, 1994,
compared to $1,476 million at December 31, 1993. Growth of $591 million in the
asset is due to $373 million associated with Cologne Re ($224 million for
property/casualty business and $149 million related to life and health business)
and $218 million from pre-existing operations.
The ongoing financial integrity of the Corporation is dependent on reserve
adequacy. The gross liability and reinsurance recoverable for claims and claim
expenses were based on the Corporation's analysis of reports and individual case
estimates received from ceding companies. The liability and related recoverables
also include an amount estimated by the Corporation for claims and claim
expenses incurred but not reported. The liability and recovery are evaluated
continuously by management, annually by the Corporation's independent
accountants in conjunction with their audit and periodically by independent
consulting actuaries. Any resulting adjustments are included in income
currently.
The liability for claims and claim expenses for 1993 and prior accident years,
net of related reinsurance recoveries, decreased by $36 million in 1994. The
decrease, which had a favorable effect on the Corporation's net income in 1994,
was principally the result of the net impact of favorable loss development on
casualty lines of business, partly offset by reserve strengthening for
environmental and latent injury claims. The liability for prior accident years
was increased by $140 million and $56 million during 1993 and 1992,
respectively, adversely impacting net income in those years. The adverse income
impact was the result of reserve strengthening principally for environmental and
latent injury claims.
Included in the Corporation's liability for claims and claim expenses were
liabilities for environmental and latent injury damage claims. These amounts
include provisions for both reported and incurred but not reported (IBNR)
claims. The table below presents the three-year development of the balance sheet
liability for unpaid environmental and latent injury claims:
1994 1993 1992
------ ------ ------
(IN MILLIONS)
Gross liability, beginning of year....................... $1,332 $1,092 $ 911
Reinsurance recoverable.................................. 444 358 320
------ ------ ------
Liability, net of reinsurance, beginning of year......... 888 734 591
Amount incurred during year.............................. 239 224 198
Less amount paid during year............................. 100 70 55
Cologne Re............................................... 69 -- --
------ ------ ------
Liability, net of reinsurance, end of year............... 1,096 888 734
Reinsurance recoverable.................................. 382 444 358
------ ------ ------
Gross liability, end of year............................. $1,478 $1,332 $1,092
====== ====== ======
The Corporation continually estimates its liabilities and related reinsurance
recoveries for environmental and latent injury claims and claim expenses. These
exposures do not lend themselves to traditional methods of loss development
determination and therefore may be considered less reliable than reserves for
standard lines of
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business (e.g., automobile). The estimate is composed of four parts: known
claims, development on known claims, IBNR and direct excess coverage litigation
expenses. Although reliability is constrained by uncertainties, the Corporation
has confidence in the reported, known claim liabilities, and based on
alternative methods, has projected a fairly reliable estimate of development for
these claims. The Corporation has also included an estimate for IBNR which is
based on fitted curves of estimated future claim emergence; this estimate is
less reliable than the estimated liability for reported claims. The effect of
joint and several liability on the severity of claims and a provision for future
claims inflation have been included in the loss development estimate.
The Corporation has established a liability for litigation costs associated with
coverage disputes arising primarily from direct excess insurance policies. The
Corporation's subsidiaries were parties in approximately 120 active direct
coverage cases at December 31, 1994. Such coverage litigation expenses are
estimated using an actuarial forecast of actionable items and their projected
costs. The Corporation paid $10 million in such costs during 1994 and as of
December 31, 1994 the liability for future litigation costs related to coverage
disputes was $174 million (included in the table above). The Corporation has not
recorded any reinsurance recoveries for these liabilities.
As coverage disputes are tried and verdicts rendered, the Corporation expects
that settled case law will result in a downward trend in future coverage
litigation expenses. Because reinsurance contracts generally contain arbitration
clauses which control disputes between the ceding company and the reinsurer, the
Corporation does not expect the future costs associated with reinsurance
disputes to be material.
Ceding companies report information about environmental and latent injury claims
based upon their individual and differing methodologies for characterizing
claims. For example, some ceding companies report one claim for a policyholder
with a number of exposure sites, whereas others report each exposure at each
site as a separate claim. In addition, a substantial number of latent injury
claims, which are often reported to the Corporation on a precautionary basis by
ceding companies and insureds prior to reaching the reinsured layer, close
without reinsurance payment. Due to these factors, the Corporation is unable to
provide meaningful claim count information.
The liability for environmental and latent injury claims and claim expenses is
management's best estimate of future claim and claim expense payments and
recoveries which are expected to develop over the next thirty years. The
Corporation continues to monitor evolving case law and its effect on
environmental and latent injury claims. Changing government regulations and
legislation, newly identified toxins, newly reported claims, new theories of
liability, new contract interpretations and other factors could significantly
affect future claim development. While the Corporation has recorded its current
best estimate of its liabilities for unpaid claims and claim expenses, it is
reasonably possible that these estimated liabilities, net of estimated
reinsurance recoveries, may increase in the future and that the increase may be
material to the Corporation's results from operations, cash flows and financial
position. It is not possible to estimate reliably the amount of additional net
loss, or the range of net loss, that is reasonably possible.
The Corporation discounts certain liabilities associated with workers'
compensation claims. A new statutory accounting rule adopted in December 1993 by
the NAIC, effective for calendar year 1994 and subsequent statutory annual
statements, allows the discounting of "tabular reserves", as defined, and allows
discounting of non-tabular reserves if permitted by the insurer's state of
domicile. As of December 31, 1994, GRC recorded $1,328 million in discount on
its loss reserves. Of that amount, $839 million relates to reserves eligible for
the tabular reserve discount and $489 million relates to non-tabular reserves
for medical costs associated with tabular reserve claims. The Delaware Insurance
Department has confirmed that GRC may continue to discount both its tabular
reserves and the medical expenses associated with such tabular reserves at 4.5%
per year. Accordingly, the adoption of the statutory reserve discount rule
during 1994 did not effect the Corporation's results from operations, cash flows
and financial condition.
Assets and Liabilities of the Financial Services Operations
The asset and liability positions of the financial services operations fluctuate
based on its dealer and related risk-management activities. GRFP manages its
market risk through the purchase and sale of government
18
19
securities and futures contracts and by entering into offsetting derivative
transactions. The purchase of government securities (fixed maturities at fair
value), which are financed through collateralized repurchase agreements
(securities sold under agreements to repurchase), and the sale of government
securities (securities sold but not yet purchased), whose proceeds are invested
in reverse repurchase agreements (securities purchased under agreements to
resell), contribute to the short-term fluctuation in the operation's total
assets and liabilities, while generally not having any material effect on common
stockholders' equity. During 1994, invested assets of these operations decreased
$494 million to $1,661 million. Securities purchased under agreements to resell
(an asset) increased $680 million in 1994 to $813 million. Securities sold under
agreements to repurchase (a liability) decreased $628 million in 1994 to $938
million. Securities sold but not yet purchased represent obligations of the
Corporation to deliver the specified security at the contracted price, thereby
creating a liability to repurchase the security in the market at prevailing
prices. Accordingly, the Corporation's ultimate obligation to satisfy the sale
of securities sold but not yet purchased may exceed the amount recognized in the
balance sheet. The Corporation controls and manages this risk through the use of
credit and market risk limits and reviews its market exposure on a daily basis.
The liability for securities sold but not yet purchased increased $385 million
in 1994 to $927 million at December 31, 1994.
Effective January 1, 1994, the Corporation adopted FASB Interpretation No. 39,
Offsetting of Amounts Related to Certain Contracts. The Interpretation further
clarifies the definition of a right of set-off. Effective December 31, 1994, the
Corporation adopted FASB Interpretation No. 41, Offsetting of Amounts Related to
Certain Repurchase and Reverse Repurchase Agreements. The Interpretation
modified the accounting in FASB Interpretation No. 39 to permit offsetting in
the balance sheet of payables and receivables for repurchase and reverse
repurchase agreements when these agreements are with the same counterparty, have
the same settlement date, are part of a master netting arrangement, and can be
settled for cash on a net basis. The Corporation has reclassified amounts on the
December 31, 1993 balance sheet to conform to the new Interpretations. The
combined effect of adopting Interpretations Nos. 39 and 41 increased reported
assets and liabilities by approximately $950 million at December 31, 1993 and
$1,747 million at December 31, 1994. Adoption of these Interpretations had no
impact on results from operations, cash flows or stockholders' equity.
Equity
Common stockholders' equity at December 31, 1994 was $4,859 million, an increase
of 2.1 percent over $4,761 million at December 31, 1993. The change in common
stockholders' equity was primarily due to net income of $665 million less the
decline in after-tax unrealized appreciation of $230 million, stock repurchases
of $207 million and dividends paid of $168 million. Common stockholders' equity
at December 31, 1993 increased 12.6 percent over the $4,227 million at year end
1992.
The ratio of claim and claim expense reserves, net of reinsurance, to common
stockholders' equity at December 31, 1994 was 2.1 to 1.0, and the ratio of net
written premiums to common stockholders' equity was 0.6 to 1.0. These two ratios
are conservative by insurance industry averages and indicate the capacity to
assume additional reinsurance business.
GRC, the principal domestic operating subsidiary, has a claims-paying rating of
AAA from Standard & Poor's and a financial strength rating of Aaa from Moody's.
GRC is also rated A++ by A.M. Best Company, a leading insurance industry rating
agency. Each of these ratings represents the highest category for the respective
rating agency.
19
20
LIQUIDITY AND CAPITAL RESOURCES
A summary of the Corporation's cash flow by business segment was as follows:
1994 1993 1992
------- ------- -----
(IN MILLIONS)
Operating activities:
Domestic property/casualty............................ $ 968 $ 899 $ 673
International property/casualty....................... 215 80 42
Financial services.................................... 1,227 (1,257) (88)
------- ------- -----
Consolidated operating cash flows....................... 2,410 (278) 627
------- ------- -----
Investing activities:
Domestic property/casualty............................ (16) (871) (248)
International property/casualty....................... (189) (60) (30)
Financial services.................................... (507) (417) (27)
Net purchase of shares in GR-CK....................... (582) -- --
Cash obtained on purchase of GR-CK.................... 153 -- --
------- ------- -----
Consolidated investing cash flows....................... (1,141) (1,348) (305)
------- ------- -----
Financing activities:
Domestic property/casualty............................ (350) (16) (420)
International property/casualty....................... (22) (18) (13)
Financial services.................................... (715) 1,679 118
------- ------- -----
Consolidated financing cash flows....................... (1,087) 1,645 (315)
------- ------- -----
Consolidated change in cash............................. $ 182 $ 19 $ 7
======= ======= =====
The Corporation's cash flow from operations was $2,410 million in 1994, compared
with negative $278 million in 1993, and positive $627 million in 1992. The
Corporation's negative operating cash flow in 1993 was not a result of a
deterioration in the Corporation's liquidity or profitability. Rather, the
negative operating cash flow resulted from the requirement under generally
accepted accounting principles to disaggregate GRFP's interrelated cash flows
into operating, investing, and financing activities. GRFP hedges its open
derivative product positions by the purchase or sale of government securities.
These transactions are classified as operating activities in the statement of
cash flows. GRFP finances its security purchases through collateralized
repurchase agreements which are characterized as financing activities in the
cash flow statement. The Corporation invests its short-term cash proceeds in
securities purchased under agreements to resell ("reverse repos"), which are
characterized as investing activities in the cash flow statement. The
disaggregation of these interrelated cash flows for financial reporting purposes
creates variability in reported operating cash flow of the financial services
segment without a corresponding effect on results from operations.
Domestic and international operating cash flows grew in 1994 and 1993,
reflecting growth in the business. Domestic property/casualty financing cash
flows include the Corporation's stock repurchases and dividends to stockholders.
As discussed earlier, the Corporation made a net cash investment in 1994 of $582
million in GR-CK, the holding company which owns approximately 66.3 percent of
the economic interest of Cologne Re. The funds invested in GR-CK are not
available for the Corporation's general business purposes, but are subject to
certain restrictions according to the joint venture agreement. The Corporation's
domestic cash flow should not be significantly affected by the joint venture
structure as interest paid to GR-CK on the intercompany note will be funded by
dividends received from GR-CK.
Dividends paid to common and preferred stockholders were $168 million, $170
million and $164 million in 1994, 1993 and 1992, respectively. The Corporation
used $207 million, $134 million and $179 million to repurchase 1,912,500 shares,
1,213,600 shares and 2,138,100 shares of its common stock in the years ended
December 31, 1994, 1993 and 1992, respectively. Through December 31, 1994, the
Corporation has purchased $1,563 million (21,909,300 shares) of its common stock
since the inception of the repurchase program in
20
21
1987. In February 1994, the Corporation's Board of Directors authorized an
additional repurchase of up to $250 million of common stock. At December 31,
1994, the Corporation had $100 million available under Board authorized
repurchase programs and additional standing authority to repurchase shares in
anticipation of shares to be issued under various compensation plans. On
February 8, 1995, the Board of Directors declared a regular quarterly dividend
of $.49 per share on the common stock of the Corporation. This represents an
increase of 2.1% over the $.48 per share dividend paid in prior quarters of 1994
and the 19th consecutive year in which the Corporation has had a dividend
increase.
At December 31, 1994, the Corporation had $150 million of senior debt
outstanding, which is rated AAA by Standard and Poor's and Aa1 by Moody's. The
Corporation issues short-term commercial paper to provide additional financial
flexibility for its operations. Commercial paper offered by the Corporation has
been rated A1+ by Standard & Poor's and Prime 1 by Moody's. At December 31,
1994, $31 million of short-term commercial paper was outstanding with an average
interest rate of 6.0 percent and a weighted average maturity of 29.8 days. In
June 1994, the Corporation increased its lines of credit through a number of
participating banks, from $500 million to $1 billion, to provide additional
support for commercial paper issuance and to increase its financial flexibility.
At December 31, 1994, the Corporation had no outstanding loans under this
facility.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
GENERAL RE CORPORATION
INDEX TO RESERVE DISCLOSURES, FINANCIAL STATEMENTS AND SCHEDULES
PAGE
--------
RESERVE DISCLOSURES
Property/Casualty Insurance Reserve Disclosures (Unaudited)........................ 22-25
FINANCIAL STATEMENTS
Report of Independent Accountants.................................................. 26
Consolidated Statements of Income for the years ended December 31, 1994, 1993 and
1992............................................................................. 27
Consolidated Balance Sheets as of December 31, 1994 and 1993....................... 28
Consolidated Statements of Common Stockholders' Equity for the years ended December
31, 1994, 1993 and 1992.......................................................... 29
Consolidated Statements of Cash Flows for the years ended December 31, 1994, 1993
and 1992......................................................................... 30
Notes to Financial Statements...................................................... 31-55
FINANCIAL STATEMENT SCHEDULES
I. Condensed Financial Information of Registrant as of December 31, 1994 and
1993 and for the years ended December 31, 1994, 1993 and 1992................. S-1-S-3
V. Supplementary Insurance Information as of December 31, 1994, 1993 and 1992 and
for the years then ended...................................................... S-4
Schedules other than those listed above have been omitted since they are either
not required, not applicable or repeat information disclosed in the notes to
financial statements.
21
22
PROPERTY/CASUALTY INSURANCE RESERVE DISCLOSURES
The consolidated financial statements include estimated liabilities for unpaid
claims and claim expenses of the Corporation's domestic and international
property/casualty reinsurance subsidiaries. The provision for reported but
unpaid claims and claim expenses is based on audited client reports and
individual case estimates, including anticipated salvage and subrogation
recoverable. A provision is included for incurred but not reported ("IBNR")
claims and claim expenses on the basis of past experience. Historic premium,
claim and claim expense data are organized in actuarial formats, analyzed for
credibility, and processed through actuarial formulae. Using actuarial judgment,
forecasts of IBNR claims and claim expenses are determined and tested for
validity. The Corporation strives for accuracy in its reserving structure and
monitors its predictions against actual claims and claim expense emergence. The
methods of making such estimates and for establishing the resulting liabilities
are continually reviewed and updated. All adjustments to the reserve structure
(which encompasses claims from up to 50 years ago) are included in current
operating results.
The actuary relied upon by management in forming the basis of its belief as to
the adequacy of reserves is Lee R. Steeneck, FCAS, MAAA, a Vice President of
GRC. In addition to the ongoing review by management, these liabilities are
subject to independent review on a regular basis. The Corporation's independent
public accountants use actuaries during their annual financial statement audit
to review both current balance sheet liabilities and charges to the income
statement. In addition, the Audit Committee of the Board of Directors has
periodically engaged the services of an actuarial consulting firm to compare the
reserve liabilities established by management with the estimates of an
independent consulting actuary.
The table below provides a reconciliation of the beginning and ending claim and
claim expense liability, net of reinsurance, for 1994, 1993 and 1992.
TABLE 1
RECONCILIATION OF LIABILITY
FOR CLAIMS AND CLAIM EXPENSES
(IN MILLIONS)
1994 1993 1992
------- ------ ------
Balance at January 1............................................ $ 8,452 $8,204 $7,416
Reinsurance recoverables on unpaid claims and claim
expenses................................................... (1,396) (1,366) (1,022)
------- ------ ------
Net balance at January 1........................................ 7,056 6,838 6,394
Incurred claims and claim expenses related to:
Current year.................................................. 2,017 1,583 1,773
Prior years................................................... (36) 140 56
------- ------ ------
1,981 1,723 1,829
------- ------ ------
Claim and claim expense payments related to:
Current year.................................................. 423 214 341
Prior years................................................... 1,206 1,291 1,044
------- ------ ------
Total payments.................................................. 1,629 1,505 1,385
------- ------ ------
Net balance at December 31...................................... 7,408 7,056 6,838
Reinsurance recoverables on unpaid claims and claim
expenses................................................... 1,615 1,396 1,366
Cologne Re unpaid claims and claim expenses................... 3,135 -- --
------- ------ ------
Balance at December 31.......................................... $12,158 $8,452 $8,204
======= ====== ======
The Corporation discounts certain domestic workers' compensation loss reserves
at an interest rate of 4.5 percent per annum, the same rate used for reporting
to state regulatory authorities with respect to the same claim liabilities.
These claims are characterized by periodic indemnity payments principally for
wage loss and
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23
medical/rehabilitation expenses which are generally fixed or determinable, both
in amount and duration. The amortization of the discount is included in current
operating results as part of the development of prior years' liabilities. The
effect of discounting was to reduce liabilities for claims and claim expenses,
net of reinsurance, as follows:
TABLE 2
RECONCILIATION OF DISCOUNTING
NET LIABILITY FOR CLAIMS AND CLAIM EXPENSES
(IN MILLIONS)
1994 1993 1992
------ ------ ------
Cumulative discount, beginning of year........................... $1,319 $1,222 $1,081
Discount benefit for year........................................ 64 146 187
Amortization of discount......................................... (55) (49) (46)
------ ------ ------
Effect of discounting on income before income taxes.............. 9 97 141
------ ------ ------
Cumulative discount benefit, end of year......................... $1,328 $1,319 $1,222
====== ====== ======
Table 3 reconciles the difference between liabilities for claims and claim
expenses, net of reinsurance, reported in the consolidated financial statements
under generally accepted accounting principles ("GAAP") with that reported in
annual statements filed with state insurance regulators in accordance with SAP.
TABLE 3
GAAP TO SAP RECONCILIATION OF NET LIABILITY FOR
CLAIMS AND CLAIM EXPENSES
(IN MILLIONS)
DECEMBER 31, 1994
-----------------
Consolidated GAAP basis:
Gross.................................................................. $12,158
Ceded.................................................................. (1,841)
-------
Net.................................................................... 10,317
Loss portfolios.......................................................... (507)
Liability of international subsidiaries.................................. (378)
Cologne Re............................................................... (2,910)
-------
Domestic liability reported on a SAP basis............................... $ 6,522
=======
Table 4 presents the development of net balance sheet liabilities for the
Corporation's property/casualty operations from 1984 through 1994. Table 5
presents the development of the gross balance sheet liability for the
Corporation's property/casualty operations from 1992 through 1994. Reference is
made to Exhibit 28, "Combined Domestic Property/Casualty Insurance Company
Schedule P" for a more detailed review of SAP liabilities on an accident year
basis. Claim and claim expense liabilities associated with the Cologne Re joint
venture are included in the Corporation's liabilities in Table 4 and Table 5 at
December 31, 1994, although the joint venture had no effect on claim development
during 1994 and prior years. The accident-year information required to complete
Table 4 and Table 5 for the Corporation's other international subsidiaries was
not available in prior years. Although the related amounts were not significant
to the consolidated total in prior years, these amounts have been included
beginning in 1994. The net liabilities for unpaid claims and claim expenses of
these international operations and percentages of the consolidated total were
$378 million or 3.7 percent for 1994, $253 million or 3.6 percent for 1993 and
$202 million or 3.0 percent for 1992.
23
24
The first data row shows the estimated net liability for unpaid claims and claim
expenses recorded at the balance sheet date for each of the indicated years.
This liability represents the estimated amount of claims and claim expenses,
including IBNR, that are outstanding as of the balance sheet date.
The upper "triangle" of data shows the reestimated amount of the previously
recorded net liability based on experience as of the end of each succeeding
year. The estimate is increased or decreased as more information becomes known
about the frequency and severity of claims for individual years.
The "Cumulative (Deficiency) Redundancy" represents the aggregate change in the
initial estimates from the original date through December 31, 1994. Annual
changes in the estimates are reflected in current operating results each year as
the liabilities are reevaluated. The lower "triangle" of data shows the
cumulative amount paid with respect to the previously recorded liability as of
the end of each succeeding year.
TABLE 4
ANALYSIS OF NET UNPAID CLAIMS AND CLAIM EXPENSES DEVELOPMENT
(IN MILLIONS)
YEAR ENDED
DECEMBER 31 1984 1985 1986 1987 1988 1989 1990 1991 1992
- --------------------------------- ------- ------- ------- ------ ------ ------ ------ ------ ------
Net liability for unpaid claims
and claim expenses............. $ 2,539 $ 2,924 $ 4,043 $4,738 $5,217 $5,549 $5,842 $6,230 $6,635
Net liability reestimated as of:
1 year later................... 2,702 3,443 4,348 4,903 5,185 5,537 5,856 6,286 6,775
2 years later.................. 3,090 3,742 4,691 4,927 5,247 5,481 5,778 6,352 6,850
3 years later.................. 3,289 4,000 4,757 4,991 5,166 5,502 5,906 6,475
4 years later.................. 3,537 4,123 4,874 4,983 5,236 5,683 6,091
5 years later.................. 3,598 4,268 4,910 5,077 5,420 5,900
6 years later.................. 3,657 4,321 5,022 5,284 5,642
7 years later.................. 3,743 4,442 5,225 5,528
8 years later.................. 3,850 4,654 5,467
9 years later.................. 4,070 4,935
10 years later................. 4,307
Total cumulative (deficiency)
redundancy..................... (1,768) (2,011) (1,424) (790) (425) (351) (249) (245) (215)
Cumulative amount of net
liability paid through:
1 year later................... 490 622 890 747 812 927 905 1,044 1,291
2 years later.................. 975 1,229 1,385 1,354 1,436 1,584 1,613 1,955 2,195
3 years later.................. 1,390 1,614 1,877 1,846 1,903 2,115 2,332 2,570
4 years later.................. 1,657 1,980 2,267 2,209 2,320 2,689 2,769
5 years later.................. 1,896 2,280 2,565 2,546 2,814 3,025
6 years later.................. 2,109 2,503 2,842 2,965 3,085
7 years later.................. 2,293 2,724 3,207 3,203
8 years later.................. 2,444 2,965 3,413
9 years later.................. 2,636 3,146
10 years later................. 2,799
YEAR ENDED
DECEMBER 31 1993 1994
- --------------------------------- ------ -------
Net liability for unpaid claims
and claim expenses............. $6,803 $10,317
Net liability reestimated as of:
1 year later................... 6,767
2 years later..................
3 years later..................
4 years later..................
5 years later..................
6 years later..................
7 years later..................
8 years later..................
9 years later..................
10 years later.................
Total cumulative (deficiency)
redundancy..................... 36 XX
Cumulative amount of net
liability paid through:
1 year later................... 1,206
2 years later..................
3 years later..................
4 years later..................
5 years later..................
6 years later..................
7 years later..................
8 years later..................
9 years later..................
10 years later.................
24
25
TABLE 5
ANALYSIS OF GROSS UNPAID CLAIMS AND CLAIM EXPENSES DEVELOPMENT
(IN MILLIONS)
YEAR ENDED DECEMBER 31,
-----------------------------
1992 1993 1994
------ ------ -------
Gross liability for unpaid claims and claim expenses............ $7,968 $8,122 $12,158
Gross liability reestimated as of:
1 year later.................................................. 8,087 8,061
2 years later................................................. 8,149
Total cumulative (deficiency) redundancy........................ (181) 61
Cumulative amount of gross liability paid through:
1 year later.................................................. 1,620 1,351
2 years later................................................. 2,641
A number of major trends occurred within the industry which have significantly
affected the development of the Corporation's liabilities for claims and claim
expenses displayed in Table 4. Starting in 1980, the Corporation considerably
strengthened the liability for claims and claim expenses for latent injury
(e.g., asbestos-related) and environmental (e.g., pollution) claims. When
originally written, these exposures, some dating back to the 1940s, were not
known to cause bodily harm or property damage. Coverage, if any, was provided to
policyholders on a very limited basis. Liberal interpretations of very carefully
worded insurance policy contract language have, in retrospect, created
unanticipated liabilities for the property/casualty insurance industry. The
cumulative deficiency in the Corporation's historical liabilities shown in Table
4 reflects development of environmental and latent injury damage claims.
Adjustments to the Corporation's liabilities have been made in each year's
current operating results since 1980 to reflect the evolution of case law which
has widened the nature and extent of insurance and reinsurance coverage for
these exposures.
Between 1983 and 1987, the Corporation strengthened its reserves for reinsurance
of medical malpractice liability insurance business written on the occurrence
form. The crisis in medical malpractice insurance led the Corporation to
eliminate occurrence coverage and solely reinsure on a claims made basis.
Reinsurance of other classes of professional liability coverage is also
generally written on a claims made basis. Patterns of reinsurance liability
emergence for claims made coverages differ substantially from such patterns for
occurrence coverages.
Beginning in 1985, the Corporation strengthened its prices and continued to
increase its reserves. Significant reserve strengthening on excess liability to
qualified self insurers, written on both an excess of specific loss and
aggregate basis, has been partially offset by favorable development on
reinsurance of liability business written at the higher pricing levels.
High levels of social and economic inflation have had a leveraged effect on
liabilities for claims and claim expenses. Implicit within the reserve structure
is an increase in both the frequency and severity of claims between years. In
recent years, some of the Corporation's clients have increased the amount of
their retained risk which partially offsets the effect of social and economic
inflation.
The Corporation purchases reinsurance, in both the domestic and international
markets, which provides protection from large property, liability or workers'
compensation claims and allows the Corporation to offer greater capacity to
clients for certain lines of business. The Corporation has increased its
capacity over time by retaining more risk and by purchasing additional
reinsurance protection above its retentions.
In evaluating this information, it should be noted that conditions and trends
affecting the development of liabilities in the past may not occur in the
future. Accordingly, it is not appropriate to extrapolate future redundancies or
deficiencies based on these tables. Current actuarial studies indicate that
liabilities for claims and claim expense as of December 31, 1994, net and gross
of reinsurance, are adequate.
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26
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of General Re Corporation
Stamford, Connecticut
We have audited the consolidated financial statements and schedules of General
Re Corporation and subsidiaries listed in the index on page 21 of this Form
10-K. These financial statements and schedules are the responsibility of the
Corporation's management. Our responsibility is to express an opinion on these
financial statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of General
Re Corporation and subsidiaries as of December 31, 1994 and 1993, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1994, in conformity with generally
accepted accounting principles. In addition, in our opinion, the financial
statement schedules referred to above, when considered in relation to the basic
financial statements taken as a whole, present fairly, in all material respects,
the information required to be included therein.
As discussed in Note 2 to the consolidated financial statements, the Corporation
adopted Financial Accounting Standards No. 109, and accordingly, changed its
method of accounting for income taxes in 1992.
COOPERS & LYBRAND L.L.P.
New York, New York
February 6, 1995
26
27
GENERAL RE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(IN MILLIONS, EXCEPT SHARE DATA)
1994 1993 1992
------ ------ ------
PREMIUMS AND OTHER REVENUES
Net premiums written................................. $3,001 $2,524 $2,349
====== ====== ======
Net premiums earned.................................. $2,788 $2,446 $2,319
Net investment income................................ 749 755 755
Other revenues....................................... 234 200 113
Net realized gains on investments.................... 66 159 200
------ ------ ------
Total revenues............................. 3,837 3,560 3,387
------ ------ ------
EXPENSES
Claims and claim expenses............................ 1,981 1,723 1,829
Acquisition costs.................................... 614 552 499
Other operating costs and expenses................... 448 400 338
------ ------ ------
Total expenses............................. 3,043 2,675 2,666
------ ------ ------
Income before income taxes and cumulative
effect adjustments....................... 794 885 721
Income tax expense (benefit):
Current............................................ 152 160 144
Deferred........................................... (23) 28 (19)
------ ------ ------
Income tax expense................................... 129 188 125
------ ------ ------
Income before cumulative effect
adjustments.............................. 665 697 596
Cumulative effect of accounting changes.............. -- 14 61
------ ------ ------
Net income................................. $ 665 $ 711 $ 657
====== ====== ======
SHARE DATA:
Income before cumulative-effect adjustments.......... $ 7.97 $ 8.11 $ 6.84
Cumulative effect of accounting changes.............. -- .17 .71
------ ------ ------
Net income per common share.......................... $ 7.97 $ 8.28 $ 7.55
====== ====== ======
Dividends per share to common stockholders........... $ 1.92 $ 1.88 $ 1.80
Average common shares outstanding.................... 82,071,651 84,542,686 85,667,413
In 1993, the Corporation adopted the accounting prescribed by the Emerging
Issues Task Force for multiple-year, retrospectively rated reinsurance
contracts. The pro forma effect of adopting the consensus would have resulted in
net income of $618 million ($7.10 per share) in 1992.
The accompanying notes are an integral part of these consolidated financial
statements.
27
28
GENERAL RE CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1994 AND 1993
(IN MILLIONS, EXCEPT SHARE DATA)
1994 1993
------- -------
ASSETS
INVESTMENTS:
Fixed maturities:
Held-to-maturity (fair value: $1,971 in 1994; $2,122 in 1993)....... $ 1,900 $ 1,925
Available-for-sale (cost: $10,840 in 1994; fair value: $7,793 in
1993).............................................................. 10,717 7,219
Trading (cost: $1,579 in 1994; $2,044 in 1993)...................... 1,557 2,073
Equity securities, at fair value (cost: $2,318 in 1994; $1,560 in
1993)............................................................... 2,977 2,459
Short-term investments, at amortized cost which approximates fair
value............................................................... 1,032 224
Other invested assets.................................................. 715 446
------- -------
Total investments...................................................... 18,898 14,346
------- -------
Cash..................................................................... 242 60
Accrued investment income................................................ 272 240
Accounts receivable...................................................... 1,421 851
Funds held by reinsured companies........................................ 1,942 208
Reinsurance recoverable.................................................. 2,067 1,476
Deferred acquisition costs............................................... 324 153
Securities purchased under agreements to resell.......................... 813 133
Trading account assets................................................... 1,928 1,568
Other assets............................................................. 1,690 384
------- -------
Total assets................................................... $29,597 $19,419
======= =======
LIABILITIES
Claims and claim expenses................................................ $12,158 $ 8,452
Future policy benefits for life and health contracts..................... 1,960 --
Unearned premiums........................................................ 1,642 840
Other reinsurance balances............................................... 2,318 372
Notes payable and commercial paper....................................... 188 453
Income taxes............................................................. 196 313
Securities sold under agreements to repurchase........................... 938 1,566
Securities sold but not yet purchased.................................... 927 542
Trading account liabilities.............................................. 2,320 1,395
Other liabilities........................................................ 1,046 724
Minority interest........................................................ 1,044 --
------- -------
Total liabilities.............................................. 24,737 14,657
------- -------
Cumulative convertible preferred stock (shares issued: 1,734,717 in 1994
and 1,741,010 in 1993; no par value)................................... 148 149
Loan to employee savings and stock ownership plan........................ (147) (148)
------- -------
1 1
------- -------
COMMON STOCKHOLDERS' EQUITY
Common stock (102,827,344 shares issued in 1994 and 1993; par value
$.50).................................................................. 51 51
Paid-in capital.......................................................... 604 596
Unrealized appreciation of investments, net of income taxes.............. 421 651
Currency translation adjustments, net of income taxes.................... (20) (42)
Retained earnings........................................................ 5,330 4,830
Less common stock in treasury, at cost (shares held: 20,955,202 in 1994
and 19,195,866 in 1993)................................................ (1,527) (1,325)
------- -------
Total common stockholders' equity.............................. 4,859 4,761
------- -------
Total liabilities, cumulative convertible preferred stock and
common stockholders' equity................................... $29,597 $19,419
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
28
29
GENERAL RE CORPORATION
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(IN MILLIONS)
1994 1993 1992
------- ------- -------
COMMON STOCK:
Beginning of year........................................... $ 51 $ 51 $ 51
Change for the year......................................... -- -- --
------- ------- -------
End of year.............................................. 51 51 51
------- ------- -------
PAID-IN CAPITAL:
Beginning of year........................................... 596 589 581
Stock issued under stock option and other incentive plans... 6 5 4
Other....................................................... 2 2 4
------- ------- -------
End of year.............................................. 604 596 589
------- ------- -------
UNREALIZED APPRECIATION OF INVESTMENTS, NET OF INCOME TAXES:
Beginning of year........................................... 651 517 519
Cumulative effect of accounting change (FAS 115), net of
income taxes of $201 million............................. 373 -- --
Change for the year......................................... (942) 203 26
Applicable income taxes..................................... 339 (69) (28)
------- ------- -------
End of year.............................................. 421 651 517
------- ------- -------
CURRENCY TRANSLATION ADJUSTMENTS, NET OF INCOME TAXES:
Beginning of year........................................... (42) (19) (5)
Change for the year......................................... 22 (23) (14)
------- ------- -------
End of year.............................................. (20) (42) (19)
------- ------- -------
RETAINED EARNINGS:
Beginning of year........................................... 4,830 4,285 3,788
Net income.................................................. 665 711 657
Dividends paid on common stock.............................. (157) (159) (153)
Dividends paid on preferred stock, net of income taxes...... (8) (7) (7)
------- ------- -------
End of year.............................................. 5,330 4,830 4,285
------- ------- -------
COMMON STOCK IN TREASURY:
Beginning of year........................................... (1,325) (1,196) (1,023)
Cost of shares acquired during year......................... (207) (134) (179)
Issued under stock option and other incentive plans......... 5 5 6
------- ------- -------
End of year.............................................. (1,527) (1,325) (1,196)
------- ------- -------
Total common stockholders' equity................... $ 4,859 $ 4,761 $ 4,227
======= ======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
29
30
GENERAL RE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(IN MILLIONS)
1994 1993 1992
------- ------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................. $ 665 $ 711 $ 657
Cumulative effect of accounting changes..................... -- (14) (61)
Adjustments to reconcile net income to net cash provided by
operating activities:
Change in claim and claim expense liabilities............ 571 248 788
Change in reinsurance recoverable........................ (220) (30) (345)
Change in unearned premiums.............................. 261 4 35
Amortization of acquisition costs........................ 613 561 499
Acquisition costs deferred............................... (672) (559) (496)
Purchase of trading account securities................... 1,247 (1,131) (108)
Other changes in assets and liabilities.................. 11 91 (142)
Realized gains on investments............................ (66) (159) (200)
------- ------- -------
Net cash from (used in) operating activities........ 2,410 (278) 627
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Fixed maturities: held-to-maturity
Purchases................................................ (40) (66) (56)
Calls and maturities..................................... 296 395 333
Sales.................................................... -- -- --
Fixed maturities: available-for-sale
Purchases................................................ (4,375) (4,020) (4,131)
Calls and maturities..................................... 267 624 290
Sales.................................................... 4,042 2,495 3,406
Equity securities
Purchases................................................ (999) (1,372) (777)
Sales.................................................... 978 1,014 595
Other invested assets....................................... (61) (168) (47)
Net (purchases) sales of short-term investments............. (139) 189 148
Securities purchased under agreements to resell............. (681) (439) (66)
Net purchase of shares in GR-CK............................. (582) -- --
Cash obtained on purchase of GR-CK.......................... 153 -- --
------- ------- -------
Net cash used in investing activities............... (1,141) (1,348) (305)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of notes payable................................. (21) (6) (100)
Commercial paper borrowing (repayment), net................. (230) 251 (5)
Securities sold under agreements to repurchase.............. (628) 1,597 123
Change in contract deposits................................. 171 98 --
Cash dividends paid to stockholders: Common................. (157) (159) (153)
Preferred.............. (11) (11) (11)
Acquisition of treasury stock............................... (222) (134) (179)
Other....................................................... 11 9 10
------- ------- -------
Net cash (used in) from financing activities........ (1,087) 1,645 (315)
------- ------- -------
Change in cash................................................ 182 19 7
Cash, beginning of year....................................... 60 41 34
------- ------- -------
Cash, end of year............................................. $ 242 $ 60 $ 41
======= ======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
30
31
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following are the significant accounting policies and practices of General
Re Corporation and Subsidiaries (the "Corporation"):
BASIS OF PRESENTATION: The Corporation's consolidated financial statements have
been prepared on the basis of generally accepted accounting principles. The
consolidated financial statements include the Corporation and its subsidiaries.
All significant intercompany transactions have been eliminated. Certain
international subsidiaries report their results on a quarter lag. This practice
has no material effect on the consolidated financial statements.
On December 28, 1994, the Corporation and Colonia Konzern AG ("Colonia") formed
a new company that acquired 75 percent of the common shares and approximately 30
percent of the preferred shares of Kolnische Ruckversicherungs-Gesellschaft AG
("Cologne Re"). As a result of its investment in GR-CK at the end of 1994 (see
Note 3), the Corporation's operating results were not materially affected by the
Cologne Re joint venture. Due to the ownership and control structure of GR-CK
and Cologne Re, the Corporation has consolidated the balance sheet of the joint
venture in its balance sheet at December 31, 1994.
Certain reclassifications have been made to 1993 and 1992 balances to conform to
the 1994 presentation.
INVESTMENTS: Effective for 1994, fixed maturity securities that the Corporation
has both the ability and intent to hold to maturity are classified as
held-to-maturity and carried at amortized cost. Fixed maturity securities that
the Corporation may sell prior to maturity in response to changes in market
interest rates, changes in liquidity needs, or other factors and equity
securities are classified as available-for-sale and carried at fair value, with
unrealized gains and losses, net of deferred income taxes, excluded from income
and reported in a separate component of common stockholders' equity. Fixed
maturity securities that are held for resale are classified as trading and
carried at fair value, with unrealized gains and losses included in income. In
1993, fixed maturity securities that the Corporation might have sold prior to
maturity in response to changes in market interest rates, changes in liquidity
needs or other factors were carried at the lower of aggregate amortized cost or
fair value. These securities, which are shown in the balance sheet as comparable
to the available-for-sale category utilized in 1994, are carried at fair value
commencing in 1994. See Note 2, "Accounting Changes", for additional discussion
of the Corporation's adoption of Statement of Financial Accounting Standards No.
115.
Realized gains or losses on sales of investments are primarily determined on the
basis of identified cost and include adjustments to the net realizable value of
investments for declines in value that are considered to be other than
temporary. Realized gains or losses include gains and losses arising from the
translation into U.S. dollars of investments held by the domestic operations and
denominated in foreign currencies. Investment income is recognized as earned and
includes the amortization of bond discount and accretion of bond premium.
Included in other invested assets are investments in reinsurance ventures,
limited partnerships and real estate. Reinsurance ventures accounted for under
the equity method are carried at initial cost which is adjusted after
acquisition for the Corporation's proportionate share of the venture's earnings.
The amount of the adjustment is included in income. Limited partnerships are
carried at estimated fair value with distributions of income recognized in
investment income when received. Real estate is valued at cost and depreciated
over its estimated useful life.
PROPERTY/CASUALTY OPERATIONS
PREMIUMS EARNED: Premiums are recognized in income over the contract period
in proportion to the amount of insurance or reinsurance provided. Unearned
premium liabilities are established to cover the
31
32
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
unexpired portion of premiums written. Such liabilities are computed by pro
rata methods based on statistical data and reports received from ceding
companies. Premium adjustments on contracts and audit premiums are accrued
on an estimated basis throughout the contract term. Premiums are net of
retrocessions.
ACQUISITION COSTS: Acquisitions costs, consisting principally of
commissions and brokerage expenses incurred at contract issuance, are
deferred and amortized over the contract period in which the related
premiums are earned, generally one year. Deferred acquisition costs are
reviewed to determine that they do not exceed recoverable amounts, after
considering investment income.
DEFERRED CHARGES: Deferred charges ($41 million and $48 million at December
31, 1994 and 1993, respectively), which arose from certain reinsurance
contracts, are amortized over the periods in which the related investment
income is expected to be earned.
CLAIMS AND CLAIM EXPENSES: The liability for claims and claim expenses is
based on reports and individual case estimates received from ceding
companies. The liability also includes incurred but not reported losses,
which are based on past experience and is reduced by anticipated salvage
and subrogation recoverable. The methods of determining such estimates and
establishing the related liabilities are regularly reviewed and updated,
and any resulting adjustments are currently included in income. Reinsurance
recoveries on unpaid claims and claim expenses, net of uncollectible
amounts, are recognized as assets at the same time and in a manner
consistent with the Corporation's method for establishing the related
liability. Workers' compensation liabilities, after deduction of
reinsurance recoverable for unpaid losses, were $1,186 million and $1,212
million at December 31, 1994 and 1993, respectively, after being discounted
at an interest rate of 4.5 percent.
LIFE INSURANCE OPERATIONS
FUTURE POLICY BENEFITS FOR LIFE AND HEALTH CONTRACTS: The liability for
future policy benefits for life and health contracts has been computed
based upon assumed investment yields and mortality and withdrawal rates
anticipated at the time of the Corporation's investment in Cologne Re.
These assumptions include a margin for adverse deviation and vary with the
characteristics of the reinsurance contract's year of issue, policy
duration, country of risk, and other appropriate factors. The interest rate
assumptions used vary by country ranging from 3.0 percent to 7.0 percent.
There was no participating life business; however, appropriate provisions
for profit-sharing commission payments to ceding companies were made.
PRESENT VALUE OF FUTURE PROFITS: In conjunction with the formation of the
Cologne Re joint venture, the Corporation obtained the right to receive
future profits from life reinsurance contracts existing at the date of the
joint venture's formation. The value of these profits is the actuarially
determined present value of the projected profits from the obtained
reinsurance contracts. The calculation of the estimated profits includes
anticipated future premiums, benefit payments, lapse rates, expenses and
related investment income. The present value of future profits was
determined using risk adjusted discount rates ranging primarily from 10
percent through 16 percent. The interest rates selected for the valuation
were determined based on the applicable interest rates in the country of
risk and the risk inherent in the realization of the estimated future
profits. The present value of future profits of $132 million will be
amortized over the duration of the related life business, approximately 20
years, based upon the assumed underlying profits of the business acquired.
FUNDS HELD BY REINSURED COMPANIES: Funds held by reinsured companies represent
ceded premium retained by the ceding company, for a period, according to
contractual terms. The Corporation generally earns investment income on these
balances during the period funds are held.
32
33
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
GOODWILL: The Corporation amortizes on a straight-line basis goodwill recorded
in connection with its business combinations. Included in the balance sheet
caption "other assets", was goodwill of $509 million at December 31, 1994, which
is principally related to the Cologne Re joint venture and is being amortized
over the expected life of the operations acquired, not exceeding 40 years.
DEFERRED INCOME TAXES: Deferred income taxes have been provided for all
temporary differences between the bases of assets and liabilities used in the
financial statements and the Corporation's tax returns. Deferred income taxes
are also provided for unrealized appreciation (depreciation) of equity
securities and certain fixed maturities, and for foreign currency translation
gains or losses by a charge (credit) directly to the applicable component of
common stockholders' equity.
FOREIGN CURRENCY TRANSLATION: Revenues and expenses in foreign currencies are
translated at the rate of exchange at the transaction date. Assets and
liabilities are translated at the rate of exchange in effect at the close of the
period. Gains or losses resulting from translating foreign currency financial
statements are accumulated in a separate component of common stockholders'
equity. Gains or losses resulting from foreign currency transactions
(transactions denominated in a currency other than the entity's functional
currency) are included in net income. The net effect of foreign currency
transactions on operating results during 1994, 1993 and 1992 was immaterial.
DEPOSITS: Reinsurance contracts that do not indemnify the ceding company against
loss or liability are recorded as deposits. These deposits are treated as
financing transactions and are credited or charged with interest income or
expense according to contract terms.
ALLOWANCE FOR DOUBTFUL ACCOUNTS: The Corporation establishes an allowance for
uncollectible reinsurance recoverables and other doubtful receivables. The
allowance was recorded as a valuation account that reduces the corresponding
asset. The allowance was $121 million and $79 million at December 31, 1994 and
1993, respectively.
FINANCIAL SERVICES: Acting as a dealer, the Corporation engages in interest rate
and currency swaps, forward rate agreements, forward foreign exchange, option,
and synthetic security transactions. These contracts were accounted for as
contractual commitments and were carried at estimated fair value based on then
current interest, currency rates, and security values. Securities owned,
securities sold but not yet purchased and futures contracts were carried at fair
value. Realized and unrealized gains or losses from selling or valuing
securities and contractual commitments at fair value were included in "Other
revenues". Purchases of securities under agreements to resell and sales of
securities under agreements to repurchase are accounted for as collateralized
investing and financing transactions and were recorded at their contractual
resale or repurchase amounts, plus accrued interest. Included in the balance
sheet caption, trading account assets and liabilities, were the unrealized gains
and losses on interest rate and currency swaps, forward currency commitments and
option products.
EARNINGS PER SHARE: Earnings per common share were based on earnings, less
preferred dividends, divided by the weighted average common shares outstanding
during each year.
2. ACCOUNTING CHANGES
Effective January 1, 1994, the Corporation adopted Statement of Financial
Accounting Standards No. 115, Accounting for Certain Investments in Debt and
Equity Securities. The after-tax impact of Statement No. 115 decreased common
stockholders' equity by $81 million at December 31, 1994. The Statement's
adoption had no impact on the Corporation's results from operations. See Note 1
for additional details on the resultant changes to the Corporation's investment
accounting.
Effective January 1, 1994, the Corporation adopted FASB Interpretation No. 39,
Offsetting of Amounts Related to Certain Contracts. The Interpretation further
clarifies the definition of a right of set-off. Effective
33
34
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
December 31, 1994, the Corporation adopted FASB Interpretation No. 41,
Offsetting of Amounts Related to Certain Repurchase and Reverse Repurchase
Agreements. The Interpretation modified the accounting in Interpretation No. 39
to permit offsetting in the balance sheet of payables and receivables for
repurchase and reverse repurchase agreements when certain conditions are met.
The Corporation has reclassified amounts on the December 31, 1993 balance sheet
to conform to the new Interpretations. The combined effect of adopting
Interpretations 39 and 41 increased reported assets and liabilities by
approximately $950 million at December 31, 1993 and $1,747 million at December
31, 1994. Adoption of these Interpretations had no impact on results from
operations or common stockholders' equity.
In 1994, the Corporation adopted Statement of Financial Accounting Standards No.
119, Disclosure about Derivatives Financial Instruments and Fair Value of
Financial Instruments. The Statement provides new disclosure requirements for
derivative financial instruments (see Notes 14 and 15).
Effective January 1, 1993, the Corporation adopted Statement of Financial
Accounting Standards No. 113, Accounting and Reporting for Reinsurance of
Short-Duration and Long-Duration Contracts. The Statement specifies the
accounting for reinsurance of insurance contracts and also applies to
retrocessions of reinsurance contracts. Under the Statement, prepaid reinsurance
premiums and reinsurance recoveries on unpaid claims and claim expenses are to
be reported as assets, rather than as reductions in liabilities. The Statement
also establishes the risk transfer requirements that a contract must satisfy in
order to be accounted for as reinsurance and prescribes accounting and reporting
standards for reinsurance contracts. Contracts that do not both transfer
significant insurance risk and result in the reasonable possibility that the
reinsurer (or retrocessionaire) may realize a significant loss from the
insurance risk assumed are required to be accounted for as deposits. Adoption of
the risk transfer components of the new Statement did not have a material impact
on the Corporation's financial position or results from operations in 1993.
On July 22, 1993, the Emerging Issues Task Force of the Financial Accounting
Standards Board reached a consensus on accounting for multiple-year,
retrospectively rated reinsurance contracts. The Corporation adopted the EITF's
prescribed method of accounting for such contracts during the third quarter of
1993. Accordingly, the Corporation reported a cumulative-effect adjustment of
$14 million, or $.17 per share, principally to recognize an asset for the
amounts due from retrocessionaires related to favorable contract experience
through January 1, 1993.
Effective January 1, 1993, the Corporation adopted Statement of Financial
Accounting Standards No. 106, Employers' Accounting for Postretirement Benefits
Other than Pensions. See Note 8 for additional details on the adoption of this
Statement.
Effective January 1, 1992, the Corporation adopted Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes. The Statement
requires the use of the liability method of accounting for deferred income
taxes. The cumulative effect of the change in accounting increased net income in
1992 by $61 million, or $.71 per common share.
3. REINSURANCE VENTURES
Cologne Re
On December 28, 1994, the Corporation and Colonia formed a new company that
acquired 75 percent of the common shares and approximately 30 percent of the
preferred shares of Cologne Re, which collectively represents a 66.3 percent
economic interest in Cologne Re. In exchange for its Cologne Re shares, Colonia,
for itself and as trustee for Nordstern Allgemeine Versicherungs AG
(collectively the "CKAG Group"), received 100 percent of the Class A shares of
the new company, General Re-CKAG Reinsurance and Investment S.A.R.L. ("GR-CK").
The Corporation initially contributed $884 million (DM 1,377 million) to GR-CK
in exchange for 100 percent of the Class B shares of GR-CK. On December 30,
1994, GR-CK paid $302 million (DM 475 million) to a subsidiary of the
Corporation in exchange for notes in the principal amount of DM 475
34
35
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
million. The notes pay interest of 8.0 percent annually to GR-CK and are due on
December 30, 2004. The intercompany note has been eliminated in consolidation.
The Class A shares have 49.9 percent of the votes of GR-CK and are entitled to
an annual Class A dividend, which is based on a formula and is subject to a
minimum of approximately DM 36 million, while the Class B shares have 50.1
percent of the votes of GR-CK and are entitled to the earnings of GR-CK in
excess of the Class A dividend. The Corporation has an option after seven years
to purchase the Class A shares of GR-CK owned by the CKAG Group at a formula
price. The option has a minimum exercise price of DM 1,306 million ($842
million) and a maximum exercise price of DM 1,509 million ($973 million),
subject to certain warranty adjustments that may reduce the exercise price.
The acquisition of the shares of Cologne Re through GR-CK has been accounted for
as a purchase. As a result of the ownership and control structure, the
Corporation consolidated GR-CK and Cologne Re in its financial statements and
recorded as minority interests the share of the CKAG Group in GR-CK and of the
other stockholders in Cologne Re. Since the closing occurred at the end of 1994,
the transaction did not have a material effect on the Corporation's results from
operations in 1994. In future years, the Corporation's operating results will
include its proportional share of Cologne Re's operations, which will be
reported on a quarter lag. The cost of the acquisition has been preliminarily
allocated on the basis of the estimated fair value of the assets acquired and
the liabilities assumed in the transaction. The allocation of the purchase price
will be finalized during 1995 with any resulting change adjusting goodwill.
The following unaudited, pro forma information was prepared assuming the
transaction with Cologne Re had occurred as of the beginning of the periods
presented. These results were prepared for informational purposes and do not
purport to be the actual results of the entities had they been combined at that
time. The pro forma information includes all significant adjustments to the
historical results that were directly attributable to the transaction and were
expected to have a continuing effect on the Corporation.
YEARS ENDED DECEMBER 31
-------------------------------------------
1994 1993
------------------- -------------------
AS PRO AS PRO
REPORTED FORMA REPORTED FORMA
-------- ------ -------- ------
(IN MILLIONS, EXCEPT PER SHARE INFORMATION)
Revenues.............................................. $3,837 $6,658 $3,560 $6,236
Income before cumulative-effect adjustments........... 665 694 697 720
Per common share...................................... 7.97 8.32 8.11 8.39
Engineering Insurance Group
On December 30, 1994, General Reinsurance Corporation ("GRC") exchanged its 50
percent partnership interest in Engineering Insurance Group to EIG Co. ("EIG"),
a machinery breakdown insurer, for non-voting preferred stock in EIG having a
value of $20 million. The preferred stock pays dividends at a rate of 6.5
percent per annum and matures on December 30, 2004.
Signet Star Holdings
In 1993, the Corporation entered into a joint venture with W.R. Berkley
Corporation to form Signet Star Holdings, Inc. ("SSH"), which acquired the
common stock of North Star Reinsurance Corporation ("North Star"), a wholly
owned subsidiary of the Corporation, and Signet Reinsurance Company, a wholly
owned subsidiary of W.R. Berkley Corporation. Under the agreement, the
Corporation acquired shares representing 40 percent of the equity interest of
SSH, $36 million of 6.96 percent convertible debt due in January 2003 and $40
million of 9.80 percent senior debt due in January 2000. The Corporation
accounts for its interest in SSH under the equity method.
35
36
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In November 1993, SSH called the senior debt at par plus accrued interest. The
convertible debt is convertible, at the Corporation's discretion, into common
stock of SSH between June 30, 1995 and July 15, 1995. If the Corporation
converts the debt to equity, it will own a 50 percent equity interest in SSH.
The Corporation, through its wholly owned subsidiary, GRC, has retained the net
claim and claim expense liability of North Star for all reinsurance contracts
underwritten by North Star prior to January 1, 1993. These claim and claim
expense liabilities are currently in runoff and did not have a material impact
on the Corporation's results from operations or financial position during 1994.
Tempest Reinsurance Company Limited
In September 1993, the Corporation acted as sponsor in the formation of Tempest
Reinsurance Company Limited ("Tempest"), a Bermuda-based reinsurance company
specializing in excess property catastrophe reinsurance. The Corporation
accounted for its 20.5 percent interest in Tempest of $112 million at December
31, 1994 under the equity method. The Corporation provides underwriting and
investment management services for Tempest.
4. STATUTORY FINANCIAL INFORMATION
The Corporation's domestic reinsurance and insurance subsidiaries file financial
statements prepared in accordance with statutory accounting practices prescribed
or permitted by insurance regulators. Statutory accounting differs from
generally accepted accounting principles in the reporting of certain reinsurance
contracts, acquisition expenses, furniture and equipment, deferred income taxes
and certain other items. Combined statutory surplus at December 31, 1994 and
1993 was $3,770 million and $3,836 million, respectively, and combined statutory
net income for the years ended December 31, 1994, 1993 and 1992 was $511
million, $655 million and $547 million, respectively.
The Corporation's subsidiaries prepare their statutory financial statements in
accordance with accounting practices prescribed or permitted by their
domiciliary state's insurance department. Prescribed accounting practices
include a variety of publications of the National Association of Insurance
Commissioners (NAIC), as well as state laws, regulations, and general
administrative rules. Permitted statutory accounting practices encompass all
accounting practices not so prescribed that have been permitted by the insurance
department of the insurer's domiciliary state.
As discussed in Note 1, the Corporation discounts certain workers' compensation
liabilities at an annual rate of 4.5 percent. Included in the discount
recognized for statutory purposes is a benefit of $489 million for certain
liabilities which the Corporation has been permitted by the domiciliary
insurance department to discount.
36
37
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. INVESTMENTS
The cost, fair value and gross unrealized appreciation and depreciation of
short-term, fixed maturity, equity and other investments were as follows:
DECEMBER 31, 1994
-----------------------------------------------------
GROSS GROSS
UNREALIZED UNREALIZED FAIR
COST(1) APPRECIATION DEPRECIATION VALUE
------- ------------ ------------ -------
(IN MILLIONS)
SHORT-TERM INVESTMENTS........................ $ 1,032 -- -- $ 1,032
FIXED MATURITIES -- HELD-TO-MATURITY
U.S. Government............................. 3 -- -- 3
German federal and state governments........ 14 -- -- 14
Tax exempt.................................. 1,432 $ 80 $ 5 1,507
Foreign..................................... 451 2 6 447
------- ------ ---- -------
Total fixed maturities --
held-to-maturity....................... 1,900 82 11 1,971
------- ------ ---- -------
FIXED MATURITIES -- AVAILABLE-FOR-SALE
U.S. Government............................. 1,214 -- 25 1,189
German federal and state governments........ 552 -- -- 552
Tax exempt.................................. 3,814 109 131 3,792
Corporate................................... 1,192 10 42 1,160
Mortgage-backed............................. 647 2 20 629
Asset-backed................................ 253 -- 9 244
Foreign..................................... 3,168 -- 17 3,151
------- ------ ---- -------
Total fixed maturities --
available-for-sale..................... 10,840 121 244 10,717
------- ------ ---- -------
FIXED MATURITIES -- TRADING
U.S. Government............................. 511 -- 1 510
Foreign..................................... 1,068 1 22 1,047
------- ------ ---- -------
Total fixed maturities -- trading........ 1,579 1 23 1,557
------- ------ ---- -------
EQUITIES...................................... 2,318 719 60 2,977
OTHER INVESTED ASSETS......................... 642 92 19 715
------- ------ ---- -------
Total............................... $18,311 $1,015 $357 $18,969
======= ====== ==== =======
- ---------------
(1) Cost is amortized cost for short-term investments and fixed maturities and
original cost for equity securities and other invested assets.
37
38
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993
-----------------------------------------------------
GROSS GROSS
UNREALIZED UNREALIZED FAIR
COST(1) APPRECIATION DEPRECIATION VALUE
------- ------------ ------------ -------
(IN MILLIONS)
SHORT-TERM INVESTMENTS......................... $ 224 -- -- $ 224
------- ------------ --- -------
FIXED MATURITIES -- HELD-TO-MATURITY
Tax exempt.................................. 1,687 $ 182 $ 1 1,868
Foreign..................................... 238 16 -- 254
------- ------ --- -------
Total fixed maturities --
held-to-maturity....................... 1,925 198 1 2,122
------- ------ --- -------
FIXED MATURITIES -- AT LOWER OF AMORTIZED COST
OR FAIR VALUE
U.S. Government............................. 1,132 55 2 1,185
German federal and state governments........ 4 -- -- 4
Tax exempt.................................. 3,510 371 -- 3,881
Corporate................................... 1,672 92 3 1,761
Mortgage-backed............................. 360 18 1 377
Asset-backed................................ 71 3 -- 74
Foreign..................................... 470 41 -- 511
------- ------ --- -------
Total fixed maturities -- at lower of
amortized cost or fair value........... 7,219 580 6 7,793
------- ------ --- -------
FIXED MATURITIES -- TRADING
U.S. Government............................. 728 -- -- 728
Foreign..................................... 1,316 32 3 1,345
------- ------ --- -------
Total fixed maturities -- trading........ 2,044 32 3 2,073
------- ------ --- -------
EQUITIES...................................... 1,560 914 15 2,459
OTHER INVESTED ASSETS......................... 368 83 5 446
------- ------ --- -------
Total............................... $13,340 $1,807 $ 30 $15,117
======= ====== ==== =======
- ---------------
(1) Cost is amortized cost for short-term investments and fixed maturities and
original cost for equity securities and other invested assets.
Gross gains of $57 million, $120 million and $140 million and gross losses of
$120 million, $22 million and $10 million were realized on sales of
available-for-sale fixed maturities in 1994, 1993 and 1992, respectively. The
contractual maturities of fixed maturity investments are shown in the following
table. Actual maturities may differ from contractual maturities because
borrowers may have the right to call or prepay certain obligations.
DECEMBER 31, 1994
----------------------------------------------
HELD-TO-MATURITY AVAILABLE-FOR-SALE
-------------------- ---------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
--------- ------ --------- -------
(IN MILLIONS)
Due in one year or less............................. $ 78 $ 79 $ 879 $ 880
Due after one year through five years............... 479 476 3,444 3,400
Due after five years through ten years.............. 631 671 2,139 2,117
Due after ten years................................. 712 745 3,478 3,447
Mortgage and asset-backed........................... -- -- 900 873
------- ------ ------- -------
Total............................................... $ 1,900 $1,971 $10,840 $10,717
======= ====== ======= =======
38
39
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Realized gains or losses recognized in income for fixed maturities and equity
securities were as follows:
YEARS ENDED DECEMBER 31
-----------------------
1994 1993 1992
---- ---- ----
(IN MILLIONS)
Fixed maturities.............................................. $(63) $ 98 $130
Equity securities............................................. 129 61 70
---- ---- ----
Total realized gains.......................................... 66 159 200
Income taxes.................................................. 22 66 68
---- ---- ----
Realized gains on investments, after income taxes............. $ 44 $ 93 $132
==== ==== ====
Investment income, which consists of interest and dividends from all fixed
maturities, equity securities, short-term investments and from other sources,
was as follows:
YEARS ENDED DECEMBER 31
-----------------------
1994 1993 1992
---- ---- ----
(IN MILLIONS)
Fixed maturities.............................................. $648 $658 $661
Equity securities............................................. 75 76 54
Short-term investments........................................ 35 22 42
Miscellaneous, net............................................ 8 12 10
---- ---- ----
Total investment income....................................... 766 768 767
Investment expenses........................................... (17) (13) (12)
---- ---- ----
Net investment income......................................... $749 $755 $755
==== ==== ====
Securities with a par value of $549 million at December 31, 1994 were on deposit
with various state or governmental departments to comply with insurance laws.
6. FEDERAL AND FOREIGN INCOME TAXES
Income tax expense (benefit) was as follows:
YEARS ENDED DECEMBER 31
--------------------------------------------------------------------------------
1994 1993 1992
------------------------ ------------------------ ------------------------
UNITED UNITED UNITED
STATES FOREIGN TOTAL STATES FOREIGN TOTAL STATES FOREIGN TOTAL
------ ------- ----- ------ ------- ----- ------ ------- -----
(IN MILLIONS)
Current.............. $ 99 $53 $152 $137 $23 $160 $122 $22 $144
Deferred............. (21) (2) (23) 27 1 28 (20) 1 (19)
---- --- ---- ---- --- ---- ---- --- ----
Total $ 78 $51 $129 $164 $24 $188 $102 $23 $125
==== === ==== ==== === ==== ==== === ====
Income taxes were established on a consolidated basis for all domestic and
foreign subsidiaries of the Corporation. No provision has been made for U.S.
income taxes on that portion of cumulative undistributed income of international
subsidiaries of $107 million at December 31, 1994, which is considered
permanently reinvested.
39
40
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Corporation's effective income tax rate is less than the U.S. statutory rate
due to permanent differences between financial statement income and taxable
income. An analysis of the Corporation's effective tax rate as a percentage of
pretax income follows:
YEARS ENDED DECEMBER 31
-------------------------
1994 1993 1992
----- ----- -----
Statutory tax rate.......................................... 35.0% 35.0% 34.0%
Reduction in taxes resulting from:
Tax-exempt bond interest.................................. (14.6) (12.7) (15.5)
Dividends received deduction.............................. (1.9) (1.3) (1.4)
Miscellaneous............................................. (2.2) .2 .2
----- ----- -----
Effective tax rate.......................................... 16.3% 21.2% 17.3%
===== ===== =====
Income taxes paid were $138 million, $142 million and $117 million in 1994, 1993
and 1992, respectively.
The components of the net deferred income tax liability were as follows:
DECEMBER 31
-------------
1994 1993
---- ----
(IN MILLIONS)
DEFERRED INCOME TAX ASSETS:
Claim and claim expense liabilities................................. $(10) $ 14
Alternative minimum tax credit...................................... 12 5
Unearned premiums................................................... 64 52
Accruals not currently deductible................................... 52 36
Other............................................................... 72 54
---- ----
Total deferred tax assets........................................ 190 161
---- ----
DEFERRED INCOME TAX LIABILITIES:
Unrealized appreciation of investments.............................. 199 328
Deferred acquisition costs.......................................... 56 51
Deferred charges.................................................... 14 17
Discount on fixed maturity investments.............................. 26 31
Other............................................................... 63 47
---- ----
Total deferred tax liabilities................................... 358 474
---- ----
Net deferred income tax liability..................................... $168 $313
==== ====
7. NOTES PAYABLE AND COMMERCIAL PAPER
The carrying amounts of the Corporation's notes payable were as follows:
DECEMBER 31,
-------------
1994 1993
---- ----
(IN MILLIONS)
9.00% Debenture due in 2009........................................... $150 $150
Variable rate notes (9.17% - 9.40%)................................... -- 34
7.70% Mortgage payable through 1998................................... 7 8
---- ----
Total notes payable................................................... $157 $192
==== ====
40
41
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The 9% debenture due in 2009 has a covenant requiring the Corporation not to
encumber its common stock holding in General Reinsurance Corporation, the
largest subsidiary of the Corporation. The variable rate notes were issued by
EIG, which was sold to the Corporation's joint venture partner on December 30,
1994 (see Note 3). The mortgage payable is collateralized by the Corporation's
prior home office.
The Corporation issues commercial paper for financial flexibility and liquidity
purposes. Information on the commercial paper program is as follows:
1994 1993 1992
---- ---- ----
(DOLLARS IN MILLIONS)
Year-end balance.............................................. $ 31 $261 $ 10
Average interest rate at year end............................. 5.96% 3.20% 3.33%
Average maturity at year end (in days)........................ 29.8 30.2 37.0
Average outstanding balance during the year................... $209 $179 $ 56
Average interest rate for the year............................ 4.13% 3.08% 3.42%
The Corporation has $1,000 million of available lines of credit from banks, all
of which were unused at December 31, 1994. The credit agreement with the banks
requires the Corporation to maintain a minimum consolidated tangible net worth,
as defined, of $2,500 million. Interest expense and interest paid for all loans
payable and commercial paper were as follows:
YEARS ENDED DECEMBER 31
--------------------------
1994 1993 1992
---- ---- ----
(IN MILLIONS)
Interest expense............................................ $25 $23 $19
Interest paid............................................... 25 23 18
8. RETIREMENT PLANS
The Corporation and its subsidiaries have noncontributory pension plans covering
substantially all employees. Pension expense for foreign employees was not
material to the Corporation. Plans for United States employees provide pension
benefits that are generally computed on the basis of the average earnings during
the three consecutive years of highest earnings during the employee's service.
The Corporation's funding policy is to contribute sufficient amounts to meet the
minimum annual funding required by applicable regulations plus such additional
amounts as it may determine to be appropriate from time to time for U.S. plans.
Pension plan assets are principally invested in investment-grade fixed
maturities and equities. Cologne Re provides pensions benefits to its employees
based on years of service and age at retirement.
The components of pension expense related to both funded and unfunded plans for
United States employees were as follows:
YEARS ENDED DECEMBER 31
--------------------------
1994 1993 1992
---- ---- ----
(IN MILLIONS)
Service cost-benefits earned during the year................ $ 10 $ 10 $ 9
Interest cost on projected benefit obligation............... 12 11 10
Actual (return) loss on plan assets......................... 4 (14) (6)
Net amortization and deferral............................... (12) 5 (2)
---- ---- ---
Pension expense............................................. $ 14 $ 12 $11
==== ==== ===
The projected benefit obligation for U.S. employees was determined using an
assumed discount rate of 8.25% in 1994, 7.25% for 1993 and 8.0% for 1992, and an
assumed long-term compensation increase of 6.0% in 1994,
41
42
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5.5% for 1993 and 6.0% for 1992. An assumed long-term rate of return on plan
assets of 8.5% was used in determining pension expense in 1994, 1993 and 1992.
The projected benefit obligation for Cologne Re employees was determined using
an assumed discount rate of 7.0 percent and an assumed long-term compensation
increase of 3.5 percent.
The Corporation provides pension benefits for certain employees above amounts
allowed under tax qualified plans, through unfunded plans. The Corporation also
provides postretirement retainers through unfunded plans for members of the
Board of Directors.
The following table sets forth the plans' funded status and amount recognized in
the Corporation's consolidated balance sheet:
DECEMBER 31
---------------------------------------
1994 1993
----------------- -----------------
FUNDED UNFUNDED FUNDED UNFUNDED
------ -------- ------ --------
(IN MILLIONS)
Accumulated benefit obligation:
Vested.......................................... $ 85 $ 50 $ 77 $ 15
Non-vested...................................... 10 7 10 3
---- ---- ---- ----
Accumulated benefit obligation.................... 95 57 87 18
Effect of projected salary increases.............. 33 31 54 7
---- ---- ---- ----
Projected benefit obligation.................... 128 88 141 25
Plan assets at fair value......................... 111 -- 113 --
---- ---- ---- ----
Projected benefit obligation in excess of plan
assets.......................................... (17) (88) (28) (25)
Unrecognized net (gain) loss...................... (5) 6 3 7
Unrecognized prior service cost................... (6) 6 7 (7)
Unrecognized net (asset) obligation at
transition...................................... (9) 2 (9) 2
---- ---- ---- ----
Accrued pension liability....................... $(37) $(74) $(27) $(23)
==== ==== ==== ====
Substantially all of the Corporation's employees in the United States become
eligible for certain health care and group life insurance benefits upon
retirement from the Corporation. Effective January 1, 1993, the Corporation
adopted Statement of Financial Accounting Standards No. 106, Employers'
Accounting for Postretirement Benefits Other Than Pensions. The Corporation has
funded the benefit cost of current retirees, with the retiree paying a portion
of the costs. The retiree's portion of the costs varies depending upon the
individual's length of service with Corporation upon retirement. As of December
31, 1994 and 1993 the Corporation had funded $2 million for postretirement
health care benefits for current retirees and had an accrued liability of $23
million and $20 million, respectively, for current employees.
9. EMPLOYEE SAVINGS AND STOCK OWNERSHIP PLAN
The Corporation has a leveraged Employee Savings and Stock Ownership Plan
(ESSOP) in which substantially all United States employees may participate. The
ESSOP borrowed from the Corporation $150 million at 9.25%, payable annually
through 2014. The proceeds of this borrowing were used by the ESSOP to purchase
1,754,386 shares of 7.25% ($6.20 dividend per share) cumulative convertible
preferred stock of the Corporation. All preferred stock outstanding is held by
the ESSOP and is convertible into common stock. The preferred stock is held by
the ESSOP trustee as collateral for the loan from the Corporation. The
Corporation makes contributions to the ESSOP which, together with the dividend
on shares of the preferred stock, are
42
43
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
sufficient to make loan interest and principal repayments back to the
Corporation. As interest and principal are repaid, a portion of the preferred
stock is allocated to participating employees.
The following summarizes ESSOP activity:
1994 1993 1992
-------- -------- --------
(IN MILLIONS, EXCEPT SHARE DATA)
YEARS ENDED DECEMBER 31:
Dividends paid on preferred stock:
Allocated shares......................................... $ 2 $ 1 $ 1
Unallocated shares....................................... 9 10 10
Compensation expense........................................ 5 4 5
Contribution to ESSOP....................................... 4 4 4
Interest income from ESSOP.................................. 14 14 14
ESSOP SHARE INFORMATION AT DECEMBER 31:
Fair value per share........................................ $ 125.60 $ 110.50 $ 121.25
Shares allocated to employees during the year............... 72,051 61,540 67,173
Committed to be released.................................... 2,881 15,847 18,655
10. INCENTIVE PLANS
The Corporation has a Long-term Compensation Plan (the "Plan") which provides
for the granting of incentive and non-qualified stock options to Directors, key
executives and managerial employees. The Plan provides that the exercise price
of the options granted may not be less than the fair market value of the
Corporation's common stock on the date the options are granted. The options are
exercisable cumulatively, 20 percent each year, commencing one year from the
date of grant and expire ten years from the grant date. In certain
circumstances, replacement options may be granted upon exercise of an original
option, with the exercise price equal to the current market price and with a
term extending to the expiration date of the original option.
The Plan also permits the granting of stock appreciation rights (SARs) in
connection with options granted under the Plan. SARs permit the grantee to
surrender an exercisable option for an amount equal to the excess of the market
price of the common stock over the option price when the right is exercised. No
SARs have been granted since 1988.
43
44
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following summarizes the activity for options and SARs:
YEARS ENDED DECEMBER 31
-------------------------------------
1994 1993 1992
--------- --------- ---------
STOCK OPTIONS
Outstanding, beginning of year............................ 2,501,412 2,125,983 1,897,332
Granted ($104.81 to $127.63 per share).................... 814,532 546,467 526,898
Exercised ($41.88 to $116.88 per share)................... (171,093) (124,707) (259,143)
Cancelled................................................. (34,030) (44,691) (35,634)
Voided due to SARs exercise............................... (2,970) (1,640) (3,470)
--------- --------- ---------
Outstanding, end of year.................................. 3,107,851 2,501,412 2,125,983
========= ========= =========
Options exercisable ($41.86 to $131.94 per share)......... 1,479,718 1,181,462 859,955
========= ========= =========
Shares available for future options....................... 1,087,096 1,884,038 2,429,038
========= ========= =========
STOCK APPRECIATION RIGHTS
Outstanding, beginning of year............................ 12,170 13,810 17,280
Exercised................................................. (2,970) (1,640) (3,470)
--------- --------- ---------
Outstanding, end of year.................................. 9,200 12,170 13,810
========= ========= =========
The Plan also permits the granting of restricted stock awards to key executives
and managerial employees. Shares of restricted stock become outstanding when
granted, receive dividends and have voting rights identical to other outstanding
shares of common stock. Restrictions lapse upon termination of the restriction
period or upon death, disability or normal retirement. During 1994, 1993 and
1992, the Corporation made aggregate restricted stock awards of 17,250, 38,250,
and 31,000 shares, respectively. The cost of restricted stock awards is based on
the market value of the common stock at the date of grant and is recognized as
expense over the restriction period. The expense of the restricted stock plan
was $2 million in 1994, and $1 million in 1993 and 1992.
11. LEASES
The Corporation and its subsidiaries lease office space and data processing
equipment under non-cancelable leases expiring in various years through 2010.
Several of the leases have renewal options with various terms and rental rate
adjustments. Rental expense was $32 million in 1994 and $33 million in 1993 and
1992. The future minimum annual rental commitments under non-cancelable leases
at December 31, 1994 were as follows:
(IN MILLIONS)
1995................................................... $ 30
1996................................................... 26
1997................................................... 22
1998................................................... 20
1999................................................... 19
Subsequent to 1999..................................... 143
-----
Total.................................................. $ 260
=====
Future minimum rental payments have not been reduced by $24 million of
anticipated sub-lease rental income on non-cancelable leases.
44
45
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. REINSURANCE
Premiums written, premiums earned, and claims and claim expenses are reported
net of reinsurance in the Corporation's statements of income. Direct, assumed,
ceded and net amounts for these items were as follows:
YEARS ENDED DECEMBER 31
------------------------------------------
PREMIUMS PREMIUMS CLAIMS AND CLAIM
WRITTEN EARNED EXPENSES
-------- -------- ----------------
(IN MILLIONS)
1994
Direct......................................... $ 438 $ 423 $ 290
Assumed........................................ 3,058 2,785 2,118
Ceded.......................................... (495) (420) (427)
------ ------ ------
Net.......................................... $3,001 $2,788 $1,981
====== ====== ======
1993
Direct......................................... $ 378 $ 357 $ 233
Assumed........................................ 2,634 2,606 2,000
Ceded.......................................... (488) (517) (510)
------ ------ ------
Net.......................................... $2,524 $2,446 $1,723
====== ====== ======
1992
Direct......................................... $ 359 $ 347 $ 274
Assumed........................................ 2,462 2,436 2,229
Ceded.......................................... (472) (464) (674)
------ ------ ------
Net.......................................... $2,349 $2,319 $1,829
====== ====== ======
The Corporation utilizes reinsurance to reduce its exposure to large claims.
These agreements provide for recovery of a portion of certain claims and claim
expenses from reinsurers. If the reinsurers are unable to meet their obligations
under the agreements, the Corporation would be liable for such defaulted
amounts. The Corporation holds partial collateral under these agreements.
13. DIVIDENDS
The Corporation is the ultimate controlling entity in the General Re Group
insurance holding company system, which includes domestic insurance companies
that are subject to the insurance holding company acts of Delaware and various
other states. The Corporation is dependent upon the ability of its operating
subsidiaries for the transfer of funds in the form of loans, advances or
dividends. The insurance holding company laws require the filing of annual
reports by the insurance company members of the system and regulate transactions
between the holding company and affiliated insurance companies to the extent
that such transactions must be fair, reasonable and assure the adequacy of
insurance companies' statutory surplus in relation to their liabilities and
financial needs.
The laws also subject extraordinary dividends and other extraordinary
distributions to insurance company stockholders to regulatory approval.
Dividends or distributions in a twelve-month period exceeding the greater of 10
percent of an insurance company's surplus as of the prior year end or 100
percent of net income, excluding realized gains, for the previous calendar year
are generally considered extraordinary and require such approval. Based on these
restrictions, ordinary dividend payments by domestic insurance subsidiaries to
the Corporation are limited to $420 million in 1995. Foreign and non-insurance
subsidiaries generally are subject to fewer restrictions on the payment of
dividends.
45
46
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. GENERAL RE FINANCIAL PRODUCTS
General
General Re Financial Products Corporation ("GRFP") is a dealer in derivative
financial instruments. GRFP's products include currency and interest rate swaps,
interest rate caps and floors, foreign exchange contracts, and options on swaps.
These instruments are carried at their current fair value, which is a function
of underlying interest rates, currency rates, securities values, volatilities
and the credit worthiness of counterparties. Future changes in interest rates,
currency rates, security values, and interest rate volatilities or a combination
thereof may impact the fair value of these instruments with any resulting
adjustment, including amounts in excess of those previously recognized in the
financial statements, being included currently in the income statement. In the
course of conducting its business, GRFP also engages in a variety of other
related transactions to manage its exposure to market and credit risks.
GRFP reduces exposure to market, currency rate and interest rate risk in
connection with its dealer activities by purchasing or selling futures
contracts, entering into forward contracts, purchasing or selling government
securities, purchasing or selling exchange traded interest rate options, or
entering into offsetting transactions. These hedging instruments are carried at
fair value and contain elements of market and credit risk associated with the
execution, settlement and financing of these instruments similar to the
financial instruments described above.
Trading Revenue
The results of GRFP's trading activities are summarized by category of products
in the following table. Trading revenue includes any associated gains and losses
on hedging instruments. Trading revenue was included in "other revenues" in the
income statement.
YEARS ENDED DECEMBER 31
--------------------------
1994 1993 1992
---- ---- ----
(IN MILLIONS)
Interest rate and foreign currency swaps.................. $105 $116 $30
Interest rate and foreign currency options................ 30 26 11
---- ---- ----
Gross trading revenues.................................... $135 $142 $41
==== ==== ====
Nature and Terms
GRFP is a dealer in various types of derivative instruments which are described
below.
Interest rate and currency swaps are agreements between two parties to exchange,
at particular intervals, payment streams calculated on a specified notional
amount. The parties to a currency swap typically exchange a principal amount in
two currencies at inception of the contract, agreeing to reexchange the
currencies at a future date and agreed exchange rate.
Interest rate and currency options grant the purchaser, for a premium payment,
the right to either purchase from or sell to the writer a specified financial
instrument under agreed terms. Interest rate caps and floors require the writer
to pay the purchaser at specified future dates the amount, if any, by which the
option's underlying market interest rate exceeds the fixed cap or falls below
the fixed floor rate, applied to a notional amount.
Forward rate agreements and futures contracts are commitments either to purchase
or sell a financial instrument at a future date for a specified price and are
generally settled in cash. Forward rate agreements settle in cash at a specified
future date based on the differential between agreed interest rates applied to a
notional amount.
46
47
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
GRFP is party to a variety of foreign exchange spot and forward contracts in its
dealer and risk management activities. Foreign exchange contracts generally
involve the exchange of two currencies at agreed rates; spot contracts usually
require the exchange to occur within two business days of the contract date.
A summary of contract and notional amounts of interest rate contracts at
December 31, 1994, and 1993 is included in the table below. For swap and option
transactions, the contract and notional amounts represent the principal volume,
which is referenced by the counterparties in computing payments to be exchanged,
and are not indicative of GRFP's exposure to market or credit risk, future cash
requirements or receipts from such transactions. Approximately 77% of the
notional volume outstanding for swap and option contracts at December 31, 1994
have a term of five years or less and substantially all of the instruments have
a term of less than ten years.
DECEMBER 31
---------------------
1994 1993
-------- --------
(IN MILLIONS)
Interest rate and currency swap agreements............................. $201,076 $116,405
Options written........................................................ 35,933 17,931
Options held........................................................... 36,723 20,001
Financial futures contracts:
Commitments to purchase.............................................. 7,002 7,732
Commitments to sell.................................................. 7,366 9,238
Forward rate agreements................................................ 10,339 4,938
Foreign exchange spot and forwards..................................... 7,720 7,008
Fair Value of Trading Instruments
The table below discloses the net fair value at the reporting date for each
class of derivative financial instrument held or issued by GRFP for dealer or
risk management purposes, as well as the average fair value during the year,
based on monthly observations. The aggregate fair value of swap and option
contracts represents the net unrealized gain or loss on all swap and option
contracts of GRFP.
DECEMBER 31
-----------------------------------------------
1994 1993
--------------------- ---------------------
AVERAGE AVERAGE
YEAR END FOR YEAR YEAR END FOR YEAR
-------- -------- -------- --------
(IN MILLIONS)
Interest rate and foreign currency swaps
Asset................................................ $ 232 $192 $276 $189
Liability............................................ (236) (56) (7) (2)
Interest rate and foreign currency options
Held................................................. 113 88 59 49
Written.............................................. (47) (46) (79) (59)
-------- -------- -------- --------
Aggregate fair value of swap and option contracts...... 62 178 249 177
Futures contracts
Assets............................................... 11 18 11 13
-------- -------- -------- --------
Net fair value......................................... $ 73 $196 $260 $190
====== ====== ====== ======
Risk Management
GRFP's components of market risk include foreign exchange risk, interest rate
risk, swap spread risk, volatility risk and yield curve risk. These are
monitored on a daily basis across all swap and option products by
47
48
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
calculating the profit and loss impact of potential changes in market risks over
a one week period. Based on historical market volatility data and informed
judgment, GRFP sets market risk limits for each type of risk based on a 95
percent probability that movements in market rates will not exceed the limits.
GRFP also monitors its consolidated market risk across all trading books on a
weekly basis and has established limits designed to withstand simultaneous
losses of two market risk components, each at the 95 percent confidence level.
GRFP's aggregate weekly market risk limit across all trading books was $10
million. Since inception, GRFP has not experienced a weekly position change
exceeding this aggregate limit. In addition to these daily and weekly
assessments of risk, GRFP prepares periodic stress tests to assess its exposure
to extreme movements in various market risk factors.
Credit Risk
Credit risk arises from the possible inability of counterparties to meet the
terms of their contracts. In the event counterparties are unable to fulfill
their contractual obligations, future losses due to defaults may exceed amounts
currently recognized in the balance sheet. Counterparties to the financial
instruments are, in decreasing order of magnitude, foreign and domestic
commercial banks, U.S. government-chartered organizations, sovereigns and
corporations. GRFP evaluates the creditworthiness of its counterparties by
performing formal internal credit analyses and by referring to ratings of widely
accepted credit rating services. Counterparty credit limits are determined based
on this analysis and counterparty credit exposures are monitored in accordance
with these limits. GRFP receives cash and/or investment grade securities from
certain counterparties as collateral to mitigate its credit exposure. GRFP also
incorporates into contracts with certain counterparties provisions which allow
the unwinding of these transactions in the event of a downgrade in credit rating
of either the counterparty or GRFP.
GRFP assesses credit risk by counterparty based on transactions with each
respective counterparty. Assuming nonperformance by all counterparties on all
contracts potentially subject to a loss, the maximum potential loss, based on
the cost of replacement at market rates prevailing at December 31, 1994,
approximated $1,869 million. This value is net of amounts offset pursuant to
rights of setoff and qualifying master netting arrangements with various
counterparties and is presented in accordance with Interpretation No. 39,
Offsetting of Amounts Related to Certain Contracts and FASB Interpretation No.
41, Offsetting of Amounts Related to Certain Repurchase and Reverse Repurchase
Agreements. The Interpretation further clarifies the definition of a right of
set-off. The maximum potential loss will increase or decrease during the life of
the transaction as a function of maturity period, accounting values, and
interest and currency rates. In the judgment of management, the likelihood that
all counterparties would default, resulting in a maximum potential loss, is
remote. GRFP has not experienced any counterparty defaults or write-offs on such
contracts.
In connection with certain purchases and sales of government securities, GRFP
enters into collateralized repurchase and reverse repurchase agreements, which
may result in credit losses in the event the counterparty to the transaction is
unable to fulfill its contractual obligations. Principally all of these
transactions are collateralized by government securities. GRFP's exposure to
credit risks associated with the non-performance of counterparties in fulfilling
these contractual obligations can be directly affected by market fluctuations,
which may impair the counterparties' ability to satisfy their obligations. It is
GRFP's policy to take possession of securities purchased under agreements to
resell. GRFP monitors the market value of the underlying securities as compared
to the related receivable, including accrued interest, and requests additional
collateral when appropriate. Counterparties to repurchase agreements and futures
transactions are commercial banks and securities brokers and dealers.
GRFP enters into futures contracts for delayed delivery of foreign currencies or
securities in which the seller/purchaser agrees to make/take delivery at a
specified future date of a specified instrument, at a specified price or yield.
Risks arise from the inability of the exchange to meet the terms of the
contracts and from counterparties inability to remit additional margin.
48
49
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
GRFP regularly consults with internal and external legal counsel (in relevant
jurisdictions) to determine legality and enforceability of various transactions
with different types of counterparties. When there is a perceived risk that a
proposed counterparty may lack legal capacity to enter into a transaction, the
relevant statutes, regulations, and consents are examined.
15. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following are the estimated fair values of the Corporation's financial
instruments:
DECEMBER 31
-------------------------------------------
1994 1993
------------------- -------------------
STATEMENT FAIR STATEMENT FAIR
VALUE VALUE VALUE VALUE
------- ------- ------- -------
(IN MILLIONS)
FINANCIAL ASSETS
Invested assets (see Note 5)........................ $18,898 $18,969 $14,346 $15,117
Cash................................................ 242 242 60 60
Securities purchased under agreements to resell..... 813 813 133 133
Mortgage receivable (included in other assets)...... 88 115 90 133
Loan to ESSOP....................................... 147 160 148 188
Contract deposit assets............................. 77 77 58 58
Trading account assets.............................. 1,928 1,928 1,568 1,568
FINANCIAL LIABILITIES
9% debenture due in 2009............................ 150 155 150 183
Variable rate note (9.17% -- 9.42%)................. -- -- 34 35
7.70% mortgage payable through 1998................. 7 7 8 9
Commercial paper.................................... 31 31 261 261
Securities sold under agreements to repurchase...... 938 938 1,566 1,566
Securities sold but not yet purchased............... 927 927 542 542
Contract deposit liabilities........................ 1,361 1,361 155 155
Trading account liabilities......................... 2,320 2,320 1,395 1,395
The Corporation uses various methods and assumptions in estimating the fair
value of financial instruments. The following valuation methods and assumptions
were utilized by the Corporation in estimating the fair value of financial
instruments:
Cash and short-term investments -- The carrying amounts reported in the
consolidated balance sheet approximate the fair values for these financial
instruments.
Fixed maturities -- Fair values for fixed maturities were generally based
on quoted market prices or dealer quotes.
Equity securities -- Fair values for equity securities were based on quoted
market prices.
Other invested assets -- The fair value of investments in limited
partnerships, which were included in other invested assets on the
consolidated balance sheet, was determined by reviewing available financial
information of the investee and by performing other financial analyses in
consultation with external advisors. Fair values for investments in real
estate were determined using discounted cash flow analyses for each
property. Fair value disclosures for reinsurance ventures were included at
the Corporation's proportionate share in the entity's shareholders' equity
as the cost of determining fair value exceeds the benefits derived.
49
50
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Mortgage and loans receivable/payable -- The fair value of the
Corporation's mortgage and notes receivable/payable was estimated using
discounted cash flow analyses, based on the Corporation's current
incremental borrowing rates for similar types of arrangements. The fair
value of the Corporation's 9.0 percent debenture due 2009 was based on a
market quote.
Contract deposit assets/liabilities -- The fair value of contract deposit
assets and liabilities approximate their carrying value.
Securities purchased under agreements to resell, securities sold under
agreements to repurchase -- The carrying value for these financial
instruments approximates their fair value.
Trading account assets/liabilities -- The fair value for trading account
assets/liabilities was based on the use of valuation models that utilize,
among other factors, current interest and foreign exchange rates and market
volatility data.
Securities sold but not yet purchased -- The fair value for securities sold
but not yet purchased was based on quoted market prices.
16. LEGAL PROCEEDINGS
On September 12, 1994, the Corporation's subsidiary, General Reinsurance
Corporation, along with 31 other insurance companies and insurance industry
organizations, reached a settlement of civil antitrust actions brought by 20
State Attorneys General and several private plaintiffs.
The lawsuit was originally dismissed on motion by the United States District
Court for the Northern District of California on September 20, 1989. The United
States Court of Appeals for the Ninth Circuit reversed the dismissal and
remanded the case to the District Court for further proceedings. On October 5,
1992, the United States Supreme Court granted, in part, defendants' petition for
certiorari. On June 28, 1993, the Supreme Court affirmed in part and reversed in
part the decision of the Court of Appeals and remanded the Case to the Court of
Appeals for further action. On October 6, 1993, the Court of Appeals remanded
the case to the District Court for trial in accordance with the opinion of the
Supreme Court. There was no finding of any wrongdoing or illegality by any
defendant in this civil action.
The settlement includes an already completed restructuring of the Insurance
Services Office and the proposed funding by the defendants of a national public
risk database and a public entity risk services institute to assist risk
management efforts. The terms of the settlement, which provide for no admission
of wrongdoing, illegality or payment of damages, will be subject to the approval
of the United States District Court. The effect of the settlement was not
material to the Corporation's results of operations, cash flows or financial
condition.
The Corporation and its subsidiaries have been named as defendants in litigation
in the ordinary course of conducting an insurance business. These lawsuits
generally seek to establish liability under insurance or reinsurance contracts
issued by the subsidiaries, and occasionally seek punitive or exemplary damages.
The Corporation's reinsurance subsidiaries are also indirectly involved in
coverage litigation. In those cases, plaintiffs seek coverage for their
liabilities under insurance policies from insurance companies reinsured by the
Corporation's reinsurance subsidiaries. In the judgment of management, none of
these cases, individually or collectively, is likely to result in judgments for
amounts which, net of claim and claim expense liabilities previously established
and applicable reinsurance, would be material to the financial position, results
of operations or cash flow of the Corporation.
50
51
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
17. CLAIMS AND CLAIM EXPENSES
The table below provides a reconciliation of the beginning and ending claim and
claim expense liability, net of reinsurance, for 1994, 1993 and 1992.
1994 1993 1992
------- ------- -------
(IN MILLIONS)
Balance at January 1............................................ $ 8,452 $ 8,204 $ 7,416
Reinsurance recoverables on unpaid claims and claim
expenses................................................... (1,396) (1,366) (1,022)
------- ------- -------
Net balance at January 1........................................ 7,056 6,838 6,394
Incurred claims and claim expenses related to:
Current year.................................................. 2,017 1,583 1,773
Prior years................................................... (36) 140 56
------- ------- -------
1,981 1,723 1,829
------- ------- -------
Claim and claim expense payments related to:
Current year.................................................. 423 214 341
Prior years................................................... 1,206 1,291 1,044
------- ------- -------
Total payments.................................................. 1,629 1,505 1,385
------- ------- -------
Net balance at December 31...................................... 7,408 7,056 6,838
Reinsurance recoverables on unpaid claims and claim
expenses................................................... 1,615 1,396 1,366
Cologne Re unpaid claims and claim expenses................... 3,135 -- --
------- ------- -------
Balance at December 31.......................................... $12,158 $ 8,452 $ 8,204
======= ====== ======
The Corporation continually estimates its liabilities and related reinsurance
recoveries for environmental and latent injury claims and claim expenses. These
exposures do not lend themselves to traditional methods of loss development
determination and, therefore, may be considered less reliable then reserves for
standard lines of business (e.g., automobile). The estimate is composed of four
parts: known claims, development on known claims, IBNR and direct excess
coverage litigation expenses. Although reliability is constrained by
uncertainties, the Corporation has confidence in the reported known claim
liabilities and, based on alternative methods, has projected a fairly reliable
estimate of development for these claims. The Corporation has also included an
estimate for IBNR that is based on fitted curves of estimated future claim
emergence. This estimate is less reliable than the estimated liability for
reported claims. The effect of joint and several liability on the severity of
losses and a provision for future claim inflation have been included in the loss
development estimate. The Corporation has established a liability for litigation
costs associated with coverage disputes arising out of direct excess insurance
policies, rather than from reinsurance assumed. Direct excess coverage
litigation expenses are estimated using a modified count and amount actuarial
study.
The gross liability for environmental and latent injury claims and claim
expenses and the related reinsurance recoverable were $1,478 million and $382
million, respectively, at December 31, 1994. These amounts are management's best
estimate of future claim and claim expense payments and recoveries that are
expected to develop over the next thirty years. The Corporation continues to
monitor evolving case law and its effect on environmental and latent injury
claims. Changing government regulations and legislation, newly identified
toxins, newly reported claims, new theories of liability, new contract
interpretations, and other factors could significantly affect future claim
development. While the Corporation has recorded its current best estimate of its
liabilities for unpaid claims and claim expenses, it is reasonably possible that
these estimated liabilities, net of estimated reinsurance recoveries, may
increase in the future and that the increase may be material to the
Corporation's results of operations, cash flows and financial position. It is
not possible to estimate reliably the amount of additional net loss, or the
range of net loss, that is reasonably possible.
51
52
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The liability for claims and claims expenses for 1993 and prior accident years,
net of related reinsurance recoveries, decreased by $36 million in 1994. The
decrease is principally the result of favorable loss development on casualty
lines of business partly offset by reserve strengthening for environmental,
latent injury and associated litigation costs discussed above.
18. COMMON AND PREFERRED STOCK
The Corporation has the authority to issue 250,000,000 shares of $.50 par value
common stock, of which 102,827,344 have been issued. Common stock purchased in
the open market is carried at cost and shown as a reduction to common
stockholders' equity. When treasury shares are reissued, the treasury stock
account is reduced for the cost of the common stock reissued on a first-in,
first-out basis. No treasury stock of the Corporation is held by any subsidiary.
The number of shares included in treasury stock were as follows:
YEARS ENDED DECEMBER 31
-----------------------------------------
1994 1993 1992
----------- ----------- -----------
Balance, beginning of year............................. 19,195,866 18,112,410 16,186,808
Purchases, net of reissuances.......................... 1,759,336 1,083,456 1,925,602
----------- ----------- -----------
Balance, end of year................................... 20,955,202 19,195,866 18,112,410
========= ========= =========
The Corporation also has the authority to issue 20 million shares of preferred
stock of which 1,734,717 are issued and outstanding and held by the ESSOP and 1
million (Series A Junior Participating Preferred) are reserved for the
Shareholders' Rights Plan. Under the Shareholders' Rights Plan, one right
attaches to each outstanding share of common stock. In the event a person or
group acquires or commences a tender or exchange offer for 20% or more of the
Corporation's common stock, each right entitles common stockholders to purchase
Series A Junior Participating Stock, which is convertible to common stock having
a value equal to two times the exercise price.
19. INFORMATION ABOUT THE CORPORATION'S OPERATIONS
The Corporation conducts its operations principally through the following
business segments:
PROPERTY/CASUALTY -- The domestic property/casualty operations of the
Corporation include reinsurance of most property/casualty lines of business,
including general liability, property, workers' compensation and auto liability
in the United States and Canada. In addition, the Corporation conducts excess
and surplus lines insurance business.
International property/casualty operations are conducted as of December 31, 1994
through subsidiaries and branch offices located in Argentina, Australia,
Barbados, Bermuda, France, Germany, Hong Kong, Italy, Ireland, Latvia, Mexico,
Denmark, the Netherlands, New Zealand, Singapore, South Africa, Spain,
Switzerland, Sweden, United Kingdom and Venezuela, and include reinsurance of
property/casualty business in those countries and elsewhere outside the United
States and Canada. At the end of 1994, the Corporation acquired an ownership
interest in Cologne Re. See Note 3 for a further discussion of this transaction.
Cologne Re was not included in the Corporation's results from operations during
1994 but was consolidated in the December 31, 1994 balance sheet, and therefore,
it has been included in the total asset information under the property/casualty
segment in this note.
FINANCIAL SERVICES -- The Corporation's financial services operations engage in
various financial services for affiliated and non-affiliated companies.
Financial services include the Corporation's derivative products, insurance
brokerage and management, reinsurance brokerage, investment management and real
estate management operations.
52
53
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following is a summary of industry segment activity for 1994, 1993 and 1992.
1994 -- INDUSTRY SEGMENTS
---------------------------------------------------------
PROPERTY/CASUALTY FINANCIAL SERVICES CONSOLIDATED
----------------- ------------------ ------------
(IN MILLIONS)
Net premiums written............................ $ 3,001 -- $ 3,001
======= ======== ========
Net premiums earned............................. $ 2,788 -- $ 2,788
Net investment income........................... 738 $ 11 749
Other revenues.................................. 16 218 234
Net realized gains on investments............... 69 (3) 66
------- ------ --------
Total revenues................................ 3,611 226 3,837
------- ------ --------
Claims and claim expenses....................... 1,981 -- 1,981
Acquisition costs............................... 614 -- 614
Other operating costs and expenses.............. 303 145 448
------- ------ --------
Total expenses................................ 2,898 145 3,043
------- ------ --------
Income before income taxes and accounting
changes.................................. $ 713 $ 81 $ 794
======= ====== ========
Total assets -- December 31................... $24,712 $4,885 $ 29,597
======= ====== ========
1993 -- INDUSTRY SEGMENTS
---------------------------------------------------------
PROPERTY/CASUALTY FINANCIAL SERVICES CONSOLIDATED
----------------- ------------------ ------------
(IN MILLIONS)
Net premiums written............................ $ 2,524 -- $ 2,524
======= ====== ========
Net premiums earned............................. $ 2,446 -- $ 2,446
Net investment income........................... 748 $ 7 755
Other revenues.................................. (3) 203 200
Net realized gains on investments............... 159 -- 159
------- ------ --------
Total revenues................................ 3,350 210 3,560
------- ------ --------
Claims and claim expenses....................... 1,723 -- 1,723
Acquisition costs............................... 552 -- 552
Other operating costs and expenses.............. 247 153 400
------- ------ --------
Total expenses................................ 2,522 153 2,675
------- ------ --------
Income before income taxes and accounting
changes.................................. $ 828 $ 57 $ 885
======= ====== ========
Cumulative effect of accounting changes....... $ 14 -- $ 14
======= ====== ========
Total assets -- December 31..................... $15,180 $4,239 $ 19,419
======= ====== ========
53
54
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1992 -- INDUSTRY SEGMENTS
---------------------------------------------------------
PROPERTY/CASUALTY FINANCIAL SERVICES CONSOLIDATED
----------------- ------------------ ------------
(IN MILLIONS)
Net premiums written............................ $ 2,349 -- $ 2,349
============= ============= =========
Net premiums earned............................. 2,319 -- $ 2,319
Net investment income........................... 750 $ 5 755
Other revenues.................................. 4 109 113
Net realized gains on investments............... 200 -- 200
----------------- ------ ------------
Total revenues................................ 3,273 114 3,387
----------------- ------ ------------
Claims and claim expenses....................... 1,829 -- 1,829
Acquisition costs............................... 499 -- 499
Other operating costs and expenses.............. 233 105 338
----------------- ------ ------------
Total expenses................................ 2,561 105 2,666
----------------- ------ ------------
Income before income taxes and accounting
changes.................................. $ 712 $ 9 $ 721
============= ============= =========
Cumulative effect of accounting changes....... $ 74 $(13) $ 61
============= ============= =========
Total assets -- December 31..................... $13,815 $885 $ 14,700
============= ============= =========
The following table is a summary of the Corporation's business by geographic
area. Allocations to geographic area have been made on the basis of subsidiary
location.
GEOGRAPHIC AREA
---------------------------------------
DOMESTIC INTERNATIONAL CONSOLIDATED
-------- ------------- ------------
(IN MILLIONS)
1994
Revenues..................................................... $ 3,381 $ 456 $ 3,837
Income before income taxes................................... 741 53 794
Identifiable assets at December 31........................... 19,195 10,402 29,597
1993
Revenues..................................................... $ 3,285 $ 275 $ 3,560
Income before income taxes................................... 869 16 885
Identifiable assets at December 31........................... 18,564 855 19,419
1992
Revenues..................................................... $ 3,175 $ 212 $ 3,387
Income before income taxes................................... 695 26 721
Identifiable assets at December 31........................... 14,012 688 14,700
54
55
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
20. UNAUDITED QUARTERLY FINANCIAL DATA
Summarized quarterly financial data were as follows:
FIRST SECOND THIRD FOURTH
------- ------- ------- -------
(IN MILLIONS, EXCEPT PER SHARE DATA)
1994
Net premiums written...................................... $ 820 $ 665 $ 811 $ 705
Net premiums earned....................................... 774 639 670 705
Net investment income..................................... 182 186 187 194
Expenses.................................................. 908 679 710 746
Net income................................................ 98 176 191 200
Per common share:
Net income.............................................. 1.15 2.12 2.29 2.41
Common dividends........................................ .48 .48 .48 .48
Common stock price range*
High.................................................... 114.00 125.38 115.63 128.50
Low..................................................... 102.50 105.75 104.88 105.50
FIRST SECOND THIRD FOURTH
------- ------- ------- -------
(IN MILLIONS, EXCEPT PER SHARE DATA)
1993
Net premiums written...................................... $ 659 $ 588 $ 652 $ 625
Net premiums earned....................................... 648 572 617 609
Net investment income..................................... 183 194 189 189
Expenses.................................................. 727 608 676 664
Income before cumulative effect of changes in
accounting.............................................. 163 189 174 171
Net income................................................ 177 189 174 171
Per common share:
Income before cumulative effect of change in
accounting........................................... 1.89 2.20 2.03 2.00
Net income.............................................. 2.06 2.20 2.03 2.00
Common dividends........................................ .47 .47 .47 .47
Common stock price range*
High.................................................... 130.00 123.13 132.75 123.88
Low..................................................... 112.13 109.13 115.50 105.38
- ---------------
* Closing price, New York Stock Exchange
Earnings per common share for each quarter are required to be computed
independently and, due to purchases of treasury shares, will not equal the
total year earnings per common share amounts.
55
56
ITEM 9. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURES
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Reference is made to the captions "Board of Directors" and "Election of
Directors" in the Proxy Statement. Information with respect to the Corporation's
Executive Officers is set forth under the caption "Executive Officers of the
Corporation" at the end of Part I of this report, which information is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Reference is made to the caption "Executive Compensation" in the Proxy
Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Reference is made to the caption "Security Ownership of Certain Beneficial
Owners and Management" in the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Reference is made to the caption "Transactions with Management and Others" in
the Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) FINANCIAL STATEMENTS AND EXHIBITS
1. The Financial Statements, Reserve Disclosures (unaudited) and
Financial Statement Schedules listed in the accompanying index on
page 21 are filed as part of this Report.
2. Exhibits
3. (a)1 The Restated Certificate of Incorporation of General Re Corporation, as
amended, is incorporated by reference herein from the Corporation's
Annual Report on Form 10-K for the fiscal year ended December 31, 1987.
(b) The By-Laws of the Corporation, as amended, included as Exhibit 3(b) to
the Corporations Report on Form 8-K filed on February 24, 1995, is hereby
incorporated herein by reference.
4.1 Rights Agreement, dated as of September 11, 1991 between the Corporation
and The Bank of New York, as Rights Agent.
10.11,2 The General Re Corporation 1989 Long-Term Compensation Plan.
.21,2 Form of Indemnity Agreement among the Corporation and directors and
executive officers.
11. Computation of Earnings Per Share.
21. Subsidiaries of the Registrant.
23. Consent of Independent Accountants.
- ---------------
1 Filed herewith
2 Management contracts or compensatory plans filed pursuant to Item 14(c)
56
57
25. Powers of Attorney of Directors.
27. Financial Data Schedules.
28. Combined Domestic Property/Casualty Insurance Companies Schedule P.
(B) REPORTS ON FORM 8-K
Form 8-K, dated July 18, 1994, filed on October 11, 1994, consisting of Item
5.
Form 8-K, dated September 16, 1994, filed on December 22, 1994, consisting
of Item 5.
57
58
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.
GENERAL RE CORPORATION
(Registrant)
By: ELIZABETH A. MONRAD
(Elizabeth A. Monrad, Vice
President and Treasurer)
Dated: March 9, 1995
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
--------- ----- ----
RONALD E. FERGUSON Chairman and Chief Executive March 9, 1995
(Ronald E. Ferguson) Officer and Director
JOSEPH P. BRANDON Vice President and Chief Financial March 9, 1995
(Joseph P. Brandon) Officer (Principal Financial Officer)
ELIZABETH A. MONRAD Vice President and Treasurer March 9, 1995
(Elizabeth A. Monrad) (Principal Accounting Officer)
*LUCY WILSON BENSON Director March 9, 1995
(Lucy Wilson Benson)
*WALTER M. CABOT Director March 9, 1995
(Walter M. Cabot)
*JOHN C. ETLING Vice Chairman and Director March 9, 1995
(John C. Etling)
*WILLIAM C. FERGUSON Director March 9, 1995
(William C. Ferguson)
*DONALD J. KIRK Director March 9, 1995
(Donald J. Kirk)
*KAY KOPLOVITZ Director March 9, 1995
(Kay Koplovitz)
*EDWARD H. MALONE Director March 9, 1995
(Edward H. Malone)
*ANDREW W. MATHIESON Director March 9, 1995
(Andrew W. Mathieson)
*DAVID E. MCKINNEY Director March 9, 1995
(David E. McKinney)
58
59
SIGNATURE TITLE DATE
--------- ----- ----
*STEPHEN A. ROSS Director March 9, 1995
(Stephen A. Ross)
*WALTER F. WILLIAMS Director March 9, 1995
(Walter F. Williams)
- ---------------
*By either Charles F. Barr or Robert D. Graham pursuant to a power of attorney.
59
60
GENERAL RE CORPORATION
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
GENERAL RE CORPORATION
CONDENSED BALANCE SHEETS
DECEMBER 31, 1994 AND 1993
(PARENT COMPANY)
(IN MILLIONS, EXCEPT SHARE DATA)
1994 1993
------- -------
Assets
Fixed maturities -- available-for-sale................................. $ 94 $ 258
Equity securities, at fair value....................................... -- 25
Short-term investments, at amortized cost which approximates fair
value............................................................... 20 --
Investment in GR-CK.................................................... 582
Investment in subsidiaries, at equity.................................. 4,427 4,497
Other invested assets.................................................. 92 207
Other assets........................................................... 20 21
Due from subsidiaries.................................................. 49 410
------- -------
Total assets................................................... $ 5,284 $ 5,418
======= =======
Liabilities
Commercial paper....................................................... $ 31 $ 262
Note payable due 2009.................................................. 150 150
Income taxes........................................................... 134 172
Other liabilities...................................................... 109 72
------- -------
Total liabilities.............................................. 424 656
------- -------
Cumulative convertible preferred stock (shares issued: 1,734,717 in 1994
and 1,741,010 in 1993; no par value)................................... 148 149
Loan to employee savings and stock ownership plan........................ (147) (148)
------- -------
1 1
------- -------
Common Stockholders' Equity
Common stock (102,827,344 shares issued in 1994 and 1993; par value
$.50)............................................................... 51 51
Paid-in capital........................................................ 604 596
Unrealized appreciation of investments, net of income taxes............ 421 651
Currency translation adjustments, net of income taxes.................. (20) (42)
Retained earnings...................................................... 5,330 4,830
Less common stock in treasury, at cost (shares held: 20,955,202 in 1994
and 19,195,866 in 1993)............................................. (1,527) (1,325)
------- -------
Total common stockholders' equity.............................. 4,859 4,761
------- -------
Total liabilities, cumulative convertible preferred stock and
common stockholders' equity................................... $ 5,284 $ 5,418
======= =======
S-1
61
GENERAL RE CORPORATION
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT--(CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CONDENSED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(PARENT COMPANY)
(IN MILLIONS)
1994 1993 1992
----- ---- ----
REVENUES
Distributions from subsidiaries
Insurance subsidiaries.......................................... $ 441 $295 $450
Other subsidiaries.............................................. 394 5 185
----- ---- ----
Total distributions from subsidiaries...................... 835 300 635
Net investment income.............................................. 26 33 15
Other revenues..................................................... 37 8 --
Net realized gains (losses) on investments......................... 6 (3) 3
----- ---- ----
904 338 653
----- ---- ----
EXPENSES
Other operating costs and expenses................................. 29 26 10
Income taxes....................................................... (4) (15) (17)
----- ---- ----
25 11 (7)
----- ---- ----
Income before equity income and cumulative effect
adjustments.............................................. 879 327 660
----- ---- ----
Equity in net income of consolidated subsidiaries less dividends
received of $835 in 1994, $300 in 1993 and $635 in 1992............ (214) 370 (64)
Cumulative effect of accounting changes.............................. -- 14 61
----- ---- ----
Net income................................................. $ 665 $711 $657
===== ==== ====
S-2
62
GENERAL RE CORPORATION
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT--(CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CONDENSED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(PARENT COMPANY)
(IN MILLIONS)
1994 1993 1992
----- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net income......................................................... $ 665 $711 $657
Cumulative effect of accounting changes............................ -- (14) (61)
Equity in net income of consolidated subsidiaries less dividends
received........................................................ 214 (370) 64
Other.............................................................. 351 (294) (42)
----- ---- ----
Net cash from operating activities......................... 1,230 33 618
----- ---- ----
CASH FLOWS FROM INVESTING ACTIVITIES
Fixed maturities:
Purchases....................................................... (132) (484) (253)
Sales........................................................... 276 362 121
Maturities...................................................... 40 95 5
Equity securities:
Sales........................................................... 1 -- --
Other invested assets.............................................. 105 (25) --
Net (purchases) sales of short-term investments.................... (20) 75 (52)
Purchase of shares in GR-CK........................................ (884) -- --
Capital contribution to other subsidiaries......................... (6) (10) --
----- ---- ----
Net cash (used in) from investing activities............... (620) 13 (179)
----- ---- ----
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of note payable.......................................... -- -- (100)
Commercial paper borrowing (repayment), net........................ (230) 251 (5)
Cash dividends paid to stockholders
Common.......................................................... (157) (159) (153)
Preferred....................................................... (11) (11) (11)
Acquisition of treasury stock...................................... (222) (134) (179)
Other.............................................................. 11 9 10
----- ---- ----
Net cash used in financing activities...................... (609) (44) (438)
----- ---- ----
Change in cash....................................................... 1 2 1
Cash, beginning of year.............................................. 3 1 --
----- ---- ----
Cash, end of year.................................................... $ 4 $ 3 $ 1
===== ==== ====
S-3
63
SCHEDULE V
GENERAL RE CORPORATION
SCHEDULE V--SUPPLEMENTARY INSURANCE INFORMATION
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(IN MILLIONS)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
COLUMN C
NET
FUTURE COLUMN E COLUMN H
POLICY OTHER BENEFITS, COLUMN I
BENEFIT POLICY CLAIMS, AMORTIZATION
COLUMN A COLUMN B LOSSES, COLUMN D CLAIMS COLUMN G LOSSES OF DEFERRED COLUMN J
YEAR DEFERRED CLAIMS NET AND COLUMN F NET AND POLICY OTHER COLUMN K
AND ACQUISITION AND LOSS UNEARNED BENEFITS PREMIUM INVESTMENT SETTLEMENT ACQUISITION OPERATING PREMIUMS
SEGMENT COSTS EXPENSES PREMIUMS PAYABLE REVENUE INCOME EXPENSES COSTS EXPENSES WRITTEN
- ---------------------------------------------------------------------------------------------------------------------------------
1994
Property/
Casualty, Life
Domestic....... $ 204 $ 7,029 $ 910 -- $2,394 $686 $1,709 $535 $251 $2.581
Interna-
tional........ 120 3,288 543 $1,960 394 52 272 79 52 420
----- ------- ------ ------ ------ ---- ------ ---- ---- ------
Total........ $ 324 $10,317 $1,453 $1,960 $2,788 $738 $1,981 $614 $303 $3,001
===== ======= ====== ====== ====== ==== ====== ==== ==== ======
1993
Property/Casualty
Domestic....... $ 147 $ 6,803 $ 747 $ -- $2,225 $705 $1,557 $510 $213 $2,275
International.. 6 253 68 -- 221 43 166 42 34 249
----- ------- ------ ------ ------ ---- ------ ---- ---- ------
Total........ $ 153 $ 7,056 $ 815 $ -- $2,446 $748 $1,723 $552 $247 $2,524
===== ======= ====== ====== ====== ===== ====== ==== ==== ======
1992
Property/Casualty
Domestic $ 152 $ 6,635 $ 736 $ -- $2,166 $703 $1,706 $470 $206 $2,177
International.. 3 203 46 -- 153 47 123 29 27 172
----- ------- ------ ------ ------ ---- ------ ---- ---- ------
Total........ $ 155 $ 6,838 $ 782 $ -- $2,319 $750 $1,829 $499 $233 $2,349
===== ======= ====== ====== ====== ==== ====== ==== ==== ======
- ---------------
Note: The gross liability for unpaid claims and claim expenses was $12,158
million, $8,452 million and $8,204 million in 1994, 1993 and 1992,
respectively. The gross unearned premiums were $1,642 million , $840
million, $836 million in 1994, 1993 and 1992, respectively. The totals
shown in the Schedule include only the reinsurance and insurance
operations of the Corporation and may not correspond with consolidated
amounts.
S-4
64
EXHIBIT INDEX
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE
- ------- ----------- ------------
4. Rights Agreement, dated as of September 11, 1994 between the Corporation and The
Bank of New York, as Rights Agent.................................................
10.1 The General Re Corporation 1989 Long-Term Compensation Plan.......................
.2 Form of Indemnity Agreement among the Corporation and directors and executive
officers..........................................................................
11. Computation of Earnings Per Share.................................................
21. Subsidiaries of Registrant........................................................
23. Consent of Independent Accountants................................................
24. Powers of Attorney of Directors...................................................
27. Financial Data Schedules..........................................................
28. Combined Domestic Property/Casualty Insurance Companies Schedule P................