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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, 1995 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, 1996 of the voting stock held by
nonaffiliates of the registrant was $11,890 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, 1996
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Common Stock, $.50 par value 81,124,013
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, 1995.
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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
Corporation has global reinsurance and financial services operations in the
United States and 29 countries worldwide. The Corporation operates four
principal businesses: United States property/casualty reinsurance, international
property/casualty reinsurance, life/health reinsurance and financial services.
The Corporation's principal reinsurance operations are based in the United
States and Germany, with significant subsidiaries based in Europe, Australia,
Asia and South America. The Corporation's principal financial services
operations are based in the United States with subsidiaries located in London,
Tokyo and Toronto, Canada. GRC is the largest United States professional
property/casualty reinsurer, and the Corporation is among the four largest in
the world based on net premium writings and capital.
Reinsurance is the business in which a reinsurer agrees to indemnify a primary
insurer against all or part of the risks assumed by the latter under a policy or
policies it has issued. Among its benefits, reinsurance may offer primary
insurers the opportunity to increase underwriting capacity, write larger
individual risks, reduce financial leverage, stabilize operating results, enter
new markets with shared underwriting risk, protect against catastrophic losses
and obtain consultative underwriting services.
The reinsurance industry's overall profitability has historically been subject
to cyclicality, principally due to the insurance industry's underwriting cycle,
overall economic conditions, investment returns, industry capital levels and
insured catastrophic events. The reinsurance industry, both domestically and
globally, has recently experienced consolidation, as reinsurers seek to expand
their markets, obtain critical mass in certain markets and better spread their
risks geographically. In addition, over recent years there has been a shift in
primary insurers' reinsurance purchases toward better capitalized and more
creditworthy reinsurers.
United States Property/Casualty Reinsurance
The Corporation's United States property/casualty subsidiaries produced revenues
of $3,641 million, or 50.5 percent, of consolidated revenues in 1995. The
principal business of these subsidiaries is treaty and facultative reinsurance
underwritten 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 49 percent
of the Corporation's United States property/casualty net premiums written in
1995 and property reinsurance business represented approximately 40 percent. The
Corporation also writes excess and surplus lines insurance and provides direct
excess insurance to companies with self-insured programs. These lines
represented approximately 11 percent of the United States property/casualty net
premiums written in 1995.
It is not possible to determine the number of the Corporation's competitors in
the United States property/casualty reinsurance industry. There are virtually no
barriers to entry to the reinsurance industry and competitors may be domestic or
foreign, licensed or unlicensed. Reinsurers compete on the basis of reliability,
financial strength and stability, underwriting consistency, service, business
ethics, price, performance, capacity, terms and conditions. Purchasers of
reinsurance are themselves insurers and, in some cases, reinsurers.
United States property/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 United States subsidiary, GRC, is
domiciled in Delaware and licensed in every state but Hawaii, where it is an
accredited reinsurer. The Corporation's two excess and surplus lines insurers,
the General Star companies, are domiciled in Connecticut and Ohio. The Genesis
companies, which are the Corporation's excess insurance writers for self-insured
programs, are domiciled in Connecticut and North Dakota. The Corporation also
writes excess insurance for self insurers through GRC.
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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 United States 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. The NAIC is currently in the process of codifying SAP to
bring greater uniformity to insurance accounting practices throughout the United
States.
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. These
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 its Financial Regulation 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 substantially similar equivalents) and the department's administrative
practices comply with these standards. Accredited states may refuse to accept
finncial examination reports of insurers issued by nonaccredited states; other
sanctions may also be imposed by accredited states, including a refusal to
license insurers domiciled in nonaccredited states. As of December 1995, 47
state insurance departments, including Delaware, had been accredited. The extent
of sanctions, if any, imposed by accredited states on insurers domiciled in
unaccredited states is unknown. The NAIC continues to assess the accreditation
program, but has not changed its recommended sanctions.
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 United States House of Representatives. Legislation mandating a Federal
role in the regulation of insurers and reinsurers was introduced in the 102nd
and 103rd Congress during 1992 and 1993. No such legislation is currently
pending. 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 adopted a risk-based capital formula which applies to statutory annual
statements of life insurers beginning in 1993 and property/casualty insurers
beginning in 1994. The NAIC has also adopted a risk-based capital model law
which supplanted the diverse minimum capital and surplus requirements with the
risk-based capital requirement for those states adopting the model law. The
formula has been made a part of the Financial Regulation Standards; the model
law became a part of these standards during 1994, and states must adopt it or a
substantially similar law within two years. If enacted in an insurer's state of
domicile, the model law would subject an insurer failing its risk-based capital
requirement to various levels of regulatory action. The model law has been
adopted in Delaware, Connecticut and North Dakota. The Corporation's United
States insurance subsidiaries have filed 1995 statutory annual statements which
report risk-based capital well above the threshold for regulatory action.
During 1995, the NAIC adopted a model law related to investments which, if
enacted, would change the amount and kind of permitted investments by insurers.
This model law is not currently included in the Financial Regulation Standards.
The NAIC will consider a different model investment law during 1996 which is
based on a "prudent person" standard. While it is uncertain whether either, or
both, of these model laws eventually will be made a part of the Financial
Regulation Standards, the Corporation does not currently anticipate that either
of the model laws would have a significant effect on the investment management
practices of its United States insurance subsidiaries.
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The Corporation utilizes dividends, primarily from GRC, to satisfy its liquidity
needs. Ordinary dividends by GRC to the Corporation are not subject to any
restriction, other than ten days' advance notice. Extraordinary dividends and
other extraordinary distributions by GRC to the Corporation are subject to
regulatory approval under the Delaware Insurance Holding Company Act. Under this
Act dividends or other distributions distributed in a twelve-month period
exceeding the greater of 10 percent of an insurer's statutory surplus or 100
percent of net income, excluding realized capital gains, for the prior calendar
year are generally considered extraordinary requiring such approval. Based on
these restrictions, dividend payments by GRC to the Corporation without
regulatory approval are limited to $508 million in 1996.
Reference is made to Management's Discussion and Analysis -- Financial
Condition -- Liabilities for additional discussion of regulatory matters.
International Property/Casualty Reinsurance
On December 28, 1994, the Corporation and Colonia Konzern AG ("Colonia") formed
a new company that acquired 75 percent of the ordinary shares and approximately
30 percent of the preference 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"), 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
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. In addition to its
ownership in Cologne Re through GR-CK, the Corporation purchased for its own
account an additional 6.9 percent of the ordinary and preference shares of
Cologne Re during 1995 for aggregate consideration of $68 million, which
increased the Corporation's consolidated economic interest in Cologne Re to 73.2
percent. The Corporation has consolidated GR-CK and Cologne Re in its financial
statements and recorded as minority interests the shares of CKAG in GR-CK and of
other stockholders in Cologne Re.
The Corporation's international property/casualty operations generated revenues
of $2,573 million, or 35.7 percent, of consolidated revenues in 1995. With the
consolidation of Cologne Re's results in 1995, international property/casualty
premium now accounts for a significantly greater portion of the Corporation's
revenues. The Corporation's international business in 1995 was primarily
conducted through operations based in Germany, the United Kingdom, Switzerland,
Ireland, Australia, Austria and Argentina. In total, the Corporation operates
its international reinsurance business in 29 countries throughout the world. In
1995, the international property/casualty operations principally wrote business
through reinsurance treaties with a smaller amount composed of facultative
reinsurance. Approximately 78 percent of international premiums in 1995 were
written on a proportional basis and 22 percent were nonproportional or excess of
loss. Property premiums written in 1995 were approximately 65 percent of total
international property/casualty premiums and casualty premiums were
approximately 35 percent.
In general, regulation of the property/casualty reinsurance industry outside of
the United States is subject to the differing laws and regulations of each
country in which the Corporation has operations or writes premiums. Some
jurisdictions, such as the United Kingdom, impose complex regulatory
requirements on reinsurance companies, while other jurisdictions, such as
Germany, impose fewer requirements. Local reinsurance business conducted by the
Corporation's subsidiaries in some countries require licenses issued by
governmental authorities. These licenses may be subject to modification or
revocation dependent on such factors as amount and types of reserves and minimum
capital and solvency tests. Jurisdictions may impose fines, censure and/or
criminal sanctions for violation of regulatory requirements.
Life/Health Reinsurance
The Corporation's life/health reinsurance operations generated revenues of $742
million, or 10.3 percent, of consolidated revenues in 1995. These operations
include the United States and international life/health
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reinsurance operations of Cologne Re. Life/health net premiums written in 1995
were $709 million. Approximately one half of this segment's premium was written
in continental Europe, another 40 percent was written in the United States and
the remaining 10 percent was written throughout the rest of the world. The
life/health operations provide individual life, group long-term disability,
individual health and finite risk reinsurance. Most of the life/health business
is written on a proportional treaty basis with smaller amounts written on a
facultative basis.
Financial Services
The Corporation's financial services operations include derivative products,
insurance brokerage and management, investment management, reinsurance brokerage
and real estate management operations. Through its subsidiary, General Re
Financial Products Corporation ("GRFP"), a dealer in derivative products, the
Corporation offers a full line of interest rate and cross-currency swaps,
options, and other derivative products in all major currencies from offices or
affiliates in New York, Toronto, London and Tokyo. The financial services
operations produced $254 million, or 3.5 percent, of the Corporation's 1995
revenues.
In 1995, the Corporation expanded its investment management services for other
insurance companies and certain affiliates. In August 1995, the Corporation
acquired all of the outstanding stock of New England Asset Management ("NEAM")
in exchange for stock of the Corporation. The resulting company, General Re-New
England Asset Management, Inc. ("GR-NEAM"), provides investment management
services primarily to insurance companies that seek the Corporation's expertise
in managing insurance company investment portfolios. GR-NEAM, has approximately
45 insurance company clients and approximately $10 billion of client assets
under management at December 31, 1995.
Other Information
The business of the Corporation's operating subsidiaries is primarily developed
and served by employees in the United States, Germany, the United Kingdom,
Australia, Switzerland, Canada, Denmark, Ireland, Spain, New Zealand, Singapore,
Austria, Argentina, France, Spain, Bermuda and Japan. The Corporation employed
3,426 persons at December 31, 1995, of which 2,266 employees are employed in
North America and 1,160 employees in international operations.
Reference is made to Item 7, Management's Discussion and Analysis, and Note 19
to the consolidated financial statements, "Information About the Corporation's
Operations" included in this report. Reference is also made to the caption,
"Property/Casualty Insurance Reserve Disclosures" on pages 26-30 of this report.
ITEM 2. PROPERTIES
The main offices of the Corporation and most of its United States subsidiaries
are located in 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, on approximately eight acres of land, was originally owned
by Elm Street Corporation, a wholly owned subsidiary of the Corporation. In
November 1984, the land was leased and the improvements were sold to Stamford
Investment Partners. Subsequently, 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. The Corporation has guaranteed the
rental obligations of Elm Street Corporation in connection with this
transaction.
GRC Realty Corporation, also a wholly owned subsidiary of the Corporation, has
retained title to the Corporation'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 nonaffiliates. The Greenwich site is subject to a mortgage expiring
December 31, 1998, which had a remaining balance of $5 million at December 31,
1995.
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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 United States
operations of Cologne Re are based in an office building in Stamford,
Connecticut. Cologne Re owns both of these office buildings.
In addition, the Corporation's United States 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 purpose and provide adequate
capacity for the Corporation's present and anticipated needs.
ITEM 3. LEGAL PROCEEDINGS
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, or any other litigation, 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 March 1, 1996 are as follows:
NAME AGE POSITION
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Ronald G. Anderson.......... 47 Vice President, Corporate Development of the Corporation
since March 1995 and Chairman, General Re Financial
Products Corporation since 1991; previously Vice
President, Finance of the Corporation 1985-1991. With the
Corporation since 1984.
Charles F. Barr............. 46 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. With the Corporation since 1989.
Joseph P. Brandon........... 37 Vice President and Chief Financial Officer of the
Corporation since 1991 and Senior Vice President and
Chief Financial Officer of General Reinsurance
Corporation since 1991; previously Vice President, Treaty
Division of General Reinsurance Corporation 1990-1991.
With the Corporation since 1989.
Ronald E. Ferguson.......... 54 Chairman and Chief Executive Officer since 1987. With the
Corporation since 1969.
Ernest C. Frohboese......... 55 Vice President, Investments of the Corporation since 1990
and Senior Vice President and Chief Investment Officer of
General Reinsurance Corporation since 1990. With the
Corporation since 1990.
Christopher P. Garand....... 48 Vice President, Enterprise Risk Manager of the
Corporation since March 1995 and Senior Vice President of
General Reinsurance Corporation since December 1994;
previously Vice President and Manager, Financial Products
and Services, General Reinsurance Corporation 1988-1994.
With the Corporation since 1985.
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NAME AGE POSITION
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James E. Gustafson.......... 49 President and Chief Operating Officer of the Corporation
since March 1995 and 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.
With the Corporation since 1969.
Theron S. Hoffman........... 48 Vice President, Human Resources of the Corporation since
March 1995 and Senior Vice President of General Re
Services Corporation since 1990. With the Corporation
since 1990.
Tom N. Kellogg.............. 59 Executive Vice President of the Corporation since March
1995 and 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. With the
Corporation since 1968.
Dr. Peter Lutke-Bornefeld... 49 Executive Vice President of the Corporation since March
1995 and Chief Executive Officer of Cologne Re since
1993; Member of the Board of Directors of Cologne Re
since 1990. With the Corporation since 1994; joined
Cologne Re in 1979.
Elizabeth A. Monrad......... 41 Vice President and Treasurer of the Corporation since
March 1995 previously Corporate Controller of the
Corporation 1992-1995 and Vice President and Treasurer of
General Reinsurance Corporation since 1992. Previously
with Coopers & Lybrand, Partner, 1989-1992. With the
Corporation since 1992.
Stephen P. Raye............. 52 Vice President, Technology of the Corporation since March
1995 and Senior Vice President of General Re Services
Corporation since 1993; Vice President Information
Systems Division of General Re Services Corporation
1985-1993. With the Corporation since 1977.
Lee R. Steeneck............. 48 Vice President and Actuary of the Corporation since March
1995 and Vice President of General Reinsurance
Corporation since 1986. With the Corporation since 1975.
The Chairman, President, Secretary and Treasurer are elected by the Board of
Directors for one-year terms. Vice Presidents are appointed and serve at the
discretion of the Board. Other officers may be appointed by and serve at the
discretion of the Chief Executive Officer.
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PART II
ITEM 5. MARKET FOR 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 1995 and 1994.
1995 1994
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HIGH LOW HIGH LOW
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First Quarter........................... $134.13 $122.88 $114.00 $102.50
Second Quarter.......................... 137.63 125.50 125.38 105.75
Third Quarter........................... 152.13 129.88 115.63 104.88
Fourth Quarter.......................... 157.88 142.88 128.50 105.00
(b) The number of registered holders of common stock at December 31, 1995 was
4,236.
(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.
1995 1994
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First Quarter.................................................. $.49 $.48
Second Quarter................................................. .49 .48
Third Quarter.................................................. .49 .48
Fourth Quarter................................................. .49 .48
It is the intention of the Corporation to declare quarterly dividends to the
extent deemed appropriate by its Board of Directors. Dividends are paid
principally from amounts received by the Corporation as dividends from GRC and
the other operating subsidiaries.
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ITEM 6. SELECTED FINANCIAL DATA
ELEVEN-YEAR SUMMARY OF SELECTED FINANCIAL DATA
1995 1994 1993 1992 1991 1990
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(IN MILLIONS, EXCEPT PER SHARE AMOUNTS AND RATIOS)
CONSOLIDATED INFORMATION
Total revenues......................... $ 7,210 $ 3,837 $ 3,560 $ 3,387 $ 3,207 $ 2,954
Net premiums written................... 6,102 3,001 2,524 2,349 2,249 2,150
After-tax income before accounting
changes(1, 7)....................... 825 665 697 596 657 614
Per share........................... 9.92 7.97 8.11 6.84 7.46 6.89
Net income............................. 825 665 711 657 657 614
Per share........................... 9.92 7.97 8.28 7.55 7.46 6.89
After-tax income, excluding realized
gains(1, 7)......................... 788 621 604 465 563 566
Per share........................... 9.47 7.43 7.01 5.30 6.37 6.35
Investment income before tax........... 1,017 749 755 755 752 706
Investment income after tax............ 787 622 619 620 618 581
Investments............................ 23,494 18,898 14,346 11,532 10,842 9,510
Total assets(5)........................ 35,946 29,597 19,419 14,700 12,416 11,033
Long-term debt......................... 155 157 192 199 301 302
Common stockholders' equity............ 6,587 4,859 4,761 4,227 3,911 3,270
Return on equity(3).................... 13.8% 12.9% 13.4% 11.4% 15.6% 17.8%
------- ------- ------- ------- ------- -------
UNITED STATES PROPERTY/CASUALTY
OPERATIONS
Net premiums written................... $ 2,964 $ 2,581 $ 2,275 $ 2,177 $ 2,122 $ 2,040
Investment income before tax........... 711 686 705 703 703 662
Pretax income, excluding realized
gains(1)............................ 715 599 643 488 646 648
Statutory surplus...................... 4,607 3,770 3,836 3,452 3,363 2,902
Investments............................ 13,481 11,177 11,601 10,477 10,003 8,848
Net claims and claim expense
liabilities(4)...................... 7,385 7,029 6,803 6,635 6,230 5,816
Statutory loss ratio................... 67.2% 70.7% 70.6% 78.8% 72.5% 68.2%
Statutory expense ratio................ 31.8% 30.6% 30.9% 29.6% 29.7% 30.8%
Statutory combined ratio............... 99.0% 101.3% 101.5% 108.4% 102.2% 99.0%
------- ------- ------- ------- ------- -------
INTERNATIONAL PROPERTY/CASUALTY
OPERATIONS
Net premiums written................... $ 2,429 $ 420 $ 249 $ 172 $ 127 $ 110
Investment income before tax........... 247 52 43 47 44 39
Pretax income, excluding realized
gains(1, 7)......................... 138 45 24 24 30 25
Investments(6)......................... 7,535 6,060 589 509 469 442
Net claims and claim expense
liabilities(4)...................... 4,352 3,289 253 202 164 156
Loss ratio............................. 77.0% 69.2% 75.1% 80.2% 75.8% 71.5%
Expense ratio.......................... 25.5% 28.8% 29.7% 31.2% 34.7% 37.5%
Combined ratio......................... 102.5% 98.0% 104.8% 111.4% 110.5% 109.0%
------- ------- ------- ------- ------- -------
LIFE/HEALTH OPERATIONS
Net premiums written................... $ 709 -- -- -- -- --
Investment income before tax........... 40 -- -- -- -- --
Pretax income, excluding realized
gains(1, 7)......................... 35 -- -- -- -- --
Net policy benefits for life/health
contracts(4)........................ 2,061 $ 1,811 -- -- -- --
------- ------- ------- ------- ------- -------
FINANCIAL SERVICES
Revenues, excluding net realized
gains............................... $ 250 $ 229 $ 211 $ 115 $ 100 $ 88
Pretax income, excluding realized
gains(1)............................ 100 85 58 10 1 6
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COMMON STOCKHOLDERS' INFORMATION
Average common shares outstanding...... 82.1 82.1 84.5 85.7 87.1 88.0
Dividend per common share.............. $ 1.96 $ 1.92 $ 1.88 $ 1.80 $ 1.68 $ 1.52
Total common dividends................. 161 157 159 153 146 133
Cost of common share repurchases....... 35 207 134 179 59 236
Common stockholders' equity per
share............................... 80.22 59.35 56.92 49.89 45.14 37.50
Common share price:(8) High............ 157.88 128.50 132.75 123.13 101.88 93.00
Low............ 122.88 102.50 105.38 78.63 84.88 69.00
Year end....... 155.00 123.50 107.00 115.75 101.88 93.00
------- ------- ------- ------- ------- -------
See page 11 and notes to consolidated financial statements.
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ELEVEN-YEAR SUMMARY OF SELECTED FINANCIAL DATA -- (CONTINUED)
1989 1988 1987 1986 1985 CAGR(2)
------- ------ ------ ------ ------ -----
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS AND RATIOS)
CONSOLIDATED INFORMATION
Total revenues................................ $ 2,742 $2,719 $3,115 $2,853 $1,772 15.1 %
Net premiums written.......................... 1,898 1,903 2,365 2,561 1,646 14.0
After-tax income before accounting
changes(1,7)............................... 599 513 469 321 142 19.2
Per share.................................. 6.52 5.39 4.62 3.14 1.52 20.6
Net income.................................... 599 480 511 329 139 19.5
Per share.................................. 6.52 5.04 5.04 3.22 1.45 21.2
After-tax income, excluding realized
gains(1,7)................................. 559 518 458 298 137 19.1
Per share.................................. 6.08 5.44 4.52 2.92 1.46 20.6
Investment income before tax.................. 673 570 506 413 301 12.9
Investment income after tax................... 558 494 435 345 254 12.0
Investments................................... 8,799 7,866 6,969 5,978 4,182 18.8
Total assets(5)............................... 10,390 9,394 8,902 8,078 6,005 19.6
Long-term debt................................ 263 114 115 115 116 2.9
Common stockholders' equity................... 3,084 2,695 2,563 2,413 1,794 13.9
Return on equity(3)........................... 19.3% 19.7% 18.4% 14.2% 8.7% --
------- ------ ------ ------ ------ -----
UNITED STATES PROPERTY/CASUALTY OPERATIONS
Net premiums written.......................... $ 1,789 $1,780 $2,251 $2,485 $1,591 6.4 %
Investment income before tax.................. 638 539 479 386 273 10.0
Pretax income, excluding realized gains(1).... 612 511 449 271 104 21.3
Statutory surplus............................. 2,684 2,319 2,009 1,840 1,091 15.5
Investments................................... 8,417 7,532 6,666 5,725 3,939 13.1
Net claims and claim expense liabilities(4)... 5,535 5,218 4,739 4,024 2,913 9.8
Statutory loss ratio.......................... 70.6% 70.0% 74.3% 79.6% 84.8% --
Statutory expense ratio....................... 29.0% 29.1% 25.5% 23.7% 26.0% --
Statutory combined ratio...................... 99.6% 99.1% 99.8% 103.3% 110.8% --
------- ------ ------ ------ ------ -----
INTERNATIONAL PROPERTY/CASUALTY OPERATIONS
Net premiums written.......................... $ 109 $ 123 $ 114 $ 76 $ 55 46.1 %
Investment income before tax.................. 31 27 24 21 18 29.9
Pretax income, excluding realized gains(7).... 35 33 26 23 10 30.0
Investments(6)................................ 342 299 279 221 177 45.5
Net claims and claim expense liabilities(4)... 121 109 105 73 60 53.5
Loss ratio.................................... 62.4% 64.4% 64.2% 61.0% 78.0% --
Expense ratio................................. 33.2% 31.3% 31.9% 31.2% 31.9% --
Combined ratio................................ 95.6% 95.7% 96.1% 92.2% 109.9% --
------- ------ ------ ------ ------ -----
LIFE/HEALTH OPERATIONS
Net premiums written.......................... -- -- -- -- -- --
Investment income before tax.................. -- -- -- -- -- --
Pretax income, excluding realized gains(7).... -- -- -- -- -- --
Net policy benefits for life/health
contracts(4)............................... -- -- -- -- -- --
------- ------ ------ ------ ------ -----
FINANCIAL SERVICES
Revenues, excluding net realized gains........ $ 90 $ 101 $ 106 $ 101 $ 91 10.6 %
Pretax income, excluding realized gains(1).... 14 27 30 28 23 15.8
------- ------ ------ ------ ------ -----
COMMON STOCKHOLDERS' INFORMATION
Average common shares outstanding............. 91.3 95.3 101.4 102.0 93.7 --
Dividend per common share..................... $ 1.36 $ 1.20 $ 1.00 $ 0.88 $ 0.78 9.7 %
Total common dividends........................ 124 114 101 90 73 8.2
Cost of common share repurchases.............. 206 268 274 -- -- --
Common stockholders' equity per share......... 34.28 29.04 26.20 23.47 18.48 15.8
Common share price(8): High................... 95.75 59.25 68.38 68.88 52.50 11.6
Low................... 55.00 45.88 48.75 49.44 30.57 14.9
Year end.............. 87.13 55.25 55.88 55.50 50.06 12.0
------- ------ ------ ------ ------ -----
See page 11 and notes to consolidated financial statements.
10
11
NOTES TO THE ELEVEN-YEAR SUMMARY OF SELECTED FINANCIAL DATA
Only continuing operations are presented. Balance sheet data are as of December
31st. International property/casualty and life/health operations are reported on
a one-quarter lag. The International property/casualty operations include
Cologne Re for balance sheet amounts in 1995 and 1994 and income statement
amounts in 1995. Only nine months of Cologne Re's 1995 results are included in
the Corporation's 1995 results due to the one-quarter reporting lag.
(1) Excludes cumulative effect of accounting changes. The balance sheet data in
the table on pages 9 and 10 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 Standard No. 113 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.
(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) In 1994 the Corporation adopted FASB 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 combined effect of adopting the Interpretations increased
reported assets and liabilities at December 31, 1994 and 1993 by $950
million and $1,747 million, respectively, and had no effect on results from
operations or common stockholders' equity.
(6) Also includes investments for life/health operations.
(7) After deducting minority interest.
(8) The common share price information is based on the Corporation's daily
closing price on the New York Stock Exchange.
11
12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OPERATING RESULTS
Consolidated
Comparison of 1995 with 1994
Net income in 1995 was $825 million or $9.92 per share, an increase of 24.5
percent over the $7.97 per share earned in 1994. These results include after-tax
realized gains of $.45 per share in 1995 and $.54 per share in 1994. The
improved results in 1995 were primarily attributable to increased underwriting
profitability in the United States property/casualty operations, growth in
after-tax investment income, increased income from the Corporation's
international property/casualty operations and inclusion of Kolnische
Ruckversicherungs-Gesellschaft AG's ("Cologne Re") life/health operations. Due
to the Corporation's reporting of its international operations on a quarter lag,
the 1995 results include only three quarters of the year's results for Cologne
Re and the related joint-venture company, General Re-CKAG Reinsurance and
Investment S.a r.l. ("GR-CK"). These results were not included in the comparable
1994 amounts, since the formation of GR-CK did not occur until December 28,
1994.
Consolidated net premiums written in 1995 were $6,102 million, an increase of
$3,101 million or 103.3 percent, from $3,001 million in 1994. United States
property/casualty premium volume was $2,964 million in 1995, compared with
$2,581 million in 1994, an increase of 14.9 percent. Net premiums written in the
international property/casualty reinsurance operations were $2,429 million in
1995, compared to $420 million in 1994, with $1,651 million of the growth
attributable to the inclusion of Cologne Re's premium during the year. In
addition, the underwriting results of the Corporation's wholly owned European
operations, which were predominantly reported on a full underwriting-year lag in
prior years, are now reported on a one-quarter lag beginning in 1995. The wholly
owned European subsidiaries' net premiums written increased by $263 million
during 1995 due to this change in reporting, although net income was not
materially affected by the change. Net premiums written for the life/health
segment, which consist of Cologne Re's United States and international
life/health operations, were $709 million for 1995.
Consolidated investment income was $1,017 million in 1995, compared with $749
million in 1994. The consolidation of Cologne Re accounts for approximately $193
million of the $268 million increase in consolidated investment income in 1995.
The growth of pretax investment income in the United States operations was
adversely affected by the shift in assets from taxable to tax-advantaged
securities over the last few years in response to the Corporation's tax planning
strategies, the maturity and calls of higher yielding securities and the use of
the Corporation's cash flow from operations for stock repurchases. Investment
income for the United States property/casualty operations was $711 million in
1995, an increase of 3.7 percent over $686 million earned in 1994. Investment
income for the international property/casualty operations increased 375.4
percent to $247 million in 1995, compared with $52 million in 1994. Excluding
the effect of Cologne Re, the international property/casualty operations
investment income grew 24.2 percent in 1995. The life/health operations had
investment income of $40 million in 1995. The financial services operations had
investment income of $19 million in 1995, compared with $11 million in 1994.
Comparison of 1994 with 1993
Net income in 1994 was $665 million or $7.97 per share, a decrease of 3.7
percent from $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. United States
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
12
13
property/casualty operations were $420 million in 1994, an increase of 69.0
percent over 1993 premium volume.
Consolidated 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 the investment in Cologne Re.
Investment income for the United States property/casualty operations was $686
million in 1994, a decrease of 2.7 percent over $705 million earned in 1993.
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.
United States Property/Casualty
YEARS ENDED DECEMBER 31
----------------------------
1995 1994 1993
------ ------ ------
(IN MILLIONS)
Income before taxes and accounting changes....................... $ 750 $ 660 $ 802
Less: net realized gains......................................... 35 61 159
------ ------ ------
Income before taxes, accounting changes and realized gains....... $ 715 $ 599 $ 643
====== ====== ======
Net premiums written............................................. $2,964 $2,581 $2,275
Net underwriting income (loss)................................... 13 (46) (23)
Statutory combined ratio......................................... 99.0% 101.3% 101.5%
Investment income................................................ $ 711 $ 686 $ 705
Net other income (loss).......................................... (9) (41) (38)
United States property/casualty pretax income in 1995, excluding realized gains
and the cumulative effect of accounting changes, increased 19.4 percent from
1994's income. This growth in pretax income was primarily due to improvement in
the underwriting result of $59 million, an increase in investment income of $25
million and increased net other income (loss) of $32 million. The 1994
underwriting result was adversely affected by the earthquake in Northridge,
California on January 17th. The increase in investment income of 3.7 percent in
1995 was due to growth in the segment's investment portfolio since the beginning
of 1994 and an increase in market interest rates during 1994. Excluding the
effect of an estimated $38 million reduction in investment income due to the
Corporation's investment in the Cologne Re joint venture, which is now included
in the international segment, investment income of the United States
property/casualty segment grew by 9.3 percent in 1995. The improvement in net
other income (loss) in 1995 was due to increased fee income on financial
reinsurance transactions accounted for as deposits, and an increase in income
from the Corporation's affiliates carried under the equity method.
The 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 an underwriting profit. In 1995, the statutory combined ratio for the
United States property/casualty segment was 99.0 percent, compared to 101.3
percent in 1994 and 101.5 percent in 1993. The 1995 underwriting result was
consistent with the Corporation's operating objective of achieving an
underwriting profit.
13
14
Net premiums written in 1995 for the United States property/casualty operations
were $2,964 million, an increase of 14.9 percent from $2,581 million in 1994.
Net premiums written by operating unit expressed as a percentage of total United
States property/casualty premiums were as follows:
YEARS ENDED DECEMBER 31
-------------------------
1995 1994 1993
----- ----- -----
General Reinsurance Corporation (treaty/facultative)................ 89.2% 88.6% 89.2%
General Star Companies (excess and surplus)......................... 7.0 7.4 6.8
Genesis Companies (direct excess and alternative markets)........... 3.8 4.0 4.0
----- ----- -----
Total............................................................... 100.0% 100.0% 100.0%
===== ===== =====
While the United States primary insurance market grew at approximately 3.9
percent in 1995, according to A.M. Best, General Reinsurance Corporation's
("GRC") treaty and facultative premiums grew by 15.5 percent. The Corporation
believes that the growth in premiums written was due to marketing efforts,
increased purchases of property reinsurance due to greater sensitivity to
catastrophe exposures, the increase in insurance premiums written by medium- and
smaller-sized primary companies that generally purchase relatively more
reinsurance, the migration back to the United States of some insurance and
reinsurance premiums that were being written in the London market, increased
reinsurance cessions by primary companies as they seek to deleverage their
capital in response to rating agency concerns and increased demand for
reinsurance from better capitalized and more creditworthy reinsurers. In 1996,
GRC's net premiums written will be adversely affected by the nonrenewal of a
treaty which accounted for approximately $244 million of net premiums written.
The lost after-tax investment income from nonrenewal of this contract is
estimated to be less than $5 million for 1996.
For the General Star operations, which principally write excess specialty
insurance, net premiums written grew 10.2 percent in 1995 due to increased
marketing activities and improved rates for property business in the Southeast.
General Star has produced a statutory underwriting profit for eleven consecutive
years.
The Genesis operations provide direct excess insurance and reinsurance to
companies with self-insurance programs. Net premiums written for Genesis
increased during the year by 9.0 percent over 1994 levels principally due to
growth in casualty premiums.
Net premiums written for the United States property/casualty insurance segment
were $2,581 million in 1994, an increase of 13.4 percent over $2,275 million in
1993. 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 the first quarter of 1993, North Star had net premiums
written of $41 million. North Star's first-quarter premiums for 1993 are
included with GRC in the preceding table.
International Property/Casualty
YEARS ENDED DECEMBER 31
--------------------------
1995 1994 1993
------ ---- ------
(IN MILLIONS)
Income before taxes and minority interest.......................... $ 213 $ 53 $ 24
Less: net realized gains........................................... 24 8 --
Less: minority interest............................................ 51 -- --
------ ---- ------
Income excluding realized gains and after minority interest........ $ 138 $ 45 $ 24
====== ==== ======
Net premiums written............................................... $2,429 $420 $ 249
Net underwriting income (loss)..................................... (63) 6 (13)
Combined ratio..................................................... 102.5% 98.0% 104.8%
Investment income.................................................. $ 247 $ 52 $ 43
Net other income (loss)............................................ 4 (13) (5)
14
15
Income before taxes and minority interest for the international
property/casualty operations was $213 million in 1995, an increase of 299.1
percent from 1994. Included in these results were net realized gains of $24
million in 1995, compared with $8 million in 1994. The segment's results in 1995
were significantly affected by the inclusion of Cologne Re's results and are not
directly comparable to the results in 1994 (see below for a description of the
Cologne Re transaction). Since Cologne Re's results are reported on a quarter
lag, the 1995 amounts include only nine months of activity for Cologne Re.
Cologne Re's results in 1995, net of financing, opportunity costs and minority
interest, contributed approximately $35 million to the Corporation's after-tax
income, excluding realized gains.
International net premiums written were $2,429 million in 1995, compared with
$420 million in 1994. The premium growth is principally attributable to the
inclusion of $1,651 million of Cologne Re's property/casualty premiums beginning
in the second quarter of 1995. In addition, the international property/casualty
growth reflects the continued expansion of existing and new client
relationships. In the second quarter of 1995, the Corporation's wholly owned
European operations began to include estimated premiums and losses for the
current underwriting year in its financial results. This change increased net
premiums written by approximately $263 million and added approximately $1
million to net income in 1995.
Income before taxes for the international property/casualty operations of $53
million in 1994 increased 120.8 percent over 1993 levels. Included in these
results were realized gains of $8 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 net premiums written of $420
million in 1994 increased $171 million, or 69.0 percent, over 1993 premiums of
$249 million. The premium growth reflects the continued expansion of existing
client relationships, an increase in reinsurance rates, and the acquisition of
new reinsurance relationships, particularly in European operations. 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 prior two
years.
Cologne Re
On December 28, 1994, the Corporation and Colonia Konzern AG ("Colonia") formed
a new company that acquired 75 percent of the ordinary shares and approximately
30 percent of the preference 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,
"CKAG"), received 100 percent of the Class A shares of the new company, 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 the Corporation in exchange
for notes in the 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 intercompany
notes have been eliminated in consolidation. The funds invested in GR-CK are
subject to certain investment restrictions according to the joint-venture
agreement.
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 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. The dividend related to 1995 on the
Class A and B shares will be paid in 1996.
The Corporation has an option after seven years to purchase the Class A shares
of GR-CK owned by the CKAG 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 and other adjustments that may affect the exercise price. If the
Corporation does not exercise its option to purchase the Class A shares of GR-CK
from CKAG, CKAG has
15
16
the option to purchase the Class B shares of GR-CK from the Corporation under a
similar exercise price formula.
During the second quarter of 1995, Cologne Re completed a rights offering that
raised DM 437 million ($317 million at the June 30, 1995 exchange rate), which
increased its capital under United States generally accepted accounting
principles by 62.9 percent over the amount at December 31, 1994. In connection
with Cologne Re's rights offering, GR-CK subscribed for its pro rata share,
approximately DM 297 million ($215 million at the June 30, 1995 exchange rate),
of the offering. In addition to its ownership in Cologne Re through GR-CK, the
Corporation purchased for its own account an additional 6.9 percent of the
ordinary and preference shares of Cologne Re during 1995 for aggregate
consideration of $68 million, which increased the Corporation's consolidated
economic interest in Cologne Re to 73.2 percent.
Life/Health
Due to the Corporation's reporting of its international operations, including
all of Cologne Re's business, on a quarter lag, the 1995 results include only
three quarters of life/health operations. This segment includes the U.S. and
international life/health operations of Cologne Re. During 1995 the life/health
operations' income before taxes and minority interest was $51 million. This
consists of pretax income of $15 million, $17 million, and $19 million in the
second, third and fourth quarters, respectively. Pretax income during 1995
resulted from underwriting income of $10 million, investment income of $40
million and realized gains of $1 million. Life/health premiums written were $709
million during 1995. Approximately one-half of this segment's premium was
written in continental Europe, another 40 percent was written in the United
States and the remaining 10 percent was written throughout the rest of the
world.
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. Pretax income for the financial services
operations was $103 million in 1995, an increase of 26.4 percent from $82
million earned in 1994. The increase in 1995 income was principally due to
increased profitability of the Corporation's derivative products subsidiary,
General Re Financial Products Corporation ("GRFP"), and revenues from General Re
Underwriting Services Limited ("GRUS"). GRUS provides underwriting services for
Tempest Reinsurance Company Limited ("Tempest"), an affiliated Bermuda-based
company specializing in excess property catastrophe reinsurance.
Tempest is negotiating an exchange of shares of Tempest for shares in ACE
Limited, a Bermuda insurer. The transaction would be subject to approval by both
companies' Boards of Directors and shareholders. If the transaction is
consummated, the Corporation would sell back to Tempest its 20.7 percent
interest in Tempest for cash consideration. In addition, the underwriting
services provided to Tempest by GRUS would be terminated. The financial effect
of this transaction would be recorded in 1996.
GRFP is a dealer in derivative products and offers a full line of interest rate
and cross-currency swaps, options, and other derivative products. GRFP's gross
trading revenue was $142 million in 1995, compared with $135 million in 1994 and
$142 million in 1993. The growth in GRFP's trading revenue for the year compared
to 1994 was due to specialty products and growth in swap transactions outside of
North America. The overall growth in the derivatives market in the United States
was slower than outside of the United States due to continuing concerns about
controls over the inappropriate use of derivative products by certain end users.
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,
correlation, 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 United States and foreign government securities
or entering into offsetting transactions.
The Corporation's insurance and reinsurance brokerage operations also
contributed to the increased profitability of the financial services segment in
1995. In addition, the Corporation has expanded its investment
16
17
management services. In August 1995, the Corporation acquired all of the
outstanding stock of New England Asset Management in exchange for stock of the
Corporation and combined it with the Corporation's own investment management
subsidiary. The resulting company, General Re-New England Asset Management, Inc.
("GR-NEAM"), provides investment management services primarily for other
insurance companies that seek the Corporation's expertise in managing insurance
company investment portfolios. GR-NEAM has approximately 45 insurance company
clients and approximately $10 billion of client assets under management at
December 31, 1995.
Pretax income for the financial services operations was $82 million in 1994, an
increase of 40.4 percent from $58 million earned in 1993. The increase in 1994
income was principally due to increased profitability of GRFP and new revenues
from GRUS.
FINANCIAL CONDITION
Assets/Investments
At December 31, 1995, total assets were $35,946 million, compared with $29,597
million at December 31, 1994. The $6,349 million of growth in assets was
attributable to an increase of $3,110 million in the total assets of the United
States property/casualty operations, $2,713 million in the international
reinsurance operations, and $526 million in the financial services segment. The
growth in the assets of the United States property/casualty operations was
primarily due to the favorable bond and stock markets in 1995 and the investment
of operating cash flows. The increase in the assets of the international
operations was due to the investment of operating cash flows and the
strengthening of the German mark compared to the United States dollar which
increased assets by approximately $800 million.
The Corporation's invested assets increased from $18,898 million at December 31,
1994 to $23,494 million at December 31, 1995. The $4,596 million increase in
invested assets was the result of an increase of $2,304 million in the United
States property/casualty segment, an increase of $1,475 million in the
international reinsurance operations and an increase of $817 million in the
financial services operations. The unrealized appreciation after deferred income
taxes on the Corporation's investment portfolio was $1,468 million and $421
million at December 31, 1995 and December 31, 1994, respectively. The increase
was due to the favorable effect on bond prices of declining interest rates and
appreciation in the equity markets in the United States. At December 31, 1995,
all fixed maturity securities of the Corporation have been categorized as either
available-for-sale or trading. Most of the securities transferred to the
available-for-sale category were tax-exempt securities grandfathered under the
Tax Reform Act of 1986 that the Corporation anticipates being called within the
near future. The recategorization of the held-to-maturity securities increased
investments by $82 million, and common stockholders' equity by $53 million.
17
18
UNITED STATES PROPERTY/CASUALTY
Invested Assets
The Corporation's investment portfolios are managed for after-tax total return
while maintaining high credit quality across the portfolios. At December 31,
1995, total invested assets of the United States property/casualty operations
were $13,481 million, a 20.6 percent increase over 1994 invested assets.
The composition of the United States property/casualty invested assets was as
follows:
DECEMBER 31
---------------
1995 1994
----- -----
Short-term securities........................................ 1.3% 2.0%
Unites States taxable bonds.................................. 18.0 24.5
Tax-exempt bonds............................................. 51.8 45.7
Nondollar bonds.............................................. 2.1 2.6
Convertible securities....................................... 0.3 0.5
United States common equities................................ 18.3 16.7
Foreign equities............................................. 1.2 2.3
Preferred equities........................................... 3.2 2.8
Other investments............................................ 3.8 2.9
----- -----
Total........................................................ 100.0% 100.0%
===== =====
Throughout 1995, the Corporation continued to shift assets toward tax-advantaged
securities due to improved underwriting profitability and increased
international profits. Furthermore, municipal bonds became attractive relative
to taxable bonds for all but the shortest maturities as the spread between
taxable and tax-exempt bonds became historically narrow due to concerns about
tax reform which could adversely affect tax-exempt bonds. The Corporation also
added to its preferred stock holdings in 1995, since these securities were an
attractive after-tax alternative to municipal bonds.
To minimize its exposure to shifts in interest rates, the Corporation balances
the duration (a present-value weighted measure of average life) of its
property/casualty claim liabilities with the duration of fixed maturity
investments in the investment portfolio. The table below shows the average
maturity and effective duration of the United States taxable and tax-exempt
portfolios:
DECEMBER 31
----------------------
1995 1994 1993
---- ---- ----
Average maturity in years
Taxable portfolio...................................................... 9.4 4.7 7.0
Tax-exempt (nongrandfathered)(1)....................................... 12.0 13.0 13.0
Effective duration in years
Taxable portfolio...................................................... 5.2 3.2 5.1
Tax-exempt (nongrandfathered)(1)....................................... 7.2 7.1 7.0
- ---------------
(1) Bonds purchased after August 7, 1986 that do not remain fully tax-exempt
under the Tax Reform Act of 1986.
At December 31, 1995, the effective average maturity of the fixed-maturity
portfolio was 10.6 years, compared to an estimated average life of 9.1 years for
the Corporation's property/casualty claim liabilities. The duration of the fixed
maturity portfolio was 6.2 years, compared with 4.7 years for the
property/casualty claim liabilities. This compares with 1994 durations of 5.0
years and 4.6 years, respectively. The increase in the duration of the
Corporation's liabilities at December 31, 1995 was principally due to the sharp
decline in interest rates in 1995 and, to a lesser extent, due to the mix of
premiums written. Of the increase in the duration of the portfolio assets,
approximately two thirds was due to the decline in interest rates, with the rest
accounted for by specific shifts in the portfolio during the year.
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19
Included in fixed-maturity investments were mortgage-backed securities ("MBS")
of $622 million (2.7 percent of consolidated invested assets) and other
asset-backed securities ("ABS") of $113 million (0.5 percent of consolidated
invested assets) at December 31, 1995. 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 grouping of underlying mortgages into various
principal repayment tranches, known as collateralized mortgage obligations
("CMOs"). The MBS portfolio comprises pass-through securities (45 percent) and
CMOs (55 percent) based on December 31, 1995 market values. The CMO portfolio is
composed of almost entirely planned amortization class ("PACs") securities which
have experienced less volatility in repayment of principal than other types of
CMO securities. ABS are usually debt instruments which are collateralized by
credit card or auto loan receivables 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.
At December 31, 1995, equity investments in the United States portfolio totaled
$3,107 million, representing 19.5 percent of the United States property/casualty
investment portfolio. The United States equity portfolio is well diversified and
primarily consists of holdings in companies with large capitalizations that,
collectively, have a calculated volatility approximating the Standard & Poor's
500 index.
A small portion of the United States investment portfolio was dedicated to
nontraditional, private investments. These alternative investments, included in
the balance sheet caption, "Other invested assets," were $344 million (1.5
percent of consolidated invested assets) and $325 million (1.7 percent of
consolidated invested assets) at December 31, 1995 and 1994, respectively. 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 portfolio. The Corporation
evaluates the fair value of these alternative investments on a quarterly basis
by reviewing available financial information of the investee and performing
other financial analyses in consultation with external advisors. Any changes in
the fair value of limited partnerships are included in 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.
Credit Quality
Credit considerations are an important part of the Corporation's fixed maturity
investment strategy. The overall fixed-maturity portfolio continued to average a
credit rating of AA. The distribution of the Corporation's United States
property/casualty fixed-maturity portfolio by credit quality was as follows:
DECEMBER 31, 1995
-----------------------
TAXABLE TAX-EXEMPT
------- -----------
AAA..................................................... 62.1% 48.8%
AA...................................................... 6.9 25.5
A....................................................... 19.0 23.3
BBB..................................................... 8.3 1.2
Below BBB............................................... 0.9 --
Nonrated................................................ 2.8 1.2
----- -----
Total................................................... 100.0% 100.0%
===== =====
Investment Returns
The overall pretax yield on the United States property/casualty invested assets
was 5.9 percent in 1995 and 1994. During 1995, the segment had approximately
$486 million of calls and maturities on grandfathered tax-exempt bonds. These
bonds had an average yield of approximately 8.9 percent and the proceeds from
the calls were reinvested at an average yield of approximately 5.3 percent. In
addition, based on its current investment
19
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portfolio and the current yield curve, the Corporation presently anticipates
additional calls and maturities of approximately $404 million on grandfathered
tax-exempt bonds with an average yield of approximately 7.8 percent through the
end of 1996. Reinvestment of these funds may adversely affect average portfolio
yields and investment income.
Pretax total return for the United States portfolio was 19.2 percent in 1995,
compared with a negative return of 2.6 percent in 1994. With lower interest
rates and sharply higher stock prices, all investment sectors recorded higher
returns in 1995 than in 1994.
INTERNATIONAL PROPERTY/CASUALTY AND LIFE/HEALTH
The Corporation's international property/casualty and life/health reinsurance
operations had invested assets of $7,535 million at December 31, 1995, an
increase of $1,475 million from December 31, 1994. These portfolios include
$6,026 million of Cologne Re's investments, $1,050 million in wholly owned
international operations' investments and $459 million of GR-CK investments.
GR-CK's investment portfolio consisted of high credit quality, German mark
denominated securities with an average maturity of approximately 6 years.
The composition of Cologne Re's investment portfolio was as follows:
DECEMBER 31
---------------
1995 1994
----- -----
Short-term securities........................................ 19.2% 16.1%
Bonds........................................................ 68.8 71.1
Common equities.............................................. 7.2 8.6
Real estate and other investments............................ 4.8 4.2
----- -----
Total........................................................ 100.0% 100.0%
===== =====
The primary goal of Cologne Re's investment policy is the optimization of
after-tax investment income taking into consideration the duration and currency
structure of Cologne Re's reinsurance liabilities. The investment objectives of
Cologne Re's subsidiary companies are determined by specific investment
guidelines which take into consideration the different legal requirements in
their respective jurisdictions. The investments of the subsidiaries are
monitored and reviewed by Cologne Re's Finance Department.
At December 31, 1995, Cologne Re's invested assets were $6,026 million, an
increase of $1,309 million, or 27.8 percent from year-end 1994. The fixed
maturity portfolio consisted of high credit quality securities. Almost all bonds
were investment grade; the average rating of the portfolio was above AA. The
common equity portfolio of Cologne Re was well diversified with holdings
principally from the major European stock markets, United States, and Japan. The
real estate portfolio was internationally diversified with principal holdings in
Germany. The relatively high share of short-term investments in Cologne Re's
portfolio is due to the need to hedge investment crediting provisions in certain
financial reinsurance contracts, a specific "barbell" bond strategy in 1995 and
an unusually high volume of cash at the end of the reporting period.
As part of its foreign exchange risk management program, Cologne Re's investment
portfolio is globally diversified, with most fixed maturities having a term less
than five years. The currency structure of the investment portfolio is
determined by Cologne Re's reinsurance business. Cologne Re hedges its currency
risk by seeking to match its assets and liabilities by currency. Due to the high
volatility and the significant movements in the currency markets during 1995,
Cologne Re remained relatively neutral in its currency exposures.
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The composition of Cologne Re's invested assets by currency was as follows:
DECEMBER 31, 1995
-----------------
United States dollar......................................................... 34.9%
German mark.................................................................. 32.5
Great Britain pound.......................................................... 13.5
French franc................................................................. 3.4
Australian dollar............................................................ 3.3
Japanese yen................................................................. 1.2
Other currencies............................................................. 11.2
-----
Total........................................................................ 100.0%
=====
The overall pretax yield on Cologne Re's portfolio was 5.1 percent during 1995.
Cologne Re writes a significant portion of its business in property lines of
business and, accordingly, invests in shorter duration securities as part of its
program to match its asset and liability durations. In addition, Cologne Re's
reported investment yield is decreased by the sharing of investment income under
certain reinsurance agreements.
The invested assets of the Corporation's wholly owned international subsidiaries
of $1,050 million at December 31, 1995 consist of 77.4 percent in fixed
maturities, 14.7 percent in equities and 7.9 percent in short-term investments.
The overall pretax yield on these operations was 7.6 percent in 1995 and 1994.
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. The portfolio is diversified by country of issuer and duration to
match the currency and duration structure of the reinsurance operations.
The composition of the Corporation's wholly owned international subsidiaries'
investment portfolio by currency was as follows:
DECEMBER 31, 1995
-----------------
Great Britain pound.......................................................... 25.8%
Australian dollar............................................................ 24.9
United States dollar......................................................... 12.8
German mark.................................................................. 9.6
French franc................................................................. 6.3
Other currencies............................................................. 20.6
-----
Total........................................................................ 100.0%
=====
LIABILITIES
The gross liability for claims and claim expenses, which provides for future
obligations arising from current and prior property/casualty reinsurance
transactions, amounted to $14,252 million and $12,158 million at December 31,
1995 and 1994, respectively. Growth in the liability of $2,094 million during
1995 was due to $778 million in the United States property/casualty segment and
$1,316 million in the international property/casualty segment. In addition to
the gross liability for property/casualty claim and claim expenses, the
Corporation, through its interest in Cologne Re, had a gross liability for
policy benefits for life/health contracts of $2,263 million and $1,960 million
at December 31, 1995 and 1994, respectively. The asset for reinsurance
recoverable on paid and unpaid losses was $2,794 million at December 31, 1995,
compared to $2,067 million at December 31, 1994. Growth of $727 million in the
asset for reinsurance recoverable was due to $422 million associated with the
United States property/casualty segment, $253 million for the international
property/casualty operations and $52 million related to the life/health
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, which include an amount estimated by the Corporation for claims
and claim expenses incurred but not reported ("IBNR"), are evaluated
continuously by management, annually by the Corporation's independent account-
21
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ants in conjunction with their audit and periodically by independent consulting
actuaries at the discretion of the Board of Directors. Any resulting adjustments
are included in the current period's income.
The liability for claims and claim expenses for 1994 and prior accident years
for the United States operations, net of related reinsurance recoveries,
increased by $13 million in 1995. The increase was principally the result of the
net effect of reserve strengthening for environmental and latent injury claims,
partly offset by favorable loss development on casualty lines of business. The
liability for prior accident years was decreased by $36 million in 1994 and was
increased by $140 million during 1993. The adverse income impact in 1993 was the
result of reserve strengthening principally for environmental and latent injury
claims. The liability for claims and claim expenses for 1994 and prior accident
years for the international operations, net of related reinsurance recoveries
and foreign exchange, increased by $1 million in 1995.
Included in the Corporation's liability for claims and claim expenses are
liabilities for environmental and latent injury damage claims. These claims are
principally related to claims arising from cleanup costs associated with
hazardous waste sites and bodily injury claims relating to asbestos products.
These amounts include provisions for both reported and IBNR claims. The table
below presents the three-year development of the balance sheet liability for
environmental and latent injury claims:
1995 1994 1993
------ ------ ------
(IN MILLIONS)
Gross liability, beginning of year............................... $1,478 $1,332 $1,092
Reinsurance recoverable.......................................... 382 444 358
------ ------ ------
Liability, net of reinsurance, beginning of year................. 1,096 888 734
Amount incurred during year...................................... 298 239 224
Less: amount paid during year.................................... 136 100 70
Cologne Re (first included in December 31, 1994 balance sheet)... -- 69 --
------ ------ ------
Liability, net of reinsurance, end of year....................... 1,258 1,096 888
Reinsurance recoverable.......................................... 498 382 444
------ ------ ------
Gross liability, end of year..................................... $1,756 $1,478 $1,332
====== ====== ======
The Corporation continually estimates its liabilities and related reinsurance
recoverable for environmental and latent injury claims and claim expenses. While
most of the Corporation's liabilities for such claims arise from exposures in
the United States, the Corporation has also provided for international
environmental and latent injury exposures. Environmental and latent injury
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 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 out of direct excess insurance policies (rather than
from reinsurance assumed). Certain subsidiaries were parties in 108 active
direct excess coverage cases involving environmental and latent injury claims at
December 31, 1995. Such coverage litigation expenses are estimated using an
actuarial estimate of actionable items and their projected costs. The
Corporation paid $8 million in such costs during 1995, and as of December 31,
1995, the liability for future litigation costs related to coverage disputes for
environmental and latent injury claims was $165 million (included in the table
above). As coverage disputes are tried and verdicts rendered, the Corporation
expects that the settled case law will result in a downward trend in future
direct excess litigation expenses. Because reinsurance contracts generally
contain arbitration clauses which control disputes between
22
23
the ceding company and the reinsurer, the Corporation does not expect the future
costs associated with reinsurance disputes to be material.
Comprehensive environmental laws have been enacted in most European countries,
generally imposing sanctions in the form of fines, cleanup costs or civil damage
awards. To date, insureds in Europe have generally not recovered the costs from
insurers arising from environmental cleanup except those claims considered
sudden and accidental. Changes in environmental regulations and litigation
practices within the European Union may affect future claim development.
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
the 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 several decades. The
Corporation continues to monitor evolving case law and its effect on
environmental and latent injury claims. Changing government regulations, 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. Current statutory rules allow the discounting of "tabular
reserves" as defined and allow discounting of nontabular reserves if permitted
by the insurer's state of domicile. As of December 31, 1995, GRC recorded $1,406
million in claim liability discount, of which $923 million relates to tabular
reserves and $483 million relates to nontabular reserves for medical costs
associated with tabular reserve claims. The Delaware Insurance Department has
confirmed that GRC may discount both its tabular reserves and the medical
expenses associated with such tabular reserves at 4.5 percent per year.
Financial Services Assets and Liabilities
The asset and liability positions of the financial services operations fluctuate
based on ongoing derivatives transactions and related risk management
activities. The purchase of United States and foreign government securities
(fixed maturities at fair value), which are primarily financed through
collateralized repurchase agreements (securities sold under agreements to
repurchase), and the sale of United States and foreign 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 fluctuations in the operations' total assets and
liabilities, while generally not having any material effect on common
stockholders' equity. During 1995, invested assets of these operations increased
$817 million to $2,478 million. Securities purchased under agreements to resell
(an asset) declined $747 million in 1995 to $66 million. Securities sold under
agreements to repurchase (a liability) increased $325 million in 1995 to $1,263
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 liability for securities sold but not yet purchased decreased
$313 million in 1995 to $614 million at December 31, 1995.
GRFP controls its market risk exposures through the use of cash instruments and
derivative transactions. GRFP's components of market risk include foreign
exchange, interest rate, swap spread, volatility, correlation
23
24
and yield curve risk. GRFP controls these risk exposures by taking offsetting
positions in either cash instruments or other derivatives to reduce the overall
exposure to loss due to movements in these variables. GRFP manages its exposures
on a portfolio basis. Under this approach, GRFP monitors its market risk on a
daily basis across all swap and option products by calculating the effect on
operating results of potential changes in market variables over a one week
period, based on historical market volatility data and informed judgment. GRFP's
1995 aggregate weekly market risk limit across all trading books was $10
million.
GRFP sets market risk limits for each type of risk based on a 95 percent
probability that movements in market rates will not affect the results from
operations in excess of the limit over a one-week period. Since inception,
GRFP's largest consolidated weekly position change has been $5 million. 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.
The "value-at-risk" table below shows the aggregate risk management limit, as
defined, and highest and lowest profits and losses recorded over one-week
periods.
YEARS ENDED
DECEMBER 31,
-------------
1995 1994
---- ----
(IN MILLIONS)
RISK LIMIT USAGE
Average................................................................ $ 8 $ 8
PROFIT AND LOSS
Highest................................................................ 4 3
Lowest................................................................. (4) (5)
Average................................................................ -- --
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
setoff. 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 $67 million and $55 million at December 31, 1995 and 1994,
respectively. GRFP has not experienced any credit losses as a result of
counterparty defaults.
Equity
Common stockholders' equity at December 31, 1995 was $6,587 million, an increase
of 35.6 percent over $4,859 million at December 31, 1994. The change in common
stockholders' equity was primarily due to net income of $825 million, after-tax
unrealized appreciation of $1,047 million, less stock repurchases of $35 million
and dividends paid of $172 million. Common stockholders' equity at December 31,
1994 increased 2.1 percent over the $4,761 million at year end 1993.
24
25
LIQUIDITY AND CAPITAL RESOURCES
A summary of the Corporation's cash flow by business segment was as follows:
YEARS ENDED DECEMBER 31,
-----------------------------
1995 1994 1993
------- ------- -----
(IN MILLIONS)
Operating activities:
United States property/casualty....................... $ 985 $ 968 $ 899
International property/casualty and life/health....... 555 215 80
Financial services.................................... 49 (97) (94)
------- ------- -----
Consolidated operating cash flow........................ 1,589 1,086 885
------- ------- -----
Investing activities:
United States property/casualty....................... (848) (16) (871)
International property/casualty and life/health....... (805) (189) (60)
Financial services.................................... 21 189 17
Net purchase of shares in GR-CK....................... -- (582) --
Cash obtained on purchase of GR-CK.................... -- 153 --
------- ------- -----
Consolidated investing cash flow........................ (1,632) (445) (914)
------- ------- -----
Financing activities:
United States property/casualty....................... (149) (350) (16)
International property/casualty....................... 216 (22) (18)
Financial services.................................... (8) (87) 82
------- ------- -----
Consolidated financing cash flow........................ 59 (459) 48
------- ------- -----
Consolidated change in cash............................. $ 16 $ 182 $ 19
======= ======= =====
The Corporation's cash flow from operations was $1,589 million in 1995, compared
with $1,086 million in 1994, and $885 million in 1993. In the Corporation's
prior years' financial statements, GRFP's interrelated cash flows were
disaggregated for financial reporting purposes into operating, investing, and
financing activities. In 1995, all of GRFP's trading-related cash flows have
been included in operating cash flow to improve the meaningfulness of the cash
flow presentation. Prior years' cash flow statements have been reclassified to
conform to the new presentation.
United States and international operating cash flows grew in 1995 and 1994,
primarily in response to growth in the property/casualty reinsurance business.
United States 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 subject to certain restrictions
according to the joint-venture agreement. The Corporation's United States cash
flow should not be significantly affected by the joint-venture structure, since
interest paid to GR-CK on the intercompany note will generally be funded by
dividends received from GR-CK.
Dividends paid to the Corporation's common and preferred stockholders were $172
million, $168 million and $170 million in 1995, 1994 and 1993, respectively. The
Corporation used $35 million, $207 million and $134 million to repurchase
235,200 shares, 1,912,500 shares and 1,213,600 shares of its common stock in the
years ended December 31, 1995, 1994 and 1993, respectively. Through December 31,
1995, the Corporation has purchased $1,598 million (22,144,500 shares) of its
common stock since the inception of the repurchase program in 1987. On February
14, 1996, the Corporation's Board of Directors authorized an additional $300
million of stock repurchases, in addition to the standing authority to
repurchase shares in anticipation of shares to be issued under various
compensation plans. On the same day, the Board of Directors also declared a
regular quarterly dividend of $.51 per share on the common stock of the
Corporation. This represents an
25
26
increase of 4.1 percent over the $.49 per share dividend paid in prior quarters
during 1995 and the 20th consecutive year in which the Corporation has had a
dividend increase.
At December 31, 1995, the Corporation had $150 million of senior debt
outstanding, which is rated AAA by Standard & Poor's and Aa1 by Moody's. The
Corporation issues 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, 1995, no
commercial paper was outstanding. During August 1995, the Corporation modified
its $1.0 billion lines of credit to extend the commitment period for half of the
facility. The new credit lines with nineteen participating banks consist of a
364-day facility of $500 million and a five-year credit facility for the
remaining $500 million. The lines of credit provide the Corporation with support
for the commercial paper program and enhance the Corporation's financial
flexibility. At December 31, 1995, the Corporation had no outstanding loans
under this facility.
GRC, the Corporation's principal United States reinsurance subsidiary, has a
claims-paying rating of AAA by Standard & Poor's and a financial strength rating
of Aaa by Moody's. Each of these ratings represents the highest category for the
respective rating agency. GRC was also rated A++ by A.M. Best Company, a leading
insurance industry rating agency. Cologne Re has a claims-paying rating of AAA
by Standard & Poor's and an A rating from A.M. Best Company.
New Accounting Standards
See Note 2 on page 41 for a discussion of new accounting standards.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
GENERAL RE CORPORATION
INDEX TO RESERVE DISCLOSURES, FINANCIAL STATEMENTS AND SCHEDULES
PAGES
--------
RESERVE DISCLOSURES
Property/Casualty Insurance Claim Disclosures (Unaudited).......................... 27-32
FINANCIAL STATEMENTS
Report of Independent Accountants.................................................. 33
Consolidated Statements of Income.................................................. 34
Consolidated Balance Sheets........................................................ 35
Consolidated Statements of Common Stockholders' Equity............................. 36
Consolidated Statements of Cash Flows.............................................. 37
Notes to Financial Statements...................................................... 38-65
FINANCIAL STATEMENT SCHEDULES
I. Condensed Financial Information of Registrant................................... S-1-S-3
V. Supplementary Insurance Information............................................. 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.
26
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PROPERTY/CASUALTY INSURANCE CLAIM DISCLOSURES
The consolidated financial statements include estimated liabilities for unpaid
claims and claim expenses of the Corporation's United States and international
property/casualty reinsurance subsidiaries. The provision for reported but
unpaid claims and claim expenses is based on 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 reasonableness of claim and claim expense liabilities is Lee R. Steeneck,
FCAS, MAAA, Vice President and Actuary of General Re Corporation. 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 income statement provisions. In addition, the
Audit Committee of the Board of Directors has periodically engaged the services
of an actuarial consulting firm to compare the claim liabilities established by
management with the estimates of an independent consulting actuary.
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28
The table below provides a reconciliation of the beginning and ending claim and
claim expense liability, net of reinsurance, for 1995, 1994 and 1993.
TABLE 1
RECONCILIATION OF LIABILITY
FOR PROPERTY/CASUALTY CLAIMS AND CLAIM EXPENSES
(IN MILLIONS)
1995 1994 1993
------- ------- -------
Balance at January 1.......................................... $12,158 $ 8,452 $ 8,204
Reinsurance recoverables on unpaid claims and claim
expenses................................................. (1,841) (1,396) (1,366)
------- ------- -------
Net balance at January 1...................................... 10,317 7,056 6,838
Incurred claims and claim expenses related to:
Current year................................................ 3,666 2,017 1,583
Prior years................................................. 14 (36) 140
------- ------- -------
Total incurred claims and claim expenses...................... 3,680 1,981 1,723
Claim and claim expense payments related to:
Current year................................................ 773 423 214
Prior years................................................. 1,584 1,206 1,291
------- ------- -------
Total payments................................................ 2,357 1,629 1,505
------- ------- -------
Effect of foreign exchange.................................... 97 -- --
------- ------- -------
Net balance at December 31.................................... 11,737 7,408 7,056
Reinsurance recoverables on unpaid claims and claim
expenses................................................. 2,515 1,615 1,396
Cologne Re unpaid claims and claim expenses (first included at
December 31, 1994).......................................... -- 3,135 --
------- ------- -------
Balance at December 31........................................ $14,252 $12,158 $ 8,452
======= ======= =======
The Corporation discounts certain United States 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 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 reduced
liabilities for claims and claim expenses, net of reinsurance, is as follows:
28
29
TABLE 2
RECONCILIATION OF DISCOUNTING
NET LIABILITY FOR CLAIMS AND CLAIM EXPENSES
(IN MILLIONS)
1995 1994 1993
------ ------ ------
Cumulative discount, beginning of the year....................... $1,328 $1,319 $1,222
Additional discount for the year................................. 131 64 146
Amortization of discount......................................... (53) (55) (49)
------ ------ ------
Cumulative discount, end of the year............................. $1,406 $1,328 $1,319
====== ====== ======
Table 3 reconciles the difference between liabilities for claims and claim
expenses, net of reinsurance, reported in the consolidated financial statements
under 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, 1995
-----------------
Consolidated GAAP basis:
Gross...................................................................... $14,252
Ceded...................................................................... (2,515)
-------
Net........................................................................ 11,737
Assumed loss portfolios...................................................... (450)
Net liability of international subsidiaries.................................. (4,352)
-------
United States liability reported on a SAP basis.............................. $ 6,935
=======
Table 4 presents the development of net balance sheet liabilities for the
Corporation's United States property/casualty operations from 1985 through 1995.
Table 5 presents the development of the gross balance sheet liability for the
Corporation's United States property/casualty operations from 1992 through 1995.
Reference is made to Exhibit 28, "Combined United States Property/Casualty
Insurance Company Schedule P" for a more detailed review of SAP liabilities on
an accident year basis.
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 balance sheet date through December 31,
1995. Annual changes in the estimates are included in current operating results
each year as the liabilities are reevaluated. The deficiencies shown in the
tables represent cumulative differences between the original estimate and the
current balance sheet liabilities and therefore they should not be summed. 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.
29
30
TABLE 4
ANALYSIS OF UNITED STATES
NET CLAIMS AND CLAIM EXPENSE DEVELOPMENT
(IN MILLIONS)
YEAR ENDED
DECEMBER 31 1985 1986 1987 1988 1989 1990 1991 1992 1993
- --------------------------------- ------- ------- ------- ------ ------ ------ ------ ------ ------
Net liability for unpaid claims
and claim expenses............. $ 2,924 $ 4,043 $ 4,738 $5,217 $5,549 $5,842 $6,230 $6,635 $6,803
Net liability reestimated as of:
1 year later................... 3,443 4,348 4,903 5,185 5,537 5,856 6,286 6,775 6,767
2 years later.................. 3,742 4,691 4,927 5,247 5,481 5,778 6,352 6,850 6,845
3 years later.................. 4,000 4,757 4,991 5,166 5,502 5,906 6,475 6,994
4 years later.................. 4,123 4,874 4,983 5,236 5,683 6,091 6,638
5 years later.................. 4,268 4,910 5,044 5,420 5,900 6,319
6 years later.................. 4,321 5,022 5,284 5,642 6,173
7 years later.................. 4,442 5,225 5,528 5,958
8 years later.................. 4,654 5,467 5,855
9 years later.................. 4,935 5,830
10 years later................. 5,284
Total cumulative (deficiency)
redundancy*.................. $(2,360) $(1,787) $(1,117) $ (741) $ (624) $ (477) $ (408) $ (359) $ (42)
Cumulative amount of net
liability paid through:
1 year later................... $ 622 $ 890 $ 747 $ 812 $ 927 $ 905 $1,044 $1,291 $1,207
2 years later.................. 1,229 1,385 1,354 1,436 1,584 1,613 1,955 2,195 2,063
3 years later.................. 1,614 1,877 1,846 1,903 2,115 2,332 2,570 2,850
4 years later.................. 1,980 2,267 2,209 2,320 2,689 2,769 3,072
5 years later.................. 2,280 2,565 2,546 2,814 3,025 3,184
6 years later.................. 2,503 2,842 2,965 3,085 3,362
7 years later.................. 2,724 3,207 3,203 3,375
8 years later.................. 2,965 3,413 3,472
9 years later.................. 3,146 3,659
10 years later................. 3,363
YEAR ENDED
DECEMBER 31 1994 1995
- --------------------------------- ------ -------
<C
Net liability for unpaid claims
and claim expenses............. $7,029 $ 7,385
Net liability reestimated as of:
1 year later................... 7,042
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*.................. $ (13)
Cumulative amount of net
liability paid through:
1 year later................... $1,176
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.................
- ---------------
* The liability for workers' compensation tabular reserves for claims and claim
expenses is discounted as discussed herein. Therefore, the liability
reestimated for each year includes the effect of the discount and its
amortization.
30
31
TABLE 5
ANALYSIS OF UNITED STATES
GROSS CLAIMS AND CLAIM EXPENSE DEVELOPMENT
(IN MILLIONS)
YEAR ENDED DECEMBER 31
---------------------------------------
1992 1993 1994 1995
------ ------ ------ ------
Gross liability for unpaid claims and claim expenses.... $7,968 $8,122 $8,578 $9,356
Gross liability reestimated as of:
1 year later.......................................... 8,087 8,180 8,865
2 years later......................................... 8,149 8,438
3 years later......................................... 8,570
Total cumulative (deficiency) redundancy................ (602) (316) (287) xxx
Cumulative amount of gross liability paid through:
1 year later.......................................... 1,620 1,351 1,502
2 years later......................................... 2,641 2,419
3 years later......................................... 3,432
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 Tables 4 and 5. Starting in 1979, the Corporation
considerably strengthened the liability for claims and claim expenses for latent
injury (e.g., asbestos-related) and environmental (e.g., hazardous waste)
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.
Adjustments to the Corporation's liabilities have been made in each year's
current operating results since 1979 to reflect the evolution of case law which
has widened the nature and extent of insurance and reinsurance coverage for
these exposures.
In the mid 1980s, the Corporation also 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. Subsequent to the mid 1980's, reserve strengthening on
environmental and latent injury claims and excess liability business for
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.
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 United States 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 increased its
capacity over time by retaining more risk and by purchasing additional
reinsurance protection above its retentions. The Corporation has selected
financially sound reinsurers and anticipates receiving the full amounts
recoverable, net of allowances provided for uncollectible reinsurance
recoverables.
Table 6 and Table 7 present the development of net and gross balance sheet
liabilities for the Corporation's international property/casualty operations
beginning in 1994. The accident-year information required to complete Table 6
and Table 7 for the Corporation's wholly owned international subsidiaries was
not available
31
32
in prior years. These liabilities, however, were not significant to the
consolidated total in prior periods. Due to customary lags in underwriting
activity reports from ceding companies in Europe, there may be correlated
development of both premium and claims in the international operations and
fluctuations due to currency movement. The effect of currency movements on these
liabilities has been separately reported in these two tables below.
TABLE 6
ANALYSIS OF INTERNATIONAL
NET CLAIMS AND CLAIM EXPENSE DEVELOPMENT
(IN MILLIONS)
YEAR ENDED
DECEMBER 31,
-----------------
1994 1995
------ ------
Net liability for unpaid claims and claim expenses......................... $3,447 $4,352
Net liability reestimated as of:
1 year later............................................................. 3,545
Effect of foreign exchange................................................. 97
Total cumulative (deficiency) redundancy................................... (1)
Cumulative amount of net liability paid through:
1 year later............................................................. 408
TABLE 7
ANALYSIS OF INTERNATIONAL
GROSS CLAIMS AND CLAIM EXPENSE DEVELOPMENT
(IN MILLIONS)
YEAR ENDED
DECEMBER 31,
-----------------
1994 1995
------ ------
Gross liability for unpaid claims and claim expenses....................... $3,753 $4,896
Gross liability reestimated as of:
1 year later............................................................. 3,858
Effect of foreign exchange................................................. 97
Total cumulative (deficiency) redundancy................................... (8)
Cumulative amount of gross liability paid through:
1 year later............................................................. 565
In evaluating the information included in Tables 4 - 7, 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, 1995, net and gross of reinsurance, are adequate.
32
33
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 26 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, 1995 and 1994, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1995, 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.
COOPERS & LYBRAND L.L.P.
New York, New York
February 6, 1996
33
34
GENERAL RE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN MILLIONS, EXCEPT SHARE DATA)
1995 1994 1993
------ ------ ------
PREMIUMS AND OTHER REVENUES
Net premiums written
Property/casualty.................................. $5,393 $3,001 $2,524
Life/health........................................ 709 -- --
------- ------- -------
--- --- ---
Total net premiums written........................... $6,102 $3,001 $2,524
========== ========== ==========
Net premiums earned
Property/casualty.................................. $5,141 $2,788 $2,446
Life/health........................................ 696 -- --
------- ------- -------
--- --- ---
Total net premiums earned............................ 5,837 2,788 2,446
Investment income.................................... 1,017 749 755
Other revenues....................................... 292 234 200
Net realized gains on investments.................... 64 66 159
------- ------- -------
--- --- ---
Total revenues............................. 7,210 3,837 3,560
------- ------- -------
--- --- ---
EXPENSES
Claims and claim expenses............................ 3,680 1,981 1,723
Life/health benefits................................. 505 -- --
Acquisition costs.................................... 1,345 614 552
Other operating costs and expenses................... 563 448 400
------- ------- -------
--- --- ---
Total expenses............................. 6,093 3,043 2,675
------- ------- -------
--- --- ---
Income before income taxes,
cumulative-effect adjustments and
minority interest........................ 1,117 794 885
Income tax expense (benefit):
Current............................................ 288 152 160
Deferred........................................... (41) (23) 28
------- ------- -------
--- --- ---
Income tax expense................................... 247 129 188
------- ------- -------
--- --- ---
Income before cumulative-effect adjustments
and minority interest.................... 870 665 697
Minority interest.................................... 45 -- --
------- ------- -------
--- --- ---
Income before cumulative-effect
adjustments.............................. 825 665 697
Cumulative effect of accounting changes.............. -- -- 14
------- ------- -------
--- --- ---
Net income................................. $ 825 $ 665 $ 711
========== ========== ==========
SHARE DATA:
Income before cumulative-effect adjustments.......... $ 9.92 $ 7.97 $ 8.11
Cumulative effect of accounting changes.............. -- -- .17
------- ------- -------
--- --- ---
Net income per common share.......................... $ 9.92 $ 7.97 $ 8.28
========== ========== ==========
Dividends per share to common stockholders........... $ 1.96 $ 1.92 $ 1.88
Average common shares outstanding.................... 82,085,315 82,071,651 84,542,686
The accompanying notes are an integral part of these consolidated financial
statements.
34
35
GENERAL RE CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
(IN MILLIONS, EXCEPT SHARE DATA)
1995 1994
------- -------
ASSETS
INVESTMENTS:
Fixed maturities:
Held-to-maturity (fair value: $1,971 in 1994)....................... -- $ 1,900
Available-for-sale (cost: $14,108 in 1995; $10,840 in 1994)......... $14,987 10,717
Trading (cost: $2,316 in 1995; $1,579 in 1994)...................... 2,317 1,557
Equity securities, at fair value (cost: $2,597 in 1995; $2,318 in
1994)............................................................... 3,944 2,977
Short-term investments, at amortized cost which approximates fair
value............................................................... 1,449 1,032
Other invested assets.................................................. 797 715
------- -------
Total investments...................................................... 23,494 18,898
------- -------
Cash..................................................................... 258 242
Accrued investment income................................................ 390 272
Accounts receivable...................................................... 2,368 1,421
Funds held by reinsured companies........................................ 2,180 1,942
Reinsurance recoverable.................................................. 2,794 2,067
Deferred acquisition costs............................................... 434 324
Securities purchased under agreements to resell.......................... 66 813
Trading account assets................................................... 2,434 1,928
Other assets............................................................. 1,528 1,690
------- -------
Total assets................................................... $35,946 $29,597
======= =======
LIABILITIES
Claims and claim expenses................................................ $14,252 $12,158
Policy benefits for life/health contracts................................ 2,263 1,960
Unearned premiums........................................................ 1,913 1,642
Other reinsurance balances............................................... 3,056 2,318
Notes payable and commercial paper....................................... 155 188
Income taxes............................................................. 634 196
Securities sold under agreements to repurchase........................... 1,263 938
Securities sold but not yet purchased.................................... 614 927
Trading account liabilities.............................................. 2,627 2,320
Other liabilities........................................................ 1,357 1,046
Minority interest........................................................ 1,224 1,044
------- -------
Total liabilities.............................................. 29,358 24,737
------- -------
Cumulative convertible preferred stock (shares issued 1,724,037 in 1995
and 1,734,717 in 1994; no par value)................................... 147 148
Loan to employee savings and stock ownership plan........................ (146) (147)
------- -------
1 1
------- -------
COMMON STOCKHOLDERS' EQUITY
Common stock (102,827,344 shares issued in 1995 and 1994; par value
$.50).................................................................. 51 51
Paid-in capital.......................................................... 635 604
Unrealized appreciation of investments, net of deferred income taxes..... 1,468 421
Currency translation adjustments, net of deferred income taxes........... (11) (20)
Retained earnings........................................................ 5,986 5,330
Less common stock in treasury, at cost (shares held: 20,714,069 in 1995
and 20,955,202 in 1994)................................................ (1,542) (1,527)
------- -------
Total common stockholders' equity.............................. 6,587 4,859
------- -------
Total liabilities, cumulative convertible preferred stock and
common stockholders' equity.................................. $35,946 $29,597
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
35
36
GENERAL RE CORPORATION
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
(IN MILLIONS)
1995 1994 1993
------- ------- -------
COMMON STOCK:
Beginning of year........................................... $ 51 $ 51 $ 51
Change for the year......................................... -- -- --
------- ------- -------
End of year.............................................. 51 51 51
------- ------- -------
PAID-IN CAPITAL:
Beginning of year........................................... 604 596 589
Stock issued under stock option and other incentive
arrangements............................................. 24 6 5
Other....................................................... 7 2 2
------- ------- -------
End of year.............................................. 635 604 596
------- ------- -------
UNREALIZED APPRECIATION OF INVESTMENTS, NET OF DEFERRED INCOME
TAXES:
Beginning of year........................................... 421 651 517
Cumulative effect of accounting change (FAS 115), net of
deferred income taxes of $201 million.................... -- 373 --
Change for the year......................................... 1,641 (942) 203
Deferred income taxes....................................... (594) 339 (69)
------- ------- -------
End of year.............................................. 1,468 421 651
------- ------- -------
CURRENCY TRANSLATION ADJUSTMENTS, NET OF DEFERRED INCOME
TAXES:
Beginning of year........................................... (20) (42) (19)
Change for the year......................................... 9 22 (23)
------- ------- -------
End of year.............................................. (11) (20) (42)
------- ------- -------
RETAINED EARNINGS:
Beginning of year........................................... 5,330 4,830 4,285
Net income.................................................. 825 665 711
Dividends paid on common stock.............................. (161) (157) (159)
Dividends paid on preferred stock, net of income taxes...... (8) (8) (7)
------- ------- -------
End of year.............................................. 5,986 5,330 4,830
------- ------- -------
COMMON STOCK IN TREASURY:
Beginning of year........................................... (1,527) (1,325) (1,196)
Cost of shares acquired during year......................... (35) (207) (134)
Issued under stock option and other incentive
arrangements............................................. 20 5 5
------- ------- -------
End of year.............................................. (1,542) (1,527) (1,325)
------- ------- -------
Total common stockholders' equity................... $ 6,587 $ 4,859 $ 4,761
======= ======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
36
37
GENERAL RE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN MILLIONS)
1995 1994 1993
------- ------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................. $ 825 $ 665 $ 711
Cumulative effect of accounting changes..................... -- -- (14)
Adjustments to reconcile net income to net cash provided by
operating activities:
Change in claim and claim expense liabilities............ 1,462 571 248
Change in policy benefits for life/health contracts...... 174 -- --
Change in reinsurance recoverable........................ (305) (220) (30)
Change in unearned premiums.............................. 188 261 4
Amortization of acquisition costs........................ 1,345 614 552
Acquisition costs deferred............................... (1,470) (672) (559)
Trading account activities
Change in trading account securities................... (1,602) 1,232 (1,126)
Securities purchased under agreements to resell........ 747 (681) (439)
Securities sold under agreements to repurchase......... 325 (628) 1,597
Change in other trading balances....................... 586 26 (117)
Other changes in assets and liabilities.................. (622) (16) 217
Realized gains on investments............................ (64) (66) (159)
-------- -------- --------
Net cash from operating activities.................. 1,589 1,086 885
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Fixed maturities: held-to-maturity
Purchases................................................ -- (40) (66)
Calls and maturities..................................... -- 296 395
Sales.................................................... -- -- --
Fixed maturities: available-for-sale
Purchases................................................ (5,771) (4,375) (4,020)
Calls and maturities..................................... 811 267 624
Sales.................................................... 3,839 4,042 2,495
Equity securities
Purchases................................................ (902) (999) (1,372)
Sales.................................................... 723 978 1,014
Net purchases of other invested assets...................... (101) (61) (168)
Net (purchases) sales of short-term investments............. (231) (124) 184
Net purchase of shares in GR-CK............................. -- (582) --
Cash obtained on purchase of GR-CK.......................... -- 153 --
-------- -------- --------
Net cash used in investing activities............... (1,632) (445) (914)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of notes payable................................. -- (21) (6)
Commercial paper borrowing (repayment), net................. (31) (230) 251
Change in contract deposits................................. 147 171 98
Cash dividends paid to stockholders: Common................. (161) (157) (159)
Preferred............. (11) (11) (11)
Acquisition of treasury stock............................... (30) (222) (134)
Other....................................................... 145 11 9
-------- -------- --------
Net cash from (used in) financing activities........ 59 (459) 48
-------- -------- --------
Change in cash................................................ 16 182 19
Cash, beginning of year....................................... 242 60 41
-------- -------- --------
Cash, end of year............................................. $ 258 $ 242 $ 60
======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
37
38
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION: General Re Corporation and Subsidiaries (the "Corporation") is a
global reinsurance and financial services company. The Corporation operates in
four principal business segments: United States property/casualty reinsurance,
international property/casualty reinsurance, life/health reinsurance and
financial services. The Corporation is the largest professional
property/casualty reinsurer domiciled in the United States and is among the four
largest in the world.
The Corporation's United States property/casualty subsidiaries produced revenues
of $3,641 million, or 50.5 percent, of consolidated revenues in 1995. The
principal business of these subsidiaries is treaty and facultative reinsurance
underwritten on a direct basis throughout the United States and Canada. The
Corporation predominately writes excess-of-loss reinsurance across various lines
of business.
The Corporation's international property/casualty operations produced revenues
of $2,573 million, or 35.7 percent, of consolidated revenues in 1995. With the
consolidation of the results of Kolnische Ruckversicherungs-Gesellschaft AG
("Cologne Re") in 1995, international property/casualty premium now accounts for
a significantly greater portion of the Corporation's revenues. The Corporation's
international business in 1995 was primarily conducted through operations based
in Germany, the United Kingdom, Switzerland, Ireland, Australia, and Argentina.
The Corporation's life/health reinsurance operations produced revenues of $742
million, or 10.3 percent, of the consolidated total in 1995. These operations
include the United States and international life/health reinsurance operations
of Cologne Re.
The Corporation's financial services operations include derivative products,
insurance brokerage and management, investment management, reinsurance brokerage
and real estate management operations. Through its subsidiary, General Re
Financial Products Corporation ("GRFP"), a dealer in derivative products, the
Corporation offers a full line of interest rate and cross-currency swaps,
options, and other derivative products in all major currencies from offices or
affiliates in New York, Toronto, London and Tokyo. The financial services
operations produced $254 million, or 3.5 percent, of the Corporation's 1995
revenues.
The following are the significant accounting policies and practices of the
Corporation:
BASIS OF PRESENTATION: The Corporation's consolidated financial statements have
been prepared on the basis of generally accepted accounting principles in the
United States. The consolidated financial statements include the Corporation and
its subsidiaries. All significant intercompany transactions have been
eliminated. International property/casualty and life/health subsidiaries report
their results on a quarter lag. In 1995, all of GRFP's trading-related cash
flows have been classified as operating in the statement of cash flows. Certain
other reclassifications have been made to 1994 and 1993 balances to conform to
the 1995 presentation.
INVESTMENTS: 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. During the fourth quarter of
1995, the Corporation reassessed its categorization of fixed maturities in
response to recent additional classification guidance issued by the Financial
Accounting Standards Board. At December 31, 1995, all fixed maturity securities
of the Corporation have been categorized as either available-for-sale or
trading. Most of the securities transferred to the available-for-sale category
were tax-exempt securities grandfathered under the Tax Reform Act of 1986 that
the Corporation anticipates being called within the near future. The
38
39
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
recategorization of these securities had no effect on net income and increased
common stockholders' equity by $53 million.
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 United States dollars of investments held by the United States
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 joint ventures,
limited partnerships and real estate. Reinsurance ventures reported under the
equity method are carried at initial cost with adjustment after acquisition for
the Corporation's proportionate share of the venture's earnings. The amount of
the adjustment is included in income. Limited partnership investments are
carried at estimated fair value. 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 unexpired portion of
premiums written. Such liabilities are computed by pro rata methods based
on statistical data and reports received from ceding companies. In the
absence of ceding company reports, premiums are estimated using historical
information and management judgment. Premium adjustments on contracts and
audit premiums are accrued on an estimated basis throughout the contract
term. Premiums are net of retrocessions.
ACQUISITION COSTS: Acquisition 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.
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 claims and
claim expenses, which are actuarially estimated based on past experience
and are 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 included in income currently. 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 $1,244 million and $1,186 million at December 31, 1995
and 1994, respectively, after being discounted at an interest rate of 4.5
percent.
LIFE/HEALTH OPERATIONS
PREMIUMS EARNED: Premiums for life contracts are recognized in income when
due. Premiums for health contracts are earned over the contract period in
proportion to the amount of insurance or reinsurance provided. Unearned
premium liabilities are established to cover the unexpired portion of
health premiums written. Premiums are reported net of retrocessions.
ACQUISITION COSTS: Acquisition costs, principally commissions that vary
with and are primarily related to the acquisition of new business, are
deferred and amortized with interest over the premium-paying period of
traditional life and health insurance policies.
39
40
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
POLICY BENEFITS FOR LIFE/HEALTH CONTRACTS: The liability for policy
benefits for life contracts has been computed based upon assumed investment
yields and mortality and withdrawal rates anticipated at the later of
either the acquisition of Cologne Re or at the date of contract issuance.
These assumptions include a margin for adverse deviation and vary with the
characteristics of the reinsurance contract's date of issuance, policy
duration and country of risk. The interest rate assumptions used vary by
country ranging principally from 3.0 percent to 7.0 percent. Appropriate
provisions for profit-sharing commissions to ceding companies have been
recorded.
PRESENT VALUE OF FUTURE PROFITS: The present value of future profits
("PVP") is the actuarially determined present value of the projected
profits from the continuation of in-force reinsurance on existing insurance
policies on the date Cologne Re was acquired. The calculation of the
estimated profits includes anticipated future premiums, death and benefit
payments, reserve changes, profit sharing amounts, expenses and related
investment income. PVP was determined using risk-adjusted discount rates
ranging primarily from 10.0 percent through 16.0 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. PVP, which is included in
"Other assets" on the balance sheet, was $125 million at December 31, 1995
and is being amortized over the duration of the related life business,
approximately 20 years, based upon the assumed underlying profits of the
business acquired using a 7.0 percent interest rate.
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. Funds held assets specifically
related to life/health benefits were $1,682 million and $1,482 million at
December 31, 1995 and 1994, respectively.
GOODWILL: The Corporation amortizes on a straight-line basis goodwill recorded
in connection with its business combinations. Included in "Other assets" was
goodwill of $495 million and $509 million at December 31, 1995 and 1994,
respectively, which was principally related to the Cologne Re joint venture. The
Corporation's goodwill is amortized over the lesser of the expected life of the
related operations acquired or 40 years. The amount of goodwill reported for the
Cologne Re transaction will fluctuate based on changes in the value of the
German mark (functional currency) to the United States dollar (reporting
currency) during the period.
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 United States and foreign 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 or credit directly to
the applicable component of common stockholders' equity.
FOREIGN CURRENCY TRANSLATION: Revenues and expenses in foreign currencies are
translated at the average rate of exchange during the period. 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.
DEPOSITS: Reinsurance contracts that do not indemnify the ceding company against
loss or liability are recorded as deposits and included in "Other reinsurance
balances." 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: Allowances are provided for uncollectible
reinsurance recoverables and other doubtful receivables. The allowance is
recorded as a valuation account and reduces the corresponding asset. The
allowance was $135 million and $121 million at December 31, 1995 and 1994,
respectively.
40
41
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FINANCIAL SERVICES: GRFP's derivative contracts are carried at estimated fair
value which is determined using financial models which incorporate current
interest rates, currency rates, and security values. Securities owned,
securities sold but not yet purchased and futures contracts are carried at fair
value. Realized and unrealized gains or losses from selling or valuing
securities and contractual commitments at fair value are included in "Other
revenues." Included in the balance sheet captions, trading account assets and
liabilities, are the unrealized gains and losses on interest rate and currency
swaps, forward currency commitments and option products. These estimated
unrealized gains and losses, which have been included in income, represent the
fair value of estimated future cash flows for these transactions. 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 are recorded at their contractual resale or repurchase amounts,
plus accrued interest.
ACCOUNTING ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets, liabilities,
revenues and expenses. The Corporation's principal estimates include
property/casualty claims and claim expenses, policy benefits for life/health
contracts, estimated premium for situations where the Corporation has not
received ceding company reports and nonexchange traded financial instruments.
The Corporation utilizes historical information, actuarial analyses, financial
modeling and other analytical techniques to prepare these estimates. Actual
results for all these items could differ from the estimates included in the
Corporation's income statement, balance sheet and statement of cash flows.
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
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation.
The Statement establishes financial accounting and reporting standards for
stock-based employee compensation plans. The Statement defines a fair-value
based method of accounting for stock option plans whereby compensation cost is
measured at the grant date based on the value of the award and is recognized
over the service period. Under the new Statement, companies may continue to
measure compensation cost of stock-based plans using the current accounting
prescribed by Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees. Companies electing to remain with the accounting in Opinion
No. 25 must make pro forma disclosures of net income and earnings per share as
if the fair-value based method of accounting defined in the Statement were
applied. The Statement is effective in 1996. The Corporation intends to continue
its current method of accounting for stock-based compensation plans. Therefore,
the adoption of the Statement will have no effect on the Corporation's results
from operations, financial position or cash flows.
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of. The Statement
established accounting standards for the determination of impairment of long-
lived assets, certain identifiable intangibles and goodwill. The Statement
requires that long-lived assets and intangibles be reviewed for impairment using
an estimate of future undiscounted cash flows compared to the carrying amount of
the assets. The Statement is effective in 1996. It is anticipated the adoption
of the Statement will have no material impact on the results from operations,
financial position or cash flows of the Corporation.
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 effect of Statement No. 115 decreased common
stockholders' equity by $81 million at December 31, 1994. The Statement's
adoption had
41
42
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
no effect on the Corporation's results from operations. See Note 1 for
additional details on the Corporation's investment accounting policies.
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.
3. REINSURANCE VENTURES
Cologne Re
On December 28, 1994, the Corporation and Colonia Konzern AG ("Colonia") formed
a new company that acquired 75 percent of the ordinary shares and approximately
30 percent of the preference 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, "CKAG"), received 100 percent of the Class A
shares of the new company, General Re-CKAG Reinsurance and Investment S.a r.1.
("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 the Corporation in
exchange for notes in the 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
intercompany notes have been eliminated in consolidation. The funds invested in
GR-CK are subject to certain restrictions according to the joint venture
agreement.
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 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. The dividend related to 1995 on the
Class A and B shares will be paid in 1996.
The Corporation has an option after seven years to purchase the Class A shares
of GR-CK owned by the CKAG 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. If the Corporation does
not exercise its option to purchase the Class A shares of GR-CK from CKAG, CKAG
has the option to purchase the Class B shares of GR-CK from the Corporation
under a similar exercise price formula.
The acquisition of the shares of Cologne Re through GR-CK has been accounted for
as a purchase. The Corporation has consolidated GR-CK and Cologne Re in its
financial statements and recorded as minority interests the share of CKAG in
GR-CK and of the other stockholders in Cologne Re. The assets and liabilities of
Cologne Re were included in the Corporation's balance sheet at December 31, 1994
at management's then best estimate of their fair values. The final evaluation of
assets and liabilities was completed during 1995. The cost of the initial
acquisition has been allocated on the basis of the estimated fair market value
of the assets acquired and the liabilities assumed at the time of the
transactions, with the excess of cost over net assets acquired recorded as
goodwill.
During the second quarter of 1995, Cologne Re completed a rights offering that
raised DM 437 million ($317 million at the June 30, 1995 exchange rate), which
increased its capital under United States generally accepted accounting
principles by 62.9 percent over the amount at December 31, 1994. In connection
with Cologne Re's rights offering, GR-CK subscribed for its pro rata share,
approximately DM 297 million ($215
42
43
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
million at the June 30, 1995 exchange rate), of the offering. In addition to its
ownership in Cologne Re through GR-CK, the Corporation purchased for its own
account an additional 6.9 percent of the ordinary and preference shares of
Cologne Re during 1995 for aggregate consideration of $68 million, which
increased the Corporation's consolidated economic interest in Cologne Re to 73.2
percent. The purchase of Cologne Re shares during 1995 was accounted for as a
step acquisition. Under the step acquisition method of accounting, the fair
value of assets and liabilities are recorded at each acquisition date with the
excess of cost over fair value recorded as incremental 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 which 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
After-tax 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 50.0
percent partnership interest in Engineering Insurance Group ("EIG"), a machinery
breakdown insurer, for nonvoting preferred stock in EIG having a value of $20
million. The preferred stock pays dividends at a rate of 6.5 percent per annum.
Signet Star Holdings
In 1993, the Corporation entered into a joint venture with W.R. Berkley
Corporation ("Berkley") 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 Berkley. Under the agreement, the Corporation
acquired shares representing 40.0 percent of the equity interest of SSH, $36
million of 6.96 percent convertible debt due in January 2003 and $40 million of
9.8 percent senior debt due in January 2000. The Corporation accounted for its
interest in SSH under the equity method. In November 1993, SSH called the senior
debt at par plus accrued interest. 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 effect on the Corporation's results from operations or
financial position during 1995.
In December 1995, the Corporation sold its 40.0 percent interest in SSH to
Berkley in exchange for 458,667 shares of Series B cumulative redeemable
preferred stock of Berkley having an aggregate liquidation preference of $69
million. The preferred stock has a dividend rate that increases quarterly to 6.0
percent during the first twelve months after issuance. Thereafter, the rate is
subject to readjustment based on the then current market interest rate. Prior to
this transaction, the Corporation purchased the common stock of North Star from
SSH for its then current statutory surplus of $10 million. In addition, the $36
million SSH convertible debt was redeemed at par plus accrued interest and
replaced with a $36 million subordinated note of SSH,
43
44
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
maturing on July 1, 2003, bearing an interest rate of 6.5 percent for which the
principal and interest are guaranteed by Berkley.
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 20.7 percent interest in Tempest of $143 million and $112
million at December 31, 1995 and 1994, respectively, under the equity method.
The Corporation provides underwriting and investment management services for
Tempest.
Tempest is negotiating an exchange of shares of Tempest for shares in ACE
Limited, a Bermuda insurer. The transaction would be subject to approval by both
companies' Boards of Directors and shareholders. If the transaction is
consummated, the Corporation would sell back to Tempest its 20.7 percent
interest in Tempest for cash consideration. In addition, the underwriting
services provided to Tempest by the Corporation would be terminated. The
financial effect of this transaction would be recorded in 1996.
4. STATUTORY FINANCIAL INFORMATION
The Corporation's United States 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, investments, subsidiaries, acquisition expenses,
furniture and equipment, deferred income taxes and certain other items. Combined
statutory surplus at December 31, 1995 and 1994 was $4,607 million and $3,770
million, respectively, and combined statutory net income for the years ended
December 31, 1995, 1994 and 1993 was $621 million, $511 million and $655
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
at December 31, 1995 was $483 million resulting from discounting permitted by
the domiciliary insurance department.
The Corporation's international subsidiaries prepare statutory financial
statements based on local laws and regulations. Some jurisdictions, such as the
United Kingdom, impose complex regulatory requirements on reinsurance companies,
while other jurisdictions, such as Germany, impose fewer requirements. Local
reinsurance business conducted by the Corporation's subsidiaries in some
countries require licenses issued by governmental authorities. These licenses
may be subject to modification or revocation dependent on such factors as amount
and types of reserves and minimum capital and solvency tests. Jurisdictions may
impose fines, censure and/or criminal sanctions for violation of regulatory
requirements.
44
45
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, 1995
-----------------------------------------------------
GROSS GROSS
UNREALIZED UNREALIZED FAIR
COST1 APPRECIATION DEPRECIATION VALUE
------- ------------ ------------ -------
(IN MILLIONS)
SHORT-TERM INVESTMENTS......................... $ 1,449 -- -- $ 1,449
FIXED MATURITIES -- AVAILABLE-FOR-SALE
U.S. Government.............................. 1,354 $ 83 $ 3 1,434
German federal and state governments......... 857 52 -- 909
Tax exempt................................... 6,665 521 2 7,184
Corporate.................................... 2,556 133 5 2,684
Mortgage-backed.............................. 598 28 -- 626
Asset-backed................................. 108 5 -- 113
Non United States............................ 1,970 74 7 2,037
------- ------ --- -------
Total fixed
maturities -- available-for-sale........ 14,108 896 17 14,987
------- ------ --- -------
FIXED MATURITIES -- TRADING
U.S. Government.............................. 730 8 -- 738
Non United States............................ 1,586 35 42 1,579
------- ------ --- -------
Total fixed maturities -- trading......... 2,316 43 42 2,317
------- ------ --- -------
EQUITIES....................................... 2,597 1,365 18 3,944
OTHER INVESTED ASSETS.......................... 733 65 1 797
------- ------ --- -------
Total................................ $21,203 $2,369 $ 78 $23,494
======= ====== === =======
- ---------------
1 Cost is amortized cost for short-term investments and fixed maturities and
original cost for equity securities and other invested assets.
45
46
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1994
-----------------------------------------------------
GROSS GROSS
UNREALIZED UNREALIZED FAIR
COST1 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
Corporate.................................... 160 -- -- 160
Non United States............................ 291 2 6 287
------- ------ ---- -------
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.................................... 2,210 10 42 2,178
Mortgage-backed.............................. 647 2 20 629
Asset-backed................................. 253 -- 9 244
Non United States............................ 2,150 -- 17 2,133
------- ------ ---- -------
Total fixed
maturities -- available-for-sale........ 10,840 121 244 10,717
------- ------ ---- -------
FIXED MATURITIES -- TRADING
U.S. Government.............................. 511 -- 1 510
Non United States............................ 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.
Gross gains of $117 million, $57 million and $120 million and gross losses of
$73 million, $120 million and $22 million were realized on sales of
available-for-sale fixed maturities in 1995, 1994 and 1993, 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.
46
47
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995
AVAILABLE-FOR-SALE
---------------------
AMORTIZED FAIR
COST VALUE
--------- -------
(IN MILLIONS)
Due in one year or less......................................... $ 642 $ 667
Due after one year through five years........................... 3,432 3,586
Due after five years through ten years.......................... 4,206 4,477
Due after ten years............................................. 5,122 5,518
Mortgage and asset-backed....................................... 706 739
------- -------
Total........................................................... $14,108 $14,987
======= =======
Realized gains or losses recognized in income for fixed maturities and equity
securities were as follows:
YEARS ENDED DECEMBER
31
--------------------
1995 1994 1993
--- ---- ---
(IN MILLIONS)
Fixed maturities................................................ $44 $(63) $98
Equity securities............................................... 20 129 61
--- ---- ---
Total realized gains............................................ 64 66 159
Income taxes.................................................... 25 22 66
--- ---- ---
Realized gains on investments, after income taxes............... $39 $ 44 $93
=== ==== ===
Dividend, interest and other investment income was as follows:
YEARS ENDED DECEMBER 31
------------------------
1995 1994 1993
------ ---- ----
(IN MILLIONS)
Fixed maturities............................................ $ 850 $648 $658
Equity securities........................................... 111 75 76
Short-term investments...................................... 62 35 22
Miscellaneous, net.......................................... 26 8 12
------ ---- ----
Total investment income..................................... 1,049 766 768
Investment expenses......................................... (32) (17) (13)
------ ---- ----
Investment income........................................... $1,017 $749 $755
====== ==== ====
Securities with a market value of approximately $635 million at December 31,
1995 were on deposit with various state or governmental departments to comply
with insurance laws.
47
48
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. CLAIMS AND CLAIM EXPENSES
The table below provides a reconciliation of the beginning and ending claim and
claim expense liability, net of reinsurance, for the years presented.
1995 1994 1993
------- ------- -------
(IN MILLIONS)
Balance at January 1.......................................... $12,158 $ 8,452 $ 8,204
Reinsurance recoverables on unpaid claims and claim
expenses................................................. (1,841) (1,396) (1,366)
------- ------- -------
Net balance at January 1...................................... 10,317 7,056 6,838
Incurred claims and claim expenses related to:
Current year................................................ 3,666 2,017 1,583
Prior years................................................. 14 (36) 140
------- ------- -------
Total incurred claims and claim expenses...................... 3,680 1,981 1,723
------- ------- -------
Claim and claim expense payments related to:
Current year................................................ 773 423 214
Prior years................................................. 1,584 1,206 1,291
------- ------- -------
Total payments................................................ 2,357 1,629 1,505
------- ------- -------
Effect of foreign exchange.................................... 97 -- --
------- ------- -------
Net balance at December 31.................................... 11,737 7,408 7,056
Reinsurance recoverables on unpaid claims and claim
expenses................................................. 2,515 1,615 1,396
Cologne Re unpaid claims and claim expenses (first included at
December 31, 1994).......................................... -- 3,135 --
------- ------- -------
Balance at December 31........................................ $14,252 $12,158 $ 8,452
======= ======= =======
The liability for claims and claim expenses for 1994 and prior accident years
for the Corporation's property/casualty operations, net of related reinsurance
recoveries, increased by $13 million in 1995. The increase was principally the
result of the net effect of reserve strengthening for environmental and latent
injury claims, partly offset by favorable loss development on casualty lines of
business. The liability for United States operations for prior accident years
was decreased by $36 million in 1994, and increased by $140 million during 1993.
The adverse effect on income in 1993 was the result of reserve strengthening
principally for environmental and latent injury claims. The liability for claims
and claim expenses for 1994 and prior accident years for the international
operations, net of related reinsurance recoveries and foreign exchange,
increased by $1 million in 1995.
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 business (e.g., automobile). The estimate is composed of four
parts: known claims, development on known claims, incurred but not reported
("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 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.
48
49
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The gross liability for environmental and latent injury claims and claim
expenses and the related reinsurance recoverable were $1,756 million and $498
million, respectively, at December 31, 1995. 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 several decades. The Corporation continues to monitor evolving
case law and its effect on environmental and latent injury claims. Changing
government regulations, 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.
7. FEDERAL, FOREIGN AND LOCAL INCOME TAXES
Income tax expense (benefit) was as follows:
YEARS ENDED DECEMBER 31
------------------------------------------------------------------------------
1995 1994 1993
------------------------ ------------------------ ------------------------
UNITED UNITED UNITED
STATES FOREIGN TOTAL STATES FOREIGN TOTAL STATES FOREIGN TOTAL
------ ------- ----- ------ ------- ----- ------ ------- -----
(IN MILLIONS)
Current................ $169 $ 119 $288 $ 99 $ 53 $152 $137 $ 23 $160
Deferred............... (90) 49 (41 ) (21) (2) (23 ) 27 1 28
---- ---- ---- ---- ---- ---- ---- ---- ----
Total............. $ 79 $ 168 $247 $ 78 $ 51 $129 $164 $ 24 $188
==== ==== ==== ==== ==== ==== ==== ==== ====
Income taxes were established on a consolidated basis for all United States and
international subsidiaries of the Corporation. No provision has been made for
United States income taxes on that portion of cumulative undistributed income of
wholly owned international subsidiaries of $125 million at December 31, 1995,
which is considered permanently reinvested. Applicable United States income
taxes have been recorded for Cologne Re's income since it distributes dividends
to its shareholders on an annual basis.
The Corporation's effective income tax rate is less than the United States
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
-------------------------
1995 1994 1993
----- ----- -----
United States statutory tax rate............................ 35.0% 35.0% 35.0%
Reduction in taxes resulting from:
Tax-exempt bond interest.................................. (10.3) (14.6) (12.7)
Dividends received deduction.............................. (1.5) (1.9) (1.3)
Foreign tax rate differential/credits..................... 0.4 0.2 0.5
Miscellaneous............................................. (1.5) (2.4) (0.3)
----- ----- -----
Effective tax rate.......................................... 22.1% 16.3% 21.2%
===== ===== =====
Income taxes paid were $216 million, $138 million and $142 million in 1995, 1994
and 1993, respectively.
49
50
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of the net deferred income tax liability were as follows:
DECEMBER 31
-------------
1995 1994
---- ----
(IN MILLIONS)
DEFERRED INCOME TAX ASSETS:
Claim and claim expense liabilities................................. $ 69 $(10)
Alternative minimum tax credit...................................... -- 12
Unearned premiums................................................... 77 64
Accruals not currently deductible................................... 57 52
United States temporary differences from foreign operations......... 72 22
Other............................................................... 48 50
---- ----
Total deferred tax assets........................................ 323 190
---- ----
DEFERRED INCOME TAX LIABILITIES:
Unrealized appreciation of investments.............................. 710 199
Deferred acquisition costs.......................................... 61 56
Deferred charges.................................................... 13 14
Discount on fixed maturity investments.............................. 40 26
Derivative financial instruments.................................... 11 15
Other............................................................... 43 48
---- ----
Total deferred tax liabilities................................... 878 358
---- ----
Net deferred income tax liability..................................... $555 $168
==== ====
8. NOTES PAYABLE AND COMMERCIAL PAPER
The carrying amounts of the Corporation's loans payable were as follows:
DECEMBER 31
-------------
1995 1994
---- ----
(IN MILLIONS)
9.0% debenture due in 2009............................................ $150 $150
7.7% mortgage payable through 1998.................................... 5 7
---- ----
Total notes payable.............................................. $155 $157
==== ====
The 9.0 percent debenture due in 2009 has a covenant requiring the Corporation
not to encumber its common stock holding in GRC, the largest subsidiary of the
Corporation. 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:
1995 1994 1993
----- ----- -----
(DOLLARS IN MILLIONS)
Year end balance............................................ -- $ 31 $ 261
Average interest rate at year end........................... -- 5.96% 3.20%
Average maturity at year end (in days)...................... -- 29.8 30.2
Average outstanding balance during the year................. $ 21 $ 209 $ 179
Average interest rate for the year.......................... 5.78% 4.13% 3.08%
50
51
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In August 1995, the Corporation modified its $1.0 billion of available lines of
credit with nineteen participating banks. The credit lines consist of a 364-day
facility of $500 million and a five-year credit facility of the remaining $500
million. The credit agreements with the banks require the Corporation to
maintain a minimum consolidated tangible net worth, as defined, of $2.5 billion.
All $1.0 billion of available lines of credit were unused at December 31, 1995
and 1994. Interest expense and interest paid for all loans payable and
commercial paper were as follows:
YEARS ENDED DECEMBER 31
--------------------------
1995 1994 1993
---- ---- ----
(IN MILLIONS)
Interest expense............................................ $15 $25 $23
Interest paid............................................... 15 25 23
9. RETIREMENT PLANS
The Corporation has noncontributory pension plans covering substantially all
employees. 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. Pension plan
assets are principally invested in investment-grade fixed maturities and
equities. Cologne Re provides unfunded pension 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 were
as follows:
YEARS ENDED DECEMBER
31
----------------------
1995 1994 1993
---- ---- ----
(IN MILLIONS)
Service cost-benefits earned during the year.................. $ 13 $ 10 $ 10
Interest cost on projected benefit obligation................. 16 12 11
Actual (return) loss on plan assets........................... (29) 4 (14)
Net amortization and deferral................................. 22 (12) 5
---- ---- ----
Pension expense............................................... $ 22 $ 14 $ 12
==== ==== ====
The projected benefit obligation for United States employees was determined
using an assumed discount rate of 7.0 percent in 1995, 8.25 percent in 1994 and
7.25 percent for 1993, and an assumed long-term compensation increase of 5.75
percent in 1995, 6.0 percent for 1994 and 5.5 percent for 1993. An assumed
long-term rate of return on plan assets of 8.5 percent was used in determining
pension expense in 1995, 1994 and 1993. The projected benefit obligation for
Cologne Re employees was determined using an assumed discount rate of 7.0
percent in 1995 and 1994 and an assumed long-term compensation increase of 3.5
percent in 1995 and 1994.
Through unfunded plans, the Corporation provides pension benefits for certain
employees above amounts allowed under tax qualified plans. The Corporation also
provides postretirement retainers through unfunded plans for members of the
Board of Directors.
51
52
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table sets forth the plans' funded status and amount recognized in
the Corporation's consolidated balance sheet:
DECEMBER 31
---------------------------------------
1995 1994
----------------- -----------------
FUNDED UNFUNDED FUNDED UNFUNDED
------ -------- ------ --------
(IN MILLIONS)
Accumulated benefit obligation:
Vested.......................................... $107 $ 62 $ 85 $ 50
Nonvested....................................... 13 10 10 7
---- ----- ---- ----
Accumulated benefit obligation.................... 120 72 95 57
Effect of projected salary increases.............. 60 34 33 31
---- ----- ---- ----
Projected benefit obligation.................... 180 106 128 88
Plan assets at fair value......................... 143 -- 111 --
---- ----- ---- ----
Projected benefit obligation in excess of plan
assets.......................................... (37) (106) (17) (88)
Unrecognized net (gain) loss...................... 12 13 (5) 6
Unrecognized prior service cost................... (6) 6 (6) 6
Unrecognized net (asset) obligation at
transition...................................... (6) 5 (9) 2
---- ----- ---- ----
Accrued pension liability....................... $(37) $ (82) $(37) $(74)
==== ===== ==== ====
Substantially all of the Corporation's employees in the United States will
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 the Corporation upon retirement. As of
December 31, 1995 and 1994, the Corporation had funded $3 million and $2
million, respectively, for postretirement health care benefits for current
retirees and had an accrued liability of $27 million and $23 million,
respectively, for current employees.
10. 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 $150 million from the Corporation at 9.25 percent, payable
annually through 2014. The proceeds of this borrowing were used by the ESSOP to
purchase 1,754,386 shares of 7.25 percent ($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, under certain
conditions, on a one-to-one basis. 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 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 Corporation
recognizes compensation expense for the ESSOP based on the shares-allocated
method.
52
53
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following summarizes ESSOP activity:
1995 1994 1993
------- ------- -------
(IN MILLIONS, EXCEPT SHARE DATA
)
YEARS ENDED DECEMBER 31
Dividends paid on preferred stock:
Allocated shares................................. $ 2 $ 2 $ 1
Unallocated shares............................... 9 9 10
Compensation expense................................ 4 5 4
Contribution to ESSOP............................... 4 4 4
Interest income from ESSOP.......................... 14 14 14
ESSOP SHARE INFORMATION AT DECEMBER 31
Fair value per share................................ $157.00 $125.60 $110.50
Shares allocated to employees during the year....... 59,672 72,051 61,540
Committed to be released............................ 2,602 2,881 15,847
11. INCENTIVE PLANS
The Corporation has a Long-Term Compensation Plan (the "Plan") which provides
for the granting of incentive and nonqualified stock options to members of the
Board of 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.
53
54
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following summarizes the activity for options and SARs:
YEARS ENDED DECEMBER 31
-------------------------------------
1995 1994 1993
--------- --------- ---------
STOCK OPTIONS
Outstanding, beginning of year............................ 3,107,851 2,501,412 2,125,983
Granted ($123.50 to $157.19 per share).................... 944,987 814,532 546,467
Exercised ($41.88 to $126.94 per share)................... (360,074) (171,093) (124,707)
Canceled.................................................. (43,635) (34,030) (44,691)
Voided due to SARs exercise............................... (1,200) (2,970) (1,640)
--------- --------- ---------
Outstanding, end of year.................................. 3,647,929 3,107,851 2,501,412
========= ========= =========
Options exercisable ($55.25 to $131.94 per share)......... 1,628,404 1,479,718 1,181,462
========= ========= =========
Shares available for future options....................... 3,881,185 1,807,096 1,884,038
========= ========= =========
STOCK APPRECIATION RIGHTS
Outstanding, beginning of year............................ 9,200 12,170 13,810
Exercised................................................. (1,200) (2,970) (1,640)
--------- --------- ---------
Outstanding, end of year.................................. 8,000 9,200 12,170
========= ========= =========
The Plan also permits the granting of restricted stock awards as compensation to
key executives and managerial employees. Shares of restricted stock become
outstanding upon grant, 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
1995, 1994 and 1993, the Corporation made aggregate compensatory restricted
stock awards of 31,900, 17,250, and 38,250 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 Plan also provides for bonus awards to be made in cash, common stock, share
units or restricted stock options ("RSOs"). RSOs restrictions lapse five years
after the grant date and RSOs expire ten years after the grant date. RSOs are
included in the table above. Share units are paid in shares of common stock at a
designated future date in advance of the bonus award period. The expense of the
Plan was $4 million in 1995, $2 million in 1994 and $1 million in 1993.
12. LEASES
The Corporation leases office space and computer equipment under noncancelable
leases expiring in various years through 2010. Several of the leases have
renewal options with various terms and rental rate adjustments. Rental expense
was $31 million in 1995, $32 million in 1994 and $33 million in 1993. At
December 31, 1995, the future minimum annual rental commitments under
noncancelable leases were as follows:
(IN MILLIONS)
1996................................................... $ 28
1997................................................... 26
1998................................................... 25
1999................................................... 22
2000................................................... 21
Subsequent to 2000..................................... 134
------
Total.................................................. $ 256
=========
54
55
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum rental payments above have not been reduced by $20 million of
anticipated sublease rental income on noncancelable leases.
13. REINSURANCE
Premiums, claims and claim expenses and life/health benefits 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
------------------------------------------------------------------------
PROPERTY/CASUALTY LIFE/HEALTH
PREMIUMS PREMIUMS
-------------------- ------------------ CLAIMS AND LIFE/HEALTH
WRITTEN EARNED WRITTEN EARNED CLAIM EXPENSES BENEFITS
------- ------- ------- ------ -------------- -----------
1995
Direct.......................... $ 405 $ 364 -- -- $ 207 --
Assumed......................... 6,091 5,900 $ 793 $780 4,372 $ 558
Ceded........................... (1,103) (1,123) (84) (84) (899) (53)
------- ------- ---- ---- ------ ----
Net........................ $ 5,393 $ 5,141 $ 709 $696 $3,680 $ 505
======= ======= ==== ==== ====== ====
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 --
======= ======= ======
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 and has
never suffered a significant loss because of defaults. The Corporation utilizes
various United States and international reinsurers as part of its retrocessional
program. Prior to being included in the Corporation's retrocessional program,
reinsurers are reviewed for their anticipated long-term creditworthiness by the
Corporation's Retrocessional Market Committee. At December 31, 1995, the largest
reinsurance recoverable on unpaid claims and claim expenses from any single
reinsurer was $399 million. The reinsurer is rated A++ by A.M. Best and has a
Standard & Poor's claims paying rating of AAA.
As part of its retrocessional program, the Corporation placed a portion of its
reinsurance with various Lloyd's of London syndicates. The syndicates act as
managing agents for individual "Names" who bear the risks and rewards of the
syndicates' underwriting results. Under Lloyd's current structure, Names have
unlimited liability for potential claims. During 1995 Lloyd's announced a plan
of "Reconstruction and Renewal," which is intended to act as a means to end
litigation associated with losses from prior syndicate years, especially those
years exposed to United States environmental and other mass tort exposures. The
plan would allow Names to reinsure their pre-1992 underwriting years to a newly
formed corporate reinsurer called "Equitas," which will reinsure and manage the
runoff of these claims. The intent of the plan is to close out for accounting
purposes Names' potential exposures for these prior underwriting years. Names,
however, still have potential exposure
55
56
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
for these losses if Equitas is unable to meet its obligations. At December 31,
1995, the Corporation's reinsurance recoverables on paid and unpaid claims and
claim expenses from all Lloyd's syndicates aggregated approximately $127
million.
14. DIVIDENDS
General Re Corporation ("Parent") is the ultimate controlling entity in the
Parent's insurance holding company system, which includes United States
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 to transfer 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. Under
the insurance laws of the State of Delaware, GRC's state of domicile, dividends
or distributions in a twelve-month period exceeding the greater of 10 percent of
an insurance company's surplus 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, dividend payments by GRC to
the Parent without regulatory approval are limited to $508 million in 1996.
Generally, international subsidiaries are subject to fewer restrictions on the
payment of dividends.
15. GENERAL RE FINANCIAL PRODUCTS
General
General Re Financial Products Corporation ("GRFP") is a dealer in derivative
financial instruments. GRFP's products include cross-currency and interest rate
swaps, interest rate caps and floors, foreign exchange contracts, options and
options on swaps. These instruments are carried at their current estimates of
fair value, which is a function of underlying interest rates, currency rates,
security values, volatilities and the creditworthiness of counterparties. Future
changes in interest rates, currency rates, security values, and interest rate
volatilities or a combination thereof may affect 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 revenues include any associated gains and losses
on hedging instruments. Trading revenue was included in "Other revenues" in the
income statement.
56
57
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER
31
----------------------
1995 1994 1993
---- ---- ----
(IN MILLIONS)
Interest rate and foreign currency swaps.............................. $110 $105 $116
Interest rate and foreign currency options............................ 32 30 26
---- ---- ----
Gross trading revenues................................................ $142 $135 $142
==== ==== ====
Nature and Terms
GRFP is engaged as 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 cross-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, equity and currency options grant the purchaser the right but not
the obligation 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.
Futures contracts are commitments to either purchase or sell a financial
instrument at a future date for a specified price and are usually settled in
cash. Forward-rate agreements are contracts that settle in cash at a specified
future date based on the differential between agreed interest rates applied to a
notional amount.
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, 1995 and 1994 is included in the table below. For swap and option
transactions, the contract and notional amounts represent the amount of
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 74 percent of the notional volume outstanding for swap and option
contracts at December 31, 1995 have a term of five years or less and
substantially all of the instruments have a term of less than ten years.
DECEMBER 31
---------------------
1995 1994
-------- --------
(IN MILLIONS)
Interest rate and currency swap agreements............................. $260,200 $201,076
Options written........................................................ 43,574 35,933
Options held........................................................... 44,134 36,723
Financial futures contracts:
Commitments to purchase.............................................. 14,572 7,002
Commitments to sell.................................................. 15,105 7,366
Forward rate agreements................................................ 15,700 10,339
Foreign exchange spot and forward contracts............................ 10,228 7,720
57
58
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FAIR VALUE OF TRADING INSTRUMENTS
The table below discloses the fair values at the reporting date (which are also
the carrying amounts) for each class of derivative financial instruments and
other instruments held or issued by GRFP for trading purposes, as well as the
average fair values during the year, based on quarterly observations. The net
fair values are net of amounts offset pursuant to rights of setoff and
qualifying master netting arrangements with various counterparties. Interest
rate and foreign currency swaps shown in the table below include forward rate
agreements and foreign exchange spot and forward contracts.
DECEMBER 31
-----------------------------------------------
1995 1994
--------------------- ---------------------
ASSET LIABILITY ASSET LIABILITY
------- --------- ------- ---------
(IN MILLIONS)
Interest rate and foreign currency swaps............ $ 9,562 $ 9,833 $ 4,740 $ 4,758
Interest rate and foreign currency options.......... 759 709 602 523
------- ------- ------- -------
Gross total fair value.............................. 10,321 10,542 5,342 5,281
Adjustment for counterparty netting................. (8,085) (8,085) (3,474) (3,474)
------- ------- ------- -------
After netting total fair value...................... 2,236 2,457 1,868 1,807
Security receivables/payables....................... 198 170 60 513
------- ------- ------- -------
Trading account assets/liabilities.................. $ 2,434 $ 2,627 $ 1,928 $ 2,320
======= ======= ======= =======
AVERAGE 1995 AVERAGE 1994
--------------------- ---------------------
ASSET LIABILITY ASSET LIABILITY
------- --------- ------- ---------
(IN MILLIONS)
Interest rate and foreign currency swaps............ $ 8,244 $ 8,680 $ 4,574 $ 4,479
Interest rate and foreign currency options.......... 679 568 559 490
------- ------- ------- -------
Gross total fair value.............................. 8,923 9,248 5,133 4,969
Adjustment for counterparty netting................. (6,560) (6,560) (2,710) (2,710)
------- ------- ------- -------
After netting total fair value...................... 2,363 2,688 2,423 2,259
Security receivables/payables....................... 191 152 472 493
------- ------- ------- -------
Trading account assets/liabilities.................. $ 2,554 $ 2,840 $ 2,895 $ 2,752
======= ======= ======= =======
RISK MANAGEMENT
Market Risk
GRFP's components of market risk include foreign exchange, interest rate, swap
spread, volatility, correlation, equity and yield curve risk. GRFP controls
these risk exposures by taking offsetting positions in either cash instruments
or other derivatives to reduce the overall exposure to loss due to movements in
these variables. GRFP manages its exposures on a portfolio basis. Under this
approach, GRFP monitors its market risk on a daily basis across all swap and
option products by calculating the impact on operating results of potential
changes in market variables over a one week period, based on historical market
volatility data and informed judgment. GRFP's 1995 aggregate weekly market risk
limit across all trading books was $10 million.
GRFP sets market risk limits for each type of risk based on a 95 percent
probability that movements in market rates will not affect the results from
operations in excess of the limit over a one-week period. Since inception,
GRFP's largest weekly position change has been $5 million. 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.
58
59
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 United States
commercial banks, United States government-chartered organizations, sovereigns,
supranationals and corporations. The spread of counterparties over geographical
location and industry sector is such that GRFP does not believe that it has a
significant concentration of credit risk to any particular changes in economic
or other conditions. 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 and, where
appropriate, may purchase credit insurance or enter into other transactions to
mitigate its credit exposure. GRFP also incorporates into contracts with certain
counterparties provisions that allow the unwinding of these transactions in the
event of a downgrade in credit rating or other indications of a decline in
creditworthiness of either the counterparty or GRFP.
GRFP assesses credit risk by counterparty across all transactions with a
counterparty. Assuming non-performance 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, 1995, approximated $2,236
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. The Interpretation further clarifies the
definition of a right of setoff. The maximum potential loss will increase or
decrease during the life of the transaction as a function of remaining time to
maturity, contract 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 had any credit losses as a
result of counterparty defaults.
The following table presents GRFP's derivatives portfolio by counterparty credit
quality and maturity at December 31, 1995. The amounts shown on the left side of
the table are gross of all netting arrangements and collateral held by GRFP. Net
fair value shown on the table represents gross exposure net of amounts offset
pursuant to rights of setoff and qualifying master netting arrangements with
various counterparties. Net exposure shown on the table is net fair value less
collateral held by GRFP.
GROSS AMOUNTS
------------------------------------------------
DUE AFTER
FIVE NET
DUE BEFORE YEARS THROUGH DUE AFTER FAIR NET
FIVE YEARS TEN YEARS TEN YEARS TOTAL VALUE EXPOSURE
---------- ------------- --------- ------- ------ --------
(IN MILLIONS)
Counterparty credit quality
AAA................................... $ 969 $ 882 $ 268 $ 2,119 $ 314 $ 314
AA.................................... 2,347 1,460 738 4,545 964 916
A..................................... 2,014 1,130 259 3,403 861 496
BBB................................... 114 69 71 254 97 --
------ ------ ------ ------- ------ ------
Total................................. $5,444 $ 3,541 $ 1,336 $10,321 $2,236 $1,726
====== ====== ====== ======= ====== ======
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. In addition to
interest amounts shown in Note 8, GRFP had $90 million, $83 million and $53
million of interest expense in 1995, 1994 and 1993, respectively, on related
59
60
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
collateralized borrowings. GRFP's exposure to credit risks associated with the
nonperformance 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. Securities
purchased under agreements to resell and securities sold under agreements to
repurchase are presented in accordance with FASB Interpretation No. 41,
Offsetting of Amounts Related to Certain Repurchase and Reverse Repurchase
Agreements.
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 a futures broker's inability to remit additional margin.
Legal Risk
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 perceived risk that a
proposed counterparty may lack legal capacity to enter into a transaction, the
relevant statutes, regulations, and consents are examined.
Liquidity Risk
GRFP is subject to liquidity risk on its portfolio of open transactions.
Movements in underlying market variables affect both future cash flows intrinsic
in the transactions, and collateral required to be posted to certain
counterparties to cover the value of open positions. Management believes GRFP
has sufficient resources to cover its potential liquidity needs through its
access to the Corporate commercial paper program and lines of credit.
60
61
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
16. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following are the estimated fair values of the Corporation's financial
instruments:
DECEMBER 31
-----------------------------------------------
1995 1994
--------------------- ---------------------
STATEMENT FAIR STATEMENT FAIR
VALUE VALUE VALUE VALUE
--------- ------- --------- -------
(IN MILLIONS)
FINANCIAL ASSETS
Invested assets (see Note 5)....................... $ 23,494 $23,494 $ 18,898 $18,969
Cash............................................... 258 258 242 242
Securities purchased under agreements to resell.... 66 66 813 813
Mortgage receivable (included in other assets)..... 86 123 88 115
Loan to ESSOP...................................... 146 181 147 160
Contract deposit assets............................ 193 193 77 77
Trading account assets............................. 2,434 2,434 1,928 1,928
FINANCIAL LIABILITIES
9.0% debenture due in 2009......................... 150 186 150 155
7.7% mortgage payable through 1998................. 5 5 7 7
Commercial paper................................... -- -- 31 31
Securities sold under agreements to repurchase..... 1,263 1,263 938 938
Securities sold but not yet purchased.............. 614 614 927 927
Contract deposit liabilities....................... 1,668 1,668 1,361 1,361
Trading account liabilities........................ 2,627 2,627 2,320 2,320
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.
Investments -- Fair values for fixed maturities and equity securities were
generally based on quoted market prices or dealer quotes. The fair value of
investments in limited partnerships, which were included in other invested
assets on the 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 values for reinsurance ventures were based
on the Corporation's proportionate share in the entity's stockholders'
equity, since the cost of determining fair value exceeds the benefits
derived. The carrying amounts for short-term investments approximate their
fair values.
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 in 2009 was based on a
market price quotation.
Contract deposit assets/liabilities -- The fair value of contract deposit
assets and liabilities approximates 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.
61
62
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
17. LEGAL PROCEEDINGS
The Corporation and its subsidiaries have been named as defendants in litigation
in the ordinary course of conducting its 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, or any other litigation, would be material to the
financial position, results of operations or cash flow of the Corporation.
18. COMMON AND PREFERRED STOCK
The Corporation has the authority to issue 250 million shares of $.50 par value
common stock, of which 102 million 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
-----------------------------------------
1995 1994 1993
---------- ----------- -----------
Balance, beginning of year............................. 20,955,202 19,195,866 18,112,410
Net purchases (reissuances)............................ (241,133) 1,759,336 1,083,456
---------- ---------- ----------
Balance, end of year................................... 20,714,069 20,955,202 19,195,866
========== ========== ==========
The Corporation also has the authority to issue 20 million shares of preferred
stock, of which 1,724,037 are issued and outstanding and held by the ESSOP, and
1 million (Series A Junior Participating Preferred) are reserved for the
Stockholders' Rights Plan. Under the Stockholders' 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 percent 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: the property/casualty reinsurance operations, which include
both United States and international subsidiaries, life/health operations and
financial services.
62
63
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following is a summary of industry segment activity for 1995, 1994 and 1993:
1995 -- INDUSTRY SEGMENTS
-------------------------------------------------------------------
PROPERTY/CASUALTY LIFE/HEALTH FINANCIAL SERVICES CONSOLIDATED
----------------- ----------- ------------------ ------------
(IN MILLIONS)
Net premiums written
Property/casualty...................... $ 5,393 -- -- $ 5,393
Life/health............................ -- $ 709 -- 709
------- ---- ------ -------
Total net premiums written.......... $ 5,393 $ 709 -- $ 6,102
======= ==== ====== =======
Net premiums earned
Property/casualty...................... $ 5,141 -- -- $ 5,141
Life/health............................ -- $ 696 -- 696
Investment income........................ 958 40 $ 19 1,017
Other revenues........................... 56 5 231 292
Net realized gains on investments........ 60 1 3 64
------- ---- ------ -------
Total revenues...................... 6,215 742 253 7,210
------- ---- ------ -------
Claims and claim expenses................ 3,680 -- -- 3,680
Life/health benefits..................... -- 505 -- 505
Acquisition costs........................ 1,196 149 -- 1,345
Other operating costs and expenses....... 375 38 150 563
------- ---- ------ -------
Total expenses...................... 5,251 692 150 6,093
------- ---- ------ -------
Income before income taxes and
minority interest.............. $ 964 $ 50 $ 103 $ 1,117
======= ==== ====== =======
Total assets -- December 31......... $30,535 -- $5,411 $ 35,946
======= ==== ====== =======
1994 -- INDUSTRY SEGMENTS
-------------------------------------------------------------------
PROPERTY/CASUALTY LIFE/HEALTH FINANCIAL SERVICES CONSOLIDATED
----------------- ----------- ------------------ ------------
(IN MILLIONS)
Net premiums written..................... $ 3,001 -- -- $ 3,001
======= ==== ====== =======
Net premiums earned...................... $ 2,788 -- -- $ 2,788
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.......... $ 713 -- $ 81 $ 794
======= ==== ====== =======
Total assets -- December 31......... $24,712 -- $4,885 $ 29,597
======= ==== ====== =======
63
64
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1993 -- INDUSTRY SEGMENTS
-------------------------------------------------------------------
PROPERTY/CASUALTY LIFE/HEALTH FINANCIAL SERVICES CONSOLIDATED
----------------- ----------- ------------------ ------------
(IN MILLIONS)
Net premiums written..................... $ 2,524 -- -- $ 2,524
======= =======
Net premiums earned...................... $ 2,446 -- -- $ 2,446
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
======= == ====== =======
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
------------------------------------------------
UNITED STATES INTERNATIONAL CONSOLIDATED
------------- ------------- ------------
(IN MILLIONS)
1995
Revenues.............................................. $ 4,150 $ 3,060 $ 7,210
Income before income taxes and minority interest...... 783 334 1,117
Identifiable assets at December 31.................... 23,839 12,107 35,946
1994
Revenues.............................................. $ 3,317 $ 520 $ 3,837
Income before income taxes............................ 663 131 794
Identifiable assets at December 31.................... 20,184 9,413 29,597
1993
Revenues.............................................. $ 3,311 $ 249 $ 3,560
Income before income taxes and accounting changes..... 866 19 885
Identifiable assets at December 31.................... 18,549 870 19,419
64
65
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
20. UNAUDITED QUARTERLY FINANCIAL DATA
Summarized quarterly financial results and other data were as follows:
FIRST SECOND THIRD FOURTH
------ ------ ------ ------
(IN MILLIONS, EXCEPT PER SHARE DATA)
1995
Net premiums written
Property/casualty..................................... $1,007 $1,589 $1,460 $1,337
Life/health........................................... -- 220 235 254
Net premiums earned
Property/casualty..................................... 955 1,345 1,427 1,414
Life/health........................................... -- 215 233 248
Investment income....................................... 193 255 269 300
Expenses................................................ 989 1,644 1,728 1,732
Net income.............................................. 183 214 199 229
Per common share:
Net income............................................ 2.20 2.58 2.39 2.75
Common dividends...................................... .49 .49 .49 .49
FIRST SECOND THIRD FOURTH
------- ------- ------- -------
(IN MILLIONS, EXCEPT PER SHARE DATA)
1994
Net property/casualty premiums written.................... $820 $665 $811 $705
Net property/casualty premiums earned..................... 774 639 670 705
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
65
66
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
None.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) FINANCIAL STATEMENTS SCHEDULES AND EXHIBITS
1. The Financial Statements, Reserve Disclosures (unaudited) and
Financial Statement Schedules listed in Item 8 are filed as part of
this Report.
2. Exhibits
3.(a) 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 and restated.
4.1 Rights Agreement, dated as of September 11, 1991 between the Corporation
and The Bank of New York, as Rights Agent, is incorporated by reference from
the Corporation's Annual Report on Form 10-K for the fiscal year ended
December 31, 1994.
10.(a) The General Re Corporation 1995 Long-Term Compensation Plan.(1)
(b) Form of Indemnity Agreement among the Corporation and directors and
executive officers is incorporated by reference from the Corporation's
Annual Report on Form 10-K for the fiscal year ended December 31, 1994.(1)
(c) The General Reinsurance Supplemental Benefit Equalization Plan.(1)
(d) The General Re Corporation Retirement Plan for Directors.(1)
(e) The General Re Corporation Deferred Compensation Plan for Directors.(1)
- ---------------
1 Management contracts or compensatory plans filed pursuant to Item 14(c).
66
67
11. Computation of Earnings Per Share.
21. Subsidiaries of the Registrant.
23. Consent of Independent Accountants.
24. Powers of Attorney of Directors.
27. Financial Data Schedule.
28. Combined United States Property/Casualty Insurance Companies Schedule P
to be filed under cover of Form SE.
(B) REPORTS ON FORM 8-K
Form 8-K, dated November 22, 1995, filed on November 22, 1995, containing
Item 5.
67
68
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 25, 1996
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 25, 1996
(Ronald E. Ferguson) Officer and Director
JOSEPH P. BRANDON Vice President and Chief Financial March 25, 1996
(Joseph P. Brandon) Officer
(Principal Financial Officer)
ELIZABETH A. MONRAD Vice President and Treasurer March 25, 1996
(Elizabeth A. Monrad) (Principal Accounting Officer)
*LUCY WILSON BENSON Director March 25, 1996
(Lucy Wilson Benson)
*WALTER M. CABOT Director March 25, 1996
(Walter M. Cabot)
*WILLIAM C. FERGUSON Director March 25, 1996
(William C. Ferguson)
*DONALD J. KIRK Director March 25, 1996
(Donald J. Kirk)
*KAY KOPLOVITZ Director March 25, 1996
(Kay Koplovitz)
*EDWARD H. MALONE Director March 25, 1996
(Edward H. Malone)
*ANDREW W. MATHIESON Director March 25, 1996
(Andrew W. Mathieson)
*DAVID E. MCKINNEY Director March 25, 1996
(David E. McKinney)
68
69
SIGNATURE TITLE DATE
- ----------------------------------------------------------------------------- ---------------
*STEPHEN A. ROSS Director March 25, 1996
(Stephen A. Ross)
*WALTER F. WILLIAMS Director March 25, 1996
(Walter F. Williams)
- ---------------
*By either Charles F. Barr or Robert D. Graham pursuant to a power of attorney.
69
70
GENERAL RE CORPORATION
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
GENERAL RE CORPORATION
CONDENSED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
(PARENT COMPANY)
(IN MILLIONS, EXCEPT SHARE DATA)
1995 1994
------- -------
ASSETS
Fixed maturities, available-for-sale................................... $ 212 $ 94
Equity securities, at fair value....................................... 70 --
Short-term investments, at amortized cost which approximates fair
value............................................................... 21 20
Investment in subsidiaries, at equity.................................. 6,559 5,009
Other invested assets.................................................. 39 92
Other assets........................................................... 32 20
Due from subsidiaries.................................................. 32 49
------- -------
Total assets................................................... $ 6,965 $ 5,284
======= =======
LIABILITIES
Commercial paper....................................................... -- $ 31
Notes payable due 2009................................................. $ 150 150
Income taxes........................................................... 125 134
Other liabilities...................................................... 102 109
------- -------
Total liabilities.............................................. 377 424
------- -------
Cumulative convertible preferred stock (shares issued: 1,724,037 in 1995
and 1,734,717 in 1994; no par value)................................... 147 148
Loan to employee savings and stock ownership plan........................ (146) (147)
------- -------
1 1
------- -------
COMMON STOCKHOLDERS' EQUITY
Common stock (102,827,344 shares issued in 1995 and 1994; par value
$.50)............................................................... 51 51
Paid-in capital........................................................ 635 604
Unrealized appreciation of investments, net of deferred income taxes... 1,468 421
Currency translation adjustments, net of deferred income taxes......... (11) (20)
Retained earnings...................................................... 5,986 5,330
Less common stock in treasury, at cost (shares held: 20,714,069 in 1995
and 20,955,202 in 1994)............................................. (1,542) (1,527)
------- -------
Total common stockholders' equity.............................. 6,587 4,859
------- -------
Total liabilities, cumulative convertible preferred stock and
common stockholders' equity................................... $ 6,965 $ 5,284
======= =======
S-1
71
GENERAL RE CORPORATION
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT--(CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CONDENSED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(PARENT COMPANY)
(IN MILLIONS)
1995 1994 1993
---- ---- ----
REVENUES
Distributions from subsidiaries
Insurance subsidiaries........................................... $420 $441 $295
Other subsidiaries............................................... 8 394 5
---- ---- ----
Total distributions from subsidiaries....................... 428 835 300
Investment income................................................... 11 26 33
Other revenues...................................................... 22 37 8
Net realized gains (losses) on investments.......................... (6) 6 (3)
---- ---- ----
455 904 338
---- ---- ----
EXPENSES
Other operating costs and expenses.................................. 29 29 26
Income tax expense (benefit)........................................ 4 (4) (15)
---- ---- ----
33 25 11
---- ---- ----
Income before equity income and cumulative-effect
adjustments............................................... 422 879 327
---- ---- ----
Equity in net income of subsidiaries less dividends received of $428
in 1995, $835 in 1994 and $300 in 1993.............................. 403 (214) 370
Cumulative effect of accounting changes............................... -- -- 14
---- ---- ----
Net income.................................................. $825 $665 $711
==== ==== ====
S-2
72
GENERAL RE CORPORATION
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT--(CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CONDENSED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(PARENT COMPANY)
(IN MILLIONS)
1995 1994 1993
----- ----- -----
CASH FLOWS FROM OPERATING ACTIVITIES
Net income....................................................... $ 825 $ 665 $ 711
Cumulative effect of accounting changes.......................... -- -- (14)
Equity in net income of subsidiaries less dividends received..... (403) 214 (370)
Other............................................................ 8 351 (294)
----- ----- -----
Net cash from operating activities....................... 430 1,230 33
----- ----- -----
CASH FLOWS FROM INVESTING ACTIVITIES
Fixed maturities:
Purchases..................................................... (344) (132) (484)
Sales......................................................... 146 276 362
Maturities.................................................... 74 40 95
Equity securities:
Sales......................................................... -- 1 --
Other invested assets............................................ -- 105 (25)
Net sales (purchases) of short-term investments.................. 3 (20) 75
Purchase of shares in GR-CK...................................... -- (884) --
Capital contribution to subsidiaries............................. (125) (6) (10)
----- ----- -----
Net cash (used in) from investing activities............. (246) (620) 13
----- ----- -----
CASH FLOWS FROM FINANCING ACTIVITIES
Commercial paper borrowing (repayment), net...................... (31) (230) 251
Cash dividends paid to stockholders
Common........................................................ (161) (157) (159)
Preferred..................................................... (11) (11) (11)
Acquisition of treasury stock.................................... (30) (222) (134)
Other............................................................ 45 11 9
----- ----- -----
Net cash used in financing activities.................... (188) (609) (44)
----- ----- -----
Change in cash..................................................... (4) 1 2
Cash, beginning of year............................................ 4 3 1
----- ----- -----
Cash, end of year.................................................. $ -- $ 4 $ 3
===== ===== =====
S-3
73
GENERAL RE CORPORATION
SCHEDULE V--SUPPLEMENTARY INSURANCE INFORMATION
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN MILLIONS)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
COLUMN H
COLUMN C COLUMN E BENEFITS, COLUMN I
COLUMN B GROSS POLICY CLAIMS, AMORTIZATION
COLUMN A DEFERRED CLAIMS BENEFITS COLUMN F COLUMN G LOSSES OF DEFERRED COLUMN J COLUMN K
YEAR POLICY AND COLUMN D FOR NET NET AND POLICY OTHER NET
AND ACQUISITION CLAIM UNEARNED LIFE/HEALTH PREMIUM INVESTMENT SETTLEMENT ACQUISITION OPERATING PREMIUMS
SEGMENT COST EXPENSES PREMIUMS CONTRACTS REVENUE INCOME EXPENSES COSTS EXPENSES WRITTEN
- ------------------------------------------------------------------------------------------------------------------------------
1995
Property/Casualty
United
States... $ 226 $ 9,356 $1,115 -- $2,853 $711 $1,919 $ 706 $266 $2,964
International... 183 4,896 667 -- 2,288 247 1,761 490 111 2,429
Life/health... 25 -- 131 $ 2,263 696 40 505 149 36 709
---- ------- ------ ------ ------ ---- ------ ------ ---- ------
Total... $ 434 $14,252 $1,913 $ 2,263 $5,837 $998 $4,185 $1,345 $413 $6,102
==== ======= ====== ====== ====== ==== ====== ====== ==== ======
1994
Property/Casualty
United
States... $ 204 $ 8,578 $1,008 -- $2,394 $686 $1,709 $ 535 $251 $2,581
International... 120 3,580 494 -- 394 52 272 79 52 420
Life/health... -- -- 140 $ 1,960 -- -- -- -- -- --
---- ------- ------ ------ ------ ---- ------ ------ ---- ------
Total... $ 324 $12,158 $1,642 $ 1,960 $2,788 $738 $1,981 $ 614 $303 $3,001
==== ======= ====== ====== ====== ==== ====== ====== ==== ======
1993
Property/Casualty
United
States... $ 147 $ 8,122 $ 777 $ -- $2,225 $705 $1,557 $ 510 $213 $2,275
International... 6 330 63 -- 221 43 166 42 34 249
---- ------- ------ ------ ------ ---- ------ ------ ---- ------
Total... $ 153 $ 8,452 $ 840 $ -- $2,446 $748 $1,723 $ 552 $247 $2,524
==== ======= ====== ====== ====== ==== ====== ====== ==== ======
- ---------------
Note: The totals shown in the Schedule include only the property/casualty and
life/health operations of the Corporation and may not correspond with
consolidated amounts.
S-4
74
EXHIBIT INDEX
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE
- ------- ----------------------------------------------------------------------------------- ------------
3(b) The By-Laws of the Corporation, as amended and restated............................
10(a) The General Re Corporation 1995 Long-Term Compensation Plan........................
(c) The General Reinsurance Supplemental Benefit Equalization Plan.....................
(d) The General Re Corporation Retirement Plan for Directors...........................
(e) The General Re Corporation Deferred Compensation Plan for Directors................
11 Computation of Earnings Per Share..................................................
21 Subsidiaries of Registrant.........................................................
23 Consent of Independent Accountants.................................................
24 Powers of Attorney of Directors....................................................
27 Financial Data Schedule............................................................