110 William Street, New York, New York 5/13/95 (1) 49,858 2 World Trade Center, New York, New York 8/31/98 (1) 16,632 One Commercial Plaza, Hartford, Connecticut 1/31/96 2,766 Xerox Centre, Irving, Texas 5/31/98 4,226 199 South Los Robles Avenue, Pasadena, Ca. 9/30/95 (2) 5,217 919 Conestoga Road, Rosemont, Pennsylvania 2/28/95 (3) 4,645 One Market, San Francisco, California 11/30/98 3,133 300 S. Wacker Drive, Chicago, Illinois 4/01/04 3,215
From 1985 through 1987, the demand for reinsurance increased and reinsurance pricing and underwriting results improved. This attracted increased capacity into the industry as insurers and reinsurers strengthened their surplus through capital infusions and increased earnings. In the mid-1980's, the industry adopted contract language changes designed to exclude asbestos and pollution claims. However, asbestos and pollution claims result, and will continue to result, in numerous claims to the insurance industry under policies written prior to such changes, adversely affecting the operating results of certain of the Company's competitors.
Many of the factors that have resulted in the current down cycle continue and SCOR U.S. cannot predict if, when or to what extent general market conditions will improve for the insurance and reinsurance industry. Even so, SCOR U.S. believes that the consolidation in the industry, along with the impact of recent catastrophe losses on the property and casualty insurance industry and generally declining cash flow in recent years, may favorably influence property and casualty pricing, as well as reinsurance buying trends, in the future.
licensed operating unit for the Company's primary and excess insurance business. Both the completed merger and the intended merger are not expected to have a material effect on the Company's growth, liquidity or results of operations.
SAP COMBINED RATIOS Company (insur. subs. only) 118.8% 103.7% 123.3% Industry 106.7% 107.3% 117.4%
Net losses and loss expenses incurred increased 22% in 1994 to $191 million from $156.3 million in 1993. The loss ratio was 83.8% for 1994 as compared with 66.2% for 1993. During 1994 the Company incurred $32.2 million of net losses ($62.7 million of gross losses) resulting from property catastrophe events, primarily the Northridge earthquake and the early 1994 winter freeze, which added 15.6 points to the loss ratio. Of these amounts, the Northridge earthquake accounted for $26.1 million of net incurred losses and $54.8 million of gross incurred losses. During 1993 the Company incurred $13.7 million of net losses ($19.1 million of gross losses) resulting from property catastrophe events, primarily the World Trade Center bombing, the East Coast blizzard, the Midwest floods and the California fires, which adversely affected the loss ratio by 5.8 points.
During 1994 and 1993, the Company ceded $82.9 million and $88.9 million of earned premiums, respectively. The Company recovered from retrocessionnaires $78.4 million and $57.3 million of losses during 1994 and 1993, respectively. Ceded premiums in 1994 included $6.0 million of reinstatement premiums paid by the Company. Ceded losses in 1994 and 1993 included $30.5 million and $5.4 million, respectively, of losses resulting from property catastrophe events.
Underwriting, administration and other expenses decreased 1% in 1994 to $30.0 million from $30.5 million in 1993. The underwriting, administration and other expense ratio was 13.2% for 1994 as compared with 12.9% for 1993. The effect of net reinstatement premiums related primarily to the Northridge earthquake added 0.3 points to the 1994 ratio. As discussed in Note 3 to the Company's Consolidated Financial
The combined ratio was 123.0% for 1994, compared with 105.1% for 1993. The effect of property catastrophe events on the 1994 and 1993 combined ratio was 16.4 points and 5.8 points, respectively.
Net investment income for 1994 decreased 3% to $41.0 million from $42.0 million for 1993. Net investment income (pre-tax) has been affected adversely by the high level of claim payments made since mid- 1992 related to catastrophe events and the lower reinvestment rates available during 1993 and early 1994 as the Company sold securities to realize investment gains. On an after-tax basis net investment income was $31.6 million for 1994, a decrease of 2% from $32.3 million in 1993. Net realized investment gains for 1994 were $1.0 million, compared with $12.9 million for 1993.
As a result of the Company's implementation, as of January 1, 1993, of the FASB's Emerging Issues Task Force consensus regarding Issue No. 93-6, "Accounting for Multiple-Year Retrospectively Rated Contracts by Ceding and Assuming Enterprises" ("EITF 93-6"), $2.6 million (net of $1.4 million tax effect), or $0.14 per share, is included as a reduction to 1993 income for the cumulative effect of this accounting change.
For 1994, the Company posted a net loss of $7.8 million, or $0.43 per share, on a primary basis, compared with a net income of $25.3 million, or $1.38 per share, for 1993. On a fully diluted basis, net income for 1993 was $1.33 per share. The 1994 results were affected by after-tax charges to operations, net of reinsurance, of $24.2 million, or $1.33 per share for property catastrophe events. The 1993 results were affected by after-tax charges to operations, net of reinsurance, of $8.9 million, or $0.48 per share, for property catastrophe events. Average common and common equivalent shares outstanding (on a primary basis) for 1994 were 18.2 million, compared with 18.4 million for 1993.
The Company believes that its potential for losses from January 17, 1995 Nambu-Jishin earthquake in Kobe, Japan is limited since foreign writings represent an insignificant portion of its portfolio.
Gross premiums written for 1993 increased 10% to $334.5 million from $304.8 million in 1992. Net premiums written for 1993 increased 19% to $245.4 million from $205.5 million for 1992. Gross premiums written and net premiums written for 1992 were increased by $5.6 million and reduced by $6.5 million, respectively, for additional premiums to reinstate catastrophe reinsurance protections subsequent to Hurricane Andrew. Excluding these reinstatement premiums, gross premiums written and net premiums written for 1993 increased by 12% and 16%, respectively, compared with 1992. The increase in premium volume was attributable principally to new and increased participations in treaty business. Much of the growth resulted from targeted market segments such as nonstandard auto, a line of business that experienced a 73% increase in net premiums written in 1993 to $38 million, or 16% of the total net volume. Offsetting a portion of the Company's premium growth was a continued withdrawal from certain property and casualty lines of business where the Company believes rates and/or conditions are inadequate. In general, a weak pricing environment persisted throughout 1993, with the exception of catastrophe-exposed risks and some specialized lines of business.
Commission expenses increased 10% to $61.3 million in 1993 from $56.0 million in 1992. The commission ratio was 26.0% for 1993, compared with 29.1% for 1992. The decrease in the commission ratio for 1993 is primarily attributable to the current mix of business, on which the commission rate for certain new business is lower than the commission rate on canceled property pro rata treaties and the effect of net reinstatement premiums related to Hurricane Andrew, which added approximately one point to the 1992 commission ratio.
Underwriting, administration and other expenses increased 8% in 1993 to $30.5 million from $28.3 million in 1992. The underwriting, administration and other expense ratio was 12.9% for 1993 as compared
Net investment income for 1993 decreased 2% to $42.0 million from $42.9 million for 1992. Net investment income (pre-tax) has been affected adversely by: 1) the high level of claim payments made over the past eighteen months related to catastrophic events; 2) the Company's managed shift toward a greater percentage of tax-exempt securities; and 3) the general decline in interest rates over the past several quarters which has had an adverse effect on available yields for new and reinvested funds. Offsetting the above factors was an increase in investment income related to the investment of the proceeds from the Debentures in March 1993. On an after-tax basis net investment income was $32.2 million for 1993, virtually unchanged from 1992. Net realized investment gains for 1993 were $12.9 million, compared with $15.0 million for 1992.
SCOR U.S.'s Federal income tax provision (benefit) was ($11.3 million), $7.0 million and ($3.8 million) for the years ended
SCOR U.S. is a holding company. Its principal sources of cash are cash dividends from its operating subsidiaries, borrowings, and the issuance of equity securities. Generally, dividends that can be paid by insurers domiciled in New York State, without prior approval of the New York Insurance Superintendent, are limited for any twelve- month period to the lesser of 10% of statutory surplus or adjusted net investment income (as defined by New York Insurance Law) for the previous twelve months. During the year ending December 31, 1994, $11.9 million of dividends were declared to SCOR U.S. At December 31, 1994, the aggregate statutory surplus of the SCOR U.S. operating subsidiaries was $243.4 million. Based on the statutory surplus of the Company's operating subsidiaries at December 31, 1994, $24.3 million is available for dividends to SCOR U.S. during 1995.
During 1994 the Company repurchased in the open market $3.9 million in principal amount of the Debentures and recognized an extraordinary gain of $351,000, or $0.02 per share, net of tax. These purchases were executed under a $10 million program authorized by the Board of Directors. In January 1995, the Company repurchased an additional $6.0 million in principal amount of the Debentures under this authorization. Funding for the aggregate amount of repurchased Debentures, all of which settled in January 1995, was achieved through the issuance of the Company's commercial paper.
In January 1995, the Board of Directors authorized the Company to repurchase up to an additional $20 million of Debentures in the open market, as market conditions permit. In connection with this additional authorization, SCOR U.S. has established a $20 million credit agreement with SCOR S.A. the proceeds of which are restricted to the repurchase of the Debentures or the repayment of any debt incurred to repurchase Debentures.
At December 31, 1994, the amount remaining under the Company's existing stock repurchase program is approximately $1.4 million, which may be utilized as market conditions permit. During 1993, the Company repurchased 40,800 shares of its common stock for an aggregate cost of $616,000. The Company did not repurchase any shares under this program during 1994.
During 1994 and 1993, the Company incurred $4.1 million and $9.4 million, respectively, of capital expenditures, which primarily related to the development of information systems. At December 31, 1994, the Company had no significant commitments for capital expenditures.
At December 31, 1994, total investments and cash at carrying value were $677.6 million compared with $733.8 million at December 31, 1993. The decreased level of investments and cash is primarily attributable to the $58.9 million decrease in fair value of investments carried at fair value during the year. SCOR U.S.'s fixed maturity investments are substantially all investment grade, liquid securities with a weighted average maturity of 5.8 years. Approximately 99% of the fixed maturity portfolio is rated A or better. SCOR U.S. does not have any investment in real estate or high yield bonds. At December 31, 1994, the Company did not have any non income producing investments.
SCOR U.S. believes that cash and short-term investments are maintained at an adequate level for payment of claims and expenses as they become due. In addition, SCOR U.S. maintains a maturity distribution profile of fixed maturity investments sufficient to fund
The ratio of net premiums written to surplus, sometimes referred to as "insurance exposure", relates to the amount of risk to which an insurer's statutory capital and surplus can be exposed, as measured by the amount of premiums written in relation to such surplus. Insurance practice and regulatory guidelines suggest that property and casualty insurance companies maintain a net premiums written to surplus ratio of less than 3 to 1. For the reinsurance industry, a ratio of 2 to 1 or less is generally considered prudent. SCOR U.S.'s net premiums written to surplus ratios were .95 to 1, .87 to 1 and .97 to 1 for 1994, 1993 and 1992, respectively.
Upon issuance in 1993, the Debentures were assigned an A3 rating from Moody's Investors Service Inc. ("Moody's") and were rated BBB- Plus by Standard & Poor's Corp. ("S&P"). The Company's commercial paper program has been rated P-1 by Moody's and A-1 by S&P since its establishment. On November 22, 1994 S&P lowered its ratings on the Debentures to BBB and on the commercial paper to A-2. S&P attributed its action to the Company's volatile earnings record and reduced surplus resulting from its past concentration in reinsuring property risks, while acknowledging that the Company maintains a good position in the brokered reinsurance market, a sound investment strategy and benefits from its ownership by SCOR S.A. Moody's has not changed any of the Company's ratings to date. Although the Company may experience increased future borrowing costs as a result of negative ratings changes, the Company has not experienced any significant adverse effect subsequent to the above action.
The Company recently was notified by A.M. Best & Company, Inc., an independent insurance industry rating organization, that the rating of its principal operating companies has been reduced from A+ (Superior) to A (Excellent) for reasons similar to those noted above.
The National Association of Insurance Commissioners ("NAIC"), an organization that assists state insurance regulators in achieving regulatory objectives, established minimum capital requirements, referred to as risk based capital, by adopting a risk-based capital formula for property and casualty companies in December 1993. The risk-based capital formula is applied to statutory financial statements beginning for the year ending December 31, 1994. The essential elements of these requirements focus on a company's types of business, historical loss development patterns and asset quality. Based on the prescribed formula the statutory surplus of each of the Company's operating subsidiaries is sufficient to meet these risk- based capital requirements and to conduct its respective operations.
Effective as of December 31, 1993, the Company adopted Statement of Financial Accounting Standards No. 115 "Accounting for Certain Investments in Debt and Equity Securities" ("SFAS 115"). SFAS 115 addresses the accounting and reporting for investments in equity securities that have readily determinable fair values and for all investments in debt securities. The adoption of SFAS 115 did not have any effect on the Company's financial position or its results from operations.
The FASB's Emerging Issues Task Force ("EITF") reached a consensus on July 22, 1993 regarding Issue No. 93-6, "Accounting for Multiple-Year Retrospectively Rated Contracts by Ceding and Assuming Enterprises" ("EITF 93-6"). EITF 93-6 has had an impact on certain of the Company's retrocessional agreements. As a result of the Company's implementation of the change in accounting method, as of January 1, 1993, $2,600,000 (net of $1,400,000 tax effect), or $0.14 per share, is included as a reduction to income as a cumulative adjustment. The effect of this change, excluding the cumulative adjustment, for the year ended December 31, 1993 was to increase net income by $2,600,000 or $0.14 per share.
In the first quarter of 1992, the Company also changed its accounting method for deferred policy acquisition costs to consider anticipated investment income in evaluating the recoverability of such costs. This new method is preferable because it is the prevalent method used in the insurance industry. The newly adopted accounting method also allows for a more appropriate matching of the income statement amounts of commissions expense with the related earned premiums and the balance sheet amounts of deferred policy acquisition costs with the related unearned premiums. This change resulted in the recognition of a cumulative benefit of the change in accounting principle of $481,000 (after reduction for income taxes of $248,000), or $0.02 per share, as of January 1, 1992.