The following is a discussion and analysis of the Company's results of operations and financial condition. This discussion and analysis should be read in conjunction with the audited consolidated financial statements and related notes.
international property catastrophe premiums to $73.1 million for the year ended September 30, 1997 from $88.9 million for the year ended September 30, 1996. This reduction, in turn, was a result of the competitive rate environment, which led to a reduction in the number of international property catastrophe contracts written. The Company experienced a 5.3% decrease in property catastrophe premiums written in the United States. The decline in gross premiums written by the Company was partially offset by an increase of $14.9 million in respect of other non-property catastrophe lines written. This increase primarily related to premiums written in the year ended September 30, 1997 by LaSalle Re Capital, which was accepted into Lloyd's with effect from January 1, 1997. Further, for the year ended September 30, 1997 compared to the year ended September 30, 1996, the Company experienced a reduction in reinstatement premiums of $6.2 million due to more favorable loss experience and an increase in overall negative premium adjustments of $7.6 million.
The following table sets forth the Company's combined ratios for the years ended September 30, 1997 and 1996:
Losses and loss expenses incurred decreased 39.4% to $31.2 million for the year ended September 30, 1997 from $51.5 million for the year ended September 30, 1996. This decrease was a result of the limited number of worldwide catastrophic events that affected the Company during the year. Losses and loss expenses incurred during the year ended September 30, 1997 primarily included $12.0 million for floods in Eastern Europe, $6.1 million in respect of various international windstorms and winter storm activity in the United States and $4.6 million adverse development on Hurricane Fran, which occurred in September 1996. Losses and loss expenses incurred during the year ended September 30, 1996 included additional reserves of $14.2 million for Hurricanes Marilyn and Luis and various other losses emanating from the 1996 hurricane season and end of the 1995 hurricane season and international storms.
Foreign exchange losses in the year ended September 30, 1997 were $3.0 million compared to losses of $1.1 million in the year ended September 30, 1996. The losses in the year ended September 30, 1997 resulted from the unfavorable closing of a Sterling forward contract, and an overall strengthening of the United States Dollar since January 1, 1997 against the major foreign currencies in which the Company writes premiums. The losses for the year ended September 30, 1996 were the result of several factors, including the decrease in the value of Yen and Deutsche Marks relative to the United States Dollar. Additionally, the Company's Sterling foreign exchange contracts precluded participation in the appreciation of Sterling in the third fiscal quarter above the Company's average forward rate.
The Company's net income per share was $5.14 for the year ended September 30, 1997 and $5.40 for the year ended September 30, 1996. Following the Tender Offer, the weighted average number of Common Shares and Common Share equivalents outstanding decreased from 23,967,870 for the year ended September 30, 1996 to 22,998,936 for the year ended September 30, 1997. This decrease generated a 6.6% accretive effect on the Company's 1997 net income per share.
Net premiums earned increased 14.5% to $195.1 million for the year ended September 30, 1996 from $170.4 million for the year ended September 30, 1995. The magnitude of this increase was primarily due to the overall increase in premiums written in the third and fourth quarters of fiscal 1995 compared with fiscal 1994, which had a subsequent impact on net premiums earned in fiscal 1996 and fiscal 1995, respectively.
Net investment income increased 6.8% to $26.8 million for the year ended September 30, 1996 from $25.1 million for the year ended September 30, 1995. This increase was primarily attributable to a larger average investment base in the year ended September 30, 1996 compared to the year ended September 30, 1995. Investment income as a percentage of the average market value of invested assets was 5.44% for the year ended September 30, 1996 compared to 5.38% for the year ended September 30, 1995.
The following table sets forth the Company's combined ratios for the years ended September 30, 1996 and 1995:
Underwriting expenses increased 18.6% to $27.3 million for the year ended September 30, 1996 from $23.0 million for the year ended September 30, 1995, primarily attributable to the growth in net premiums earned. As a percentage of net premiums earned, underwriting expenses increased from 13.5% for the year ended September 30, 1995 to 14.0% for the year ended September 30, 1996. This was attributable to an increase in the level of fees accrued pursuant to the Underwriting Services Agreement which, as a percentage of net premiums earned, were 3.7% for the year ended September 30, 1996 and 3.3% for the year ended September 30, 1995.
Operational expenses increased 78.7% to $11.1 million for the year ended September 30, 1996 from $6.2 million for the year ended September 30, 1995. The increase was primarily due to increased staff at the executive level and increased fees pursuant to the Administrative Services Agreement.
Foreign exchange losses in the year ended September 30, 1996 were $1.1 million compared to $0.2 million in the year ended September 30, 1995. The losses in the year ended September 30, 1996 were due to the weak performance of the United States dollar against the Yen in conjunction with a strengthening of Sterling in excess of the average foreign exchange contract rates. In the year ended September 30, 1995, the Company experienced foreign currency losses principally as a result of the weakening of Sterling against the United States Dollar.
The Company's net income per share was $5.40 for the year ended September 30, 1996 compared to $4.51 for the year ended September 30, 1995.
LaSalle Re's sources of funds consist of premiums written, investment income and proceeds from sales and redemptions of investments. Cash is used primarily to pay losses and loss expenses, brokerage, commissions, excise taxes, administrative expenses and dividends. Under the Insurance Act, LaSalle Re is prohibited from paying dividends of more than 25% of its opening statutory capital and surplus unless it files an affidavit (at least 7 days before payment of such dividends) stating that it will continue to meet the required solvency margin and minimum liquidity ratio requirements and from declaring or paying any dividends without the approval of the Minister of Finance if it failed to meet its required margins in the previous fiscal year. The Insurance Act also requires LaSalle Re to maintain a minimum solvency margin and minimum liquidity ratio and prohibits dividends that would result in a breach of these requirements. In addition, LaSalle Re is prohibited under the Insurance Act from reducing its total opening statutory capital by more than 15% without the approval of the Minister of Finance. LaSalle Re currently meets its requirements under the Insurance Act. In addition, the payment of dividends by LaSalle Re is subject to the rights of holders of the Exchangeable Non-Voting Shares to receive a pro rata share of any dividend and to its need to maintain shareholders' equity adequate to support the level of LaSalle Re's reinsurance operations.
Operating activities provided net cash of $98.6 million for the year ended September 30, 1997 and $131.4 million for the year ended September 30, 1996. Cash flows from operations in future years may differ substantially from net income. Cash flows are affected by loss payments, which, due to the nature of the reinsurance coverage provided by LaSalle Re, are generally expected to comprise large loss payments on a limited number of claims and can therefore fluctuate significantly from year to year. The irregular timing of these large loss payments can create significant variations in operating cash flows between periods. LaSalle Re funds such payments from cash flows from operations and sales of investments.
As a result of the potential for large loss payments, LaSalle Re maintains a substantial portion of its assets in cash and marketable securities. As of September 30, 1997, 80.6% of its total assets were held in cash and marketable securities. To further mitigate the uncertainty surrounding the amount and timing of potential liabilities and to minimize interest rate risk, LaSalle Re maintains a short average duration for its investment portfolio. The modified average duration of the investment portfolio, including cash, was 2.76 years at September 30, 1997. At September 30, 1997, the fair value of the Company's total investment portfolio, including cash, was $553.0 million. Cash and cash equivalents increased from $47.0 million at September 30, 1996 to $54.8 million at September 30, 1997 in order to fund the Common Share dividend payable in October 1997.
The Company has adopted the SFAS 115 to account for its marketable securities. In accordance with SFAS 115, all of the Company's investments are classified as "available for sale". Under this classification, investments are recorded at fair market value and any unrealized gains or losses are reported as a separate component of shareholders' equity. The unrealized gain on the investment portfolio, net of amounts attributable to minority interest, was $2.0 million at September 30, 1997 compared to an unrealized loss of $1.9 million at September 30, 1996.
Other assets increased from $1.6 million at September 30, 1996 to $22.6 million as at September 30, 1997 primarily due to the deposit portion of the ceded reinsurance contract, accounted for in accordance with SFAS No 113.
In accordance with the terms of certain reinsurance contracts written by the Company, the Company has posted letters of credit in the amount of $8.7 million as of September 30, 1997 as compared to $15.5 million as of September 30, 1996 to support outstanding loss reserves. In connection with LaSalle Re Capital's support of three Lloyd's syndicates, the Company has posted letters of credit in the amount of $16.0 million (equivalent to (Pounds)9.8 million). All letters of credit are secured by a lien on the Company's investment portfolio equal to 115% of the amount of the outstanding letters of credit.
At September 30, 1997, the liability for unpaid losses and loss expenses was $45.5 million compared to $49.9 million at September 30, 1996. This reduction reflected the payment of losses outstanding as at September 30, 1996 and the lack of significant catastrophic events in the year ended September 30, 1997.
The Company paid dividends on its Common Shares of $0.25 per share in October 1996 and $0.71 per share in January, April and July 1997. In June and September 1997, the Company paid a dividend of $0.3889 and $0.5469 per share to holders of its Series A Preferred Shares. As of September 30, 1997, dividends due but not yet declared on the Series A Preferred Shares amounted to $0.5 million.
The Company has in place a $100 million committed line of credit from a syndicate of banks. The proceeds from the credit facility may only be used to buy preferred shares of LaSalle Re, which, in turn, may use the proceeds of such purchase to meet current cash requirements. The facility matures on December 1, 2000 and is secured by a pledge ("legal mortgage") of all the capital stock of LaSalle Re held by the Company, including any preferred shares that may be issued by LaSalle Re to the Company. The line of credit contains various covenants, including limitations on incurring additional indebtedness; prohibitions of dividends and other restricted payments that would cause the Company's tangible net worth (total shareholders' equity and minority interest) to fall below $375 million for calendar years 1997 and 1998, and $400 million thereafter; restriction of dividends per fiscal quarter to 12.5% of consolidated net income of the Company for the immediately preceding fiscal year; restrictions on the sale or lease of assets not in the ordinary course of business; maintenance of a ratio of consolidated total debt to consolidated tangible net worth of no more than 0.40 to 1.00; maintenance of tangible net worth at the end of each fiscal year of the greater of $300 million or 70% of net premiums written; maintenance of statutory capital of LaSalle Re at the end of each fiscal year of at least $300 million; and maintenance of a ratio of net premiums written to statutory capital at the end of any fiscal quarter for the four fiscal quarters then ended of no more than 1.00 to 1.00 in each case. In order for the Company to pay dividends in excess of 50% of net income, the Company would have to renegotiate certain terms of its credit facility. As of September 30, 1997, the credit facility had not been utilized.
We have audited the consolidated financial statements of LaSalle Re Holdings Limited and subsidiaries as listed in the accompanying index. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of LaSalle Re Holdings Limited and subsidiaries as of September 30, 1997 and 1996 and the results of their operations and their cash flows for each of the years in the three-year period ended September 30, 1997 in conformity with generally accepted accounting principles.
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995 (EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
The Company was incorporated on September 20, 1995 under the laws of Bermuda to act as an investment holding company.
Property catastrophe reinsurance covers unpredictable events such as hurricanes, windstorms, hailstorms, earthquakes, fires, industrial explosions, freezes, riots, floods and other man-made or natural disasters. Because the Company has large aggregate exposures to these risks, the Company expects that its claims experience will be characterized by relatively low frequency and high severity claims. The occurrence of claims from catastrophic events is likely to result in substantial volatility in the Company's financial results for any particular period. The Company endeavors to manage its exposures to catastrophic events by limiting the amount of its exposure in each geographic zone worldwide and requiring that its property catastrophe contracts provide for aggregate limits and attachment points.
Premiums written are estimated by management based upon reports received from ceding companies. These estimates are subject to review with adjustments recorded in the period in which the actual amounts are determined. Premiums on property catastrophe excess of loss contracts are earned on a pro rata basis over the period the coverage is provided, which is generally 12 months. Under pro rata property catastrophe contracts, the risks underlying the contracts incept throughout the policy period and premiums generally are earned over an 18 month period. Premiums written by LaSalle Re Corporate Capital Ltd. are derived from reports submitted to the Company by the syndicates. These premiums are earned in accordance with the related underlying risk attachment periods, which average between 18-24 months. Unearned premiums represent the portion of premiums written which are applicable to the unexpired terms of the policies in force.
In accordance with Statement of Financial Accounting Standard ("SFAS") No. 113 "Accounting and Reporting for Reinsurance of Short-Duration and Long- Duration Contracts", contracts providing indemnification against loss or liability relating to insurance risk have been accounted for as reinsurance. Reinsurance premiums are reported as prepaid reinsurance premiums and amortized over the contract period in proportion to the amount of reinsurance protection provided. Where the contract provides for return premiums, these are accrued based on loss experience through to the balance sheet date. Reinsurance contracts which do not satisfy the conditions for reinsurance accounting under SFAS No. 113 are accounted for as deposits.
Investment income, net of investment expenses, is accrued to the balance sheet date and includes amortization of premiums and discounts relative to fixed interest securities purchased at prices different to par value.
Corporate expenses are expensed as they are incurred on an accruals basis.
For the purposes of the statements of cash flows, the Company considers all time deposits and certificates of deposit with an original maturity of 90 days or less as equivalent to cash.
In February 1997, the Financial Accounting Standards Board issued SFAS No. 128 "Earnings per Share" ("EPS"), effective for financial statements issued for periods ending after December 15, 1997. Pro forma EPS amounts computed using this Statement are disclosed in Note 5 to the consolidated financial statements.
All fixed interest securities and short term investments are considered available for sale. The fair values are based on quoted market prices at the reporting date for those, or similar, investments. As at September 30, 1997 and 1996, the fair values and amortized costs of investments are as follows:
The unrealized gain on investments as shown on the consolidated balance sheet of $2,035 (1996 unrealized loss: $1,861) is net of the minority's interest of $542 (1996: $1,075).
In the normal course of reinsurance operations, the Company's bankers have issued letters of credit totalling $8,673 (1996: $15,511) in favor of ceding insurance companies to secure the Company's obligations under various reinsurance contracts. In addition, in connection with LaSalle Re Corporate Capital Ltd.'s support of three Lloyd's syndicates, the Company has posted letters of credit in the amount of $15,974. At September 30, 1997, $28,344 (1996: $17,837) of fixed interest securities have been pledged as collateral for these letters of credit.
Net investment income for the years ended September 30, 1997, 1996 and 1995 was derived from the following sources:
The change in net unrealized losses, net of the minority's interest, that has been included as a separate component of shareholders' equity for the year ended September 30, 1997 was a decrease of $3,896 (1996 increase: $822; 1995 decrease: $10,797).
Proceeds received from the sale of available for sale securities during the year ended September 30, 1997 were $282,449 (1996: $170,296; 1995: $50,198).
Reinsurance premiums ceded are primarily in respect of a multi-year excess of loss reinsurance program purchased by the Company, and various reinsurance protections purchased by LaSalle Re Corporate Capital Ltd. The excess of loss program provides coverage of $100,000 in excess of the first $100,000 of losses per
occurrence for a first loss event and $100,000 excess of $150,000 per occurrence on the second loss event for the three-year period ended December 31, 1999, subject to a maximum aggregate recovery of $200,000. The Company may participate on a co-insurance basis for the second loss event.
The reinsurance is provided by a company which currently holds a rating of "A+" (Superior) from A.M. Best Company, Inc. and a claims-paying rating of "AA" (Excellent) from Standard & Poor's Rating Services.
In February 1997, the Financial Accounting Standards Board issued SFAS No. 128 "Earnings per Share." Under this statement, early adoption is not allowed, however, a company is permitted to disclose pro forma earnings per share amounts computed using the Statement in the notes to the financial statements.
The following EPS amounts would have been disclosed had EPS been computed using SFAS No. 128:
Included in other assets is a promissory note receivable. In connection with the terms of the Chief Executive Officer's five-year employment contract, LaSalle Re advanced $695 to him for the purpose of purchasing a property in Bermuda. The advance is evidenced by a promissory note, which bears interest at the rate of 8% per annum and is repayable in full at the earlier of the termination date of the Chief Executive Officer's employment contract or the date of sale of the property. Under the employment contract, LaSalle Re will assume any gain or loss on the disposition of the property.
During the year LaSalle Re repurchased 3,703,703 of its common shares held by LaSalle Re Holdings Limited and 28,496 Exchangeable Non-Voting Shares. In addition, 4,378,327 Exchangeable Non-Voting Shares were exchanged for Common Shares of LaSalle Re Holdings Limited. These transactions had the effect of reducing the minority interest percentage in LaSalle Re from 36.6% to 21.1%.
The following table summarizes the movement in minority interest during the year ended September 30, 1997.
The Company completed a secondary offering of Common Shares in December 1996. In connection with the offering, certain Founding Shareholders of LaSalle Re exchanged 2,119,110 of their Exchangeable Non-Voting Shares for Common Shares of the Company.
Pursuant to a tender offer ("Tender Offer") made by the Company in May 1997, 2,163,538 Exchangeable Non-Voting Shares were exchanged for Common Shares of the Company and 95,679 options for Exchangeable Non-Voting Shares were exercised and exchanged for Common Shares of the Company. Following these exchanges, the Company purchased 3,703,703 Common Shares, for cancellation, at the tender price of $27.00. The par value of the shares canceled has been deducted from share capital. The additional paid in capital arising from the original subscription to the shares, subject to the Tender Offer, has been eliminated from additional paid in capital and the difference between the subscription price received for the shares and the price paid in the Tender Offer has been deducted from retained earnings.
These exchanges of Exchangeable Non-Voting Shares for Common Shares are non- cash financing transactions for the purposes of the Statement of Cash Flows.
In addition, pursuant to the Employee Stock Purchase Plan (the "Plan") the Company issued 1,571 Common Shares. Under the Plan, the Company is authorized to sell up to 150,000 Common Shares at a discount equivalent to 15% of the market price, to eligible employees of the Company and its subsidiaries, and other persons providing services to those companies. The maximum investment by an employee is $25 per calendar year. The Company has recorded the shares issued under the Plan at fair value. No compensation cost has been
recorded as this was reimbursed pursuant to the service agreements with CNA (Bermuda) Services Limited ("CNA Bermuda") and Aon Risk Consultants (Bermuda) Limited ("ARC Bermuda").
Effective July 1, 1997, the Company entered into a $100 million multi-year Catastrophe Equity Put ("CatEPut") option program. The CatEPut option enables the Company to sell up to $100 million of equity, through the issue of convertible Series B Preferred Shares to the option writers. The preferred shares can be redeemed by the Company at any time over the three years following their issue. In addition, the option writers can convert their preferred shares into Common Shares of the Company at any time after they have been outstanding for three years. Conversion is at the greater of the book value of the Company at the date of conversion or the market value of the Common Shares based on the 30-day trading average prior to conversion. The Company is obligated to pay an option premium of $2,350 per annum. The option premium is charged to additional paid in capital, net of the minority's interest of $495. Of the option premium, $422 is payable to affiliates of shareholders of the Company.
During the year ended September 30, 1997, 95,679 options were exercised at a price of $9.74. In addition, 136,350 options to purchase Exchangeable Non- Voting Shares were bought by the Company at a price of $24.97 and subsequently cancelled. As at September 30, 1997, the Company and LaSalle Re had outstanding 136,350 options to purchase Common Shares and 1,967,751 options to purchase Exchangeable Non-Voting Shares, respectively.
The original exercise price of the options was $16.67 per share, which was equal to the fair value of the Company's shares at the grant date, minus dividend adjustments. The current exercise price is $9.03. As the options were granted to certain of the Founding Shareholders and their affiliates as an inducement to purchase stock in LaSalle Re, no compensation expense has been recorded in connection with the options.
In consideration for entering into an employment agreement with LaSalle Re, the Company's Chief Executive Officer (the "Executive") was granted a total of 340,872 Stock Appreciation Rights (SARs) during 1994. Upon exercise, the SARs entitle the Executive to a cash payment equal to the value of the SARs as of the
exercise date. Alternatively, at the Company's sole discretion, the SARs will entitle the Executive to either (i) the number of Special Non-Voting Shares of LaSalle Re equal to the aggregate value of the SARs divided by the fair value of a Common Share at the exercise date, or (ii) upon payment of the base value for each SAR, the number of Special Non-Voting Shares of LaSalle Re equal to the number of SARs exercised.
The weighted average fair value of options granted during 1997 is $8.18 (1996 : $5.85) per share. The fair value of each option grant in 1997 is estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions : dividend yield of 0% per annum; expected volatility of 10%; expected life of 10 years; and a risk free interest rate of 5.6%.
The Company applies APB Opinion 25 and Related Interpretations in accounting for the Incentive Plan. Accordingly, a compensation cost has been recognized based on the intrinsic value of the options at the measurement date. The net income and earnings per share would have been reduced to the pro forma amounts indicated below had compensation cost been determined based on the fair value of the options at the grant date consistent with the method of SFAS No 123:
There are no comparatives for the year ended September 30, 1995 as no options had been granted.
(ii) An underwriting profit commission equal to 2.5% of the aggregate net underwriting profits of LaSalle Re, where certain conditions are met.
The Company has incurred $4,061 (1996 : $4,140; 1995 : $2,186) for underwriting profit commission for the year ended September 30, 1997, of which $2,890 was payable at September 30, 1997 (1996 : $3,350).
The Company has incurred $6,212 (1996 : $6,500; 1995 : $4,500) for administrative services for the year ended September 30, 1997, of which $1,987 was payable at September 30, 1997 (1996 : $Nil).
Following the termination of the agreement, all personnel assigned to the Company by ARC Bermuda became employees of the Company and all services performed by ARC Bermuda are now performed in- house.
LaSalle Re is party to an agreement with Aon Advisors (UK) Limited ("Aon UK") to provide investment management services. Fees are based on the average daily balance of the investment portfolio of the preceding quarter. The average daily balance is split into various bands, with fees calculated by applying a sliding scale of basis points to each band. In July 1997, the company re-negotiated a flat fee with Aon UK.
A broker, who is unrelated to the Company, arranged more than 15% of the Company's premiums written for the year ended September 30, 1997 (1996 : 16%; 1995 : 21%). Another broker, who is unrelated to the Company, arranged more than 10% of the Company's premiums written for the year ended September 30, 1997 (1996 and 1995: less than 10%). A broker, who is related to the Company, arranged more than 16% of the Company's premiums written for the year ended September 30, 1997 (1996 : 12%; 1995 : 10%). Approximately 13% (1996 : 13%; 1995 : 15%) of the gross premiums written for the year ended September 30, 1997 were ceded by related companies.
The Company's functional currency is the U.S. dollar, however, as the Company operates internationally, it has exposure to changes in foreign currency exchange rates. These exposures include net cash inflows on non-U.S. dollar denominated insurance premiums.
To manage the Company's exposure to these risks, the Company may enter into foreign exchange contracts in the major currencies to which the Company is exposed. These contracts generally involve the exchange of one currency for another at some future date. At September 30, 1997, the Company had no foreign exchange contracts in place. At September 30, 1996, the Company had a notional principal amount outstanding of approximately $25,192 in contracts to sell foreign currencies in the future. The fair value of these contracts, based on quoted forward rates available for the maturity of the contracts, as at September 30, 1996 was $(571). Losses of $1,906 (1996: $294 and 1995: $756) are included in the Statements of Operations with respect to foreign exchange contracts.
The Company may also enter into foreign exchange contracts to manage the exposures relating to known reinsurance losses denominated in foreign currencies. However, no such contracts had been entered into at September 30, 1997.
The Company has in place a $100 million committed line of credit from a syndicate of banks. The proceeds from the credit facility may only be used to buy preferred shares of LaSalle Re, which in turn may use the proceeds of such purchase to meet current cash requirements. The facility matures December 1, 2000, and is secured by a pledge ("legal mortgage") of all the capital stock of LaSalle Re held by the Company, including any preferred shares that may be issued by LaSalle Re to the Company. As at September 30, 1997, the facility had not been utilized.
The line of credit contains various covenants, including: limitations on incurring additional indebtedness; prohibitions of dividends and other restricted payments that would cause the Company's tangible net worth (total shareholders' equity and minority interest) to fall below $375 million for calendar years 1997 and 1998, and $400 million thereafter; restriction of dividends per fiscal quarter to 12.5% of consolidated net income of the Company for the immediately preceding fiscal year; restrictions on the sale or lease of assets not in the ordinary course of business; maintenance of a ratio of consolidated total debt to consolidated tangible net worth of no more than 0.40 to 1.00; maintenance of tangible net worth at the end of each fiscal year of the greater of $300 million or 70% of net premiums written; maintenance of statutory capital of LaSalle Re at the end of each fiscal year of at least $300 million; and maintenance of a ratio of net premiums written to statutory capital at the end of any fiscal quarter for the four fiscal quarters then ended of no more than 1.00 to 1.00 in each case. In order for the Company to pay dividends in excess of 50% of net income, the Company would have to renegotiate certain terms of its credit facility. As of September 30, 1997, the credit facility had not been utilized and the Company was in compliance with all covenants under the facility.
The statutory capital and surplus of LaSalle Re at September 30, 1997 was approximately $490,000 (1996: $477,000) and the minimum required statutory capital and surplus required by its license as a Class 4 insurer was $100,000 (1996: $100,000).