The following discussion addresses the principal factors affecting the earnings and financial condition of the Company. All references to the "Company" are to Terra Nova (Bermuda) Holdings Ltd. ("Bermuda Holdings") and all of its direct and indirect subsidiaries, including Terra Nova Insurance (U.K.) Holdings plc ("U.K. Holdings"), Terra Nova Insurance Company Limited ("Terra Nova"), Terra Nova (Bermuda) Insurance Company Ltd. ("Terra Nova (Bermuda)"), Compagnie de Reassurance d'Ile de France ("Corifrance"), Octavian Syndicate Management Limited ("Octavian") and Terra Nova Capital Limited ("Terra Nova Capital").
The Company writes specialty property, casualty, marine and aviation insurance and reinsurance business through its subsidiaries on a worldwide basis.
The Company has changed its basis of segmentation from that used last year. The four reportable segments are Terra Nova, Terra Nova (Bermuda), Terra Nova Capital and Corifrance. The segments are strategic business units that operate in different markets. Terra Nova and the Lloyd's syndicates in which Terra Nova Capital participates are based in the London Market. The London Market is comprised of Lloyd's and companies with underwriting offices close to Lloyd's. Terra Nova (Bermuda) operates in the Bermuda Market which consists of both captive and independent companies. Corifrance is a French reinsurer specializing in property reinsurance in the European Market.
The Company's premiums by segment for the years ended December 31, 1999, 1998 and 1997, and the combined ratio are set out in the following table:
As a result, the underwriting loss in 1999 was $172.2 million compared to a profit of $6.6 million in 1998, reflecting an increase in the combined ratio to 129.4% for the year ended December 31, 1999, from 98.8% for the year ended December 31, 1998.
Terra Nova Capital's gross written premiums increased by 54.0% to $552.7 million from $358.9 million in 1998. The growth is due to an increased participation in the Octavian syndicates from approximately 60% of capacity in 1998 to approximately 77% in 1999. This increase also reflects higher writings at syndicates 702 (benefiting from the newly opened Australian office and other initiatives put in place last year), 1227 (expansion of property writings) and 1228 (more overseas auto business). These increases have been partly offset by the impact of management's decision to close auto Syndicate 554 and cease writing business from October 31, 1999. Management also decided to withdraw from writing general aviation and personal accident business through Syndicate 959 and to concentrate on the airline and satellite accounts. As a result, Syndicate 959 has been merged into Syndicate 1009 for the 2000 underwriting year. The segment wrote $1.6 million of orphan syndicate business in the year compared to $31.6 million last year.
Corifrance wrote $20.0 million of premiums in 1999 compared to $17.8 million in 1998. The segment's writings were impacted by lower premium rates in the European property market.
The Company arranges reinsurance protection in order to reduce its exposure to any one policy or physical risk or to a catastrophic accumulation of loss in one event. The Company's net retention of gross premium volume decreased to 71.5% in 1999, down from 85.1% in 1998. The primary reason for this decrease was the Company's bigger participation on the Octavian syndicates in 1999. The Octavian syndicates, particularly the marine and aviation syndicates, buy more reinsurance than the Company's other operating segments. The second reason for the Company buying more reinsurance was due to the perception that reinsurance prices were relatively inexpensive in the very competitive conditions existing in the market, particularly early in the year when most of the protection is bought. The third reason is that the Company bought additional reinsurance to protect its exposure to aviation and satellite business written by Syndicate 959.
Net investment income increased to $93.8 million in 1999 from $93.3 million in 1998. The improvement in 1999 was the result of positive cash flows which increased the size of the Company's investment portfolio, partially offset by the impact of management's decision to increase the equity component of the investment
The Company's loss ratio was 83.9% in 1999 against 65.8% in 1998. The increase in the loss ratio is largely the result of a series of significant loss events that occurred during the second half of 1999. In the final week of the year, two intense windstorms caused severe damage to heavily industrialized and populated areas of Western Europe. These storms, Lothar and Martin, have been described as the worst in 400 years and are expected to generate heavy losses for the insurance industry. Current estimates are in the range of $5 billion to $6 billion. The storms produced the most severe damage in France, Switzerland and Germany, countries in which the Company has important client relationships and provides related insurance and reinsurance coverage. At December 31, 1999, the Company had provided for its estimated share of these losses, approximating to $30 million. Earlier in December, another severe but unrelated storm, Anatol, hit Denmark causing substantial property damage. Management expects the Company's total incurred losses from catastrophes in 1999 including these European Storms, Hurricanes Floyd, Jose and Lenny in the United States and the earthquakes in Turkey, to be $59 million. As well as these losses from catastrophic events occurring in 1999, the Company has experienced adverse development on claims relating to certain 1998 loss events. A large part of this adverse development is due to deterioration on proportional treaties and includes late reported losses, notably on Hurricane Georges and Hurricane Mitch. Finally, the Company experienced significant losses on its aviation, satellite, personal accident, motor and marine hull and energy accounts. To address these losses, the Company restructured these accounts during 1999.
The Company's expense ratio was 45.5% in 1999 against 33.0% in 1998. The increase in the expense ratio is primarily due to restructuring charges associated with the Company's withdrawal from U.K. private passenger auto, light aircraft and general aviation business during 1999. In addition, the Company bought significantly more reinsurance in 1999 and therefore net written premiums as a percentage of gross written premiums were lower in 1999 compared to 1998, thereby increasing the expense ratio. Finally in 1998, the Company wrote $67.6 million of premiums related to reinsurance to close of orphan Lloyd's syndicates compared to $2.3 million in 1999. This business has very low acquisition costs and therefore reduced the 1998 expense ratio.
Other expenses increased in 1999 because of a higher level of corporate activity primarily arising from the Markel transaction.
Reinsurance ceded increased 69.7% to $113.2 million in 1998 from $66.7 million in 1997. Reinsurance ceded as a percentage of gross written premiums, increased to 14.9% in 1998 from 12.1% in 1997. The lower retention rate was primarily due to:
(a) The Company's increased participation on the Octavian syndicates in 1998 compared to 1997. The Octavian syndicates, especially the marine and aviation syndicates, buy more reinsurance than Terra Nova and Terra Nova (Bermuda); and
(b) The Company's buying more reinsurance, especially at the Octavian syndicates, due to the general perception that reinsurance prices were relatively inexpensive in the very competitive conditions that currently exist in the market place. This applied particularly in the marine and aviation lines of business.
Realized net capital gains on sales of investments increased $2.7 million to $18.0 million in 1998 from $15.3 million in 1997. Of the gain in 1998, $8.9 million arose from sales of fixed maturities and $9.1 million from sales of equity securities.
Losses and LAE increased 27.3% to $359.6 million in 1998 from $282.5 million in 1997. As a percentage of net earned premiums, losses and LAE decreased 1.6 points to 65.8% in 1998 from 67.4% in 1997. Analyzing the movement on the loss ratio by product:
(a) The loss and LAE ratio for non-marine property business increased to 66.9% in 1998 from 65.8% in 1997, following the catastrophe activity in the third quarter of 1998 and an increase in losses on the Company's motor business due to the competitive market conditions that exist in this class. The loss associated with Hurricane Georges was approximately $15 million, with Hurricane Mitch adding a further $2 million of losses.
(b) The loss and LAE ratio for non-marine casualty business decreased to 71.8% in 1998 from 74.9% in 1997. This decrease reflected the prior year reserve redundancies on casualty business written by Terra Nova in the period 1986--1993 and profits on the orphan syndicate business written in 1997 and 1998.
Net interest expense in 1998 consisted of interest on the $100 million 10.75% Senior Notes issued on June 30, 1995 and redeemed on May 18, 1998, interest on the $75 million 7.2% Senior Notes issued on August 26, 1997, and interest on the $100 million 7.0% Senior Notes issued on May 18, 1998. The net interest expense in 1997 related to interest on the $100 million 10.75% Senior Notes and interest on the $75 million 7.2% Senior Notes.
An extraordinary charge of $11.6 million arose during the second quarter of 1998 as a result of U.K. Holdings extinguishing all of its $100 million 10.75% Senior Notes due 2005. The charge was net of a $5.2 million income tax benefit.
The Company seeks to maintain prudent levels of liquidity in the interest of protecting its policyholders, creditors and shareholders.
The sources of funds for the Company's insurance subsidiaries consist mostly of net premiums, investment income and proceeds from sales and redemptions of investments. The funds are used to pay claims and operating expenses and to buy both short-term and long-term investments, largely fixed income securities. Short-term investments held by the Company's insurance subsidiaries provide liquidity for projected claims,
The Company's ability to pay dividends on its capital stock and to meet its obligations depends on dividends or other payments from Terra Nova, Terra Nova (Bermuda), Terra Nova Capital, Octavian and Corifrance. Dividend and other payments by Terra Nova, Terra Nova Capital and Octavian are subject to restrictions under U.K. law. Similarly, dividend and other payments by Terra Nova (Bermuda) and Corifrance are subject to restrictions under Bermudian law and French law, respectively.
At December 31, 1999, Terra Nova Capital had net liabilities of $67.3 million. The deficit is the result of underwriting losses incurred during the year. As a further result of these underwriting losses, Terra Nova Capital was carrying a deferred tax asset of $31.1 million, representing estimated taxes recoverable on loss making underwriting years which had not closed at year end 1999. The Company is carrying the balance as tax recoverable on the basis that management anticipates full relief against future taxable profits of the Company's U.K. operating entities. In order to facilitate future profitable underwriting, the Company invested in $75 million of new share capital in Terra Nova Capital by U.K. Holdings. The transfer of capital was effected on February 12, 2000.
Shareholders' equity of the Company was $444.0 million at December 31, 1999, compared to $570.9 million at year end 1998, reflecting an after-tax decline of $63.6 million in the market value of the Company's investment portfolio and $55.6 million of operating losses. Book value per share was $17.50 at December 31, 1999, compared to $22.51 at year end 1998.
On August 16, 1999, Markel Corporation ("Markel") and the Company announced that they had signed an agreement providing for Markel's acquisition of the Company for cash and stock valued at $905 million, or $34.00 per share, based on the closing price of Markel's stock on August 13, 1999. In addition, Markel would assume $175 million of the Company's debt.
company and 0.07027 of a contingent value right. The new agreement was reached after preliminary information indicated that the Company would report a loss for the fourth quarter and for the full year of 1999 and after taking into account the decline in the market price of Markel shares since the merger agreement was signed in August 1999. The transaction, which was approved by the shareholders of both companies on March 16, 2000, is expected to be completed on March 24, 2000, subject to approval by the Bermuda Supreme Court and completion or waiver of all closing conditions.
The Company identified relevant issues and established a strategy to deal with each phase of the euro's implementation. The Company has the capability to process and account for current transactions in the euro, and as needs are identified, will modify its information technology and other systems in response to changing or expanding exposures to euro transactions.
The competitive impact of the euro is not expected to be significant because less than 10% of the Company's business is conducted within EMU member states. Management believes that future costs of modifying information systems software will not be material to the Company's results, operations, financial condition or liquidity.
The Year 2000 issue arises from the fact that historically many computers and computer programs used two digits rather than four to represent the year portion of a date. The faulty interpretation or the misinterpretation of these two digits could result in system failure or miscalculation causing disruption to business processes.
The total cost of the Year 2000 project is not material to the Company's financial position and is being funded from operating cash flows. The total amount spent on the project through December 31, 1999, was $3.0 million.
While there remains a degree of uncertainty about Year 2000 problems that might be inherited from third party suppliers, customers and trading partners, and a potential exposure to changing legal interpretation of Year 2000 claims, the Company believes it has taken all reasonable steps to ensure the consequences of Year 2000 failure will not have a material impact on its future results of operations, liquidity or financial condition.
In our opinion, the consolidated financial statements listed on page 36 present fairly, in all material respects, the financial position of Terra Nova (Bermuda) Holdings Ltd. and subsidiaries at December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedules listed in the index appearing under Item 14(a) on page 78 present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedules are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above.
Hamilton, Bermuda March 10, 2000, except as to note 23 which is as of March 17, 2000
(b) obtaining reinsurance for such contracts in whole or in part;
(b) appoint and supervise the underwriter and associate underwriting, claims, administrative and accounting staff;
(d) manage the investment of the monies and other assets held in each syndicate;
(e) prepare and distribute annual reports, personal accounts and other reports and documents as required by the Council of Lloyd's.
The managing agency manages but does not participate in its own syndicate and has no liability under contracts of insurance. However, Terra Nova Capital, a subsidiary of U.K. Holdings, is a corporate member of Lloyd's and a member of each of the syndicates managed by Octavian. Terra Nova Capital therefore participates in the underwriting results of the Octavian syndicates.
(d) Octavian income and expenses: The Company recognizes its share of the premiums, losses and expenses associated with its participation in Lloyd's syndicates consistent with the bases used in its insurance company operations and in accordance with GAAP. Agency income is earned and agency expenses charged as incurred from Octavian's role as managing agent.
(f) Insurance balances receivable and reinsurance recoverable on paid and unpaid losses: Receivable balances are stated net of allowances for doubtful accounts. Reinsurance recoverable on unpaid losses represents the estimated portion of such liabilities that will be recovered from reinsurers, determined in a manner consistent with the related liabilities.
(i) Accrued premium income: Accrued premium income represents the difference between the estimated cumulative ultimate gross written premiums and cumulative billed premiums.
(m) Risks and uncertainties: Information about risks and uncertainties existing at the balance sheet date related to the following areas are included in Notes 1, 3, 4, 7, 10, 11, 12, 13, 14 and 17:
--Nature of operations; --Use of estimates in preparing financial statements; --Certain significant estimates; --Current vulnerability due to certain concentrations.
Investments: Fair values were based on quoted market prices. For securities for which market prices were not readily available, fair values were estimated using quoted market prices of comparable investments.
The Company has contingent liabilities regarding irrevocable undrawn letters of credit of $246,886,653 and $248,212,339 supporting the Company's underwriting activities on the Octavian syndicates at December 31, 1999 and 1998, respectively. The Company has deposited cash and investments with a carrying value of $251,527,716 at December 31, 1999 and $250,553,300 at December 31, 1998, respectively, as collateral to support this commitment. Cash and securities with a carrying value of $202,931,000 and $149,076,000 at December 31, 1999 and 1998, respectively, were held in trust for the benefit of the Octavian syndicates' policyholders.
(b) Net investment income: An analysis of the net investment income of the Company is as follows:
Realized net capital gains on sale of fixed maturities for the years ended December 31, 1999, 1998 and 1997, included gross capital gains of $5,754,000, $9,420,000 and $9,600,000, and gross capital losses of $11,820,000, $566,000 and $4,258,000, respectively.
Proceeds from sales of investments in equity securities during 1999, 1998 and 1997, were $174,530,000, $140,564,000 and $215,732,000, respectively. Realized net capital gains on sale of equity securities for the years ended December 31, 1999, 1998 and 1997, included gross capital gains of $42,403,000, $24,567,000 and $29,613,000 and gross capital losses of $9,458,000, $15,458,000 and $19,622,000, respectively.
(d) Fixed maturities available for sale: At December 31, the amortized cost and estimated fair value of investments in fixed maturities of the Company were as follows:
The amortized cost and estimated fair value of the Company's fixed maturities at December 31, 1999, by contractual maturity date, are shown in the following table. Actual maturities may differ from contractual maturities because borrowers may have the right to call or repay certain obligations with or without call or prepayment penalties.
(g) Equities available for sale: At December 31, 1999, the cost and estimated fair value of investments in common stocks were as follows:
(a) The U.K. corporation tax rate applicable to ordinary income was reduced to 31% from 33% on April 1, 1997, and to 30% from 31% on April 1, 1999. The corporation tax rate in France was 41.67% for 1997 and 1998, and 40% for 1999. The difference between the actual tax expense and the "expected" amount calculated by applying the U.K. corporation tax rate is explained as follows:
(c) Deferred tax liabilities and assets are provided for expected future tax consequences of events that have been recognized in the consolidated financial statements or tax returns. The measurement of current and deferred tax liabilities and assets is based on the difference between the financial statements and tax bases of assets and liabilities using enacted rates in effect for the years in which the differences are expected to reverse. Measurement of a deferred tax asset, if any, is subject to the expectation of future realization. The components of net deferred tax asset (liability) of the Company as at December 31, 1999 and 1998, were as follows:
Octavian provides a defined contribution plan for nominated employees and directors. The annual contribution rate for employees is 15% of annual pensionable salary and, for directors and certain senior underwriters, is 25% of annual pensionable salary.
The total cost of the Company's defined contribution plans for the year was $3,121,304 (1998: $2,351,000).
The following tables set out the funded status of all defined benefit plans for the years ended December 31, 1999, 1998 and 1997, and the amounts recognized in the accompanying consolidated balance sheets of the Company at December 31, 1999 and 1998:
The following EPS have been calculated using SFAS No.128 "Earnings per Share":
During 1999, the Company issued 175,475 ordinary shares to satisfy options exercised under the Company's stock option plan (see Note 10). Also during the year, the Company repurchased 169,800 shares at a total cost of $3,880,226, excluding commissions. As at December 31, 1999, the Company had purchased a total of 802,600 shares at a total cost of $17,275,896, leaving a further $2,724,104 available for future repurchases under the Board of Directors' authorization, dated May 5, 1997. On May 5, 1999, the Board of Directors authorized the repurchase of an additional $25,000,000 of the Company's common stock. The shares are held in trust for the satisfaction of employees' and directors' long-term compensation plans and any other corporate purposes.
At December 31, 1999, the Company had various stock-based compensation plans which are described below. The Company applies APB Opinion No. 25 and related interpretations in accounting for its plans. Compensation expense of $2,941,000 has been charged against income for 1999 (1998: $1,348,000).
The assumptions made in calculating the pro forma amounts for the three years above were: risk free rate of return, 5.05%; volatility, 0.37; dividend yield, 0.47%; and expected life, 4 years.
At December 31, 1999, there were 45,000 options outstanding under the Executive Share Option Plan, all of which were only exercisable on the achievement of certain performance objectives and therefore have been accounted for as variable options under APB No. 25. The performance objectives were not met and subsequently all 45,000 options lapsed. No compensation expense was incurred in respect of the 45,000 options in 1999. The remaining 1,906,686 options have been accounted for as fixed options in accordance with paragraph 10(b) of APB No. 25 as the number of options and option price were known at the date of grant.
A summary of the Company's Stock Option Plan at December 31, 1999, and changes during the three years then ended is presented below:
At December 31, 1999, the outstanding Option Shares under the Stock Option Plan had exercise prices between $5.80 and $27.05 and a weighted-average remaining contractual life of 6.00 years.
Options outstanding and options exercisable at December 31, 1999, are summarized as follows:
The Octavian Plan is a variable plan for accounting purposes. The accounting follows paragraphs 27 and 28 of APB Opinion No.25. Estimates of compensation cost are recorded before the measurement date based on the quoted market price of Terra Nova stock at intervening dates and Terra Nova's estimate as of such dates of shares which will be issued under the plan.
A summary of the Octavian Stock Option Plan at December 31, 1999, and changes during the three years then ended is shown below:
Movement in unpaid losses and loss adjustment expenses for the years ended December 31, 1999, 1998 and 1997, is summarized in the table below. Incurred claims relating to prior years are offset by decreases to prior year net written and net earned premiums less related acquisition costs of $27,300,000, $9,757,000 and $4,800,000 for 1999, 1998 and 1997, respectively. When these revisions to prior written and earned premiums are considered, the Company experienced net prior year improvements of $17,210,000, $15,207,000 and $5,596,000 in 1999, 1998 and 1997, respectively. The majority of the movement in unpaid losses and loss adjustment expenses attributable to prior years was in relation to Terra Nova's casualty business. The casualty movements arose from the favorable settlements during these financial years in respect of various casualty contracts. The favorable casualty movements in the 1999 financial year were partially offset by deficiencies on the Company's property, motor and aviation classes as a result of claims experience being worse than expected on certain contracts. The majority of these contracts were in respect of the 1998 accident year.
- -------- (1) The net reserves from the reinsurance to close of the 1995 year, of $17,910,000, have been included in net incurred losses and loss adjustment expenses for the year ended December 31, 1997. The premiums of $17,910,000 in respect of these losses were included in gross written and net earned premiums in 1997. The reinsurance to close reserves represent a retrospectively rated reinsurance contract in respect of an outstanding claims portfolio from the closing year of account of a Lloyd's syndicate. (The reinsurance to close occurs at the end of the third year of a Lloyd's underwriting year.)
Asbestos-related Losses and Loss Adjustment Expenses Incurred and Reserves Outstanding (net of reinsurance)
(b) Terra Nova is a shareholder of LUC Holdings Limited ("LUCH") (formerly Market Building Limited). LUCH is a joint venture/consortium company formed to establish and operate, through a subsidiary company, the London Underwriting Centre ("LUC") as a trading center for companies operating in the London Insurance Market. LUC provides a range of facilities to its tenants appropriate to a trading center. All shareholders, including Terra Nova, have given guarantees in favor of The Prudential Insurance Company Limited and the Royal Bank of Scotland (Industrial Leasing) Limited for leases granted to Market Building Limited in connection with the development of the LUC. The guarantee is unlimited. The fire that occurred in August 1991, during fitting out the new LUC resulted in a shortfall of annual rental income and the possibility
of further shortfalls in the future. Each year, Terra Nova charges its share of the expense necessary to maintain the LUC as a trading center.
The extraordinary charge has been recognized in the period of extinguishment under SFAS No.125 "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities".
The Senior Notes were issued by U.K. Holdings and are guaranteed fully and unconditionally by Bermuda Holdings. The Senior Notes may be redeemed at any time at the option of U.K. Holdings at a redemption price equal to the sum of: (i) the principal amount of the Senior Notes being redeemed plus accrued interest to the redemption date; and (ii) the make-whole amount, if any.
In 1992, Terra Nova's directors decided to cease writing aviation business. Since the acquisition of Terra Nova by the Company in 1994, any charges or credits arising from changes in estimates are recorded in continuing operations of the Company. Included within other liabilities in the Company's balance sheet is $20,497,000 (1998: $23,197,000) relating to net liabilities of aviation business in run-off.
Fees of $750,000, $838,750 and $487,500 were paid to Donaldson, Lufkin and Jenrette, a related party, who is a significant shareholder, in 1999, 1998 and 1997, respectively. The fees related to the merger between the Company and Markel Corporation in 1999 and the issue of the Senior Notes in 1998 and 1997.
The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The Company evaluates performance based on profit or loss from operations before income taxes and extraordinary items. Inter-segment revenues are eliminated from segmental reporting, such that the segmental revenues are consistent with the Company's consolidated financial statements.
The following tables summarize the operations and assets of the four segments for the years ended December 31, 1999, 1998 and 1997:
A reconciliation of the total reportable segments' assets to the Company's consolidated total assets is provided below. The main components of the reconciling item are investments in the non-operating companies and inter- segment insurance balances eliminated on consolidation.
Because the Company conducts its business through worldwide market places (including Lloyd's and the London market), it is not practicable to provide geographic segment information.
A reconciliation of total technical provisions (excluding provision for unearned premiums) reported in Terra Nova's annual FSA Return, to Terra Nova's reserve for unpaid losses and loss adjustment expenses under U.S. GAAP for the years ended December 31, 1999, 1998 and 1997, is provided below:
Terra Nova's unaudited required minimum statutory solvency margin and unaudited statutory solvency margin at December 31, 1999, were $39,248,000 and $127,738,000, respectively. Terra Nova's unaudited and estimated FSA Return policyholders' surplus and unaudited net income for the year ended December 31, 1999, and the audited FSA Return policyholders' surplus and net income as reported in the annual returns to the FSA for the years ended December 31, 1998 and 1997, are as follows:
Terra Nova (Bermuda)'s statutory capital and surplus and minimum required statutory capital and surplus and net income for the years ended December 31, 1999, 1998 and 1997, respectively, were:
Bermuda Holdings' and U.K. Holdings' ability to meet their expenses and debt services requirements is dependent upon the ability of Terra Nova and Terra Nova (Bermuda) to pay dividends as described above.
U.K. Holdings was incorporated in the United Kingdom on November 7, 1994, to acquire Terra Nova. U.K. Holdings is the issuer of Senior Notes as described in Note 16. Bermuda Holdings is the guarantor of such notes. The guarantee is full and unconditional.
The Company's net income per share amounts are based on the weighted average number of shares outstanding during the periods (see Note 8).