Home Insurance owns an office building comprising approximately 56,000 square feet of space in Maitland, Florida and leases premises in a number of other locations throughout the United States.
Gruntal leases its headquarters in New York City and other locations in the United States.
(2) The 1996 loss includes $662 million of bulk additions to loss and loss adjustment expense reserves, including $225 million for Asbestos/Pollution Policies. The 1995 amount includes incurred losses of $549 million for Asbestos/Pollution Policies which includes $440 million of reserve increases. Also amounts include the effect of the 1994, 1993 and 1992 Reserve Strengthenings of $75 million, $290 million and $200 million, respectively.
(4) The combined ratios for the property and casualty industry were provided by A.M. Best Company.
(7) The Department gave Home Insurance permission to include in the 1996 Annual Statement a non-tabular discount which results from discounting all loss reserves, and allocated and unallocated loss reserves at 7%. Home Insurance has sufficient assets that will earn 7% to meet the expected stream of loss and loss adjustment expense payments. Home Insurance calculated that the non-tabular discount is $469 million. The 1996 statutory surplus of $55 million reflects the benefit of this discount. See note 4 to the consolidated financial statements.
Consolidated revenues were $713 million in 1996, compared with $1,371 million in 1995 and $2,217 million in 1994. The Company reported a net loss of $468 million in 1996 compared with net losses of $1,326 million and $385 million in 1995 and 1994, respectively.
Net earned premiums $ 116 $ 914 $ 1,653 Net investment income 146 219 225 Realized capital gains (losses) 9 (225) 16 --------- --------- -------- INSURANCE REVENUES $ 271 $ 908 $ 1,894 ========= ========= ========
NET EARNED PREMIUMS Commercial Accounts Group Commercial Casualty $ 74 $ 480 $ 1,008 Commercial Property 10 46 79 --------- --------- -------- Total Commercial Accounts Group 84 526 1,087 --------- --------- -------- Specialty Lines Group Professional Liability 14 169 278 Other Specialty Lines 8 180 238 --------- --------- -------- Total Specialty Lines Group 22 349 516 --------- --------- -------- Run-off Operations 10 39 50 --------- --------- -------- Net earned premiums $ 116 $ 914 $ 1,653 ========= ========= ========
Underwriting losses totaled $964 million in 1996 compared with underwriting losses of $1,105 million in 1995, before the commutation and assignment of the Stop Loss Treaty and $368 million in 1994. An analysis of underwriting results follows:
(1) GAAP ratios are expressed as a percentage of net earned premiums and are presented prior to cessions to the Stop Loss Treaty. As a result of the run-off of all Home Insurance operations effective June 12, 1995, disclosure of 1995 ratios as a percentage of earned premiums is not meaningful.
The 1995 underwriting loss was impacted by the Run-off Operations loss of $690 million and the $189 million loss on the commutation and assignment of the Stop Loss Treaty. The Run-off Operations loss included losses of $549 million related to Asbestos/Pollution Policies, and a $53 million provision for uncollectible reinsurance. In addition, commercial and specialty results deteriorated due to lower earned premiums, unfavorable loss experience and providing for higher loss ratios on current year business.
The Company recorded decreases to discount on workers' compensation pension liabilities of $50 million and $19 million in 1996 and 1995, respectively, and an increase of $52 million in 1994. The 1996 decrease reflects a reduction in the escalation benefit and associated discount foreseen for claims in certain states and also the natural unwinding of the discount as Home Insurance has ceased writing business. The discount recorded in 1994 related to an increase in the number of workers' compensation pension cases as well as strengthened case development estimates. The decrease to the discount in 1996 and 1995 increased the underwriting loss while recording of additional discount in 1994 reduced underwriting losses. See note 4 to the consolidated financial statements for discussion of discount of loss reserves for statutory purposes.
In 1995, in connection with the Recapitalization, Home Insurance entered into the Commutation Agreement, with the Commuting Reinsurers providing for the commutation of the Stop Loss Treaty as of June 12, 1995 as to the Commuting Reinsurers. Home Insurance also entered into the Assignment Agreement with Centre Reinsurance Dublin, pursuant to which Home Insurance assigned all of its rights, title and interest in any payments by those reinsurers under the Stop Loss Treaty that were not Commuting Reinsurers (i.e., Kemper Reinsurance Company and THI) due Home Insurance in accordance with the Stop Loss Treaty. In 1996, THI commuted its share of the Stop Loss Treaty, leaving Kemper Reinsurance Company as the only non Commuting Reinsurers. The Company recognized a $189 million loss in 1995 attributable to the Commutation Agreement and the Assignment Agreement.
As of December 31, 1996, Home Insurance had approximately 2,100 policies for which one or more claims were open relating to asbestos and pollution matters. Some policies have both asbestos and pollution claims open against them. As of the end of 1996, the Company has open approximately 900 asbestos claims and 3,300 pollution claims. The Company has provided claim count information in an effort to provide additional insight into the magnitude of the management effort required to deal with the case load in the areas of Asbestos/Pollution Policies. Claim counts for these exposures are not, however, subject to the same level of consistent definition that is common for other insured perils. A claim count for a Pollution Policy might involve a single waste site in a single year for which coverage is being sought under a single policy. Alternatively, a single claim count might involve a settlement covering many waste sites over many years and/or several policies in several layers of coverage per year. As a result, the interpretation of this data is complicated and the use of average values calculated on the basis of this data is likely to be misleading. The number of open asbestos claims has been fairly stable over the last five years. The number of pollution claims has also been fairly stable over the last four years. In addition, as of December 31, 1996, Home Insurance was involved in approximately 330 coverage disputes (where an action seeking a declaratory judgment had been filed, the resolution of which will require a judicial interpretation or compromise resolution of an insurance policy) related to claims on Asbestos/Pollution Policies.
With respect to claims involving exposures to asbestos and certain other toxic torts, the development of the legal insurance coverage issues is more advanced and the insurance companies have had a longer history in defending and settling such claims. As a result, Home Insurance establishes specific case reserves for these asbestos and toxic tort claims at such time as Home Insurance is able to estimate the probable ultimate cost to Home Insurance over reasonably foreseeable future periods of time. Pollution claims, however, continue to present the range of issues presented above. Policyholders generally do not make available sufficient information from which the reasonable costs of clean-up or remediation, even if covered by a Home Insurance policy, might be estimated. Moreover, successful defense by Home Insurance on coverage issues might eliminate all coverage for a particular claim or group of claims. Accordingly, the development of a factual basis from which a claim can be evaluated with respect to exposure and coverage can take months to years from receipt of an initial claim. Thus, reserves with respect to specific pollution cases typically are set, if at all, only after substantial factual discovery is completed in the action.
In 1995, Middle Market Casualty and Major Casualty which had been segregated in 1994, were combined into Commercial Casualty.
Underwriting losses were $227 million in 1996 compared with $221 million and $26 million in 1995 and 1994, respectively. The 1996 losses were primarily due to loss and loss adjustment expense reserve bulk additions of $121 million, and to lower earned premiums and expenses incurred in managing the run-off of its operations. The 1995 results were impacted by lower earned premiums, unfavorable loss experience and providing for higher loss ratios on current year business. The 1994 result benefited by lower involuntary assessments, favorable loss experience and additional discount on workers' compensation pension cases.
The 1996 underwriting loss was $89 million as compared to a loss of $29 million in 1995 and an underwriting profit of $29 million in 1994. The 1996 loss was primarily due to loss and loss adjustment expense reserve bulk additions of $68 million and to lower earned premiums and expenses incurred in managing the run-off of its operations. The 1995 underwriting loss was impacted by lower earned premiums, unfavorable loss experience and providing for higher loss ratios on current year business. The 1994 result reflected an increase in premium rates, favorable reinsurance arrangements and improved loss experience.
The Swap is designed to transfer control and market risk of the portfolio to Centre Reinsurance Dublin. The Company has accounted for the Swap as if the investments underlying the Swap were sold to Centre Reinsurance Dublin. The Company, however, continues to retain legal ownership. As a result, the Company has reclassified its investments underlying the Swap to the Portfolio Swap Receivable, valued at the fair value of the portfolio investments on the effective date (January 1, 1995) less withdrawals made to fund operations plus the total return of 7.5%. In 1995, the Company also recorded realized capital losses of $208 million, which were reflected at December 31, 1994 as unrealized capital losses included in stockholders' equity. Subsequent changes to fair market value of securities have not and will not be recognized, as Centre Reinsurance Dublin bears the market risk.
The Company received $48 million from Centre Reinsurance Dublin on January 21, 1997, to settle the 1996 Swap receivable. Securities and cash totaling $210 million were transferred to Centre Reinsurance Dublin on January 22, 1996, to settle the 1995 Swap liability.
In the year ended December 31, 1996, the Company recognized $9 million in realized capital gains and $6 million in unrealized capital gains for insurance equity investments not underlying the Swap.
Revenues, expenses and income before income taxes of Gruntal, the Company's securities broker-dealer, for the years ended December 31, 1996, 1995 and 1994 were as follows:
See note 15 to the consolidated financial statements for further discussion of the Reorganization Agreement entered into on February 24, 1997 by Gruntal and The 1880 Group LLC.
In November 1994, the Company was downgraded by the three primary insurance rating agencies. These actions had a significant adverse effect on the premium production of Home Insurance. As a result, the Company could no longer forecast operating income to demonstrate the recoverability of goodwill related to its subsidiaries. Therefore, the Company recorded a charge of $206 million in 1994 for the writeoff of goodwill, exclusive of the annual amortization.
In November 1992, the Financial Accounting Standards Board ("FASB") issued SFAS No. 112, "Employers' Accounting for Post-employment Benefits." This statement requires employers to recognize the obligation to provide benefits, such as health-care, life insurance coverage and disability related costs to former or inactive employees. The Company adopted this statement in 1994 and recorded a loss of $4 million as a cumulative effect of a change in accounting principle.
Following the Closing, Home Insurance has generally ceased writing new or renewal insurance or reinsurance business, except for limited risks that Home Insurance is obligated to continue writing for an interim period. The Company has been notified by the Department that, in light of the Recapitalization, Home Insurance cannot pay any dividends without prior approval of the Department.
On March 3, 1997, Home Insurance was placed under formal supervision by the Department. The Department states in its Order that this action was taken in response to Home Insurance's RBC report filed with the Department which indicates that a Mandatory Control Level Event has occurred. See "Risk-Based Capital", for further discussion. The Order establishes that the Department will oversee and supervise Home Insurance for the purpose of continuing and intensifying an economic, actuarial and accounting review of the books, records and business affairs of Home Insurance so as to determine what future actions may be appropriate. The Order also provides that Home Insurance may not take certain actions without the prior approval of the Department, including, among other matters, payment of claims and other obligations within certain dollar limits, and changes in the terms and conditions of certain existing contracts and entering into of certain new contracts. See "Insurance Regulation" for further discussion of the Order.
If the Department rejects future dividends filings, the Company will be forced to raise cash through capital infusions, the issuance of additional debt, or the sale of assets in order to meet its current obligations; however there are no assurances that such sources will be available. Based on the Company's most current cash flow projections, without dividends from Home Insurance, the Company is unlikely to be able to meet its cash flow needs during 1997. Under the terms of the Recapitalization Agreement, Centre Finance has purchased approximately $46 million aggregate principal amount of the Company's 7% Series B Senior Working Capital Notes to fund interest payments occurring through December 1996 on the Public Indebtedness.
To fund additional cash requirements incurred in connection with the Equity Repurchase Transaction, the Recapitalization and other extraordinary needs, Centre Finance and ZCI purchased, in 1995, $15 million principal amount of the Company's 12% Senior Subordinated Working Capital Notes due and $12 million principal amount of the Company's 7% Series A Senior Working Capital Notes, pursuant to the Standby Working Capital Credit Agreement, dated as of April 26, 1995, by and between the Company and ZHI. In February 1996, the Company, ZHI and Trygg-Hansa agreed that the Company may issue and ZHI may purchase, additional Series A Senior Working Capital Notes having an aggregate principal amount of $4 million, and during 1996 the Company has issued $3.8 million of these notes.
Neither Centre Finance nor Zurich nor Trygg-Hansa has any obligations pursuant to the Recapitalization or otherwise to provide any capital or other financial support to the Company or its subsidiaries other than the limited amounts specifically provided for pursuant to the Recapitalization and related agreements. Centre Finance, Zurich and Trygg-Hansa have informed the Company that they do not intend to provide any financial support beyond such limited amounts as may be required pursuant to the Recapitalization.
In March, 1997, Moody's lowered its rating of the Company's debt security to Ca from B3, and Standard and Poor's Corporation ("S&P") lowered its ratings to CC from B-.
Home Insurance and Centre Reinsurance Dublin entered into the Excess of Loss Reinsurance Agreement, dated as of June 12, 1995. Home Insurance is provided with an aggregate limit of $1.3 billion subject to certain adjustments, attaching at the point that Home Insurance has no remaining cash or assets readily convertible into cash to pay any of its obligations. Among such adjustments, in the event that Home Insurance pays any dividends to the Company prior to the third anniversary of the Closing to fund interest payments on the Public Indebtedness, the limit will be increased by the amount of such dividends plus interest thereon at the rate of 7.5% per annum, compounded, from the date such dividends were paid to the date the reinsurers commenced making payments under the Excess of Loss Reinsurance Agreement. See "Insurance Regulation - Dividend Restrictions". Also, up to $290 million of additional coverage provided by the Excess of Loss Reinsurance Agreement shall be linked to certain factors including dividend payments from Home Insurance to the Company funding principal payments on the Public Indebtedness and the New Notes (as defined in note 1 to the consolidated financial statements) as such debts become payable.
Based on cash flow forecasts at December 31, 1996, the Company is projecting that the coverage limits of the Excess of Loss Reinsurance Agreement will be exhausted. Due to these projected future recoveries, loss reserves with a net present value of $787 million were recorded as of December 31, 1996 as a recoverable from the Excess of Loss Reinsurance Agreement, including an additional $372 million during 1996. The increase resulted primarily from changes to cash flow projections which now forecast that the cover will be exhausted, and changes in the net present value of the receivable based on current projections of amounts and timing of cash inflows and outflows.
Beginning June 1996, Home Insurance is withholding rent and tax payments to its Landlord. Amounts withheld for rent of approximately $3 million per month, are being accrued pending resolution of litigation. Home Insurance was required to deposit in escrow with a court appointed receiver approximately $10.7 million. See note 14 to the consolidated financial statements for further discussion.
Home Insurance is involved in a dispute with NCCI. Home Insurance is a participant in the Pool, and, as of December 31, 1996, Home Insurance is carrying undiscounted loss reserves of approximately $261 million allocated to the Pool. Home Insurance has refused to pay the NCCI's three most recent quarterly invoices totaling approximately $28 million. See note 14 to the consolidated financial statements for further discussion.
Following the closing of the Recapitalization, Home Insurance has generally ceased accepting business except as required by regulation or contractual obligations. As a result, payment of future claims and operating expenses would be met by primarily earning investment income, collection of premiums receivable and reinsurance receivables, collection of the Portfolio Swap Receivable and sale of assets. At December 31, 1996, the Portfolio Swap Receivable of $1,243 million was available to provide for any foreseeable immediate cash requirements.
Cash used for insurance operating activities was $1,070 million in 1996 compared with $1,191 million in 1995 and $131 million in 1994. The net outflows in 1996 and 1995 were primarily due to paid losses and lower premium collections, resulting from the run-off of operations. The decrease in 1994 was primarily due to lower premium collections and increased payments under the Stop Loss Treaty.
The Company's loss reserves are determined through a process of estimation which is necessarily imperfect, and involves an evaluation of a large number of variables. Therefore, there can be no assurance that the ultimate liability will not exceed amounts reserved. However, on the basis of (i) current legal interpretations, and political, economic and social conditions, (ii) Home Insurance's internal procedures, which analyze Home Insurance's experience with similar cases and historical trends, such as reserving patterns, loss payments, pending levels of unpaid claims and product mix, and (iii) management's judgments of the relevant factors regarding reserve requirements for claims relating to Asbestos/ Pollution Policies, management believes that adequate provision has been made for Home Insurance's loss reserves. See note 3 to the consolidated financial statements for further discussion.
Home Insurance, which had received a waiver from the Department relating to calculation of RBC in 1995, was required to perform this calculation in 1996. This calculation indicated that a Mandatory Control Level Event had occurred since Home Insurance's total adjusted capital was negative $227 million, which was less than its mandatory control level RBC of $228 million. The adjusted capital is a calculated amount per the RBC formula, derived by deducting 60% of non-tabular discount from statutory surplus (see note 4 to the consolidated financial statements). The Department has informed Home Insurance that it is exercising its rights under New Hampshire law to expand its supervision of Home Insurance's run-off based on this Mandatory Control Level Event. In this regard the Department issued the Order to increase the Department's oversight of Home Insurance. See "Insurance Regulation" for further discussion.
In our opinion, the 1995 and 1994 consolidated financial statements referred to above present fairly, in all material respects, the financial position of Home Holdings Inc. and subsidiaries as of December 31, 1995, and the results of their operations and their cash flows for each of the years in the two-year period ended December 31, 1995, in conformity with generally accepted accounting principles.
The accompanying 1996 consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 4 to the consolidated financial statements, the Company has suffered recurring losses from operations and has a net stockholders' deficiency. In addition, based on the Company's most current cash flow projections, without dividends from The Home Insurance Company (Home Insurance), the Company is unlikely to meet its cash flow needs during 1997. Home Insurance cannot pay any dividends without prior approval of The State of New Hampshire Insurance Department (Department). At December 31, 1996, these circumstances raise substantial doubt about the entity's ability to continue as a going concern. The 1996 consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
On March 3, 1997, the Company's principal subsidiary, Home Insurance, a New Hampshire-domiciled property and casualty insurer was placed under formal supervision by the Department. The Department's Order of Supervision (Order) establishes that the Department will oversee and supervise Home Insurance for the purpose of continuing and intensifying an economic, actuarial and accounting review of the books, records and business affairs of Home Insurance so as to determine what future actions may be appropriate. The Order also provides that Home Insurance may not take certain actions without the prior approval of the Department.
As described more fully in Note 4 to the consolidated financial statements, Home Insurance follows a permitted accounting practice in its statutory financial statements as filed with the Department which has a material positive impact on statutory surplus. Non-tabular loss and loss adjustment expense reserves are reported at their present value discounted at 7.0% for the time value of money resulting in a reduction of such reserves in the statutory financial statements and a corresponding increase in reported statutory surplus of $469 million.
In our opinion, because the amount and timing of ultimate loss payments are subject to substantial uncertainty, the Company does not meet the prescribed statutory criteria required to account for its loss reserves on a discounted basis. However, the Company requested permission to follow this practice in its 1996 statutory financial statements filed with the Department and such permission was granted.
- -------------------------------- N.M. - Not Meaningful. See accompanying notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------- Home Holdings Inc. and Subsidiaries
i) The initiation, settlement or withdrawal of any action, dispute, arbitration, litigation, or proceeding of any kind involving Home Insurance other than in the ordinary course of business.
The Company entered into a recapitalization agreement, as amended, (the "Recapitalization Agreement" or the "Recapitalization") dated as of February 9, 1995, with Trygg-Hansa AB, a corporation organized under the laws of Sweden ("Trygg-Hansa"), Zurich Insurance Company, a corporation organized under the laws of Switzerland ("Zurich"), Zurich Centre Investments Limited, a corporation organized under the laws of Bermuda ("ZCI"), Insurance Partners Advisors, L.P., a Delaware limited partnership ("IP") and ZCI Investments Limited (now known as Zurich Home Investments Limited), a corporation organized under the laws of Bermuda ("ZHI") (Zurich, ZCI, IP and ZHI are collectively referred to herein as the "Investor Group"). The Closing under the Recapitalization Agreement took place on June 12, 1995 (the "Closing").
The transactions consummated under the Recapitalization Agreement have the effect of Trygg-Hansa and the Investor Group owning virtually the entire equity interest in the Company. The primary transactions constituting the Recapitalization were as follows:
o ZHI purchased, at a purchase price equal to the aggregate liquidation preference of $98 million, 170 shares of the Company's Series A Preferred Stock, par value $.01 per share (the "Preferred Stock"), to fund the Equity Repurchase Transaction (as defined below) and to pay non-capitalized expenses associated with the Recapitalization.
o Trygg-Hansa sold to ZHI (a) 800,000 shares of the Company's Series A Common Stock and 333,333 shares of the Series B Common Stock for a purchase price of $7.50 per share, and (b) 8 year warrants, for an aggregate purchase price of $124,000; Trygg-Hansa sold to Centre Finance Dublin ("Centre Finance"), an affiliate of Zurich, $98 million principal amount of Senior Subordinated Notes of the Company held by Trygg-Hansa and $12 million principal amount of Junior Subordinated Notes of the Company held by Trygg-Hansa for $1 million in cash plus the right to receive a contingent payment; and Trygg-Hansa exchanged with ZHI $35 million principal amount of Junior Subordinated Notes for 6/17ths (i.e. 60 shares) of the number of shares of Preferred Stock.
o The Company consummated a repurchase transaction (the "Equity Repurchase Transaction") pursuant to which participating holders of the Series A Common Stock (other than Centre Re (Bermuda), Centre Reinsurance Limited, International Insurance Investors, L.P. ("III") and Trygg-Hansa) received $10.00 (net) per share of Series A Common Stock in cash plus a payment of $.20 per share in settlement of certain litigation related to the Recapitalization.
o To fund additional cash requirements incurred in connection with the Equity Repurchase Transaction, the Recapitalization and other extraordinary needs, Centre Finance and ZCI purchased, in 1995, $15 million principal amount of the Company's 12% Senior Subordinated Working Capital Notes due December 31, 2004 and $12 million principal amount of the Company's 7% Series A Senior Working Capital Notes, pursuant to the Standby Working Capital Credit Agreement, dated as of April 26, 1995, by and between the Company and ZHI. In February 1996, the Company, ZHI and Trygg-Hansa agreed that the Company may issue, and ZHI may purchase, additional Series A Senior Working Capital Notes having an aggregate principal amount of $4 million, and the Company issued $3.8 million of these additional notes during 1996.
o As part of a services agreement between the Company, Home Insurance and Risk Enterprise Management Limited ("REM"), an indirect subsidiary of Zurich, the assets and liabilities associated with the Company and insurance policies written by Home Insurance are maintained by the Company and Home Insurance, respectively, and managed by REM. REM manages the administrative operations of Home Insurance, including the claims associated with all of Home Insurance's policyholders, and will defer all fees, in excess of actual costs, payable by Home Insurance for the first five years. During 1995, REM leased substantially all of its employees from Home Insurance to perform these services and effective January 1, 1996, Home Insurance employees became REM employees. The Services Agreement was amended on March 4, 1997, to accommodate the terms of the Order. This amendment includes, among other provisions, provisions related to the Department's right of prior approval with respect to certain transactions involving Home Insurance. The Company had accrued $17 million of fees payable to REM as of December 31, 1995. This liability is no longer accrued and is included as part of a contingent liability as of December 31, 1996. See note 14.
o The Company and Home Insurance entered into the Portfolio Value Swap Agreements (the "Swap") with Centre Reinsurance International Company which subsequently novated the contracts to Centre Reinsurance Dublin. Centre Reinsurance Dublin will hereinafter be referred to as the party to the Swap. See note 6.
o Home Insurance purchased an Aggregate Excess of Loss Reinsurance Agreement (the "Excess of Loss Reinsurance Agreement") from Centre Reinsurance International Company, which subsequently novated the contract to Centre Reinsurance Dublin and commuted or assigned its right to receive payments under the existing stop loss treaty dated January 1, 1991 (the "Stop Loss Treaty"). Centre Reinsurance Dublin will hereinafter be referred to as the party to the Excess of Loss Reinsurance Agreement. See note 7.
Insurance investments not underlying the Swap include fixed maturities, which consist primarily of mortgage loans and bonds, and are designated as available for sale and are carried at fair value. Investments designated as available for sale are managed based upon changes in market conditions and therefore will not necessarily be held to maturity. Short-term investments are carried at cost which approximates fair value. Equity securities, which consist primarily of limited partnerships, are carried at fair value. Net unrealized gains or losses on equity securities and net unrealized gains or losses on invest- ments available for sale are shown as a separate component of stockholders' equity, net of related deferred income taxes, if appropriate, and are included in the determination of net income only upon sale. Investments determined to have an other than temporary decline in fair value are written down to net realizable value through charges to earnings. An identified certificate basis is used to determine the cost of investments sold.
Fair values are based on quoted market price, if available. If a quoted market price is not available, fair value is determined by using quoted market prices on similar securities.
Change in estimates of unpaid losses and loss adjustment expenses flow through current year operations. Home Insurance records charges assessed by involuntary pools and related accruals as part of loss reserves assuming that the amounts reported are adequate.
In October 1994, the Financial Accounting Standards Board ("FASB") issued SFAS No. 119, "Disclosures About Derivative Financial Instruments and Fair Value of Financial Instruments." SFAS No. 119 is effective for financial statements issued for fiscal years ending after December 15, 1994. SFAS No. 119 applies to interest rate swap agreements entered into by the Company. The Company has only limited involvement with derivative financial instruments and does not use them for trading purposes. The Company enters into interest rate swap agreements for purposes of converting variable interest rate exposure to a fixed rate and to match interest expense with interest income. Interest rate swap agreements are accounted for as a hedge of the obligation. Interest expense is recorded using the revised interest rate.
Customer securities transactions of Gruntal are recorded as of the settlement date, which is generally three business days after the trade date, while commission revenues and related expenses are recorded as of the trade date. Principal transactions are recorded as of the trade date. Receivables from and payables to brokers, dealers and customers represent balances in connection with normal securities transactions. Receivables from customers include amounts due on cash and margin transactions. Securities owned by customers are held as collateral for receivables and are not reflected in the consolidated financial statements.
The securities broker-dealer is engaged in various securities trading and brokerage activities serving a diverse group of domestic and foreign corporations, governments, and institutional and individual investors. A substantial portion of securities broker-dealer operations transactions are collateralized and are executed with and on behalf of institutional investors, including other broker-dealers, commercial banks, insurance companies, pension plans, mutual funds and other financial institutions. The securities broker-dealer also extends credit to customers who pay a portion of the purchase price of securities acquired on margin. Securities broker-dealer operations' exposure to credit risk associated with the non-performance of these customers and broker-dealers in fulfilling their contractual obligations, pursuant to securities and commodities transactions, can be directly affected by volatile trading markets which may impair the customers' and broker-dealers' ability to satisfy their obligations to the securities broker-dealer. The securities broker-dealer proprietary trading activities are also subject to the risk of counterparty non-performance.
On June 12, 1995, the Company repurchased 9,234,701 shares of its Series A Common Stock. The repurchase had the effect of Trygg-Hansa and the Investor Group owning virtually the entire equity in the Company. As a result of the Equity Repurchase Transaction, it is not meaningful to display 1996 and 1995 per share data.
WRITTEN PREMIUMS (a) Direct $ 6 $ (4) $ 1,866 Assumed 16 586 153 Ceded (21) (220) (432) ---------- --------- ---------- Net $ 1 $ 362 $ 1,587 ========== ========= =========
EARNED PREMIUMS (a) Direct $ 48 $ 715 $ 1,988 Assumed 113 530 164 Ceded (45) (331) (499) ---------- --------- --------- Net $ 116 $ 914 $ 1,653 ========== ========= =========
* Includes a decrease to ceded losses and loss adjustment expenses of $189 million, related to the commutation and assignment of the Stop Loss Treaty. See note 7.
Earned premiums: Direct** $ (6) $ (181) Assumed 88 436 Ceded (11) (34) --------- --------- Net $ 71 $ 221 ========= =========
** Negative direct premiums is due to policies cancelled and subsequently assumed.
Pursuant to the Facility Agreement, Zurich American is holding $248 million of funds on behalf of Home Insurance at December 31, 1996. The funds relate to the premiums assumed by Home Insurance under the Facility Agreement, and will be used to pay any future losses attributable to these premiums. Home Insurance has accrued $32 million of investment income on the funds held, calculated at a rate of 7.5% per annum. The funds held, including the accrued investment income, is shown as an asset on the Company's consolidated balance sheet.
Unpaid, incurred and paid loss and loss adjustment expenses were as follows:
- --------------------- (a) In 1996, excludes $372 million of incurred losses and $787 million of ceded unpaid losses relating to the Excess of Loss Reinsurance Agreement. See note 7.
(b) Excludes reduction to ceded paid losses of $401 million and an increase to ceded unpaid losses of $415 million relating to the Excess of Loss Reinsurance Agreement.
About half of these claims involve primary policies issued by Home Insurance, and half involve Home Insurance excess policies issued during the late 1960's through early 1980's. The predominance of the expected dollar exposure relates to the excess policies. Policy limits on those excess policies range from $100,000 up to as much as $25 million, and may operate above self insured retentions or underlying insurance which may range from $25,000 to hundreds of millions of dollars. In addition to the claim counts and policy counts listed above, which relate to the Company's direct business, the Company has material exposure relating to its assumed reinsurance business, for which it has $111 million of net reserves included in the total above.
While the Company has compared industrywide payment trends to its own payments for Asbestos/Pollution Policies, and has considered it appropriate at this time to review industry ratios of reserves to payments in establishing its own reserves, the Company views such "survival ratios" as temporary benchmarks of reserving levels which can be misleading and which over time must inevitably decline in importance, as legal issues are resolved, experience matures and actuarial models can be validated. Benchmarks based on premium market share or payments share necessarily depend on the consistency between companies of many variables including policy class and limits distribution, policy deductibles and underlying retentions, coverages and coverage exclusions and geographic mix. Survival ratios have an additional limitation in that a company which accelerates the disposal of its claims compared to its peers, and is thus retiring its ultimate liabilities faster, will appear to require a higher reserve. Following industry practice which became apparent only in 1995 with new statutory disclosure requirements, the Company has established somewhat lower survival ratios on its gross reserves than its net reserves.
In 1995, REM, in its capacity as manager of Home Insurance's operations, established a single Environmental and Mass Tort Division, which includes a new team to merge financial, legal and environmental engineering expertise in negotiation with policyholders and reinsurers to find alternative resolutions to claims in the environmental and mass tort areas. Management believes that these organizational changes increase operational efficiency, while assuring that Home Insurance takes a unified and consistent approach to these claims. This division has also prepared an inventory of potential exposures for Asbestos/Pollution Policies, which Home Insurance has utilized to evaluate its use of industry benchmarks to establish reserves.
Losses for such claims are likely to be reflected in future years and, due to the uncertainties discussed above, the ultimate losses may vary materially from current reserves and could have a materially adverse effect on the Company's financial condition and results of operations.
Paid-in capital at December 31, 1994 $ 779 Impact of Recapitalization: Issuance of Preferred Stock 98 Purchase of Series A Common Stock (92) Transaction costs (8) --------- Paid-in capital at December 31, 1995 777 --------- - --------- Paid-in capital at December 31, 1996 $ 777 =========
The Company has not received common stock dividends from Home Insurance in 1996 and 1995.
The Company was notified in 1995 by the Department that, in light of the Recapitalization, Home Insurance cannot pay any dividends without prior approval of the Department. If the Department rejects future dividends filings, the Company will be forced to raise cash through capital infusions, the issuance of additional debt, or the sale of assets in order to meet its current obligations; however there are no assurances that such sources will be available. Based on the Company's most current cash flow projections, without dividends from Home Insurance, the Company is not likely to meet its cash flow needs during 1997. Under the terms of the Recapitalization Agreement, Centre Finance has purchased approximately $46 million aggregate principal amount of the Company's 7% Series B Senior Working Capital Notes to fund interest payments occuring through December 1996 on the Public Indebtedness.
The accounting practices of insurance companies are prescribed or permitted by certain regulatory authorities. Certain of these practices differ from GAAP used in preparing the consolidated financial statements of the Company. The Department gave Home Insurance permission to include in the 1996 Statutory Annual Statement a non-tabular discount which results from discounting all loss reserves, and allocated and unallocated loss adjustment expense reserves at 7%. Home Insurance has sufficient assets that will earn 7% to meet the expected stream of loss and loss adjustment expense payments. Home Insurance calculated that the non-tabular discount is $469 million. The non-tabular discount is not included in the Company's consolidated financial statements prepared under GAAP. Home Insurance's consolidated policyholders' surplus determined in accordance with statutory practices, and after reflecting the benefit of non-tabular discount, was $55 million. The decline from the 1995 year end is attributable primarily to the net loss in 1996. Home Insurance reported a consolidated statutory net loss of $685 million in 1996, $272 million in 1995 and $204 million in 1994. The 1996 net loss reflected loss and loss adjustment expense reserve bulk additions of $662 million, lower earned premiums and expenses incurred in managing the run-off of its operations.
The Company's loss reserves are determined through a process of estimation which is necessarily imperfect, and ultimate losses may exceed such estimates. See note 3 for further discussion. As the Company's statutory surplus levels have continued to decline since December 31, 1994, management can give no assurance that statutory surplus levels will be sufficient to absorb materially deficient estimates of loss and loss adjustment expenses reserves, if any. Management continues to believe that its provision for loss reserves is adequate.
The Department also continues to direct a consulting actuarial firm to perform a review of Home Insurance's loss reserves, and has retained a second actuarial firm to perform a peer review of the findings. Such reviews are expected to be completed during the second quarter of 1997. Management cannot predict whether reserve estimates to be prepared by these consultants will change the Department's view of the level of regulatory intervention required for Home Insurance.
Home Insurance, which had received a waiver from the Department relating to calculation of RBC in 1995, was required to perform this calculation in 1996. This calculation indicated that a Mandatory Control Level Event had occurred since Home Insurance's total adjusted capital was negative $227 million, which was less than its mandatory control level RBC of $228 million. The adjusted capital is a calculated amount per the RBC formula, derived by deducting 60% of non-tabular discount from statutory surplus.
To fund additional cash requirements incurred in connection with the Equity Repurchase Transaction, the Recapitalization and other extraordinary needs, Centre Finance and ZCI purchased $15 million principal amount of the Company's 12% Senior Subordinated Working Capital Notes due December 31, 2004, issued at original issue discount ($46 million principal value). The Company is not required to pay any interest or principal on this note until maturity. In addition, the Company issued to Centre Finance and ZHI $16 million principal amount of the Company's 7% Series A Senior Working Capital Notes. The principal on these notes are due on successive one year anniversaries of the closing date; however, the date can be extended for annual periods at the option of either Centre Finance, ZHI, or the Company until December 15, 2003. The Company elected in 1996 to extend the due date until June of 1997.
Effective December 13, 1996, pursuant to Amendment No. 2 to the Amended and Restated Purchase Agreement, dated as of April 26, 1995, between the Company and ZHI, the Amended and Restated Note Exchange Agreement, dated as of April 26, 1995, between the Company and Trygg-Hansa, the Amended and Restated Securities Purchase Agreement, dated as of April 26, 1995, between ZHI and Trygg-Hansa, the Amended and Restated Standby Working Capital Credit Agreement, dated as of April 26, 1995, between the Company and ZHI, and the notes issued thereunder, such documents were amended to effectuate the original intent of the parties thereto to permit the issuance of up to an aggregate principal amount of $46,550,000 Series B Senior Working Capital Notes, which aggregate principal amount is equal to the aggregate amount of interest payments made by the Company with respect to the Public Indebtedness up to December 31, 1996. The proceeds of the Series B Senior Working Capital Notes, as so amended, were used by the Company to make required interest payments on the Public Indebtedness up to December 31, 1996.
In addition, effective December 31, 1996, each of the Series A and Series B Senior Working Capital Notes, was amended to change the timing of the payment of interest. Prior to such amendment, interest was payable quarterly. However, according to the amended terms, interest shall not be due or payable until seven business days following the receipt by the Company of written demand from holders of these notes, or when the principal of the Series A and Series B Senior Working Capital Notes becomes due and payable. If interest is not paid within seven business days of such written demand, all interest accrued shall be deemed overdue and shall immediately become due and payable. If interest becomes overdue, the interest rate is adjusted upwards to the greater of (i) the rate of interest on the notes, plus 3% or (ii) the prime rate plus 3%. As of December 31, 1996, approximately $4 million of interest has been accrued but not paid on the Series A and Series B Senior Working Capital Notes. As a result of the amended terms, the interest is not overdue.
ZIM manages the cash and invested assets of the Company and Home Insurance pursuant to an investment management agreement. Additionally, upon Closing, the Company and Home Insurance entered into the Swap effective January 1, 1995 with Centre Reinsurance Dublin whereby Centre Reinsurance Dublin will pay annually to the Company and Home Insurance any negative differences between the actual total return on such assets and a target total return of 7.5% per year (net of asset management fees) on such assets, and the Company and Home Insurance will pay annually to Centre Reinsurance Dublin any positive difference between the actual total return on such assets and the 7.5% target total return (net of asset management fees) on such assets.
The Swap is designed to transfer control and market risk of the portfolio to Centre Reinsurance Dublin. The Company has accounted for the Swap as if the investments underlying the Swap were sold to Centre Reinsurance Dublin. The Company, however, continues to retain legal ownership. As a result, the Company has reclassified its investments underlying the Swap to a Portfolio Swap Receivable from Centre Reinsurance Dublin, valued at the fair value of the portfolio investments on the effective date (January 1, 1995) less withdrawals made to fund operations plus the total return of 7.5%. In 1995, the Company also recorded realized capital losses of $208 million, which were reflected at December 31, 1994 as unrealized capital losses included in stockholders' equity. Subsequent changes to fair value of securities have not and will not be recognized, as Centre Reinsurance Dublin bears the market risk.
The estimated fair values of mortgage-backed securities underlying the Swap at December 31, 1996, by issuer, were as follows:
Federal National Mortgage Association $ 56 Federal Home Loan Mortgage Corporation 51 Government National Mortgage Association 105 Private issuers 80 --------- TOTAL $ 292 =========
Fixed maturities $ 214 Equity securities 5 Short-term investments 9 Other 4 --------- Gross investment income 232 Investment expenses (7)
Fixed maturities $ 13 Equity securities 13 ---------- Total realized capital gains 26 ----------
DECREASE IN NET UNREALIZED GAINS/LOSSES Fixed maturities $ (283) Equity securities (13) ---------- Decrease in net unrealized gains/losses $ (296) ==========
In 1995, in connection with the Recapitalization, Home Insurance entered into a Commutation Agreement, dated as of June 12, 1995 (the "Commutation Agreement") with Centre Reinsurance Limited and Zurich International (Bermuda) Ltd. (the "Commuting Reinsurers") providing for the commutation of the Stop Loss Treaty as of June 12, 1995 as to the Commuting Reinsurers. Home Insurance also entered into the Assignment Agreement, dated as of June 12, 1995 (the "Assignment Agreement"), with Centre Reinsurance Dublin, pursuant to which Home Insurance assigned all of its rights, title and interest in any payments by those reinsurers under the Stop Loss Treaty that were not Commuting Reinsurers (i.e., Kemper Reinsurance Company and THI) due Home Insurance in accordance with the Stop Loss Treaty. The Company recognized a $189 million loss in 1995 attributable to the Commutation Agreement and the Assignment Agreement. In 1996, THI commuted its share of the Stop Loss Treaty, leaving Kemper Reinsurance Company as the only non Commuting Reinsurer.
Also, Home Insurance and Centre Reinsurance Dublin entered into the Excess of Loss Reinsurance Agreement, dated as of June 12, 1995. Home Insurance is provided with an aggregate limit of $1.3 billion subject to certain adjustments, attaching at the point that Home Insurance has no remaining cash or assets readily convertible into cash to pay any of its obligations. Among such adjustments, in the event that Home Insurance pays any dividends to the Company prior to the third anniversary of the Closing to fund interest payments on the Public Indebtedness, the limit will be increased by the amount of such dividends plus interest thereon at the rate of 7.5% per annum, compounded, from the date such dividends were paid to the date the reinsurers commence making payments under the Excess of Loss Reinsurance Agreement. See note 4 for discussion of dividend restrictions. Also, up to $290 million of additional coverage provided by the Excess of Loss Reinsurance Agreement is linked to certain factors including dividend payments from Home Insurance to the Company funding principal payments on the Public Indebtedness (as defined in note 1) as such debts become payable. The Excess of Loss Reinsurance Agreement became effective on June 12, 1995 upon (i) the payment by Home Insurance to Centre Reinsurance Dublin of $63 million and (ii) the transfer by Home Insurance of $166 million to Centre Reinsurance Dublin, representing the respective amounts received by Home Insurance from Zurich International (Bermuda) Ltd. and Centre Reinsurance Limited as a reinsurance commutation (exclusive of refunds of security costs). The aggregate of such payments represent the loss transfer amount ("Loss Transfer Amount") which means the sum of (a) the amount of the Experience Refund (as defined in the Stop Loss Treaty) received from the Commuting Reinsurers by Home Insurance under the Commutation Agreement, plus (b) the difference between (x) $100 million and (y) any reinsurance premiums paid after December 31, 1994 by Home Insurance under the Stop Loss Treaty, minus (c) the product of (x) the Uncommuted Percentage and (y) the Payment Amount (each term as defined in the Excess of Loss Reinsurance Agreement). In connection with the Excess of Loss Reinsurance Agreement, the Company and Zurich entered into a guaranty agreement dated as of June 12, 1995 (the "Guaranty Agreement"), in favor of Home Insurance pursuant to which Zurich guaranteed to Home Insurance the complete and timely performance of Centre Reinsurance Dublin's obligations under the Excess of Loss Reinsurance Agreement to the fullest extent permitted by law. In 1996 an additional $43 million was transferred to Centre Reinsurance Dublin, representing the amount received by Home Insurance from THI as a reinsurance commutation.
The Excess of Loss Reinsurance Agreement includes a no-claims bonus payable to Home Insurance, (the "Bonus") equal to the Loss Transfer Amount plus interest accrued thereon at a rate of 7.5% per annum from Closing until the date that the Bonus is paid. The Bonus will be paid at such time as the Company, the Department, and Centre Reinsurance Dublin agree that there will be no obligations payable under the Excess of Loss Reinsurance Agreement. However, as discussed previously, the Company, based on current cash flow forecasts, is projecting a recoverable from the Excess of Loss Reinsurance Agreement and therefore does not expect to receive and has not recorded the no-claims bonus as an asset. In the event that the Bonus is paid, concurrently therewith, ZHI and Trygg-Hansa and any of their permitted transferees who have acquired any debt or equity securities of the Company (collectively, the "Company Securities") shall enter into an agreement that provides that any payment or distribution of any kind with respect to the Company Securities, as between Trygg-Hansa and ZHI (and their permitted transferees), will be paid first to ZHI (or its designee) until ZHI recovers an amount equal to the Bonus plus interest at an annualized rate of 7.5%, and then, to ZHI and Trygg-Hansa (and their permitted transferees) on the basis of their relative claims or rights with respect to the Company Securities beneficially owned by such persons at the time of payment of the Bonus, notwithstanding the reduction in such claims resulting from payments made by the Company with respect to the Company Securities.
The difference between income taxes computed at the statutory federal rate and the provision for income tax expense follows:
The Company's purchase of virtually all outstanding shares of its Series A Common Stock as part of the Recapitalization (see note 1) may cause an "ownership change" with respect to the Company within the meaning of Section 382. If the Company experiences an ownership change, its ability to offset taxable income generated in taxable periods ending after the ownership change with net operating loss carryforwards existing at the time of the ownership change and with certain other items of loss and deduction ("built-in losses") will be subject to an annual limitation. The amount of the annual limitation is equal to the product of the value of the Company's outstanding stock immediately prior to the Offer (reduced by certain capital contributions made in the two-year period prior to the ownership change) and the "long-term tax-exempt rate" (determined monthly and, for ownership changes occurring in March 1995, 6.83%). The Company will be required to pay federal income taxes in any year in which its taxable income (before deducting built-in losses and net operating loss carryforwards) exceeds the annual limitation, notwithstanding the existence of the net operating loss carryforwards and the recognition of built-in losses.
Unpaid losses and loss adjustment expenses $ 309 $ 402 Net operating loss carryforwards 695 454 Unearned premiums - 8 Reinsurance receivables 51 51 Liability for excess rent 22 26 Investments 28 15 Other 50 46 ------- ------ Gross deferred tax assets 1,155 1,002 Valuation allowance (1,145) (985) ------- ------ Deferred tax assets, net of valuation allowance 10 17 ------- ------
In November 1994, the Company was downgraded by the three primary insurance rating agencies. These actions had a significant adverse effect on the premium production of Home Insurance. As a result, the Company could no longer forecast operating income to demonstrate the recoverability of goodwill related to its subsidiaries. Therefore, the Company recorded a charge of $206 million in 1994 for the writeoff of goodwill, exclusive of the annual amortization of $5 million.
Debt of securities broker-dealer at December 31, consists of the following:
At December 31, 1996, securities broker-dealer loans payable to banks of $198 million were collateralized by marketable securities, valued at $305 million.
Securities broker-dealer's interest expense related to the debt discussed above was $19 million in 1996, $20 million in 1995 and $12 million in 1994. In addition, securities broker-dealer operations interest expense related to securities loaned and other broker-dealer activities was $69 million in 1996, $60 million in 1995 and $46 million in 1994.
The fair value of securities broker-dealer debt approximates its carrying value.
See note 15 for further discussion of a reorganization agreement (the "Reorganization Agreement") entered into on February 24, 1997 by Gruntal and The 1880 Group LLC (the "Reorganization").
The Company has two non-contributory defined benefit pension plans covering substantially all employees other than the Gruntal employees. The Company's funding policy is to contribute annually amounts at least equal to the minimum funding requirements of the Employee Retirement Income Security Act of 1974. Effective January 1, 1996, all personnel, other than Gruntal employees, became employees of REM. Prior to January 1, 1996, pension benefits were generally based on years of service and compensation during the last five years of employment. All benefits under the Company's plans were frozen at December 31, 1995 and certain participants of the supplemental plan received lump-sum settlement of their pensions. The Company used special curtailment and settlement accounting treatment as required under SFAS No. 88, "Employers' Accounting for Settlements and Curtailment of Defined Benefit Pension Plans and Termination of Benefits'" ("Settlement and Curtailment"). This accounting standard essentially requires recognition of the reduction of the pension obligation and accelerated recognition of otherwise deferred amounts as a result of the cession of benefit accruals (curtailment) or the full satisfaction of the benefit obligation (settlement).
($ millions) 1996 1995 1994 ---- ---- ---- Service cost of current period $ - $ 8 $ 8 Interest cost of projected benefit obligation 8 10 8 Return on plan assets (17) (20) 1 Net amortization and deferral 9 14 (7) -------- -------- ------- Total net periodic pension cost - 12 10 Gain from settlement - (5) - Gain from curtailment - (1) - -------- -------- ------- Total expense $ - $ 6 $ 10 ======== ======== =======
Plan assets are invested in a diversified portfolio that primarily consists of fixed maturities and equity securities.
At December 31, 1996 and 1995, the Company's liability for postretirement benefits other than pensions was $10 million and $11 million, respectively. The following table summarizes the plans' funded status and the amounts recognized in the consolidated balance sheets at December 31 and the major assumptions used to determine these amounts:
The Company's liability for SFAS no. 112, "Employers' Accounting for Post Employment Benefits" at December 31, 1996 and 1995 was $4 million and $7 million respectively, and $3 million of income was recognized in 1996 and expense of $3 million in 1995.
Future minimum rental payments, principally for administrative offices including leases of furniture and equipment, under non-cancelable operating leases as of December 31, 1996 are $62 million in 1997, $55 million in 1998, $38 million in 1999, $10 million in 2000 and $28 million thereafter.
Home Insurance, in common with the insurance industry, is subject to litigation, including claims for punitive damages and for extra-contractual damages, in the normal course of its business. Gruntal, in the ordinary course of its business, has been named as a defendant or co-defendant in a number of lawsuits, including class actions and arbitration proceedings, some of which involve claims for damages of substantial or unspecified amounts.
A petition was filed on December 13, 1993, in the District Court of Dallas County, Texas, joining Home Insurance as a defendant in a previously filed action. The action sought certification of both plaintiff and defendant classes. The purported plaintiff class consisted of all Texas insureds who were charged premiums above state-approved rates for casualty coverage through the use of retrospectively-rated policies for a period beginning prior to May 15, 1987, through April 1, 1992. Plaintiffs sought to certify a defendant class of all insurers doing business in Texas who charged the alleged excessive rates, plus certain brokers and the National Council on Compensation Insurance ("NCCI"). The Complaint alleged that defendants entered into a conspiracy to devise various methods of charging and collecting the allegedly excessive rates and, in doing so, breached their contracts with plaintiffs, breached their fiduciary duty and violated the Texas Insurance Code and the Deceptive Trade Practices Act. Compensatory and punitive damages were sought in unspecified amounts plus treble damages.
Plaintiffs allege that from 1987 until the present, the defendants, individually, and in conspiracy with each other, used rates of premium and policy forms for workers compensation retro policies other than those filed with, and approved by, the Tennessee Commissioner of Insurance. Specifically, the companies are alleged to have illegally passed through residual market changes to their insureds during the class period. The NCCI is alleged to be the conduit for sharing of information and the instrumentality for making the illegal filings.
A nearly identical class action complaint naming the same parties was also filed in the Superior Court of Richmond Country, Georgia. It includes the same common law causes of action that are asserted in the Tennessee complaint, and others that allege violation of various provisions of the Georgia statutory code, as well as RICO. Compensatory, punitive, and treble damages are sought.
With respect to the Tennessee and Georgia actions discussed above, it is too early to predict the outcome of these actons and whether or not they will have a material adverse impact on the Company's financial condition.
On February 13, 1991, Home Insurance and its subsidiaries were acquired from AmBase (the "Acquisition") pursuant to a stock purchase agreement (the "Stock Purchase Agreement"). As part of the Stock Purchase Agreement, as amended, AmBase provided Home Insurance a tax indemnification for certain taxes assessed against AmBase and its consolidated group, which included Home Insurance, for all periods ending on or before December 31, 1989. The Stock Purchase Agreement, as amended, also provided for a "hold-back" of a portion of the purchase consideration by the Company to be used to pay (i) liabilities for federal or state income taxes, including interest thereon, assessed against AmBase, Home Insurance or any other member of the AmBase affiliated group for years ending on or before December 31, 1989, and (ii) certain other liabilities, and to the extent not used for these purposes, to be paid to AmBase.
Home Insurance is involved in a dispute with its landlord, Olympia and York Maiden Lane Company (the "Landlord"), with respect to its lease of its principal offices at 59 Maiden Lane, New York, New York. The Landlord is in default of certain bond obligations that are secured by the building and, consequently, the Landlord has made an assignment of rents to the trustee (the "Trustee") representing the Landlord's bondholders. On June 24, 1996, the Landlord's bondholders obtained a judgment of foreclosure and it is anticipated that the Landlord's bondholders will complete the foreclosure, and gain possession of the building shortly.
The Court granted a temporary restraining order on July 19, 1996, in favor of Home Insurance. On August 9, 1996 the Court entered a decision and interim order, which, as amended through September 12, 1996, appointed a mediator and provided that Home Insurance deposit in escrow with a receiver approximately $7.4 million representing the June and July rent and June tax payment. The order states that the escrow payment "shall not per se constitute a secured claim under New Hampshire Revised Statutes Annotated 402-C:3 but may be subject to the provisions of New Hampshire Insurance Laws, Chapter 402-C in the event of proceedings thereunder or similar proceedings in this or any other jurisdiction". Home Insurance made this escrow payment and the mediation proceeded.
Home Insurance is involved in a dispute with NCCI. The NCCI is a licensed rating or advisory organization for the workers' compensation line of insurance in a majority of states. One function it performs is to administer the National Workers' Compensation Reinsurance Pool ("the Pool"). The Pool collects premium and pays losses for various residual market plans around the country. The premium is supposed to be distributed to pool members in proportion to their market share and held in reserve. The NCCI sends a quarterly invoice to each pool member for its share of the losses as calculated and paid by the Pool in that quarter.
Home Insurance is a participant in the Pool, and, as of December 31, 1996, Home Insurance is carrying undiscounted loss reserves of approximately $261 million allocated to the Pool. Home Insurance has had several discussions with the NCCI over the past year concerning the extent of its obligation and the possibility of a commutation. Home Insurance has refused to pay the NCCI's three most recent quarterly invoices totalling approximately $28 million and requested an audit of the Pool's calculations and of the NCCI's administration of the Pool. The NCCI has refused to permit the requested audit. The NCCI has also asked Home Insurance to put the aforementioned invoiced but unpaid amount in escrow. Negotiations concerning a possible commutation have begun. Management believes it is too early to predict with certainty the ultimate outcome of this matter; however, an unfavorable outcome could have a material adverse impact on the Company's financial condition.
In or about October 1994, Gruntal discovered a defalcation in its back office operations area. Gruntal notified the New York Stock Exchange Inc. ("NYSE"), the Commission and the United States Attorney's Office for the Southern District of New York ("USAO"). Gruntal also undertook an inquiry into the circumstances and facts of the defalcation and into related matters. Gruntal presently believes that approximately $14 million, consisting in substantial part of funds that should have or potentially could have been abandoned property under the laws of various states ("Abandoned Property"), was embezzled or improperly diverted, including approximately $5 million in such funds that was used in substantial part to benefit Gruntal. Gruntal has submitted claims to its insurer, Home Insurance, under the applicable insurance policy and to date, approximately $8.5 million has been advanced to Gruntal by the carrier. Home Insurance's net retention on the claim was approximately $1 million, with the balance reinsured.
Based upon information furnished by Gruntal, inquiries were undertaken by the NYSE, the Commission and USAO. Gruntal discussed its investigation relating to Abandoned Property with the governmental and self-regulatory bodies involved. In addition, Gruntal advised the NYSE, the Commission, USAO and the National Association of Securities Dealers, Inc. ("NASD") that it was conducting a separate review relating to the execution and reporting of certain Over-the-Counter ("OTC") orders.
In June 1996, with the approval of the Commission, the NYSE and the NASD, Gruntal engaged Irving M. Pollack, Esq., a former Commissioner of the Commission, to serve as Independent Consultant (hereinafter the "Independent Consultant"), pursuant to the settlement with the Commission, and, additionally, pursuant to other settlements with the Commission, NYSE and NASD, described below. The Independent Consultant will review Gruntal's operating policies and procedures with respect to the operations and OTC areas and recommend further changes, if deemed appropriate. In performing these reviews, the Fund Administrator and Independent Consultant are authorized to rely upon work performed or to be performed by the Quality Assurance Task Force established by Gruntal's Chief Executive Officer to conduct a diagnostic review of Gruntal's departments and business activities, and upon work by other representatives of Gruntal.
Gruntal also entered into a separate settlement with the Commission in April 1996, pursuant to which Gruntal consented, without admitting or denying the allegations therein, to the entry of an adminis- trative order in which the Commission found that Gruntal violated antifraud and recordkeeping provisions of the federal securities laws in connection with the execution of certain transactions for investment advisory clients and the non-disclosure to advisory clients of the receipt of certain payments for order flow. The Commission's order censured Gruntal and required Gruntal to pay a monetary fine of $1 million, reimburse any clients determined by the Independent Consultant to have been financially harmed as a result of the violations, and pay into the United States Treasury the amount of payment that the Independent Consultant determines Gruntal received for order flow on transactions executed for advisory client accounts plus accrued interest thereon. Under the terms of the settlement, the Independent Consultant also will review Gruntal's policies and procedures with respect to the execution of orders for advisory client accounts and the coding, and reporting on client confirmations and internal Gruntal records, of transactions executed by Gruntal and recommend further changes, if deemed appropriate. In performing this review, the Independent Consultant is entitled to rely upon work performed or to be performed by Gruntal's Quality Assurance Task Force and upon work by other representatives of Gruntal.
REM's service agreement with the Company provides that REM will receive a contingent fee amounting to 15% in excess of its actual costs, accumulating with interest, as follows: 100% of the annual amounts for the years 1995 through 2000 and 33% of the amounts from years 2000 until 2005, payable on and after 2005. The fee is payable by Home Insurance contingent upon prior approval of the Department. Based on the issuance of the Order, and based on projections that the Excess of Loss Reinsurance Agreement will be fully exhausted, the payment of such fees is considered remote and therefore has not been accrued in the consolidated financial statements. The contingent liability as of December 31, 1996 was $38 million. A liability for this fee of $17 million, at December 31, 1995, is no longer accrued and is included as part of this contingent liability.
On May 15, 1996 Governors Pataki of New York and Whitman of New Jersey, and Speaker of the House Gingrich, announced an agreement in principle for the purchase and sale of a substantial part of Sterling Forest lands for public parkland. A letter of intent between Sterling Forest, as seller, and Trust for Public Land and Open Space Institute, as purchaser, was signed in June 1996, and a formal contract was signed on February 18, 1997.
Under the terms of the Purchase and Sale Ageement dated February 18, 1997 between Sterling Forest and Sterling Lake Associates, as seller, and Trust for Public Land and Open Space Institute, as buyers (the "Sterling Forest Agreement"), more than 15,000 acres of Sterling Forest land will be acquired as parkland by the State of New York under the management of the Palisades Interstate Park Commission, at a total acquisition cost of $55 million. Under the Sterling Forest Agreement the buyers have up to two years to raise the funding. The purchase price for any lands not yet acquired, however, will increase annually if the purchase has not been fully consummated by the first anniversary of the agreement. All the funding for the acquisition does not yet appear to be in place, though a total of $49 million has been committed, as of March 28, 1997, by a combination of federal and state governments, and one not-for-profit conservation foundation. Sterling Forest will continue to own approximately 2,200 acres of land and existing improvements, for future sale or development.
(1) Net loss in the fourth quarter of 1996, includes loss and loss adjustment expense reserve bulk additions of $662 million, partially offset by an increased recoverable of $372 million under the Excess of Loss Reinsurance Agreement. (2) In connection with the Equity Repurchase transaction, the Series A Common Stock was delisted from the New York Stock Exchange June 13, 1995. There is currently no public market for the Series A Common stock. (3) Net loss in the second quarter of 1995 includes losses of $409 million related to the Recapitalization. (4) Net loss in the fourth quarter of 1995 includes incurred losses of $497 million related to Asbestos/Pollution Policies.
Stockholders' Deficiency: Series A preferred stock, $.01 par value; 170 shares authorized, issued and outstanding - - Common stock, Series A, $.01 par value; 40,000,000 shares authorized; 14,114,500 shares outstanding in 1996 and 1995 Series B convertible stock, $.01 par value; 15,000,000 shares authorized; 11,425,177 shares outstanding in 1996 and 1995 - - Paid-in capital 777 777 Deficit (2,320) (1,852) Unrealized losses on insurance investments 6 - Unrealized currency translation adjustments (2) (2) -------- -------- Total stockholders' deficiency (1,539) (1,077) -------- -------- Total liabilities and stockholders' deficiency $ 3 $ 4 ======== ========
Loss attributable to common stockholders $ (468) $ (1,326) $ (385) ========= ========= ========
(a) Equity in loss of Home Insurance includes common dividends of nil in 1996 and 1995 and $77 million in 1994.
(a) Increase in percentage of amount assumed to net resulted primarily from the Company's entering into a Facility Agreement, as discussed in note 3 to the consolidated financial statements.
Set forth below is a list showing the names, ages and positions of all directors and executive officers of the Company, as of March 25, 1997. The Board of the Company is classified into three classes each class consisting, as nearly as possible, of one-third of the total number of directors. The term of the Class I directors terminates on the date of the 1997 annual meeting of the stockholders; the initial term of the Class II directors terminates on the date of the 1998 annual meeting of stockholders; and the initial term of the Class III directors terminates on the date of the 1996 annual meeting of stockholders. At each annual meeting, successor directors to the class whose term has expired will be elected for a three-year term. Executive officers of the Company serve at the pleasure of the Board of Directors.
Mr. Bruneheim resigned as President and Chief Executive Officer of the Company on April 15, 1996. He also has served as Senior Vice President and General Manager of the Run-off Division of Trygg-Hansa since 1995. He previously served as Executive Vice President of Securum AB from 1992 to 1995. Prior thereto he worked for Swedish Match on a consultancy basis from 1990 to 1991. From 1988 to 1990 he was Vice President, Corporate Development of Independent Finance.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") requires the Company's directors and executive officers and persons who beneficially own more than ten percent of the Company's Series A Common Stock to report their ownership of and transactions in the Company's Series A Common Stock to the Securities and Exchange Commission and to the New York Stock Exchange. Copies of these reports are also required to be supplied to the Company. Based solely on a review of the copies of such reports received by the Company and written representations that no other reports were required, the Company believes that all such filing requirements were satisfied for the year ended December 31, 1996.
Directors in office from January 1, 1996 to December 31, 1996 did not receive any fees for service on the Boards of Directors of the Company or Home Insurance or for service on any committees thereof. It is not contemplated that any such fees will be paid during 1997.
The following table shows the aggregate cash compensation for services in all capacities to the Company and its subsidiaries for the years ended December 31, 1996, 1995 and 1994 for those persons who were, at December 31, 1996, (i) the chief executive officer and (ii) the other most highly compensated executive officers of the Company:
(2) Mr. Bruneheim's other annual compensation includes $69,258 and $55,567 in 1996 and 1995, respectively, which represents reimbursement of housing expenses. There is no other perquisite or other benefit included which exceeds 25% of the total amount of other annual compensation in this column.
(4) Mr.Bruneheim resigned as President and Chief Executive Officer on April 15, 1996.
Pursuant to REM's services agreement with the Company, REM provides management services to the Company. The Company pays fees to REM for these services.
The following table sets forth (to the extent known to the Company) certain information regarding the beneficial ownership of the Company's Series A Common Stock, excluding 9,284,201 shares of Series A Common Stock held in treasury, as of March 1, 1997: (a) by each person known by the Company to be the beneficial owner of more than five percent (5%) of the Company's Series A Common Stock, (b) by each executive officer of the Company named in the Summary Compensation Table contained in this report, (c) by each director, and (d) by all directors, and executive officers of the Company as a group.
(5) ZHI might be deemed to beneficially own 24,005,721 shares of Series A Common Stock, representing approximately 94% of the outstanding shares (including shares deemed outstanding pursuant to Rule 13d-3(d)(1) under the Exchange Act), because of its ability, pursuant to the Securityholders' Agreement, to restrict the transfer and voting of shares of Series A Common Stock by Trygg-Hansa.
(6) Includes (i) 800,000 shares of Series A Common Stock owned of record and beneficially by ZHI, and (ii) 333,333 shares which ZHI has the right to acquire upon conversion of the 333,333 shares of Series B Convertible Stock owned by it.
Home Insurance and THI entered into a Partnership Agreement of Reinsurance, dated June 19, 1992 which provided that each company will issue locally-admitted policies in territories or jurisdictions where the company is licensed when requested to do so by the other party provided the risk meets the issuing company's underwriting standards. Home Insurance also entered into a similar agreement, dated May 13, 1992 with Industrial Insurance Company, a former stockholder. With the cessation of underwriting at Home Insurance, the partnership agreements with THI and Industrial Insurance Company ceased to be active. Although no premiums were ceded to THI and Industrial Insurance Company in 1996, each Company continues to service the run-off of policies issued.
As part of the restructuring of its catastrophe reinsurance arrangements, Home Insurance entered into a property catastrophe reinsurance agreement, effective from August 11, 1995, to March 31, 1996, with Centre Cat Limited. The premium for this reinsurance was $3 million.
The Company believes that all of the transactions described above were at prices and on terms which were no less favorable to the Company than could have been available in similar transactions with unrelated parties. Future transactions with related parties will be on terms no less favorable than could be obtained from unrelated parties and material transactions, if any, will be approved by the Board of Directors of the Company.
Pursuant to the Recapitalization Agreement, on June 12, 1995, the closing date of the Recapitalization, the Company, Trygg-Hansa, ZHI, IP and Centre Re (Bermuda) entered into a Securityholders' Agreement (the "Securityholders' Agreement") which contains certain corporate governance provisions relating to the Company. Among such provisions, the Securityholders' Agreement provides that the Board of Directors of the Company will consist of at least eight, however the Securityholders' Agreement is in the process of being amended to provide for a minimum of four directors. Pursuant to the amendment, ZHI and its permitted transferees and Trygg-Hansa and its permitted transferees will each have the right to designate two of such directors. If the number of directors is increased above four, ZHI and its permitted transferees will have the right to designate the additional director(s). ZHI and Trygg-Hansa are also entitled to appropriate representation on any Committee of the Board of Directors of the Company and on the boards of directors of Home Insurance. If certain warrants are not exercised on or prior to their expiration date, Trygg-Hansa thereafter has the right to appoint a majority of the members of the board of directors (and any committees thereof) of the Company and Home Insurance.
The Securityholders' Agreement also provides that the Company will not take, and ZHI and Trygg-Hansa will cause the Company not to take or approve, certain actions (other than as expressly provided for in the Recapitalization Agreement) without the prior written consent of a majority of the directors designated by each of ZHI and Trygg-Hansa. The approval rights of ZHI and Trygg-Hansa with respect to certain transactions terminate at such time as ZHI or Trygg-Hansa and their respective permitted transferees cease to own and/or have the right to acquire at least 5% of the outstanding shares on a fully diluted basis.
There are also certain restrictions on the rights of Trygg-Hansa and ZHI to transfer securities, and Trygg-Hansa and ZHI have certain sale and purchase options with respect to the shares of Common Stock owned by Trygg-Hansa.
In order to address certain potential conflicts of interest between the Company and Trygg-Hansa, International Insurance Investors, and Centre Re (collectively, the "Insurance Company Stockholders"), the Charter contains provisions regulating and defining the conduct of certain affairs of the Company as they may involve the Insurance Company Stockholders and their respective officers and directors, and the powers, rights, duties and liabilities of the Company and its officers, directors and stockholders in connection therewith. In general, these provisions recognize that the Company and the Insurance Company Stockholders may engage in the same or similar business activities and lines of business and have an interest in the same corporate opportunities and that the Company and the Insurance Company Stockholders will continue to have certain contractual and business relations with each other (including service of directors and officers of the Insurance Company Stockholders as directors and officers of the Company).
(ii) the material facts as to the contract, agreement, arrangement or transaction are disclosed or are known to the holders of a majority of the then outstanding Common Stock of the Company entitled to vote thereon, and the contract, agreement, arrangement or transaction is specifically approved in good faith by vote of the holders of a majority of the then outstanding Common Stock of the Company not owned by the Insurance Company Stockholder or a Related Entity, as the case may be.
Delaware law permits corporations to enact charter provisions that define the nature of the relationship among a corporation, its directors and its stockholders as they wish, so long as such provisions are not contrary to settled public policy or a statutory enactment. The Company is not aware of any settled public policy or statutory enactment prohibiting stockholders from clarifying and/or defining those opportunities in which a corporation may have an interest. The Company is aware of one decision of the Delaware Chancery Court which held that a provision similar in many respects to the Charter provisions described above could operate to eliminate or limit the liability of a director for breach of fiduciary duty. However, the Company believes the factors of that case, which contemplated a scenario in which a director acted in bad faith, would not be relevant to the Company's Charter provisions, which only protect a director acting in good faith. Accordingly, the Company believes that the Charter provisions described in the preceding paragraph are consistent with Delaware law.
The Charter provisions may have the effect of limiting remedies of the Company and its stockholders at law or in equity in certain circumstances; however, because the Delaware courts have not conclusively determined the validity or enforceability of such provisions, the Company is unable to determine the extent to which, if any, such provisions otherwise limit such remedies. These provisions do not limit stockholder remedies, if any, predicated on claims arising under the federal securities laws.
Finally, it is the belief of the Company that, if the Charter provisions described above were ruled invalid or unenforceable, the Company and its directors and stockholders would be placed in the same legal position that they would have been in had the Charter provisions never been adopted.
2. Financial Statement Schedules The list of financial statement schedules appears in the accompanying index on page 49.
2.2 Order of Supervision dated March 3, 1997 issued by the State of New Hampshire Insurance Department (incorporated by reference to the Company's Report on Form 8-K filed on March 4, 1997).
3.1 Restated Certificate of Incorporation of the Company (incorporated by reference to the Company's Registration Statement on Form S-1, File No. 33-69308).
3.2 Amended By-Laws of the Company (incorporated by reference to the Company's Registration Statement on Form S-1, File No. 33-69308).
10.2 Amended and Restated Purchase Agreement, (formerly Note Purchase Agreement) dated as of April 26, 1995 (incorporated by reference to Amendment No. 1 to the Company's Schedule 13E-4).
10.3 Interest Deferral Agreement, dated as of February 9, 1995 by and between the Company and Trygg-Hansa (included in Exhibit 10.1).
10.10 Amendment No. 5 to the Recapitalization Agreement, dated as of May 16, 1995 (incorporated by reference to Amendment No. 1 to the Company's Schedule 13E-4).
10.12 Agreement dated as of April 7, 1995 among ZCI Investments Limited, Zurich Centre Investments Limited, the Company and each of the members of the Ad Hoc Committee of Senior Note Holders of the Company who are signatories thereto. (incorporated by reference to Exhibit 10.1(i) of the Company's Form 10-K for the fiscal year ended December 31, 1994, File No. 0-19347).
10.13 Facultative Reinsurance Facility Agreement, dated December 24, 1994 by and among Zurich, the Company and Trygg-Hansa. (incorporated by reference to Exhibit 10.2 of the Company's Form 10-K for the fiscal year ended December 31, 1994, File No. 0-19347).
10.18 Commutation Agreement dated as of June 12, 1995 by and among The Home Insurance Company and its insurance subsidiaries, Centre Reinsurance Limited and Zurich International Bermuda Limited (incorporated by reference to Exhibit 10.18 of the Company's Form 10-K for the fiscal year ended December 31, 1995, File No. 0-19347).
10.20 Assignment Agreement dated as of June 12, 1995 among The Home Insurance Company and its insurance subsidiaries (incorporated by reference to Exhibit 10.20 of the Company's Form 10-K for the fiscal year ended December 31, 1995, File No. 0-19347).
10.21 Amendment No. 1 to Aggregate Excess of Loss Reinsurance Agreement dated December 29, 1995 (incorporated by reference to Exhibit 10.21 of the Company's Form 10-K for the fiscal year ended December 31, 1995, File No. 0-19347).
10.22 Letter Agreement dated December 26, 1995 from Zurich Centre Investments Limited to The Home Insurance Company (incorporated by reference to Exhibit 10.22 of the Company's Form 10-K for the fiscal year ended December 31, 1995, File No. 0-19347).
10.25 Renewal Rights Agreement dated as of June 12, 1995 among Zurich Insurance Company, The Home Insurance Company and its insurance subsidiaries (incorporated by reference to Exhibit 10.25 of the Company's Form 10-K for the fiscal year ended December 31, 1995, File No. 0-19347).
10.29 Amendment No. 1 to the Portfolio Value Swap Agreement with the Company dated December 26, 1995 (incorporated by reference to Exhibit 10.29 of the Company's Form 10-K for the fiscal year ended December 31, 1995, File No. 0-19347).
10.30 Funding Commitment dated as of December 26, 1995 by Zurich Centre Investments Limited for The Home Insurance Company (incorporated by reference to Exhibit 10.30 of the Company's Form 10-K for the fiscal year ended December 31, 1995, File No. 0-19347).
10.31 Sterling Forest Corporation Line of Credit Facility (incorporated by reference to Exhibit 10.31 of the Company's Form 10-K for the fiscal year ended December 31, 1995, File No. 0-19347).
10.35 Securityholders' Agreement dated as of June 12, 1995 by and among the Company, ZCI Investments Limited, Centre Reinsurance (Bermuda) Limited, Insurance Partners Advisors, L.P. and Trygg-Hansa AB (incorporated by reference to Exhibit 10.35 of the Company's Form 10-K for the fiscal year ended December 31, 1995, File No. 0-19347).
10.37 Indemnity Agreement, dated as of February 13, 1991, among AmBase Corporation, The Home Insurance Company and TVH Acquisition Corporation (incorporated by reference to Exhibit 10B of The Home Insurance Company's Form 10-K for the fiscal year ended December 31, 1990, File No. 1-8963).
10.39 Consolidated Group Tax Agreement dated as of February 13, 1991 between TVH Acquisition Corporation and Home Group Funding Corporation (incorporated by reference to Exhibit 10A of Company's Form 10-Q for the fiscal quarter ended March 31, 1991, File No. 0-19347).
10.41 Consolidated Group Tax Agreement dated as of February 13, 1991 between TVH Acquisition Corporation and Home Group Financial Services (incorporated by reference to Exhibit 10C of Company's Form 10-Q for the fiscal quarter ended March 31, 1991, File No. 0-19347).
10.42 Consolidated Group Tax Agreement dated as of February 13, 1991 between TVH Acquisition Corporation and The Home Insurance Company (incorporated by reference to Exhibit 10D of Company's Form 10-Q for the fiscal quarter ended March 31, 1991, File No. 0-19347).
10.43 Consolidated Group Tax Agreement dated as of February 13, 1991 between TVH Acquisition Corporation and AmBase Realty Inc. (incorporated by reference to Exhibit 10E of Company's Form 10-Q for the fiscal quarter ended March 31, 1991, File No. 0-19347).
10.45 The Home Insurance Company Supplemental Retirement Plan (incorporated by reference to Exhibit 10M of Company's Form 10-K for the fiscal year ended December 31, 1991, File No. 0-19347).
10.47 Partnership Agreement of Reinsurance dated May 13, 1992 between The Home Insurance Company and Industrial Mutual Insurance Company (incorporated by reference to Exhibit 10.25 of the Company's Form 10-K for the fiscal year ended December 31, 1993, File No. 0-19347).
10.48 Form of Indenture dated as of December 28, 1993 of $100,000,000 7% Senior Notes Due December 15, 1998, between the Company, as Issuer and The Bank of New York as Trustee (incorporated by reference to Post-Effective Amendment No. 1 to the Company's Registration Statement on Form S-1, File No. 33-69470).
10.55 Letter Agreement dated March 29, 1996 among Zurich Centre Investments Limited, Centre Reinsurance Holdings Limited and Centre Finance Dublin in connection with The Amended and Restated Standby Working Capital Credit Agreement dated as of April 26, 1995 (incorporated by reference to the Company's Report on Form 8-K filed on April 4, 1996).
*10.56 Amendment No. 1 to Investment Management Agreement effective as of April 1, 1996 among Centre Investment Services Limited, Zurich Centre Investments Limited, the Company, The Home Insurance Company, US International Reinsurance Company, The Home Insurance Company of Illinois and The Home Insurance Company of Wisconsin, both of which have been merged with and into The Home Insurance Company, and Zurich Investment Management, Inc.
99.1 Press release issued on March 4, 1997 announcing that the principal subsidiary of the Company, The Home Insurance Company, was placed under formal supervision by The State of New Hampshire Insurance Department (incorporated by reference to the Company's report on Form 8-K filed on March 4, 1997).
99.4 Press release issued on February 25, 1997 announcing the Reorganization (incorporated by reference to the Company's report on Form 8-K filed on February 25, 1997).
99.5 Press release issued on June 20, 1996 announcing that The Home Insurance Company has stopped paying rent for its headquarters in New York City located at 59 Maiden Lane (incorporated by reference to the Company's report on Form 8-K filed on June 20, 1996).
99.6 Press release issued on April 26, 1996 announcing that The Home Insurance Company and its primary regulator, The New Hampshire Insurance Department have opened talks with representatives of Olympia and York Company and its bondholders regarding The Home Insurance Company's recently reported financial results and its current lease obligations (incorpo- rated by reference to the Company's report on Form 8-K filed on May 2, 1996).
99.7 Press release issued on April 6, 1995 announcing the execution of an amendment dated March 24, 1996 to the Recapitalization Agreement dated as of February 9, 1995 by and among the Company, Trygg-Hansa, Zurich, Zurich Centre Investments Limited, Insurance Partners Advisors, L.P. and ZCI Investments Limited (incorporated by reference to the Company's report on Form 8-K field on April 6, 1995).
Reports on Form 8-K were filed by the Company on January 3, 1997, February 25, 1997, March 4, 1997 and March 10, 1997.
Pursuant to the requirement of the Securities Exchange Act of 1934, this report has been signed below by the following persons in the capacities and on the dates indicated.