Information with respect to this item may be found in the section captioned "Selected Financial Data" contained in the 1999 Annual Report.
Year Ended September 30, 1999 Compared with Year Ended September 30, 1998
The Company's property catastrophe book experienced a reduction in gross premiums written of $11.7 million for the year ended September 30, 1999 compared to the year ended September 30, 1998. Of this reduction, 73.5% or $8.6 million related to a decline in the level of gross premiums written on the international book of business. In turn, $6.9 million of this reduction resulted from the Company's reduction of its line sizes on two international quota share contracts. During the year ended September 30, 1999, the Company experienced a change in the mix of international property catastrophe business assumed, with the Company reducing its line sizes on pro rata contracts and increasing gross premiums written from direct business. The Company has placed an emphasis on accessing clients directly because pro rata contracts have a less efficient cost structure. The remaining reduction on the property catastrophe book of business was due to continuing competitive rates. Based on the Company's experience, rates for U.S. and international property catastrophe business written in the year ended September 30, 1999 were approximately 7.5% to 10% and 12.5% to 15%, respectively, below those experienced in the year ended September 30, 1998. Because of these reduced rates, premiums were lower in comparison to those written in the year ended September 30, 1998, and the Company chose not to renew contracts in some cases where it considered business to be underpriced.
As a result of the above, net premiums written for the year ended September 30, 1999 were $110.8 million compared to $147.5 million for the year ended September 30, 1998.
Net premiums earned for the year ended September 30, 1999 were $126.6 million compared to $154.6 million for the same period in 1998. The decline in premiums earned of $28.0 million was due to two factors: an increase in ceded premiums amortized from $6.1 million for the year ended September 30, 1998 to $18.5 million for the year ended September 30, 1999 and a continued decrease in the level of gross premiums written on the Company's core property catastrophe business. Premiums on property catastrophe excess of loss contracts are earned over the period coverage is provided, which is generally 12 months. Under proportional property catastrophe contracts, with the risks underlying the contracts incepting throughout the contract period, premiums are generally earned over 18 months. Premiums on other lines of business are earned over the period for which coverage is provided, which generally ranges between 12 months and 60 months. Premiums written by LaSalle Re Capital are earned over a period of 18-24 months from the inception date of the underlying contracts.
The following table sets forth the Company's combined ratios for the years ended September 30, 1999 and 1998:
The Company incurred losses and loss expenses, net of recoveries, of $131.1 million during the year ended September 30, 1999 compared with $95.5 million during the year ended September 30, 1998. Of the losses incurred for the year ended September 30, 1999, a significant portion related to the strengthening of prior year reserves. Approximately $14.5 million was incurred in respect of Hurricane Georges, which occurred in September 1998. In addition, the Company recorded approximately $14 million of additional case reserves for large reported losses. These losses arose from causes that could not have been reasonably anticipated when the Company established its incurred-but-not- reported loss reserves. Included in the additional case reserves was a loss of $6.5 million on a property stop loss contract. This contract had an incidental auto warranty coverage component that produced a full limit loss to the contract. Also included were losses of $4.5 million on auto property damage stop loss contracts. Given the Company's recent loss experience, the Company reviewed the assumptions used in setting incurred-but-not-reported loss reserves. These assumptions have been revised to reflect both new information and a more prudent reserving philosophy. As a result, the Company recorded an additional $16 million of incurred-but-not-reported losses during the year ended September 30, 1999. These reserves relate to all lines of business written by the Company. Losses and loss expenses, net of recoveries, incurred on events that occurred during the year ended September 30, 1999 include $6.0 million related to an Australian hailstorm, $6.0 million related to Oklahoma tornadoes, $6.9 million related to Hurricane Floyd, $2.6 million related to the Turkish earthquake and $4.1 million related to Typhoon Olga. The main components of losses and loss expenses incurred during the year ended September 30, 1998 related to Hurricane Georges and claims derived from adverse weather conditions, aggregate stop loss protection losses, satellite failures and various risk losses.
Underwriting expenses as a percentage of net premiums earned were 17.5% for the year ended Septermber 30, 1999 compared to 14.6% for the year ended September 30, 1998. The increase in the ratio of 2.9% was primarily due to the increased amount of amortized ceded reinsurance that reduced net premiums earned. Underwriting expenses as a percentage of gross premiums earned were 15.5% for the year ended September 30, 1999 compared to 14.1% for the year ended September 30, 1998.
Interest expense was $1.7 million for the year ended September 30, 1999 compared to $1.9 million for the year ended September 30, 1998. Interest expense primarily included financing charges associated with the deposit portion of LaSalle Re's ceded reinsurance contract and other interest expenses related to the ongoing commitment fees payable on the Company's credit facility. As at September 30, 1999, there were no borrowings outstanding under this facility.
The decline in gross premiums written by the Company was partially offset by an increase of $14.0 million in respect of gross premiums written in other non-property catastrophe lines. The increase was primarily due to increased gross premiums written by LaSalle Re Capital, which commenced underwriting as a corporate member of Lloyd's in January 1997, the second quarter of the 1997 fiscal year. For the year ended September 30, 1998, LaSalle Re Capital wrote gross premiums of $21.0 million compared to $14.1 million for the year ended September 30, 1997. Also, the Company increased the size of its terrorism and political risks book, which accounted for approximately $1.0 million of gross premiums written for the year ended September 30, 1997 compared with approximately $4.4 million for the year ended September 30, 1998.
Premiums ceded for the year ended September 30, 1998 were $7.8 million compared to $7.7 million for the year ended September 30, 1997. These ceded premiums related to reinsurance protection purchased by LaSalle Re with effect from January 1, 1997 and to various reinsurance protections purchased by LaSalle Re Capital. Ceded premiums amortized increased from $1.9 million in the year ended September 30, 1997 to $6.1 million for the year ended September 30, 1998. This increase was due primarily to the reinsurance protections purchased by LaSalle Re Capital, which were amortized in line with the premiums earned by LaSalle Re Capital.
Net premiums earned decreased 5.7% to $154.6 million for the year ended September 30, 1998 from $163.9 million for the year ended September 30, 1997. This decrease was the result of reduced premiums earned on the Company's core property catastrophe business that were partially offset by increased earned premiums on the business written by LaSalle Re Capital.
Net investment income increased 3.6% to $34.3 million for the year ended September 30, 1998 from $33.1 million for the year ended September 30, 1997. This increase was attributable to a larger average investment base compared to the year ended September 30, 1997. Annualized investment income as a percentage of the average market value of invested assets was 6.0% for the year ended September 30, 1998 compared to 6.1% for the year ended September 30, 1997.
Other income was derived from a contract under which the Company provided certain reinsurance related services. This contract was not renewed on January 1, 1998.
Corporate expenses decreased 72.2% from $1.8 million for the year ended September 30, 1997 to $0.5 million for the year ended September 30, 1998. The costs incurred in the year ended September 30, 1998 related to costs associated with the Company's investigation of potential merger and acquisition transactions. Corporate expenses for the year ended September 30, 1997 included costs associated with the Secondary Offering, the Preferred Offering, the Tender Offer, the formation costs of LaSalle Re Capital, the Company's move to the New York Stock Exchange and fees incurred with respect to the CatEPut. Corporate expenses do not include the underwriting discounts associated with the various offerings. These costs were borne by the selling shareholders in the Secondary Offering. In respect of the Preferred Offering, the underwriting discount was charged to additional paid-in capital.
Earnings per Common Share were $3.06 for the year ended September 30, 1998 and $5.55 for the year ended September 30, 1997. Earnings per Common Share assuming dilution were $2.80 for the year ended September 30, 1998 and $5.14 for the year ended September 30, 1997. The weighted average number of shares outstanding used in the calculation of earnings assuming dilution decreased from 22,998,936 for the year ended September 30, 1997 to 20,919,405 for the year ended September 30, 1998. The decrease in the weighted average number of shares outstanding resulted primarily from the repurchase of shares in the Tender Offer in April 1997.
As of September 30, 1999, 76.2% of the securities held in the Company's investment portfolio were fixed-income securities rated "AA" or better and 95.2% were fixed-income securities rated "A" or better by S&P or Moody's. No single investment comprised more than 5% of the overall portfolio. As at September 30, 1999, issuers from the Far East and Asia represented 5.1% of the investment portfolio. These bonds had an insignificant aggregate unrealized loss and were all rated AAA.
Reinsurance balances receivable were $93.2 million at September 30, 1999 compared to $86.8 million at September 30, 1998. The increase was due the inclusion of reinsurance balances receivable related to the
business written by LaSalle Re Capital. At September 30, 1999, these receivable balances were $46.0 million compared to $28.1 million as at September 30, 1998. Given the three-year accounting methodology utilized by Lloyd's, these balances will not be received until after the year 2000.
Other assets increased from $31.7 million as at September 30, 1998 to $37.6 million as at September 30, 1999. This was primarily due to the associated profit commission due on the multi-year excess of loss reinsurance contract.
The Company paid dividends on its Common Shares of $0.75 per share in October 1998 and $0.375 per share in each of January, April and July 1999. The Company paid a quarterly dividend of $0.5469 per share to holders of record of Series A preferred shares in December 1998 and March, June and September 1999. As of September 30, 1999, dividends due but not yet declared on the Series A preferred shares amounted to $0.5 million.
LaSalle Re Capital is committed to provide capital support for the 2000 underwriting year to the same syndicates it supported in prior years. The total level of support is not expected to change materially from that provided in 1999.
The Company has in place a $100 million committed line of credit from a syndicate of banks. The proceeds from the credit facility may only be used to buy preferred shares of LaSalle Re that, in turn, may use the proceeds of such purchase to meet current cash requirements. The facility matures December 1, 2000, and is secured by a pledge ("legal mortgage") of all the voting common stock of LaSalle Re held by the Company, plus any preferred shares that the Company may purchase from LaSalle Re with proceeds from the facility. The line of credit contains various covenants, including limitations on incurring additional indebtedness; restrictions on the sale or lease of assets not in the ordinary course of business; maintenance of a ratio of consolidated total debt to
consolidated tangible net worth of no more than 0.40 to 1.00; maintenance of tangible net worth at the end of each fiscal year of the greater of $300 million or 70% of net premiums written; maintenance of statutory capital of LaSalle Re of at least $400 million at the end of calendar year 1999 and thereafter; and maintenance of a ratio of net premiums written to statutory capital at the end of any fiscal quarter for the four fiscal quarters then ended of no more than 1.00 to 1.00 in each case. The Company may pay dividends and make other restricted payments so long as, after giving effect to such restricted payments, no event of default has occurred. However, dividends and restricted payments are limited to 50% of consolidated net income for the Company's immediately preceding fiscal year less amounts paid on the Series A preferred shares. As of September 30, 1999, there were no borrowings under the credit facility.
The Company's financial condition and results of operations are influenced by both internal and external forces. Loss payments, investment returns and premiums may be impacted by changing rates of inflation and other economic conditions. Cash flows from operations and the liquidity of its investment portfolio are, in the opinion of the Company, adequate to meet the expected cash requirements of the Company over the next 12 months.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities". This statement is effective for all fiscal quarters of fiscal years beginning after June 15, 2000. Given the limited number of transactions currently entered into by the Company that are covered by the statement, the Company does not anticipate any significant changes to its current financial reporting.
The AICPA issued Statement of Position 98-7, "Deposit Accounting," which is effective for financial statements with fiscal years beginning after June 15, 1999. The Company does not expect that this standard will have a significant impact on the current financial reporting.
The Company has completed its testing of the Year 2000 version of the Senator underwriting management system and found it to be Year 2000 ready. In addition, the Company has upgraded the RSG reinsurance system to the Year 2000 version, completed its testing to ensure Year 2000 readiness and has made corrections of a remedial nature to other software and hardware components and infrastructure. Furthermore, the Company has reviewed enterprise-wide spreadsheet and database files for potential Year 2000 problems and has made corrections where applicable. The Company has budgeted $0.3 million for the overall Year 2000 effort and has expensed $0.2 million to date.
The Company also assesses the effect of the Year 2000 issue on the business it underwrites, considering the exposure to Year 2000 related losses on a contract by contract basis at the time of underwriting.
We have audited the accompanying consolidated balance sheet of LaSalle Re Holdings Limited and subsidiaries as of September 30, 1998, and the related consolidated statements of operations and comprehensive income, changes in shareholders' equity, and cash flows for the years in the two-year period then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
Years ended September 30, 1999, 1998 and 1997 (Expressed in thousands of United States Dollars, except share and per share data)
Minority interest represents the Founding Shareholders' ownership of the Exchangeable Non-Voting Shares in LaSalle Re. These shares are held by certain Founding Shareholders who would otherwise hold, or cause another shareholder to hold, directly, indirectly or constructively, in excess of 9.9% of the voting power of the Company or LaSalle Re. The Exchangeable Non-Voting Shares in LaSalle Re are exchangeable, at the option of the holder, for Common Shares of the Company, on a one-for-one basis, unless the board of directors of the Company determines such exchange may cause actual or potential adverse tax consequences to the Company or any shareholder. The Exchangeable Non-Voting Shares will at all times rank as to assets, dividends and in all other respects on a parity with the Common Shares of LaSalle Re, except that they do not have the right to vote on any matters except as required by Bermuda law and in connection with certain actions by the Company.
Acquisition costs, mainly brokerage, commissions, underwriting fees and excise taxes related to unearned premiums, are deferred and amortized to income over the period in which the premiums are earned. Future earned premiums, anticipated losses and loss adjustment expenses and anticipated investment income related to those premiums are considered in determining the recoverability of deferred acquisition costs.
In accordance with Statement of Financial Accounting Standard ("SFAS") No. 113 "Accounting and Reporting for Reinsurance of Short-Duration and Long- Duration Contracts", contracts providing indemnification against loss or liability relating to insurance risk have been accounted for as reinsurance. Reinsurance premiums are reported as prepaid reinsurance premiums and amortized over the contract period in proportion to the amount of reinsurance protection provided. Where the contract provides for return premiums, these are accrued based on loss experience through to the balance sheet date. Reinsurance contracts, which do not satisfy the conditions for reinsurance accounting under SFAS No. 113, are accounted for as deposits.
Investment income, net of investment expenses, is accrued to the balance sheet date and includes amortization of premiums and accretion of discounts relative to fixed interest securities purchased at prices different to par value.
For the purposes of the consolidated statements of cash flows, the Company considers all time deposits, certificates of deposit and commercial paper with an original maturity of 90 days or less as equivalent to cash.
weighted average number of Common Shares outstanding. For the purposes of this calculation, the exchangeable non-voting shares of LaSalle Re ("Exchangeable Non-Voting Shares") are considered outstanding Common Shares of the Company due to the exchangeable nature of the shares. Earnings per Common Share assuming dilution is computed by dividing net income available to common shareholders by the sum of the weighted average number of Common Shares outstanding and the dilutive potential Common Shares outstanding during the period of calculation. 1997 calculations have been restated to give effect to SFAS 128.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities". This statement is effective for all fiscal quarters of fiscal years beginning after June 15, 2000. Given the limited number of transactions currently entered into by the Company that are covered by the Statement, the Company does not anticipate any significant changes to its current financial reporting.
All fixed interest securities and short term investments are considered as available for sale. The fair values are based on quoted market prices at the reporting date for those, or similar, investments. As at September 30, 1999 and 1998, the estimated fair values and amortized cost of investments are as follows:
The unrealized loss on investments of $4,113 (1998: gain of $13,838) which includes an unrealized loss of $5 on cash and cash equivalents is included in accumulated other comprehensive income in the consolidated balance sheet. This amount is disclosed net of the minority's interest of $1,246 (1998: $4,107).
In the normal course of reinsurance operations, the Company's bankers have issued letters of credit totaling $21,577 (1998: $8,303) in favor of ceding insurance companies to secure the Company's obligations under various reinsurance contracts. In connection with LaSalle Re Corporate Capital Ltd.'s support of three Lloyd's syndicates, the Company has posted letters of credit in the amount of $16,137 (1998: $16,616). In addition, in connection with a swap agreement, the Company has posted a letter of credit of $3,000 (1998: $3,000). At September 30, 1999, $46,821 (1998: $32,107) of fixed interest securities have been pledged as collateral for these letters of credit.
Net investment income for the years ended September 30, 1999, 1998 and 1997 was derived from the following sources:
Net realized gains (losses) comprise $4,082 realized gains and $3,467 realized losses (1998: $6,085 and $510; 1997: $1,881 and $1,326 respectively).
Proceeds received from the sale of available for sale securities during the year ended September 30, 1999 were $305,671 (1998: $389,170; 1997: $282,449).
The Company has purchased an excess of loss program which provides coverage of $75,000 in excess of the first $75,000 (1998: $100,000 in excess of the first $100,000) of losses per occurrence for a first loss event and $60,000 excess of $75,000 (1998: $100,000 in excess of $100,000) per occurrence on the second loss event and $52,500 excess of $125,000 (1998: $100,000 in excess of $150,000) per occurrence on the third loss event over a three-year period ended December 31, 2001, subject to a maximum aggregate recovery of $187,500 (1998: $300,000).
The ceding of the reinsurance does not legally discharge the Company from its liability to its reinsureds, since the Company is required to pay losses and bear collection risk if the reinsurers fail to meet their obligations under the reinsurance agreements. The effect of reinsurance on premiums written and earned is as follows:
Activity in the liability for losses and loss expenses during the years ended September 30, 1999, 1998 and 1997 is summarized as follows:
Note: The incremental shares from assumed exercises of options, stock appreciation rights and contingently issuable shares have not been included in the above computation as they have an antidilutive effect on losses per Common Share.
Included in other assets is a promissory note receivable. In connection with the terms of an employment contract, LaSalle Re advanced $695 for the purpose of purchasing a property in Bermuda. The advance is evidenced by a promissory note, which bears interest at the rate of 8% per annum and is repayable in full at the earlier of the termination date of the individual's employment contract or the date of sale of the property. Under the employment contract, LaSalle Re will assume any gain or loss on the disposition of the property.
The Company has entered into a $100 million multi-year Catastrophe Equity Put ("CatEPut") option program which enables the Company to raise up to $100 million of equity, through the issue of convertible Series B Preferred Shares to the option writers. The preferred shares can be redeemed by the Company at any time over the five years following their issue. In addition, the option writers can convert their preferred shares into Common Shares of the Company at any time after they have been outstanding for five years. Conversion is at the greater of the book value of the Company at the date of conversion or the market value of the Common Shares based on the 30-day trading average prior to conversion. The Company is obligated to pay a net option
The original exercise price of the options was $16.67 per share, (which was equal to the fair value of the Company's shares at the grant date), minus dividend adjustments. The current exercise price is $6.03. As the options were granted to certain of the Founding Shareholders and their affiliates as an inducement to purchase stock in LaSalle Re, no compensation expense has been recorded in connection with the options.
The value of each SAR equals the fair market value of a Common Share less the base value on the exercise date, subject to anti-dilution adjustments. The fair market value shall be determined by the board of directors of the Company, but shall be based on the market price of the Common Shares. The base value of each SAR at the time of issuance was $16.67, minus dividend adjustments. The current base value is $6.03.
The number of SARs which can be exercised is dependent upon the internal rate of return achieved during a predefined period and is based upon the financial performance of LaSalle Re from inception to November 27, 1995 and LaSalle Re Holdings Limited's consolidated performance from that date forward. As at September 30, 1999, the number of SARs exercisable is 92,035. During the fiscal year ended September 30, 1999, the fair value of the SARs has decreased and therefore the Company has recorded a reduction in the total liability relating to the SARs of $1,490 (1998: reduction $548; 1997: charge $1,611).
In November 1995, the Company adopted a Long Term Incentive Plan (the "Incentive Plan") which permits the award of various incentives to employees of the Company, related companies and directors of the Company. The maximum number of shares that may be issued under the Incentive Plan is 1,000,000.
Under the Incentive Plan, the options granted vest ratably in five annual installments over 5 years from the grant date, except for 85,218 options granted in 1997 which vest ratably in three annual installments over 3 years from the date of grant. The options can be exercised over a 10-year period, commencing on the vesting date. For certain option grants, the Plan has an anti-dilution provision, which awards the option holder a number of shares of restricted stock in the event that a dividend, when added to the value of all cash dividends previously paid within the same fiscal year, exceeds 5% of the average book value per share for the prior four quarters. As at September 30, 1999, 46,459 shares of restricted stock (1998: 26,995) were awarded. The restricted stock vests when the underlying options are exercised and is forfeited if the options expire unexercised. The Company has recorded an expense of $565 (1998: $374; 1997: $264) relating to compensation on these options. The following table is a summary of the options granted and outstanding during 1999, 1998 and 1997.
Pursuant to the provisions of the Incentive Plan awards of restricted stock vest over 5 years from the date of award with 33 1/3% vested on the third anniversary date of the award date, 66 2/3% vested on the fourth anniversary date of the award and 100% vested on the fifth anniversary date of the award. However, there are 30,000 shares of restricted stock which vest ratably in two annual installments over 2 years from the date of award. During the restricted period the employee receives dividends in the form of additional shares of restricted stock. During 1999 the Company awarded 55,000 shares of restricted stock (1998:Nil) with a value of $1,423 (1998:$Nil) to certain executive officers. At the time of the award the market value of the shares is recorded as deferred compensation and is presented as a separate component of shareholders' equity. The deferred compensation is charged to the income statement over the vesting period. For the year ended September 30, 1999 the Company charged $751 (1998 and 1997: $Nil) in respect of compensation on restricted stock awards.
In addition, during the year ended September 30, 1999 pursuant to the Incentive Plan 1,379 (1998:Nil) Common Shares were awarded to individuals as of the fifth anniversary date of their hire. At the time of the award the market value of the shares is recorded as a compensation expense. During the year ended September 30, 1999 the Company booked a compensation expense of $28 (1998 and 1997: $Nil) on these share awards to employees
At October 1, 1998, the Minority interest of $105,569 represented the founding shareholders ownership of 4,472,646 outstanding Exchangeable Non- Voting Shares in LaSalle Re Limited. During the year ended September 30, 1999, the number of Exchangeable Non-Voting Shares increased due to the exercise of shareholder stock options and the issuance of further Exchangeable Non-Voting Shares. These transactions had the effect of increasing the minority interest percentage in LaSalle Re from 22.8% to 23.3%. At September 30, 1999 there were 4,725,546 outstanding Exchangeable Non-Voting Shares in LaSalle Re Limited, which represented the minority interest of $93,055.
In addition to the reinsurance arrangement (note 4), CatEPut transaction (note 8) and share purchase options (note 9), LaSalle Re has entered into the following transactions and agreements with companies related to the Founding Shareholders.
During the year ended September 30, 1999 LaSalle Re ceded premiums of $8,091 (1998: $0; 1997: $0) to a founding shareholder pursuant to a quota share contract. The Company recorded $647 (1998: $0; 1997: $0) of override commission with respect to this contract. Outstanding losses recoverable at the balance sheet date were $4,100 (1998: $0; 1997: $0). Reinsurance balances payable at the balance sheet date were $5,314 (1998: $0; 1997: $0).
On October 1, 1998, LaSalle Re entered into an underwriting support services agreement with CNA Re Services Company ("CNA Services"). Under this Agreement, CNA Services provides certain underwriting support functions to LaSalle Re but no longer underwrites insurance or reinsurance as agents for LaSalle Re. With effect from October 1, 1998 LaSalle Re has agreed to pay fees to CNA Services as follows:
The agreement provides for additional fees to be payable if services provided exceed the retainer. Fees in excess of the retainer are calculated at daily or hourly rates to be agreed between the parties.
Fees incurred with respect to the agreements with CNA Bermuda and CNA Services for the year ended September 30, 1999, were $1,461 (1998: $3,594; 1997: $6,587). At September 30, 1999, $2,693 (1998: $3,658) was payable in respect of these fees.
The Company has incurred $801 (1998: $850; 1997: $1,057) for services provided for the year ended September 30, 1999, of which $195 (1998: $215) was payable at September 30, 1999.
Effective January 1, 1997, LaSalle Re was party to a fronting agreement with Hedge Financial Products, an affiliate of CNA. CNA reinsured LaSalle Re 100% for the business fronted. For the year ended September 30, 1998 LaSalle Re received an administration fee of $63 (1997: $250) for the services provided. The agreement was not renewed on January 1, 1998.
To manage the Company's exposure to these risks, the Company may enter into foreign exchange contracts in the major currencies to which the Company is exposed. These contracts generally involve the exchange of one currency for another at some future date. The Company had a notional principal amount outstanding of approximately $5,518 as at September 30, 1998 (fair value $Nil) in a contract to sell foreign currencies. No such contracts were outstanding in 1999 or 1997.
The Company has investment guidelines which restrict investments in securities below an "AA" grade rating to 20% of the total portfolio and only 10% of the total portfolio including managed cash and cash equivalents, can be invested in "BBB" grade rating. The Company is allowed to invest up to $10,000 in risk based investments and these bonds may carry a rating below "BBB". In addition, the guidelines restrict investments in a single issuer to no greater than 5% of the market value of the portfolio (except for U.S. and U.K. Government issues) and, with respect to country of issue, to no greater than 25% of the market value of the portfolio, except for U.S. and supernational borrowers.
A broker, who is unrelated to the Company, arranged more than 20% of the Company's premiums written for the year ended September 30, 1999 (1998: more than 17%; 1997: 15%). A broker, who is related to the Company, arranged 18% of the Company's premiums written for the year ended September 30, 1999 (1998: 17%; 1997: 16%). Approximately 16% (1998: 14%; 1997: 8%) of the Company's gross premiums written are derived from its participation as a corporate member of Lloyd's.
The Company has in place a $100 million committed line of credit from a syndicate of banks. The proceeds from the credit facility may only be used to buy preferred shares of LaSalle Re that, in turn, may use the proceeds of such purchase to meet current cash requirements. The facility matures December 1, 2000, and is secured by a pledge ("legal mortgage") of all the capital stock of LaSalle Re held by the Company, including any preferred shares that may be issued by LaSalle Re to the Company.
Under current Bermuda law, the Company is not required to pay taxes in Bermuda on either income or capital gains. The Company has received an undertaking from the Minister of Finance in Bermuda that will exempt the Company, subject to the terms expressed in the said undertaking, from taxation until the year 2016 in the event of any such taxes being imposed.