Premium rates for U.S. casualty insurance and reinsurance have generally declined since 1990, primarily because of more predictable forms of coverage, such as claims made, and the effects of lower inflationary expectations. This resulted in more competitive conditions which have continued in 1996.
Net Investment Income. Net Investment income increased 4.9%, to $78.1 million in 1996 from $74.5 million in 1995. The increase arose from an increase of 11.9% in average invested assets, primarily attributable to the IPO in April 1996, partially offset by lower portfolio yields. The average investment yield before realized gains and losses was 6.3% and 6.7% in 1996 and 1995, respectively. The average duration of fixed maturity investments at December 31, 1996 and 1995 was 4.2 years and 4.1 years, respectively.
Other Expenses. Other expenses increased 48.9%, to $5.3 million in 1996 from $3.5 million in 1995, due to an increased level of corporate activity in 1996.
Net Investment Income. Net investment income increased 44.4% to $74.5 million in 1995 from $51.6 million in 1994. The increase arose (i) from an increase in average invested assets of $215.4 million, primarily as a consequence of the acquisition of Terra Nova (Bermuda) on December 21, 1994 which increased invested assets by $152.4 million, and proceeds from the Rights Offering of $50.4 million, and (ii) a higher yield resulting from (a) a greater proportion of fixed maturity investments in the investment portfolio in 1995 compared to 1994 and (b) an increase in the duration of the portfolio. The average investment yield before realized gains or losses was 6.7% and 5.7% in 1995 and 1994, respectively. The average duration of fixed maturity investments at December 31, 1995 and 1994 was 4.1 years and 3.5 years, respectively.
TERRA NOVA (BERMUDA) HOLDINGS LTD., TERRA NOVA INSURANCE COMPANY LIMITED AND THEIR SUBSIDIARIES
(j) PREPAID REINSURANCE PREMIUMS: Prepaid reinsurance premiums represent the portion of premiums ceded to reinsurers applicable to the unexpired terms of reinsurance contracts. In respect of Terra Nova Capital reinsurance costs have been charged against income on the basis of the benefits derived in order to match the costs with the corresponding earned income.
DOLLARS IN THOUSANDS - ---------------------------------------------------------------------- Canadian Treasury $61,341 Government of Japan 94,899 United States Treasury 416,705
Current U.K. corporation tax $17,409 $14,172 $16,711 Deferred tax 368 2,458 (253)
(a) The following table provides the components of the common shares of the Company at December 31, 1996 and 1995:
Incurred claims relating to prior years are offset by decreases to prior year net written and net earned premiums less related acquisition costs of $3,550,000 and $6,396,000 for 1996 and 1995, respectively. However, 1994 experienced increases to prior year written and earned premiums less related acquisition costs of $20,137,000. When these revisions to prior written and earned premiums are taken into account, the Company experienced net prior year deteriorations of $950,000, $9,655,000 and $6,798,000 for 1996, 1995 and 1994, respectively.
On June 30, 1995 UK Holdings completed an issue of $100 million 10 3/4% Senior Notes due 2005, guaranteed by Bermuda Holdings. The net proceeds were used to repay the principal sum of $85 million outstanding under a bank facility agreement dated December 21, 1994 and to provide $10 million of additional capital to Terra Nova.