-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ur/uPo9LtSeqA99xFBGtvWlzewonrFbKoG0hY3iwy2dWHmDN+26QmpoJJKNayUBw RBK/OMNungrvuASTJKaDqQ== /in/edgar/work/20000814/0000893220-00-000965/0000893220-00-000965.txt : 20000921 0000893220-00-000965.hdr.sgml : 20000921 ACCESSION NUMBER: 0000893220-00-000965 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ANNUITY & LIFE RE HOLDINGS LTD CENTRAL INDEX KEY: 0001051628 STANDARD INDUSTRIAL CLASSIFICATION: [6311 ] IRS NUMBER: 000000000 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-23625 FILM NUMBER: 697273 BUSINESS ADDRESS: STREET 1: VICTORIA HALL STREET 2: VICTORIA STREET, PO BOX HM 1262 CITY: HAMILTON, HM BERMUDA BUSINESS PHONE: 4412951422 MAIL ADDRESS: STREET 1: VICTORIA HALL, VICTORIA STREET STREET 2: PO BOX HM 1262, HAMILTON, HM FX CITY: BERMUDA 10-Q 1 e10-q.txt QUARTERLY RPT OF ANNUITY AND LIFE RE(HOLDINGS),LTD 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 ------------------------ FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER 0-23625 ANNUITY AND LIFE RE (HOLDINGS), LTD. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) BERMUDA NOT APPLICABLE (STATE OR OTHER JURISDICTION OF (IRS EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
CUMBERLAND HOUSE, VICTORIA STREET, HAMILTON, BERMUDA (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) 441-296-7667 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] The number of the Registrant's Common Shares (par value $1.00 per share) outstanding as of August 3, 2000 was 25,499,999. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 INDEX TO FORM 10-Q PART I -- FINANCIAL INFORMATION
PAGE ----- ITEM 1. Unaudited Consolidated Financial Statements Consolidated Balance Sheets June 30, 2000 (unaudited) and December 31, 1999............. 3 Unaudited Consolidated Statements of Operations Three and Six Months ended June 30, 2000 and 1999........... 4 Unaudited Consolidated Statements of Comprehensive Income Three and Six Months ended June 30, 2000 and 1999........... 5 Unaudited Consolidated Statements of Cash Flows Six Months ended June 30, 2000 and 1999..................... 6 Unaudited Consolidated Statements of Changes in Stockholders' Equity Six Months ended June 30, 2000 and 1999..................... 7 Notes to Unaudited Consolidated Financial Statements........ 8 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............... 10-14 PART II -- OTHER INFORMATION ITEM 4. Submission of Matters to a Vote of Security Holders......... 15 ITEM 6. Exhibits and Reports on Form 8-K............................ 15 Signatures........................................................... 16 Exhibits.............................................................
2 3 ANNUITY AND LIFE RE (HOLDINGS), LTD. CONSOLIDATED BALANCE SHEETS UNAUDITED (EXPRESSED IN UNITED STATES DOLLARS)
JUNE 30, 2000 DECEMBER 31, 1999 -------------- ----------------- ASSETS Cash and cash equivalents................................... $ 43,789,966 $ 31,187,242 Fixed maturity investments, available for sale, at fair value (amortized cost of $264,214,085 at June 30, 2000; December 31, 1999 $284,142,098)........................... 256,216,131 272,872,882 Funds withheld at interest.................................. 1,531,989,051 1,532,652,990 Accrued investment income................................... 3,284,814 4,279,480 Other reinsurance receivables............................... 118,374,365 7,834,806 Deferred policy acquisition costs........................... 182,100,994 203,510,250 Insurance Licenses, net of amortization..................... 2,301,104 -- Other assets................................................ 4,765,079 3,748,338 -------------- -------------- Total Assets...................................... $2,142,821,504 $2,056,085,988 ============== ============== LIABILITIES Reserves for future policy benefits......................... $ 153,662,253 $ 43,753,923 Interest-sensitive contracts liabilities.................... 1,569,618,540 1,603,382,955 Other reinsurance liabilities............................... 6,062,834 10,746,269 Payable for investments purchased........................... -- 639,352 Accounts payable and accrued expenses....................... 4,595,910 5,508,595 -------------- -------------- Total Liabilities................................. $1,733,939,537 $1,664,031,094 -------------- -------------- STOCKHOLDERS' EQUITY Preferred Shares (par value $1.00; 50,000,000 shares authorized; no shares outstanding)........................ $ -- $ -- Common Shares (par value $1.00; 100,000,000 shares authorized; 25,499,999 shares outstanding)................ 25,499,999 25,499,999 Additional paid-in capital.................................. 329,496,091 329,496,091 Notes receivable from stock sales........................... (1,326,991) (1,286,741) Accumulated other comprehensive (loss)...................... (7,997,954) (11,269,216) Retained earnings........................................... 63,210,822 49,614,761 -------------- -------------- Total Stockholders' Equity........................ $ 408,881,967 $ 392,054,894 -------------- -------------- Total Liabilities and Stockholders' Equity........ $2,142,821,504 $2,056,085,988 ============== ==============
See accompanying notes to unaudited consolidated financial statements 3 4 ANNUITY AND LIFE RE (HOLDINGS), LTD. CONSOLIDATED STATEMENTS OF OPERATIONS UNAUDITED (EXPRESSED IN UNITED STATES DOLLARS)
THREE MONTHS ENDED THREE MONTHS ENDED SIX MONTHS ENDED SIX MONTHS ENDED JUNE 30, 2000 JUNE 30, 1999 JUNE 30, 2000 JUNE 30, 1999 ------------------ ------------------ ---------------- ---------------- REVENUES Net premiums.............. $37,684,372 $18,372,285 $ 73,914,378 $36,619,297 Investment income, net of related expenses........ 25,819,232 20,677,324 52,616,929 38,836,385 Net realized investment gains (losses).......... (2,417,880) (157,756) (2,980,705) 105,703 Other..................... 1,589,357 149,262 3,396,958 388,963 ----------- ----------- ------------ ----------- Total Revenues...... $62,675,081 $39,041,115 $126,947,560 $75,950,348 ----------- ----------- ------------ ----------- BENEFITS AND EXPENSES Claims and policy benefits................ $29,898,304 $15,507,499 $ 62,856,415 $31,273,368 Net cost of interest sensitive contract liabilities............. 7,475,510 3,948,668 15,903,068 7,825,497 Policy acquisition costs and other insurance expenses................ 15,313,661 8,991,771 28,395,489 16,397,110 Operating expenses........ 2,165,313 1,846,935 4,156,527 3,225,850 ----------- ----------- ------------ ----------- Total Benefits and Expenses...... $54,852,788 $30,294,873 $111,311,499 $58,721,825 ----------- ----------- ------------ ----------- Net Income.............. $ 7,822,293 $ 8,746,242 $ 15,636,061 $17,228,523 =========== =========== ============ =========== NET INCOME PER COMMON SHARE (NOTE 3): Basic..................... $ 0.31 $ 0.34 $ 0.61 $ 0.68 Diluted................... $ 0.29 $ 0.32 $ 0.57 $ 0.63
See accompanying notes to unaudited consolidated financial statements 4 5 ANNUITY AND LIFE RE (HOLDINGS), LTD. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME UNAUDITED (EXPRESSED IN UNITED STATES DOLLARS)
THREE MONTHS ENDED THREE MONTHS ENDED SIX MONTHS ENDED SIX MONTHS ENDED JUNE 30, 2000 JUNE 30, 1999 JUNE 30, 2000 JUNE 30, 1999 ------------------ ------------------ ---------------- ---------------- Net income for period.............. $ 7,822,293 $ 8,746,242 $15,636,061 $17,228,523 Other comprehensive (loss) income: Unrealized holding losses (gains) on securities arising during period....... 5,564,032 (5,711,437) 6,251,967 (9,586,973) Reclassification adjustment for (losses) gains realized in net income.............. (2,417,880) (157,756) (2,980,705) 263,458 ----------- ----------- ----------- ----------- Other comprehensive (loss) income....... 3,146,152 (5,869,193) 3,271,262 (9,323,515) ----------- ----------- ----------- ----------- Total comprehensive income.............. $10,968,445 $ 2,877,049 $18,907,323 $ 7,905,008 =========== =========== =========== ===========
See accompanying notes to unaudited consolidated financial statements 5 6 ANNUITY AND LIFE RE (HOLDINGS), LTD. CONSOLIDATED STATEMENTS OF CASH FLOWS UNAUDITED (EXPRESSED IN UNITED STATES DOLLARS)
SIX MONTHS ENDED SIX MONTHS ENDED JUNE 30, 2000 JUNE 30, 1999 ---------------- ---------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income.................................................. $ 15,636,061 $ 17,228,523 Adjustments to reconcile net income to cash provided (used) by operating activities Net realized investment losses (gains)...................... 2,980,705 (105,703) Changes in: Accrued investment income................................... 994,666 (370,247) Deferred policy acquisition costs........................... 21,409,256 (44,725,383) Other reinsurance receivables............................... (110,539,559) -- Other assets................................................ (1,016,741) (2,899,820) Reserves for future policy benefits......................... 109,908,330 6,405,867 Interest sensitive contracts, net of funds withheld......... (33,100,476) 18,633,361 Other reinsurance liabilities............................... (4,683,435) (15,289,411) Accounts payable............................................ (912,681) 716,708 ------------- ------------ Net cash provided (used) by operating activities............ $ 676,126 $(20,376,105) ------------- ------------ CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sales of fixed maturity securities............ $ 192,402,916 $123,298,230 Purchase of fixed maturity securities....................... (165,214,278) (145,012,005) Acquisition of business..................................... (13,181,790) -- ------------- ------------ Net cash provided (used) by investing activities............ 14,006,848 (21,713,775) ------------- ------------ CASH FLOWS FROM FINANCING ACTIVITIES Repayment of notes receivable, less interest accrued........ (40,250) 144,026 Dividends paid to stockholders.............................. (2,040,000) (2,040,000) ------------- ------------ Net cash (used) by financing activities..................... (2,080,250) (1,895,974) ------------- ------------ Increase (decrease) in cash and cash equivalents............ 12,602,724 (43,985,854) Cash and cash equivalents, beginning of period.............. 31,187,242 66,586,267 ------------- ------------ Cash and cash equivalents, end of period.................... $ 43,789,966 $ 22,600,413 ============= ============
See accompanying notes to unaudited consolidated financial statements. 6 7 ANNUITY AND LIFE RE (HOLDINGS), LTD. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY UNAUDITED (EXPRESSED IN UNITED STATES DOLLARS)
SIX MONTHS ENDED SIX MONTHS ENDED JUNE 30, 2000 JUNE 30, 1999 ------------------ ------------------ PREFERRED SHARES PAR VALUE $1.00 Balance at beginning and end of period.................. $ -- $ -- ------------ ------------ COMMON SHARES PAR VALUE $1.00 Balance at beginning and end of period.................. $ 25,499,999 $ 25,499,999 ------------ ------------ ADDITIONAL PAID-IN CAPITAL Balance at beginning and end of period.................. $329,496,091 $329,517,104 ------------ ------------ NOTES RECEIVABLE FROM STOCK SALES Balance at beginning of period.......................... $ (1,286,741) $ (1,391,068) Repayments.............................................. -- 174,950 Accrued interest during period.......................... (40,250) (30,924) ------------ ------------ Balance at end of period................................ $ (1,326,991) $ (1,247,042) ------------ ------------ ACCUMULATED OTHER COMPREHENSIVE INCOME Balance at beginning of period.......................... $(11,269,216) $ 3,722,594 Net unrealized holding gains (losses) on securities..... 3,271,262 (9,323,515) ------------ ------------ Balance at end of period................................ $ (7,997,954) $ (5,600,921) ------------ ------------ RETAINED EARNINGS Balance at beginning of period.......................... $ 49,614,761 $ 17,991,617 Net income.............................................. 15,636,061 17,228,523 Stockholder dividends................................... (2,040,000) (2,040,000) ------------ ------------ Balance at end of period................................ $ 63,210,822 $ 33,180,140 ------------ ------------ TOTAL STOCKHOLDERS' EQUITY.............................. $408,881,967 $381,349,280 ============ ============
See accompanying notes to unaudited consolidated financial statements. 7 8 ANNUITY AND LIFE RE (HOLDINGS), LTD. NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION Annuity and Life Re (Holdings), Ltd. ("Holdings") was incorporated on December 2, 1997 under the laws of Bermuda. Holdings provides annuity and life reinsurance to insurers and reinsurers through its wholly-owned subsidiaries: Annuity and Life Reassurance, Ltd. ("Annuity and Life Reassurance"), licensed under the laws of Bermuda as a long term insurer; Annuity and Life Re America, Inc. ("Annuity and Life Re America"), an insurance holding company based in the United States, and Capitol Bankers Life Insurance Company ("Capitol Bankers"), a life insurance company domiciled in the United States. Holdings, Annuity and Life Reassurance, Annuity and Life Re America and Capitol Bankers are collectively referred to herein as the "Company". 2. BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles for interim financial information and in accordance with Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto contained in the Company's Form 10K for the fiscal year ended December 31,1999 and Form 10-Q for the fiscal quarter ended March 31, 2000. In the opinion of management, all adjustments considered necessary for a fair presentation have been included in these financial statements. 3. EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings per share:
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, ---------------------------- -------------------------- 2000 1999 2000 1999 ------------ ------------ ----------- ----------- Net Income............................ $ 7,822,293 $ 8,746,242 $15,636,061 $17,228,523 Net average number of common shareholders outstanding............ 25,499,999 25,499,999 25,499,999 25,499,999 Weighted average number of common shares outstanding including shares issuable from exercise of options and warrants........................ 27,311,063 27,114,771 27,366,408 27,148,654 Earnings per share.................... $ 0.31 $ 0.34 $ 0.61 $ 0.68 Earnings per share assuming dilution............................ $ 0.29 $ 0.32 $ 0.57 $ 0.63
4. ACCOUNTING STANDARDS In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133 "Accounting for Derivative Instruments and Hedging Activities". This Statement establishes accounting and reporting standards for derivative instruments, including derivative instruments embedded in other contracts, and for hedging activities. In June 1999 the FASB issued Statement No. 137 "Accounting for Derivative Instruments and Hedging Activities -- Deferral of the effective date of FASB Statement No. 133", which defers the effective date of Statement No. 133 until the fiscal quarters beginning after June 15, 2000. The Company does not hold any derivatives and does not engage in any derivative hedging activities, although it may do so in the future. Management has reviewed this new statement and has concluded that it is not likely to significantly affect its current financial reporting. 8 9 ANNUITY AND LIFE RE (HOLDINGS), LTD. NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 5. SIGNIFICANT TRANSACTION On June 1, 2000 the Company, through Annuity and Life Re America, completed the acquisition of Capitol Bankers for $13,200,000. Capitol Bankers is a life insurance company domiciled in the United States, which is authorized to conduct its life insurance business in 43 states of the United States, and will focus its operations on the United States life reinsurance markets. The Company intends to contribute additional capital to Capitol Bankers during the current fiscal year of approximately $12,000,000 to bring the total capital and surplus of Capital Bankers to $25,000,000. The acquisition price was funded from available cash balances; the subsequent capital contribution will be funded from available cash balances or proceeds from the sale of fixed maturity securities held by the Company. The acquisition has been accounted for as a purchase and the operating results of Capitol Bankers have been included in the Company's financial statements since the date of acquisition. Prior to closing, the in force insurance business of Capitol Bankers was 100% reinsured by Capitol Bankers with its former owner, a subsidiary of Swiss Re, who will continue to administer the business reinsured. Accordingly, there will be no earnings from the in-force insurance business at the acquisition date accruing to the Company currently or in the future. The purchase price exceeded the fair value of the net assets acquired (the capital and surplus of Capitol Bankers) by $2,301,000 which has been allocated to the value of the 43 insurance licenses of Capitol Bankers. This amount will be amortized over 20 years. The proforma balance sheet of Capitol Bankers as of the date of acquisition after giving effect to the reinsurance transaction is as follows: ASSETS Cash & Invested assets...................................... $ 10,880,686 Other reinsurance receivables............................... 108,766,677 Insurance Licenses.......................................... 2,301,104 ------------ Total Assets................................................ $121,948,467 LIABILITIES & STOCKHOLDERS EQUITY Reserves for future policy benefits......................... $108,766,637 Stockholders Equity......................................... $ 13,181,790 ------------ Total Liabilities & Stockholders Equity..................... $121,948,467
9 10 ANNUITY AND LIFE RE (HOLDINGS), LTD. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 1. GENERAL Annuity and Life Re (Holdings), Ltd. ("Holdings") was incorporated on December 2, 1997 under the laws of Bermuda. Holdings provides annuity and life reinsurance to insurers and reinsurers through its wholly-owned subsidiaries: Annuity and Life Reassurance, Ltd. ("Annuity and Life Reassurance") licensed under the insurance laws of Bermuda as a long term insurer; Annuity and Life Re America, Inc. ("Annuity and Life Re America"), an insurance holding company based in the United States, and Capitol Bankers Life Insurance Company ("Capitol Bankers"), a life insurance company domiciled in the United States. Holdings, Annuity and Life Reassurance, Annuity and Life Re America and Capitol Bankers are collectively referred to herein as the "Company". 2. OPERATING RESULTS Net Income. For the six-month period ended June 30, 2000, we had consolidated net income of $15,636,000 or $0.61 per common share, $0.57 per common share on a fully diluted basis, compared with $17,229,000 or $0.68 per common share, $0.63 per common share on a fully diluted basis for the six months ended June 30, 1999. For the three month period ending June 30, 2000, we had consolidated net income of $7,822,000 or $0.31 per common share, $0.29 per common share on a fully diluted basis, compared with $8,746,000 or $0.34 per common share, $0.32 per common share on a fully diluted basis for the three months ended June 30, 1999. The decrease in the net income for the three and six month periods ended June 30, 2000 as compared with the net income for the three and six month periods ended June 30, 1999 is primarily due to the net realized investment losses. With interest rates rising the investment portfolio was repositioned to improve performance and to increase future operating income. Net Operating Income. In addition to net income, we report net operating income. This is not a substitute for net income computed in accordance with generally accepted accounting principles (GAAP), but is an important measure used by management, investors and others to measure our results. We define net operating income as net income excluding realized gains and losses from the sale of investments. Our definition of net operating income may differ from that used by other public life and annuity companies. For the three month and six month periods ended June 30, 2000, our net operating income increased 15% and 9%, respectively, over the comparable prior year periods. Net operating income for the six month period ending June 30, 2000 was $18,617,000 or $0.73 per common share, $0.68 per common share on a fully diluted basis, compared with $17,123,000 or $0.67 per common share, $0.63 per common share on a fully diluted basis for the six months ended June 30, 1999. Net operating income for the three month period ending June 30, 2000 was $10,240,000 or $0.40 per common share, $0.37 per common share on a fully diluted basis, compared with $8,904,000 or $0.35 per common share, $0.33 per common share on a fully diluted basis for the three months ended June 30, 1999. The increase in the net operating income for the three and six month periods ended June 30, 2000 as compared with the three and six month periods ended June 30, 1999 is primarily due to the growth and development of our insurance operations. Net Premiums. Net premium revenue for the three month and six month periods ended June 30, 2000 was $37,684,000 and $73,914,000, respectively, an increase of 105% and 102% over the three month and six month periods ended June 30, 1999. Substantially all premium revenue was derived from ordinary life reinsurance. The growth reflects the level of new business written and the increase in the face amount of insurance in force. At June 30, 2000 the total face amount of life insurance in force was $55.5 billion compared with $31.2 billion at June 30, 1999, an increase of 78%, and $45.4 billion at December 31, 1999. New business writings and premium levels are significantly influenced by the seasonal nature of the life reinsurance marketplace and by large transactions and therefore can fluctuate from period to period. 10 11 Net Investment Income. Total net investment income for the three month and six month periods ended June 30, 2000 was approximately $25,819,000 and $52,617,000 million, respectively, an increase of 25% and 35% over the three month and six month periods ended June 30, 1999. The growth in investment income is primarily due to the income earned on Funds Withheld under modified coinsurance agreements related to our Interest Sensitive Contracts Liabilities. The income earned on the funds withheld for the three month and six month periods ended June 30, 2000 was $20,611,000 and $42,411,000, respectively, as compared with $12,623,000 and $28,249,000 for the three and six month periods ended June 30, 1999. The average yield rate earned on an annualized basis on the invested assets, excluding the funds withheld, for this period was approximately 6.52% as compared with 6.31% for the six months ended June 30, 1999. Realized Investment Gains. Realized investment gains (losses) for the three month and six month period ended June 30, 2000 were ($2,418,000) and ($2,981,000), respectively, as compared with ($158,000) and $105,000, respectively , for the three month and six month periods ended June 30, 1999. These gains and losses result from active management of our investment portfolio intended to improve performance and increase operating income. Realized gains and losses are not considered by the Company to be recurring components of earnings. We make decisions concerning the sales of invested assets based on a variety of market, business and other factors. During the six month period ended June 30, 2000, unrealized gains were $3,271,000 as compared with unrealized losses of $9,323,000 incurred during the six month period ended June 30, 1999 which were included in Other Comprehensive Income . The unrealized gains and losses are principally related to changes in the general level of interest rates during those periods. Claims and Policy Benefits. Life insurance claims and policy benefits for the three month and six month periods ended June 30, 2000 were $25,329,000, 76% of net premium and $54,875,000, 83% of net premium, respectively, as compared with $15,507,000, 84% of net premium and $31,273,000, 85% of net premium for the three month and six month periods ended June 30, 1999. Although we expect mortality to be fairly constant over long periods of time, it will fluctuate from period to period. Reserves for future policy benefits are in part determined by claims reported from ceding companies, our aggregate experience and overall mortality trends. Interest Credited to Interest Sensitive Contracts Liabilities. Interest credited to interest sensitive contract liabilities, which are liabilities we assume under certain reinsurance agreements we enter into, for the three month and six month periods ended June 30, 2000 was $7,475,000 and $15,903,000, respectively, as compared with $3,949,000 and $7,825,000 for the three month and six month periods ended June 30, 1999. The increase reflects the level of our interest sensitive contracts liabilities and is directly related to income earned on the related funds withheld at interest. The income earned on the funds withheld at interest for the three month and six month periods ended June 30, 2000 was $20,611,000 and $42,411,000, respectively, as compared with $12,623,000 and $28,249,000,respectively, for the three month and six month periods ended June 30, 1999. Policy Acquisition and Other Insurance Expenses. Policy acquisition and other insurance expenses, consisting primarily of allowances and amortization of deferred policy acquisition costs, for the three month and six month periods ended June 30, 2000 were $ 15,314,000 and $28,395,000, respectively, as compared with $8,992,000 and $16,397,000, respectively, for the three month and six month periods ended June 30, 1999. Generally, policy acquisition costs and other insurance expenses fluctuate with business volume and changes in product mix. The increase in these costs reflects the growth and development of our life and annuity business. Other Operating Expenses. Operating expenses for the three month and six month periods ending June 30, 2000 were $2,165,000, or 3.5% of total revenue and $4,156,000, or 3.3% of total revenue, respectively, as compared with $1,847,000, or 4.7% of total revenue and $3,226,000, or 4.2% of total revenue, for the three month and six month periods ending June 30, 1999. We consider the operating expense level to be low by industry standards and is in line with the Company's plan to be a low cost provider. The reduction in the expense ratio is primarily due to growth and development of our insurance operations. Annuity & Life Re 11 12 America incurred expenses of $975,000 during the six month period ended June 30, 2000, its start up period, all of which were expensed. 3. FINANCIAL CONDITION Investments Invested assets, including cash and cash equivalents, amounted to $300,006,000 at June 30, 2000 as compared with $304,060,000 at December 31, 1999. At June 30, 2000 and December 31,1999 net unrealized losses on invested assets were $7,997,000 and $11,269,000 respectively, and generally reflect the changes in interest rates during the periods. The Company's investment policy is designed to achieve above average risk adjusted returns, maintain a high quality portfolio, maximize current income, maintain an adequate level of liquidity and match the cash flows of the portfolio to the required cash flows for the related liabilities. Funds Withheld at Interest -- Interest Sensitive Contracts Liabilities Assets with a carrying value of approximately $1,531,989,000 at June 30, 2000 and $1,532,653,000 at December 31, 1999 , related to annuity reinsurance agreements with the Company, are held by and managed by the ceding company in segmented portfolios. The liability for the annuity reinsurance is included on the Company's Balance Sheet as Interest Sensitive Contracts Liabilities. During the six month period ended June 30, 2000 these liabilities decreased approximately 2% reflecting a lower level of new deposits accepted by the Company and benefit payments made by the Company under the reinsurance agreements. Liquidity and Capital Resources The Company's liquidity and capital resources are a measure of the overall financial strength of the Company and its ability to generate cash flows from its operations to meet operating and growth needs. The Company's principal sources of funds are premiums received, net investment income, proceeds from investments called, redeemed or sold, cash and short term investments. The principal obligations and uses of the funds are the payment of policy benefits, acquisition and operating costs and the purchase of investments. For the six month period ended June 30, 2000 the Company generated $676,000 from its operating activities as compared with the use of $20,376,000 in its operating activities for the six months ended June 30, 1999. This change is primarily related to the development of our insurance operations, the underwriting results and the initial costs associated with writing new life reinsurance and annuity reinsurance business. The Company's capital structure currently consists entirely of equity. At June 30, 2000 total capitalization of the Company after deducting loans to management of $1,327,000 and including retained earnings and accumulated other comprehensive loss amounted to $408,882,000 as compared with $392,055,000 at December 31, 1999. We continuously review our capital adequacy and we believe this level of capital is sufficient to support the Company's insurance writings and growth for the near future. At June 30, 2000 the Company had no outstanding debt. The Company may incur indebtedness in the future for various purposes including without limitation acquisitions of or investments in companies whose businesses compliment the Company's business. At June 30, 2000 and December 31, 1999 letters of credit totaling $125.0 million and $121.5 million, respectively, issued in the ordinary course of the Company's business have been issued by the Company's bankers in favor of certain ceding insurance companies to provide security and to meet regulatory requirements. These letters of credit are fully collateralized by our investments. On February 9, 2000 and April 27, 2000 the Board of Directors declared quarterly stockholder dividends of $.04 per share payable to shareholders of record on March 9, 2000 and May 18, 2000, respectively. The Board intends to continue to declare and payout of earnings a quarterly dividend. The continued payment of dividends is dependent on the ability of our operating subsidiaries to achieve satisfactory underwriting and investment results and other factors determined to be relevant by the Company's Board of Directors. 12 13 The Company currently has no material commitments other than as outlined in "Acquisition" below. 4. ACQUISITION On June 1, 2000 the Company, through Annuity and Life Re America, completed the acquisition of Capitol Bankers for $13,200,000. Capitol Bankers is a life insurance company domiciled in the United States, which is authorized to conduct its life insurance business in 43 states of the United States, and will focus its operations on the United States life reinsurance markets. The Company intends to contribute additional capital to Capitol Bankers during the current fiscal year of approximately $12,000,000 to bring the total capital and surplus of Capital Bankers to $25,000,000 . The acquisition price was funded from available cash balances; the subsequent capital contribution will be funded from available cash balances or proceeds from the sale of fixed maturity securities held by the Company. The acquisition has been accounted for as a purchase and the operating results of Capitol Bankers have been included in the Company's financial statements since the date of acquisition. Prior to closing, the in force insurance business of Capitol Bankers was 100% reinsured by Capitol Bankers with its former owner, a subsidiary of Swiss Re, who will continue to administer the business reinsured. Accordingly, there will be no earnings from the in-force insurance business at the acquisition date accruing to the Company currently or in the future. The purchase price exceeded the fair value of the net assets acquired ( the capital and surplus of Capitol Bankers) by $2,301,000 which has been allocated to the value of the 43 insurance licenses of Capitol Bankers. This amount will be amortized over 20 years. The proforma balance sheet of Capitol Bankers as of the date of acquisition after giving effect to the reinsurance transaction is as follows: ASSETS Cash & Invested assets...................................... $ 10,880,686 Other reinsurance receivables............................... 108,766,677 Insurance Licenses.......................................... 2,301,104 ------------ Total Assets................................................ $121,948,467 LIABILITIES & STOCKHOLDERS EQUITY Reserves for future policy benefits......................... $108,766,637 Stockholders Equity......................................... $ 13,181,790 ------------ Total Liabilities & Stockholders Equity..................... $121,948,467
5. YEAR 2000 We experienced no disruptions to our business as a result of the conversion to the Year 2000. We incurred no material Year 2000 expenses during the six months ended June 30, 2000 or during the year ended December 31, 1999 and all expenses incurred were funded from operations. We do not expect to incur additional Year 2000 expenses during 2000. If any are incurred, such expenses will be funded from operations. 6. FORWARD-LOOKING AND CAUTIONARY STATEMENTS The Company and its representatives may from time to time make written or oral forward-looking statements, including those contained in the foregoing Management's Discussion and Analysis. In order to take advantage of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, the Company is hereby identifying certain important factors which could cause the Company's actual results, performance or achievement to differ materially from those that may be contained in or implied by any forward-looking statement made by or on behalf of the Company. The factors that could cause such forward- looking statements not to be realized include, without limitation, acceptance in the market of the Company's reinsurance products; pricing competition; the amount of underwriting capacity from time to time in the market; general economic conditions and conditions specific to the reinsurance and investment markets in 13 14 which the Company operates; material fluctuations in interest rate levels; regulatory changes and conditions; rating agency policies and practices; claims development; and loss of key executives. The Company cautions that the foregoing list of important factors is not intended to be, and is not, exhaustive. The Company does not undertake to update any forward-looking statement that may be made from time to time by or on behalf of the Company. 14 15 PART II OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS (1) ANNUAL MEETING OF SHAREHOLDERS The Annual Meeting of Shareholders of the Company was held on April 27, 2000. The following matters were voted upon at the Annual Meeting, and received the votes set forth below: (a) All of the following persons nominated were elected to serve as directors and received the number of votes set forth opposite their respective names:
FOR WITHHELD ---------- -------- Robert M. Lichten..................................... 20,370,521 221,775 Brian M. O'Hara....................................... 20,370,406 221,890 Walter A. Scott....................................... 20,589,921 2,375
(b) A proposal to approve and adopt an amendment to the Company's bye-laws increasing the common share ownership and voting limitations applicable to non US persons from 10% to 17% was approved and received 17,464,807 votes FOR and 99,355 votes AGAINST, with 1,776,730 abstentions and 1,251,404 broker non-votes. (c) A proposal to appoint KPMG as independent accountants for the Company for the 2000 fiscal year was approved and received 20,587,896 votes FOR and 1,475 votes AGAINST, with 2,925 abstentions and 0 broker non-votes. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits -- The following exhibits are filed as part of this report on Form 10-Q: 11 Computation of Earnings per share 27 Financial Data Schedule (b) Reports on Form 8-K -- There were no reports on Form 8-K filed during the period ended June 30, 2000. 15 16 ANNUITY AND LIFE RE (HOLDINGS), LTD. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Annuity and Life Re (Holdings), Ltd. Date: August 10, 2000 /s/ LAWRENCE S. DOYLE -------------------------------------- Name: Lawrence S. Doyle Title: President and Chief Executive Officer (Principal Executive Officer) Date: August 10, 2000 /s/ WILLIAM W. ATKIN -------------------------------------- Name: William W. Atkin Title: Chief Financial Officer and Treasurer (Principal Accounting and Financial Officer) 16 EX-11 2 ex11.txt COMPUTATION OF NET INCOME PER COMMON SHARE 1 EXHIBIT 11 ANNUITY AND LIFE RE (HOLDINGS), LTD. STATEMENT OF COMPUTATION OF NET INCOME PER COMMON SHARE UNAUDITED (EXPRESSED IN UNITED STATES DOLLARS EXCEPT FOR SHARE AMOUNTS)
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, ---------------------------- -------------------------- 2000 1999 2000 1999 ------------ ------------ ----------- ----------- Net Income.............................. $7,822,293 $8,746,242 $15,636,061 $17,228,523 Net average number of common shareholders outstanding.............. 25,499,999 25,499,999 25,499,999 25,499,999 Weighted average number of common shares outstanding including shares issuable from exercise of options and warrants.............................. 27,311,063 27,114,771 27,366,408 27,148,654 Earnings per share...................... $ 0.31 $ 0.34 $ 0.61 $ 0.68 Earnings per share assuming dilution.... $ 0.29 $ 0.32 $ 0.57 $ 0.63
17 EX-27 3 ex27.txt FINANCIAL DATA SCHEDULE
7 This schedule contains summary financial information extracted from the consolidated balance sheet as of June 30, 2000 and the consolidated statement of operations for the six months ended June 30, 2000 and is qualified in its entirety by reference to such financial statements. 6-MOS DEC-31-2000 JAN-01-2000 JUN-30-2000 256,216,131 0 0 0 0 0 256,216,131 43,789,966 118,374,365 182,100,994 2,142,821,504 153,662,253 0 0 1,569,618,540 0 0 0 25,499,999 383,381,968 2,142,821,504 73,914,378 52,616,929 (2,980,705) 3,396,958 62,856,415 16,590,879 11,804,610 15,636,061 0 0 0 0 0 15,636,061 0.61 0.57 0 0 0 0 0 0 0
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