-----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, TmGUIzfB8irZ7KEItoTUZrbV4r6NS+Q9iCCdJmHm5XIzwq/Uc03Rx2KsTX4V3ex6 utSgENSLvOteaL1Wvc4Txw== 0001005477-98-001600.txt : 19980515 0001005477-98-001600.hdr.sgml : 19980515 ACCESSION NUMBER: 0001005477-98-001600 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980514 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: RISK CAPITAL HOLDINGS INC CENTRAL INDEX KEY: 0000947484 STANDARD INDUSTRIAL CLASSIFICATION: FIRE, MARINE & CASUALTY INSURANCE [6331] IRS NUMBER: 061424716 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-26456 FILM NUMBER: 98621426 BUSINESS ADDRESS: STREET 1: 20 HORSENECK LANE CITY: GREENWICH STATE: CT ZIP: 06830 BUSINESS PHONE: 2038624300 MAIL ADDRESS: STREET 1: 20 HORSENECK LANE CITY: GREENWICH STATE: CT ZIP: 06830 FORMER COMPANY: FORMER CONFORMED NAME: RISK CAPITAL RE INC DATE OF NAME CHANGE: 19950703 10-Q 1 FORM 10-Q ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1998. Or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period ___________________ to _____________________ Commission file number: 0-26456 RISK CAPITAL HOLDINGS, INC. (Exact name of registrant as specified in its charter) Delaware 06-1424716 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 20 Horseneck Lane Greenwich, Connecticut 06830 (Address of principal executive (Zip Code) offices) Registrant's telephone number, including area code: (203) 862-4300 -------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) 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 |_| Indicate the number of shares outstanding of each of the issuer's classes of common stock. Class Outstanding at March 31, 1998 ----- ----------------------------- Common Stock, $.01 par value 17,062,515 ================================================================================ RISK CAPITAL HOLDINGS, INC. INDEX Page No. ---------- PART I. Financial Information Item 1 - Consolidated Financial Statements Review Report of Independent Accountants 1 Consolidated Statement of Income and Comprehensive Income 2 For the three month periods ended March 31, 1998 and 1997 Consolidated Balance Sheet 3 March 31, 1998 and December 31, 1997 Consolidated Statement of Changes in Stockholders' Equity 4 For the three month periods ended March 31, 1998 and 1997 Consolidated Statement of Cash Flows 5 For the three month periods ended March 31, 1998 and 1997 Notes to Consolidated Financial Statements 6 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 12 PART II. Other Information Item 6 - Exhibits and Reports on Form 8-K 20 Signatures 21 Review Report of Independent Accountants To the Board of Directors and Stockholders of Risk Capital Holdings, Inc. We have reviewed the accompanying interim consolidated balance sheet of Risk Capital Holdings, Inc. and its subsidiary as of March 31, 1998, and the related consolidated statements of income and comprehensive income, of changes in stockholders' equity and of cash flows for the period from January 1, 1998 to March 31, 1998. This financial information is the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the accompanying consolidated financial information for it to be in conformity with generally accepted accounting principles. We previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet as of December 31, 1997, and the related consolidated statements of income, of retained earnings, and of cash flows for the year then ended (not presented herein), and in our report dated January 30, 1998 we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 1997, is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived. Price Waterhouse LLP New York, New York April 27, 1998 RISK CAPITAL HOLDINGS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENT OF INCOME AND COMPREHENSIVE INCOME (in thousands, except share data) (Unaudited) Three Months Ended March 31, 1998 1997 ------------ ------------ Premiums and Other Revenues Net premiums written 44,408 33,866 Increase in unearned premiums (2,906) (12,794) ------------ ------------ Net premiums earned 41,502 21,072 Net investment income 3,604 3,451 Net investment gains/(losses) 477 (25) ------------ ------------ Total revenues 45,583 24,498 Expenses Claims and claims expenses 30,253 14,540 Commissions and brokerage 9,931 6,111 Other operating expenses 4,589 3,745 ------------ ------------ Total expenses 44,773 24,396 Income Before Income Taxes and Equity in Net Income (Loss) of Investees 810 102 Federal income taxes: Current 1,563 288 Deferred (1,566) (474) ------------ ------------ Income tax benefit (3) (186) ------------ ------------ Income Before Equity in Net Income (Loss) of Investees 813 288 Equity in net income (loss) of investees 756 (90) ------------ ------------ Net Income 1,569 198 ------------ ------------ Other Comprehensive Income, Net of Tax Change in net unrealized appreciation of investments, net of tax 15,199 4,561 ------------ ------------ Comprehensive Income $ 16,768 $ 4,759 ============ ============ Average shares outstanding Basic 17,058,444 17,025,058 Diluted 17,683,439 17,025,058 Per Share Data Net Income - Basic $ 0.09 $ 0.01 - Diluted $ 0.09 $ 0.01 Comprehensive Income - Basic $ 0.98 $ 0.28 - Diluted $ 0.95 $ 0.28 See Notes to Consolidated Financial Statements 2 RISK CAPITAL HOLDINGS, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEET (in thousands, except per share data)
(Unaudited) March 31, December 31, 1998 1997 --------- --------- ASSETS Investments: Fixed maturities $ 170,001 $ 132,159 (amortized cost: 1998, $168,230; 1997, $129,887) Publicly traded equity securities 196,190 180,052 (cost: 1998, $112,071; 1997, $116,258) Privately held securities 104,718 95,336 (cost: 1998, $83,372; 1997, $77,550) Short-term investments 67,424 89,167 --------- --------- Total investments 538,333 496,714 --------- --------- Cash 3,991 9,014 Accrued investment income 3,381 2,781 Premiums receivable 53,976 47,507 Reinsurance recoverable 4,650 Deferred policy acquisition costs 17,730 17,292 Other assets 16,633 7,939 --------- --------- Total Assets $ 638,694 $ 581,247 ========= ========= LIABILITIES Claims and claims expenses $ 100,150 $ 70,768 Unearned premiums 77,140 74,234 Contingent commissions payable 2,058 682 Investment accounts payable 3,703 1,996 Deferred income tax liability 32,116 25,090 Other liabilities 5,436 7,446 --------- --------- Total Liabilities 220,603 180,216 --------- --------- STOCKHOLDERS' EQUITY Preferred stock, $.01 par value: 20,000,000 shares authorized (none issued) Common stock, $.01 par value: 80,000,000 shares authorized (1998, 17,074,565; 1997, 17,069,845 shares issued) 171 171 Additional paid-in capital 341,326 341,162 Deferred compensation under stock award plan (1,634) (1,778) Retained earnings 8,739 7,170 Less treasury stock, at cost (1998, 12,050; 1997, 11,383 shares) (214) (198) Accumulated other comprehensive income consisting of unrealized appreciation of investments, net of income tax 69,703 54,504 --------- --------- Total Stockholders' Equity 418,091 401,031 --------- --------- Total Liabilities & Stockholders' Equity $ 638,694 $ 581,247 ========= ========= See Notes to Consolidated Financial Statements 3 RISK CAPITAL HOLDINGS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (in thousands) (Unaudited) Three Months Ended March 31, 1998 1997 --------- --------- Common Stock Balance at beginning of year $ 171 $ 170 Issuance of common stock --------- --------- Balance at end of period 171 170 --------- --------- Additional Paid-in Capital Balance at beginning of year 341,162 340,435 Issuance of common stock 164 --------- --------- Balance at end of period 341,326 340,435 --------- --------- Deferred Compensation Under Stock Award Plan Balance at beginning of year (1,778) (2,959) Restricted common stock issued (133) Compensation expense recognized 277 702 --------- --------- Balance at end of period (1,634) (2,257) --------- --------- Retained Earnings Balance at beginning of year 7,170 5,131 Net income 1,569 198 --------- --------- Balance at end of period 8,739 5,329 --------- --------- Treasury Stock, At Cost Balance at beginning of year (198) Purchase of treasury shares (16) (152) --------- --------- Balance at end of period (214) (152) --------- --------- Accumulated Other Comprehensive Income Consisting of Unrealized Appreciation of Investments, Net of Income Tax Balance at beginning of year 54,504 9,436 Change in unrealized appreciation 15,199 4,561 --------- --------- Balance at end of period 69,703 13,997 --------- --------- Total Stockholders' Equity Balance at beginning of year 401,031 352,213 Issuance of common stock 164 Change in deferred compensation 144 702 Net income 1,569 198 Purchase of treasury stock (16) (152) Change in unrealized appreciation of investments, net of income tax 15,199 4,561 --------- --------- Balance at end of period $ 418,091 $ 357,522 ========= =========
See Notes to Consolidated Financial Statements 4 RISK CAPITAL HOLDINGS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENT OF CASH FLOWS (in thousands) (Unaudited) Three Months Ended March 31, 1998 1997 -------- -------- OPERATING ACTIVITIES Net income $ 1,569 $ 198 Adjustments to reconcile net income to net cash provided by operating activities: Liability for claims and claims expenses, net 29,382 11,035 Unearned premiums 2,906 13,067 Premiums receivable (6,469) (11,732) Accrued investment income (600) 626 Contingent commissions payable 1,376 811 Reinsurance balances, net (4,900) (602) Deferred policy acquisition costs (438) (3,281) Net investment (gains) / losses (477) 25 Deferred income tax asset (1,159) (522) Other liabilities (2,010) (2,333) Other items, net (6,615) (1,237) -------- -------- NET CASH PROVIDED BY OPERATING ACTIVITIES 12,565 6,055 -------- -------- INVESTING ACTIVITIES Purchases of fixed maturity investments (90,051) (49,591) Sales of fixed maturity investments 52,295 78,953 Net (purchases)/sales of short-term investments 22,463 (15,502) Purchases of equity securities (11,762) (12,361) Sales of equity securities 9,574 1,763 Purchases of furniture and equipment (122) (65) -------- -------- NET CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES (17,603) 3,197 -------- -------- FINANCING ACTIVITIES Common stock issued 164 Purchase of treasury stock (16) (152) Deferred compensation on restricted stock (133) -------- -------- NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES 15 (152) -------- -------- Increase in cash (5,023) 9,100 Cash beginning of year 9,014 1,466 -------- -------- Cash end of period $ 3,991 $ 10,566 ======== ======== See Notes to Consolidated Financial Statements 5 RISK CAPITAL HOLDINGS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION Risk Capital Holdings, Inc. ("RCHI"), incorporated in March 1995 under the laws of the State of Delaware, is a holding company whose wholly owned subsidiary, Risk Capital Reinsurance Company ("Risk Capital Reinsurance"), a Nebraska corporation, was formed to provide, on a global basis, property and casualty reinsurance and other forms of capital, either on a stand-alone basis, or as part of integrated capital solutions for insurance companies with capital needs that cannot be met by reinsurance alone. (RCHI and Risk Capital Reinsurance are collectively referred to herein as the "Company.") In September 1995, through its initial public offering, related exercise of the underwriters' over-allotment option and direct sales of an aggregate of 16,750,625 shares of RCHI's common stock, par value $.01 per share (the "Common Stock"), at $20 per share, and the issuance of warrants, RCHI was capitalized with net proceeds of approximately $335.0 million, of which $328.0 million was contributed to the statutory capital of Risk Capital Reinsurance. Class A warrants to purchase an aggregate of 2,531,079 shares of Common Stock and Class B warrants to purchase an aggregate of 1,920,601 shares of Common Stock were issued in connection with the direct sales. Class A warrants are immediately exercisable at $20 per share and expire September 19, 2002. Class B warrants are exercisable at $20 per share during the seven year period commencing September 19, 1998, provided that the Common Stock has traded at or above $30 per share for 20 out of 30 consecutive trading days. 2. GENERAL The accompanying interim consolidated financial statements have been prepared in conformity with generally accepted accounting principles and in the opinion of management, reflect all adjustments necessary (consisting of normal recurring accruals) for a fair presentation of results for such periods. These consolidated financial statements should be read in conjunction with the 1997 consolidated financial statements and related notes contained in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997. 3. COMPREHENSIVE INCOME In presenting its financial statements, the Company has adopted the reporting of comprehensive income in a one financial statement approach, consistent with Statement of Financial Accounting Standards No. 130 of the Financial Accounting Standards Board ("FASB"). Comprehensive income is comprised of net income and other comprehensive income, which for the Company consists of the change in net unrealized appreciation or depreciation of investments, net of tax. In addition, prior periods have been reclassified to reflect the new accounting standard in order to make prior results comparable to current reporting. Comprehensive income for the Company consists of net income and the change in unrealized appreciation or depreciation, net of income tax, as follows: 6 RISK CAPITAL HOLDINGS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 3. COMPREHENSIVE INCOME (Cont'd) (In thousands) Three Months Ended March 31, 1998 1997 -------- -------- Net income $ 1,569 $ 198 Other comprehensive income, net of tax: Unrealized appreciation (depreciation) of investments: Unrealized holdings gains arising during period 15,509 4,545 Less, reclassification adjustment for net realized (gains) losses included in net income (310) 16 -------- -------- Other comprehensive income 15,199 4,561 -------- -------- Comprehensive income $ 16,768 $ 4,759 ======== ======== 4. EARNINGS PER SHARE DATA Earnings per share are computed in accordance with FASB Statement No. 128 "Earnings Per Share" which was retroactively adopted in the 1997 fourth quarter. All earnings per share amounts for all periods have been presented and, where appropriate, restated to conform to the new accounting requirements. Basic earnings per share excludes dilution and is computed by dividing income available to common stockholders by the weighted average number of shares of Common Stock outstanding for the periods. Diluted earnings per share reflect the potential dilution that could occur if Class A and B warrants and employee stock options were exercised or converted into Common Stock. The following table sets forth the computation of basic and diluted earnings per share: (In thousands, except share data) Three Months Ended March 31, 1998 1997 ----------- ----------- Net Income Basic Earnings Per Share: Net income $ 1,569 $ 198 Divided by: Weighted average shares outstanding for the period 17,058,444 17,025,058 Basic earnings per share $ 0.09 $ 0.01 Diluted Earnings Per Share: Net income $ 1,569 $ 198 Divided by: Weighted average shares outstanding for the period 17,058,444 17,025,058 Effect of dilutive securities: Warrants 556,095 -- Employee stock options 68,900 -- ----------- ----------- Total shares 17,683,439 17,025,058 =========== =========== Diluted earnings per share $ 0.09 $ 0.01 7 RISK CAPITAL HOLDINGS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 4. EARNINGS PER SHARE DATA (Cont'd) Comprehensive Income Basic Earnings Per Share: Comprehensive income $ 16,768 $ 4,759 Divided by: Weighted average shares outstanding for the period 17,058,444 17,025,058 Basic earnings per share $ 0.98 $ 0.28 Diluted Earnings Per Share: Comprehensive income $ 16,768 $ 4,759 Divided by: Weighted average shares outstanding for the period 17,058,444 17,025,058 Effect of dilutive securities: Warrants 556,095 -- Employee stock options 68,900 -- ----------- ----------- Total shares 17,683,439 17,025,058 =========== =========== Diluted earnings per share $ 0.95 $ 0.28 5. INVESTMENT INFORMATION The Company classifies all of its publicly traded fixed maturity and equity securities as "available for sale" and accordingly, they are carried at estimated fair value. The fair value of publicly traded fixed maturity securities and publicly traded equity securities is estimated using quoted market prices or dealer quotes. Short-term investments, which have a maturity of one year or less at the date of acquisition, are carried at cost, which approximates fair value. All of the Company's publicly traded equity securities and privately held securities were issued by insurance and reinsurance companies or companies providing services to the insurance industry. At March 31, 1998, the publicly traded equity portfolio consisted of 12 investments, with estimated fair values ranging individually from $2.3 million to $30.3 million. Investments in privately held securities, issued by privately and publicly held companies, may include both equity securities and securities convertible into, or exercisable for, equity securities (some of which may have fixed maturities). Privately held securities are subject to trading restrictions or are otherwise illiquid and do not have readily ascertainable market values. The risk of investing in such securities is generally greater than the risk of investing in securities of widely held, publicly traded companies. Lack of a secondary market and resale restrictions may result in the Company's inability to sell a security at a price that would otherwise be obtainable if such restrictions did not exist and may substantially delay the sale of a security which the Company seeks to sell. Such investments are classified as "available for sale" and carried at estimated fair value, except for investments in which the Company believes it has the ability to exercise significant influence (generally defined as investments in which the Company owns 20% or more of the outstanding voting common stock of the issuer), which are carried under the equity method of accounting. Under this method, the Company records its proportionate share of income or loss for such investments in results of operations. 8 RISK CAPITAL HOLDINGS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 5. INVESTMENT INFORMATION (Cont'd) The estimated fair value of investments in privately held securities, other than those carried under the equity method, is initially equal to the cost of such investments until the investments are revalued based principally on substantive events or other factors which could indicate a diminution or appreciation in value, such as an arm's-length third party transaction justifying an increased valuation or adverse development of a significant nature requiring a write down. The Company periodically reviews the valuation of investments in privately held securities with Marsh & McLennan Risk Capital Corp., its equity investment advisor. Privately held securities consisted of the following: (In thousands) March 31, December 31, 1998 1997 --------- ------------ Carried under the equity method: Arbor Acquisition Corp. (Montgomery & Collins, Inc.) $ 2,847 The ARC Group, LLC 9,492 $ 10,341 Arx Holding Corp. 2,479 2,425 Capital Protection Insurance Services, LLC 1,243 182 First American Financial Corporation 6,600 6,572 Island Heritage Insurance Company, Ltd. 3,988 3,950 LARC Holdings, Ltd. 25,338 24,496 New Europe Insurance Ventures 505 730 Providers' Assurance Corporation 3,463 3,637 Sunshine State Holding Corporation 1,424 1,424 -------- -------- Sub-total 57,379 53,757 -------- -------- Carried at fair value: Altus Holdings, Ltd. $ 6,667 GuideStar Health Systems, Inc. 1,000 1,000 Peregrine Russell Miller Insurance Investment Fund of Asia Limited 4,399 Sovereign Risk Insurance Ltd. 246 246 Terra Nova (Bermuda) Holdings, Ltd. 26,810 23,250 TRG Associates, LLC 4,807 4,875 Venton Holdings, Ltd. 7,809 7,809 -------- -------- Sub-total 47,339 41,579 -------- -------- Total $104,718 $ 95,336 ======== ======== During the 1998 first quarter, the Company received dividend distributions from The ARC Group, LLC of $1.3 million and Terra Nova (Bermuda) Holdings, Ltd. of $46,000. At March 31, 1998, the Company had investment commitments relating to its privately held securities totaling approximately $28.3 million, compared to $22.6 million at December 31, 1997. Set forth below is certain information relating to acquisitions or disposals of privately held securities during 1998: 9 RISK CAPITAL HOLDINGS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 5. INVESTMENT INFORMATION (Cont'd) Arbor Acquisition Corp. (Montgomery & Collins, Inc.) In March 1998, the Company purchased for approximately $2.8 million a 36.7% economic and voting interest in Arbor Acquisition Corp., the parent of Montgomery & Collins, Inc., a Boston-based national surplus lines and wholesale brokerage firm which operates in 11 cities, in addition to Boston. The investment was made concurrently with investments by Marsh & McLennan Risk Capital Holdings, Ltd. ("MMRCH") and Rufus Williams, a former partner and director of Johnson & Higgins and former Chief Executive Officer of Henry Ward Johnson & Company, Johnson & Higgins' excess and surplus brokerage operation. Upon completion of the transaction, Rufus Williams became Chairman of Montgomery & Collins' Board and Sandy Elsass continues as Montgomery & Collins' Chief Executive Officer. Altus Holdings, Ltd. In March 1998, the Company purchased for $10 million an approximately 28.3% economic interest (9.9% voting interest) in Altus Holdings, Ltd. ("Altus"), a new Cayman Islands company formed to provide rent-a-captive and other underwriting management services for risks of individual corporations and insurance programs developed by insurance intermediaries. The Company's investment was funded through two-thirds cash and one-third through a letter of credit. The balance of the $35 million of initial capital invested in Altus was contributed by The Trident Partnership, L.P. ("Trident"), EXEL Limited, MMRCH and members of Altus' management. The Company may provide reinsurance capacity for business developed by Altus. The Company issued a letter of credit in the amount of $5.8 million for Trident's unfunded investment commitment in Altus for an annual fee of $58,000, or 100 basis points on the letter of credit amount. Annuity and Life Re (Holdings), Ltd. In April 1998, the Company acquired for approximately $20 million a minority interest in Annuity and Life Re (Holdings), Ltd. ("Annuity and Life Re"), a new Bermuda-based reinsurance company formed to provide annuity and life reinsurance. The Company's investment was made concurrently with the consummation of Annuity and Life Re's initial public offering. The Company purchased approximately 1.4 million common shares of Annuity and Life Re and warrants to purchase at an exercise price of $15.00 per share (the initial public offering price) an additional 100,000 common shares. The aggregate purchase price paid by the Company was based on a price of $14.10 for a unit consisting of one common share and certain warrants. The Company owns approximately 5.6% of the outstanding common shares of Annuity and Life Re following the exercise of the underwriters' over-allotment option. Annuity and Life Re's common shares are quoted on The Nasdaq Stock Market's National Market under the symbol "ALREF." The Company is subject to a one-year lock-up period and will therefore carry this investment at a discount to its current trading value until such restriction expires. 6. RETROCESSION AGREEMENTS The Company utilizes retrocession agreements for the purpose of limiting its exposure with respect to multiple claims arising from a single occurrence or event. The Company also participates in "common account" retrocessional arrangements for certain treaties. Such arrangements reduce the effect of individual or aggregate losses to all companies participating on such treaties including the reinsurer, such as the Company, and the ceding company. 10 RISK CAPITAL HOLDINGS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6. RETROCESSION AGREEMENTS (Cont'd) Reinsurance recoverables are recorded as assets, predicated on the retrocessionaires' ability to meet their obligations under the retrocessional agreements. If the retrocessionaries are unable to satisfy their obligations under the agreements, the Company would be liable for such defaulted amounts. The effects of reinsurance on written and earned premiums and claims and claims expenses are as follows: (In thousands) Three Months Ended March 31, 1998 1997 -------- -------- Assumed premiums written $ 48,154 $ 34,577 Ceded premiums written 3,746 711 -------- -------- Net premiums written $ 44,408 $ 33,866 ======== ======== Assumed premiums earned 45,248 21,510 Ceded premiums earned 3,746 438 -------- -------- Net premiums earned $ 41,502 $ 21,072 ======== ======== Assumed claims and claims expenses incurred 34,903 14,869 Ceded claims and claims expenses incurred 4,650 329 -------- -------- Net claims and claims expenses incurred $ 30,253 $ 14,540 ======== ======== At March 31, 1998, the Company's balance sheet reflects reinsurance recoverable balances as follows: (In thousands) March 31, December 31, 1998 1997 --------- ------------ Reinsurance recoverable balances: Unpaid claims and claim expenses $ 4,650 Ceded balances payable ($ 211) -------- -------- Reinsurance balances, net $ 4,650 ($ 211) ======== ======== 7. STATUTORY DATA The statutory capital and surplus of Risk Capital Reinsurance at March 31, 1998 was $404.1 million, compared to $385.0 million at December 31, 1997. The statutory net loss for the three month period ended March 31, 1998 was $5.8 million, compared to a net loss of $3.5 million in the prior year period. 11 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. General The Company Risk Capital Holdings, Inc. ("RCHI") is the holding company for Risk Capital Reinsurance Company ("Risk Capital Reinsurance"), RCHI's wholly owned subsidiary which is domiciled in Nebraska. (RCHI and Risk Capital Reinsurance are collectively referred to herein as the "Company".) RCHI was incorporated in March 1995 and commenced operations during September 1995 upon completion of its initial public offering and related exercise of the underwriters' over-allotment option and direct sales of an aggregate of 16,750,625 shares of RCHI's common stock, par value $.01 per share, at $20 per share, and the issuance of warrants (collectively, the "Offerings"). RCHI received aggregate net proceeds from the Offerings of approximately $335.0 million, of which $328.0 million was contributed to the capital of Risk Capital Reinsurance. On November 6, 1995, Risk Capital Reinsurance was licensed under the insurance laws of the State of Nebraska. Recent Industry Performance Demand for reinsurance is influenced significantly by underwriting results of primary property and casualty insurers and prevailing general economic and market conditions, all of which affect liability retention decisions of primary insurers and reinsurance premium rates. The supply of reinsurance is related directly to prevailing prices and levels of surplus capacity, which, in turn, may fluctuate in response to changes in rates of return on investments being realized in the reinsurance industry. The industry's profitability can also be affected significantly by volatile and unpredictable developments, including changes in the propensity of courts to grant larger awards, natural disasters (such as catastrophic hurricanes, windstorms, earthquakes, floods and fires), fluctuations in interest rates and other changes in the investment environment that affect market prices of investments and the income and returns on investments, and inflationary pressures that may tend to affect the size of losses experienced by ceding primary insurers. Reinsurance treaties that are placed by intermediaries are typically for one year terms with a substantial number that are written or renewed on January 1 each year. Other significant renewal dates include April 1, July 1 and October 1. The January 1 and April 1, 1998 renewal periods were marked by continuing intensified competitive conditions in terms of premium rates and treaty terms and conditions in both the property and casualty segments of the marketplace. These conditions have been worsened due to large domestic primary companies retaining more of their business and ceding less premiums to reinsurers. While the Company is initially somewhat disadvantaged compared to many of its competitors, which are larger, have greater resources and longer operating histories than the Company, it believes it has been able to generate attractive opportunities in the marketplace due to its substantial unencumbered capital base, experienced management team, relationship with its equity investment advisor and strategic focus on generating a small number of large reinsurance treaty transactions that may also be integrated with an equity investment in client companies as well as its expansion into the marine and aerospace lines of business commencing late in 1997. As of April 1, 1998, the Company had 242 in-force treaties, with approximately $183 million of estimated annualized net in-force premiums. Such in-force premiums represent estimated annualized premiums from treaties entered into during 1997 and the 1998 renewal period that are expected to generate net premiums written during calendar year 1998. All of the Company's in-force treaties will be considered for renewal, although there can be no assurance that such treaties will be renewed. 12 Results of Operations The Company had consolidated comprehensive income for the 1998 first quarter of $16.8 million, which was comprised of net income of $1.6 million, and other comprehensive income of $15.2 million, which consisted of the change in net unrealized appreciation of investments, net of tax. The 1998 first quarter net income included net realized investment gains, net of tax, of approximately $310,000, and equity in net income of investees of approximately $756,000. These amounts compare with comprehensive income for the 1997 first quarter of $4.8 million, which was comprised of net income of $198,000 and the change in net unrealized appreciation of investments, net of tax, of $4.6 million. The 1997 first quarter net income included net realized investment losses, net of tax, of $16,000, and equity in net loss of an investee of $90,000. Following is a table of first quarter per share data: Three Months Ended March 31, 1998 1997 ----- ----- Basic earnings per share: Operating income (1) $0.03 $0.02 Net realized investment gains, net of tax 0.02 Equity in net income (loss) of investees 0.04 (0.01) ----- ----- Net income 0.09 0.01 Change in net unrealized appreciation of investments, net of tax 0.89 0.27 ----- ----- Comprehensive income $0.98 $0.28 ===== ===== Diluted earnings per share: Operating income (1) $0.03 $0.02 Net realized investment gains, net of tax 0.02 Equity in net income (loss) of investees 0.04 (0.01) ----- ----- Net income 0.09 0.01 Change in net unrealized appreciation of investments, net of tax 0.86 0.27 ----- ----- Comprehensive income $0.95 $0.28 ===== ===== (1) Represents net income, excluding realized net investment gains (losses) and equity in net income (loss) of investees, net of tax. At March 31, 1998, basic and diluted book value per share were $24.50 and $23.36, respectively, which compare with basic and diluted book value per share of $23.51 and $22.79, respectively, at December 31, 1997. 13 Net Premiums Written Net premiums written for the three month periods ended March 31, 1998 and 1997 were as follows: (in millions) Three Months Ended March 31, ----------------------------- 1998 1997 ---------- ---------- Property $11.6 $3.8 Casualty 10.2 18.3 Multi-line 11.5 7.2 Specialty 3.0 4.6 Marine 5.6 Aviation 2.5 ----- ----- Total $44.4 $33.9 ===== ===== In the 1998 first quarter, quota share reinsurance and excess of loss reinsurance amounted to approximately 80% and 20%, respectively, of the Company's net premiums written, compared to 90% and 10%, respectively, during the prior year period. The higher content of excess of loss business is due to the contributions of the marine and aviation books of business. In the future, the mix of quota share and excess of loss reinsurance will depend on market conditions and other relevant factors and cannot be predicted with accuracy. Approximately 28.9% of net premiums written in the first three months of 1998 was from non-United States clients, compared to 37.6% in the first three months of 1997. Approximately 25% of the 1998 first quarter net premiums written were generated from companies in which the Company has invested or committed to invest funds, compared to 32% in the first three months of 1997. New business activity during the 1998 first quarter reflects contributions of (i) the Company's two new specialty underwriting units of marine and aviation and (ii) the Company's integrated investment strategy. Set forth below is the Company's statutory composite ratios for the three month periods ended March 31, 1998 and 1997: Three Months Ended March 31, ----------------------- 1998 1997 --------- ----------- Claims and claims expenses 72.9% 69.0% Commissions and brokerage 23.3% 27.7% Other operating expense 9.7% 10.9% ----- ----- Statutory composite ratio 105.9% 107.6% ===== ===== In pricing its reinsurance treaties, the Company focuses on many factors, including exposure to claims and commissions and brokerage expenses. Commissions and brokerage expenses are acquisition costs that generally vary by the type of treaty and line of business, and are considered by the Company's underwriting and actuarial staff in evaluating the adequacy of premium writings. The claims and commissions and brokerage ratios reflect the Company's business mix. 14 Other operating expenses increased to $4.6 million for the first three months of 1998, compared to $3.7 million for the 1997 prior year period. Assuming the successful execution of the Company's business strategy, the Company expects other operating expenses to grow commensurate with growing operations, but expects other operating expenses to decline moderately as a percentage of net premiums written because increases in premium writings are generally expected to exceed the growth in such expenses. Included in other operating expenses for the first three months of 1998 is a pre-tax foreign exchange loss of approximately $110,000. Such loss is principally related to assets and premiums receivable of approximately $5.8 million denominated in European Currency Units, which is recorded separately from statutory underwriting results and therefore excluded from the statutory composite ratio. Unhedged monetary assets and liabilities are translated at the exchange rate in effect at the balance sheet date, with the resulting foreign exchange gains or losses recognized in income. Such future gains or losses are unpredictable, and could be material. Investment Results At March 31, 1998 and at the end of 1997, approximately 45% of the Company's invested assets, short-term investments and cash consisted of fixed maturity and short-term investments. Net investment income for the first three months of 1998 was approximately $3.6 million, compared to $3.5 million for the prior year period. The Company's pre-tax and net of tax investment yields in the first three months of 1998 were 3.4% and 2.4%, respectively, compared to 3.8% and 2.7%, respectively, for the same prior year period. Assuming a stable interest rate environment, the Company anticipates the 1998 yields to moderately decline as funds invested in short-term securities are allocated into equity securities. The amount of investment income from quarter to quarter could vary and diminish as the Company continues to employ its strategy of investing a substantial portion of its investment portfolio in publicly traded and privately held equity securities of insurance companies which generally yield less current investment income than fixed maturity investments. Unrealized appreciation or depreciation of such investments to the extent that it occurs is recorded in a separate component of stockholders' equity, net of related deferred income taxes. Gains or losses are recorded in net income to the extent investments are sold, but the recognition of such gains and losses is unpredictable and not indicative of future operating results. For the three months ended March 31, 1998, the Company's equity in net income of investee companies was $756,000, which included approximately $533,000 of non-recurring items, primarily realized gains. This compares to equity in net loss of investee companies of $90,000 in the prior year period. Income Taxes The Company's effective tax rates for the first three months of 1998 and 1997 are less than the 35% statutory rate on pre-tax operating income due to tax exempt income and dividends received deductions. The gross deferred income tax benefits for the first three months of 1998 and 1997 of approximately $1.6 million and $474,000, respectively, which are assets considered recoverable from future taxable income, resulted principally from temporary differences between financial and taxable income. Temporary differences include, among other things, charges for restricted stock grants which are not deductible for income tax purposes until vested (vesting of existing restricted stock grants will occur over a five-year period), as well as charges for a portion of unearned premiums and claims reserves and equity in net income (loss) of investees. 15 Investments A principal component of the Company's investment strategy is investing a significant portion of invested assets in publicly traded and privately held equity securities, primarily issued by insurance and reinsurance companies and companies providing services to the insurance industry. Cash and fixed maturity investments and, if necessary, the sale of publicly traded equity securities will be used to support shorter-term liquidity requirements. As a significant portion of the Company's investment portfolio will generally consist of equity securities issued by insurance and reinsurance companies and companies providing services to the insurance industry, the equity portfolio lacks industry diversification and will be particularly subject to the cyclicallity of the insurance industry. Unlike fixed income securities, equity securities such as common stocks, including the equity securities in which the Company may invest, generally are not and will not be rated by any nationally recognized rating service. The values of equity securities generally are more dependent on the financial condition of the issuer and less dependent on fluctuations in interest rates than are the values of fixed income securities. The market value of equity securities generally is regarded as more volatile than the market value of fixed income securities. The effects of such volatility on the Company's equity portfolio could be exacerbated to the extent that such portfolio is concentrated in the insurance industry and in relatively few issuers. As the Company's investment strategy is to invest a significant portion of its investment portfolio in equity securities, its investment income in any fiscal period may be smaller, as a percentage of investments, and less predictable than that of other insurance and/or reinsurance companies, and net realized and unrealized gains (losses) on investments may have a greater effect on the Company's results of operations or stockholders' equity at the end of any fiscal period than other insurance and/or reinsurance companies. Because the realization of gains and losses on equity investments is not generally predictable, such gains and losses may differ significantly from period to period. Variability and declines in the Company's results of operations could be further exacerbated by private equity investments in start-up companies, which are accounted for under the equity method. Such start-up companies may be expected initially to generate operating losses. Investments that are or will be included in the Company's private portfolio include securities issued by privately held companies and securities issued by public companies that are generally restricted as to resale or are otherwise illiquid and do not have readily ascertainable market values. The risk of investing in such securities is generally greater than the risk of investing in securities of widely held, publicly traded companies. Lack of a secondary market and resale restrictions may result in the Company's inability to sell a security at a price that would otherwise be obtainable if such restrictions did not exist and may substantially delay the sale of a security the Company seeks to sell. At March 31, 1998, cash and invested assets totaled approximately $542.3 million, consisting of $71.4 million of cash and short-term investments, $170.0 million of publicly traded fixed maturity investments, $196.2 million of publicly traded equity securities and $104.7 million of privately held securities. Included in privately held securities are investments totaling $57.4 million which are accounted for under the equity method. During the first three months of 1998, the Company completed two private investments, bringing the private equity portfolio to 16 investments, totaling approximately $105 million of invested capital. The Company also allocated approximately $5 million each to its high grade taxable and tax exempt core fixed income portfolios managed by The Putnam Advisory Company, Inc. In addition, the Company allocated $35 million to a high yield fixed income portfolio managed by Miller Anderson & Sherrerd, LLP ("MAS"), a subsidiary of Morgan Stanley & Co. The objective of such portfolio is to earn a superior total return consistent with reasonable risk through investing primarily in below investment grade fixed income securities. 16 Approximately 85% of fixed maturity and short-term investments were rated investment grade by Moody's Investors Service, Inc. or Standard & Poor's Corporation and have an average duration of approximately three years. See Note 5 under the caption "Investment Information" of the accompanying Notes to Consolidated Financial Statements for certain information regarding the Company's privately held securities and their carrying values. During the remainder of 1998 and over the long-term, the Company intends to continue to allocate a substantial portion of its cash and short-term investments into publicly traded and privately held equity securities, subject to market conditions and opportunities in the marketplace. At March 31, 1998, the publicly traded equity portfolio consisted of investments in 12 publicly traded domestic insurers, reinsurers or companies providing services to the insurance industry. The estimated fair values of such investments ranged individually from $2.3 million to $30.3 million. The Company has not invested in derivative financial instruments such as futures, forward contracts, swaps, or options or other financial instruments with similar characteristics such as interest rate caps or floors and fixed-rate loan commitments. The Company's portfolio includes market sensitive instruments, such as mortgage-backed securities, which are subject to prepayment risk and changes in market value in connection with changes in interest rates. The Company's investments in mortgage-backed securities, which amounted to approximately $32.2 million at March 31, 1998, or 6% of cash and invested assets, are classified as available for sale and are not held for trading purposes. Liquidity and Capital Resources RCHI is a holding company and has no significant operations or assets other than its ownership of all of the capital stock of Risk Capital Reinsurance, whose primary and predominant business activity is providing reinsurance and other forms of capital to insurance and reinsurance companies and making investments in insurance-related companies. RCHI will rely on cash dividends and distributions from Risk Capital Reinsurance to pay any cash dividends to stockholders of RCHI and to pay any operating expense that RCHI may incur. The payment of dividends by RCHI will be dependent upon the ability of Risk Capital Reinsurance to provide funds to RCHI. The ability of Risk Capital Reinsurance to pay dividends or make distributions to RCHI is dependent upon its ability to achieve satisfactory underwriting and investment results and to meet certain regulatory standards of the State of Nebraska. There are presently no contractual restrictions on the payment of dividends or the making of distributions by Risk Capital Reinsurance to RCHI. Nebraska insurance laws provide that, without prior approval of the Nebraska Director of Insurance (the "Nebraska Director"), Risk Capital Reinsurance cannot pay a dividend or make a distribution (together with other dividends or distributions paid during the preceding 12 months) that exceeds the greater of (i) 10% of statutory surplus as of the preceding December 31 or (ii) statutory net income from operations from the preceding calendar year not including realized capital gains. Net income (exclusive of realized capital gains) not previously distributed or paid as dividends from the preceding two calendar years may be carried forward for dividends and distribution purposes. Any proposed dividend or distribution in excess of such amount is called an "extraordinary" dividend or distribution and may not be paid until either it has been approved, or a 30-day waiting period has passed during which it has not been disapproved, by the Nebraska Director. 17 Notwithstanding the foregoing, Nebraska insurance laws provide that any distribution that is a dividend may be paid by Risk Capital Reinsurance only out of earned surplus arising from its business, which is defined as unassigned funds (surplus) as reported in the statutory financial statement filed by Risk Capital Reinsurance with the Nebraska Insurance Department for the most recent year. In addition, Nebraska insurance laws also provide that any distribution that is a dividend and that is in excess of Risk Capital Reinsurance's unassigned funds, exclusive of any surplus arising from unrealized capital gains or revaluation of assets, will be deemed an "extraordinary" dividend subject to the foregoing requirements. RCHI and Risk Capital Reinsurance file consolidated federal income tax returns and have entered into a tax sharing agreement (the "Tax Sharing Agreement"), allocating the consolidated income tax liability on a separate return basis. Pursuant to the Tax Sharing Agreement, Risk Capital Reinsurance makes tax sharing payments to RCHI based on such allocation. Net cash flow from operating activities for the three months ended March 31, 1998 was $12.6 million, compared with $6.1 million for the prior year period. The primary sources of liquidity for Risk Capital Reinsurance are net cash flow from operating activities, principally premiums received, the receipt of dividends and interest on investments and proceeds from the sale or maturity of investments. The Company's cash flow is also affected by claims payments, some of which could be large. Therefore, the Company's cash flow could fluctuate significantly from period to period. The Company does not currently have any material commitments for any capital expenditures over the next 12 months other than in connection with the further development of the Company's infrastructure. The Company expects that its financing and operational needs for the foreseeable future will be met by the Company's balance of cash and short-term investments, as well as by funds generated from operations. However, no assurance can be given that the Company will be successful in the implementation of its business strategy. At March 31, 1998, the Company's consolidated stockholders' equity totaled $418.1 million, or $24.50 per share. At such date, statutory surplus of Risk Capital Reinsurance was approximately $404.1 million. Based on data available as of December 31, 1997 from the Reinsurance Association of America, Risk Capital Reinsurance is the eleventh largest domestic broker market oriented reinsurer as measured by statutory surplus. In March 1998, the National Association of Insurance Commissioners adopted the codification of statutory accounting principles project that will generally be applied to all insurance and reinsurance company financial statements filed with insurance regulatory authorities as early as the 2001 statutory filings. Although the codification is not expected to materially affect many existing statutory accounting practices presently followed by most insurers and reinsurers such as the Company, there are several accounting practices that will be changed. The most significant change involves accounting for deferred income taxes, which change would require a deferred tax liability to be recorded for unrealized appreciation of invested assets, net of available deferred tax assets, that would result in a reduction to statutory surplus. If this requirement had been in effect in 1998, the statutory surplus of the Company would have been reduced by approximately $24 million for a net deferred tax liability, from $404 million to $380 million at March 31, 1998. 18 Cautionary Note Regarding Forward-Looking Statements Except for the historical information and discussions contained herein, statements included in this release may constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements address matters that involve risks, uncertainties and other factors that could cause actual results or performance to differ materially from those indicated in such statements. The Company believes that these factors include, but are not limited to, acceptance in the market of the Company's reinsurance products; competition from new products (including products that may be offered by the capital markets); the availability of investments on attractive terms; competition, including increased competition (both as to underwriting and investment opportunities); changes in the performance of the insurance sector of the public equity markets or market professionals' views as to such sector; 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 which the Company operates; regulatory changes and conditions; rating agency policies and practices; claims development, including as to the frequency or severity of claims and the timing of payments; and loss of key personnel. Changes in any of the foregoing may affect the Company's ability to realize its business strategy or may result in changes in the Company's business strategy. The foregoing review of important factors should not be construed as exhaustive and should be read in conjunction with other cautionary statements that are included herein or elsewhere in the Company's filings with the Securities and Exchange Commission. The Company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. 19 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits. Exhibit No. Description ----------- ----------- 15 Accountants' Awareness Letter and Limitation of Liability (regarding unaudited interim financial information) 27 Financial Data Schedule (b) Reports on Form 8-K. There were no reports filed on Form 8-K for the three month period ended March 31, 1998. Omitted from this Part II are items which are inapplicable or to which the answer is negative for the period covered. 20 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. RISK CAPITAL HOLDINGS, INC. ------------------------------------- (Registrant) /s/ Mark D. Mosca ------------------------------------- Date: May 14, 1998 MARK D. MOSCA President and Chief Executive Officer /s/ Paul J. Malvasio ------------------------------------- Date: May 14, 1998 PAUL J. MALVASIO Chief Financial Officer 21 EXHIBIT INDEX Exhibit No. Description - ------- -------------------------------------------------------- 15 Accountants' Awareness Letter and Limitation of Liability (regarding unaudited interim financial information) 27 Financial Data Schedule EX-15 2 ACCOUNTANTS' AWARENESS LETTER Exhibit 15 Accountants' Awareness Letter and Limitation of Liability We are aware of the incorporation by reference in the Registration Statement on Form S-3 (Registration No. 33-34499) and in the Registration Statement on Form S-8 (Registration No. 33-99974) of Risk Capital Holdings, Inc. of our report dated April 27, 1998 (issued pursuant to the provisions of Statement Auditing Standards No. 71) appearing in this Form 10-Q. We are also aware of our responsibilities under the Securities Act of 1933. We are not subject to the liability provisions of section 11 of the Securities Act of 1933 for our report dated April 27, 1998 (issued pursuant to the provisions of Statement on Auditing Standards No. 71) on the unaudited interim consolidated financial information of Risk Capital Holdings, Inc. because our report is not a "report" or a "part" of the Registration Statement on Form S-3 (Registration No. 33-34499) or of the Registration Statement on Form S-8 (Registration No. 33-99974) prepared or certified by us within the meaning of sections 7 and 11 of the Securities Act of 1933. Price Waterhouse LLP New York, New York May 13, 1998 EX-27 3 FDS
7 RISK CAPITAL HOLDINGS, INC. Article 7 of Regulation S-X Insurance Companies Three month period ended March 31, 1998 (Dollars in thousands, except per share amounts) THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET OF RISK CAPITAL HOLDINGS, INC. AND ITS SUBSIDIARY AT MARCH 31, 1998 AND THE RELATED STATEMENT OF INCOME AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-mos DEC-31-1998 JAN-01-1998 MAR-31-1998 170,001 0 0 300,908 0 0 538,333 3,991 0 17,730 638,694 100,150 77,140 0 0 0 0 0 171 417,920 638,694 41,502 3,604 477 0 30,253 9,931 4,589 810 (3) 1,569 0 0 0 1,569 .09 .09 70,768 30,620 (367) 944 4,577 95,500 (367) Includes equity in net income of investeesof $756. Net income excludes Other Comprehensive income which the Company adopted 1st Qtr 1998 in a one financial statement approach. Comprehensive income was $16,768 or .98 per share Basic and $.95 per share Diluted. Loss reserves net of reinsurance.
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