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 September 30, 2001
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, HM 11, 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 November 8, 2001 was 25,685,828.
INDEX TO FORM 10-Q
PART I - FINANCIAL INFORMATION
PAGE
ITEM 1. Unaudited Consolidated Financial Statements
Consolidated Balance Sheets
September 30, 2001 (unaudited) and December 31, 2000 .............. 3
Unaudited Consolidated Statements of Operations
Three and Nine Months ended September 30, 2001 and
2000 .............................................................. 4
Unaudited Consolidated Statements of Comprehensive Income
Three and Nine Months ended September 30, 2001 and 2000 ........... 5
Unaudited Consolidated Statements of Cash Flows
Nine Months ended September 30, 2001 and 2000 ..................... 6
Unaudited Consolidated Statements of Changes in Stockholders' Equity
Nine Months ended September 30, 2001 and 2000...................... 7
Notes to Unaudited Consolidated Financial
Statements ........................................................ 8-9
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ..................... 10-14
ITEM 3. Quantitative and Qualitative Disclosures About Market
Risk .............................................................. 15
PART II - OTHER INFORMATION
ITEM 4. Exhibits and Reports on Form 8-K .................................. 15
Signatures ........................................................ 16
ANNUITY AND LIFE RE (HOLDINGS), LTD.
CONSOLIDATED BALANCE SHEETS
(Expressed in United States Dollars)
September 30, 2001 December 31, 2000
------------------ -----------------
ASSETS (Unaudited)
Cash and cash equivalents $ 44,427,914 $ 52,691,974
Fixed maturity investments at fair value
(amortized cost of $280,499,761 and $266,967,810
at September 30, 2001 and December 31, 2000) 290,792,204 269,127,422
Funds withheld at interest 1,599,100,634 1,530,109,853
Accrued investment income 4,048,630 3,760,138
Receivable for investments sold 7,213,536 --
Receivable for reinsurance ceded 114,526,448 104,495,543
Other reinsurance deposits and receivables 38,687,284 29,552,630
Deferred policy acquisition costs 233,041,356 228,728,083
Insurance Licenses, net of amortization 2,156,678 2,243,330
Other assets 5,122,143 3,977,918
--------------- ---------------
Total Assets $ 2,339,116,827 $ 2,224,686,891
=============== ===============
LIABILITIES
Reserves for future policy benefits $ 214,679,139 $ 174,953,018
Interest-sensitive contracts liabilities 1,629,041,536 1,595,128,506
Other reinsurance liabilities 42,770,746 7,623,822
Payable for investments purchased 9,088,525 25,863
Accounts payable and accrued expenses 9,069,416 5,739,906
--------------- ---------------
Total Liabilities $ 1,904,649,362 $ 1,783,471,115
--------------- ---------------
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; 25,685,828 and 25,499,999
shares outstanding at September 30, 2001 and
December 31, 2000) 25,685,828 25,499,999
Additional paid-in capital 332,156,467 329,496,091
Notes receivable from stock sales (1,445,781) (1,367,241)
Accumulated other comprehensive income 10,292,443 2,064,971
Retained earnings 67,778,508 85,521,956
--------------- ---------------
Total Stockholders' Equity $ 434,467,465 $ 441,215,776
--------------- ---------------
Total Liabilities and Stockholders' Equity $ 2,339,116,827 $ 2,224,686,891
=============== ===============
See accompanying notes to unaudited consolidated financial statements.
3
ANNUITY AND LIFE RE (HOLDINGS), LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
(Expressed in United States Dollars)
3 Months Ended 3 Months Ended 9 Months Ended 9 Months Ended
September 30,2001 September 30,2000 September 30,2001 September 30,2000
REVENUES
Net premiums $ 66,813,664 $ 44,588,022 $ 181,955,760 $ 118,502,400
Investment income, net of related expenses 24,239,602 23,745,266 66,934,606 76,362,195
Net realized investment gains (losses) 1,078,933 (702,549) 1,425,183 (3,683,254)
Other 5.512,939 1,689,451 13,291,100 5,086,409
------------- ------------ ------------- -------------
Total Revenues $ 97,645,138 $ 69,320,190 $ 263,606,649 $ 196,267,750
============= ============ ============= =============
BENEFITS AND EXPENSES
Claims and policy benefits $ 74,873,807 $ 36,040,180 $ 161,699,922 $ 98,896,595
Interest credited to interest sensitive
contract liabilities 10,001,290 4,734,374 21,190,167 20,637,442
Policy acquisition costs and other
insurance expenses 49,117,632 15,316,221 86,792,638 43,711,710
Operating expenses 2,478,698 2,328,514 7,832,812 6,485,041
------------- ------------ ------------- -------------
Total Benefits and Expenses $ 136,471,427 $ 58,419,289 $ 277,515,539 $ 169,730,788
============= ============ ============= =============
Net (loss) income $ (38,826,289) $ 10,900,901 $ (13,908,890) $ 26,536,962
============= ============ ============= =============
NET (LOSS) INCOME PER COMMON
SHARE (NOTE 3):
Basic $ (1.51) $ 0.43 $ (0.54) $ 1.04
Diluted $ (1.51) $ 0.40 $ (0.54) $ 0.97
See accompanying notes to unaudited consolidated financial statements.
4
ANNUITY AND LIFE RE (HOLDINGS), LTD.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
UNAUDITED
(Expressed in United States Dollars)
3 Months Ended 3 Months Ended 9 Months Ended 9 Months Ended
September 30,2001 September 30,2000 September 30,2001 September 30,2000
----------------- ----------------- ----------------- -----------------
Net (loss) income for period $(38,826,289) $10,900,901 $(13,908,890) $26,536,962
Other comprehensive income:
Unrealized holding gains on securities
arising during period 6,661,692 3,835,801 8,227,472 7,107,063
------------ ----------- ------------ -----------
Total comprehensive (loss) income $(32,164,597) $14,736,702 $ (5,681,418) $33,644,025
============ =========== ============ ===========
See accompanying notes to unaudited consolidated financial statements.
5
ANNUITY AND LIFE RE (HOLDINGS), LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
(Expressed in United States Dollars)
9 Months Ended 9 Months Ended
September 30, 2001 September 30, 2000
------------------ ------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income $ (13,908,890) $ 26,536,962
Adjustments to reconcile net income to cash
provided (used) by operating activities
Net realized investment (gains) losses (1,425,183) 3,683,254
Changes in:
Accrued investment income (288,492) 1,062,795
Deferred policy acquisition costs (4,313,273) 10,441,226
Other reinsurance deposits and receivables (19,165,559) (19,814,019)
Other assets (1,057,573) (312,074)
Reserves for future policy benefits 39,726,121 19,289,985
Interest sensitive contracts, net of funds withheld (35,077,751) (44,101,244)
Other reinsurance liabilities 35,146,924 (283,125)
Accounts payable 3,329,510 (1,187,515)
------------- -------------
Net cash provided (used) by operating activities $ 2,965,834 $ (4,683,755)
------------- -------------
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of fixed maturity securities $ 186,429,532 $ 233,098,294
Purchase of fixed maturity securities (196,561,747) (206,162,319)
Acquisition of business -- (13,181,790)
------------- -------------
Net cash (used) provided by investing activities $ (10,132,215) $ 13,754,185
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of shares $ 2,846,205 $ --
Interest accrued on notes receivable (78,540) (60,375)
Dividends paid to stockholders (3,834,558) (3,060,000)
------------- -------------
Net cash (used) by financing activities $ (1,066,893) $ (3,120,375)
------------- -------------
(Decrease) increase in cash and cash equivalents (8,264,060) 5,950,055
Cash and cash equivalents, beginning of period 52,691,974 31,187,242
------------- -------------
Cash and cash equivalents, end of period $ 44,427,914 $ 37,137,297
============= =============
See accompanying notes to unaudited consolidated financial statements.
6
ANNUITY AND LIFE RE (HOLDINGS), LTD.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
UNAUDITED
(Expressed in United States Dollars)
9 Months Ended 9 Months Ended
September 30, 2001 September 30,2000
------------------ -----------------
PREFERRED SHARES PAR VALUE $1.00
Balance at beginning and end of period $ -- $ --
------------- -------------
COMMON SHARES PAR VALUE $1.00
Balance at beginning of period $ 25,499,999 $ 25,499,999
Issuance of Shares 185,829 --
------------- -------------
Balance at end of Period $ 25,685,828 $ 25,499,999
------------- -------------
ADDITIONAL PAID-IN CAPITAL
Balance at beginning of period $ 329,496,091 $ 329,496,091
Issuance of Shares 2,660,376 --
------------- -------------
Balance at end of Period $ 332,156,467 $ 329,496,091
------------- -------------
NOTES RECEIVABLE FROM STOCK SALES
Balance at beginning of period $ (1,367,241) $ (1,286,741)
Accrued interest during period (78,540) (60,375)
------------- -------------
Balance at end of period $ (1,445,781) $ (1,347,116)
------------- -------------
ACCUMULATED OTHER COMPREHENSIVE INCOME
Balance at beginning of period $ 2,064,971 $ (11,269,216)
Net unrealized holding gains on securities 8,227,472 7,107,063
------------- -------------
Balance at end of period $ 10,292,443 $ (4,162,153)
------------- -------------
RETAINED EARNINGS
Balance at beginning of period $ 85,521,956 $ 49,614,761
Net income (13,908,890) 26,536,962
Stockholder dividends (3,834,558) (3,060,000)
------------- -------------
Balance at end of period $ 67,778,508 $ 73,091,723
------------- -------------
TOTAL STOCKHOLDERS' EQUITY $ 434,467,465 $ 422,578,544
============= =============
See accompanying notes to unaudited consolidated financial statements.
7
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 Annuity and Life
Reassurance America, Inc. ("Annuity and Life Reassurance America"), a life
insurance company domiciled in the United States. Holdings, Annuity and
Life Reassurance, Annuity and Life Re America and Annuity and Life
Reassurance America 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 accounting principles generally
accepted in the United States of America ("U.S. GAAP") for interim
financial information and in accordance with Regulation S-X. Accordingly,
they do not include all of the information and footnotes required by U.S.
GAAP 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, 2000 and Form 10-Q for the fiscal
quarters ended March 31, 2001 and June 30, 2001. In the opinion of
management, all adjustments considered necessary for a fair presentation
have been included in these financial statements.
3. NET (LOSS) INCOME PER SHARE
The following table sets forth the computation of basic and diluted net
(loss) income per share:
3 months ended 9 months ended
September 30 September 30
---------------------- ------------------
2001 2000 2001 2000
---- ---- ---- ----
Net (loss) income $(38,826,289) $10,900,901 $(13,908,890) $26,536,962
Average number of
common shares
outstanding 25,683,328 25,499,999 25,592,914 25,499,999
Weighted average
common and common
equivalent shares
outstanding 28,539,270 27,419,525 28,213,926 27,383,590
Net (loss) income per
basic share $ (1.51) $ 0.43 $ (0.54) $ 1.04
Net (loss) income per
diluted share $ (1.51) $ 0.40 $ (0.54) $ 0.97
8
ANNUITY AND LIFE RE (HOLDINGS), LTD.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
4. ACCOUNTING STANDARDS
In July 2001, the first phase of the Financial Accounting Standards Board's
project on business combinations culminated in the issuance of FASB
Statement 141 - Business Combinations and Statement 142 - Goodwill and
Intangible Assets. These statements will change how the Company accounts
for business combinations and for purchased goodwill and other intangible
assets that arise from these combinations.
At September 30, 2001, the Company is carrying Insurance Licenses of
$2,156,678. Amortization of Insurance Licenses for the nine months ended
September 30, 2001 was $86,652. When the Company adopts this new standard
insurance licenses will not be amortized, but instead will be analyzed for
impairment annually.
5. CONTINGENCIES
In accordance with standard industry practices the Company conducts audits
of its reinsurance clients. Such audits relate to, and are specifically
limited to, a review of the insurance or annuity business ceded to the
Company by each client company. During the third quarter the Company
completed the audit of its largest deferred annuity client company. As a
result of this audit and continuing poor lapse experience the Company has
written down the deferred acquisition costs associated with this contract
by $24.7 million. With respect to this reinsurance contract management
intends to pursue appropriate action to recover damages from the ceding
company.
6. SEPTEMBER 11 TERRORIST ATTACK
The Company's results for the quarter ended September 30, 2001 were
adversely affected by the terrorist attack on September 11. The Company has
recorded a charge of $12 million related to these attacks. This charge
includes both reported claims and an estimate of unreported claims.
Due to the nature of the tragic events that took place on September 11 and
normal claim reporting lags there is uncertainty associated with the
Company's estimated reserve for unreported claims. While management
believes the amount accrued adequately anticipates future claims to be
reported, the final cost of the event to the Company will not be known for
several months. If the amount accrued does not adequately anticipate future
reported claims net income in future periods could be adversely impacted.
The final cost of the event will depend upon a number of factors including
the speed at which our cedants have identified affected policies, settled
claims and reported them to us, the accuracy and completeness of our
cedant's data concerning insured persons affected by the event, and certain
legal, societal and economic factors that are outside the Company's
control.
9
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 Annuity and
Life Reassurance America, Inc. ("Annuity and Life Reassurance America"), a
life insurance company domiciled in the United States. Holdings, Annuity
and Life Reassurance, Annuity and Life Re America and Annuity and Life
Reassurance America are collectively referred to herein as the "Company".
2. OPERATING RESULTS
Net Income. For the nine-month period ended September 30, 2001, the Company
had a consolidated net loss of $(13,909,000) or $(0.54) per basic and
diluted share, compared with $26,537,000 or $1.04 per basic share and $0.97
per diluted share for the nine months ended September 30, 2000. For the
three month period ending September 30, 2001, the Company had a
consolidated net loss of $(38,826,000) or $(1.51) per basic and diluted
share, compared with net income of $10,901,000 or $0.43 per basic share and
$0.40 per diluted share for the three months ended September 30, 2000. The
net loss for the three and nine month periods ended September 30, 2001 as
compared with the comparable prior periods ended September 30, 2000 was
primarily due to a $12 million charge related to the tragedy of September
11th, a $10 million charge for adverse mortality experience on a life
reinsurance contract underwritten in 1998, and a $24.7 million write down
of deferred policy acquisition costs associated with one of the Company's
early annuity reinsurance contracts; offset by net realized investment
gains.
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 nine-month period ended September 30, 2001, the Company had net a
operating loss of $(15,334,000) or $(0.60) per basic and diluted share,
compared with $30,220,000 or $1.19 per basic share and $1.10 per diluted
share for the nine months ended September 30, 2000. For the three month
period ending September 30, 2001, the Company had a net operating loss of
$(39,905,000) or $(1.55) per basic and diluted share, compared with net
operating income of $11,603,000 or $0.46 per basic share and $0.42 per
diluted share for the three months ended September 30, 2000. The net
operating loss for the three and nine month periods ended September 30,
2001 as compared with the comparable prior periods ended September 30, 2000
was primarily due to a $12 million charge related to the tragedy of
September 11th, a $10 million charge for adverse mortality experience on a
life reinsurance contract underwritten in 1998, and a $24.7 million write
down of deferred policy acquisition costs associated with one of the
Company's early annuity reinsurance contracts.
10
Net Premiums. Net premium revenue for the three month and nine month
periods ended September 30, 2000 was $66,814,000 and $181,956,000,
respectively, an increase of 50% and 54% over the comparable prior periods
ended September 30, 2000. Substantially all premium revenue was derived
from ordinary life reinsurance. The growth reflects both new business
written and an increase in the face amount of insurance in force. At
September 30, 2001 the total face amount of life insurance in force was
$104.0 billion compared with $61.4 billion at September 30, 2000, an
increase of 69%. 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.
Net Investment Income. Total net investment income for the three month and
nine month periods ended September 30, 2001 was $24,240,000 and
$66,935,000, respectively, compared with $23,745,000 and $76,362,000 for
the comparable prior periods ended September 30, 2000. Third quarter growth
in net investment income was due to increased assets under management,
primarily Funds Withheld related to Interest Sensitive Contracts
Liabilities, while the decline in net investment income during the nine
month period reflects reduced yields. Income earned on funds withheld for
the three month and nine month periods ended September 30, 2001 was
$19,440,000 and $52,054,000, respectively, as compared with $18,735,000 and
$61,146,000 for the comparable prior periods ended September 30, 2000. The
average annualized yield earned on invested assets, excluding funds
withheld, for the nine months ended September 30, 2001 was approximately
6.34% as compared with 6.79% for the comparable prior period ended
September 30, 2000.
Net Realized Investment Gains (Losses). Net realized investment gains
(losses) for the three and nine month periods ended September 30, 2001 was
$1,079,000 and $1,425,000, respectively, as compared with $(703,000) and
$(3,683,000) for the comparable prior periods ended September 30, 2000.
These gains and losses result from active management of our investment
portfolio intended to improve long term investment performance.
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 nine month period ended September 30, 2001, unrealized gains
increased $8,227,000 to $10,292,000, as compared with an improvement of
$7,107,000 over the same period last year. Changes in unrealized gains and
losses, included in Other Comprehensive Income, are principally related to
changes in the general level of interest rates during those periods.
Other Income. Other income for the three and nine month periods ended
September 30, 2001 was $5,513,000 and $13,291,000, respectively, as
compared to $1,689,000 and $5,086,000 for the comparable prior periods.
This income is primarily net surrender fees related to Interest Sensitive
Contract Liabilities. The increases in income are associated with increases
in surrenders during the periods.
Claims and Policy Benefits. Life insurance claims and policy benefits for
the three and nine month periods ended September 30, 2001 were $71,066,000,
113% of net premium, and $150,235,000, 88% of net premium, respectively, as
compared with $31,028,000, 79% of net premium and $85,903,000, 82% of net
premium for the comparable prior periods ended September 30, 2000. The
World Trade Center tragedy along with adverse development late claim
reporting on an early reinsurance contract have adversely impacted the
three and nine month benefit ratios. Although we expect mortality to be
fairly
11
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.
Net Cost of Interest Sensitive Contract Liabilities. Interest credited to
interest sensitive contract liabilities for the three and nine month
periods ended September 30, 2001 was $10,001,000 and $21,190,000,
respectively, as compared with $4,734,000 and $20,637,000 for the
comparable prior periods ended September 30, 2000. The increase reflects
the level of, and the rate credited to, our interest sensitive contract
liabilities. Net investment income earned on the related funds withheld for
the three and nine month periods ended September 30, 2001 was $19,440,000
and $52,054,000, respectively, as compared with $18,735,000 and
$61,146,000, respectively, for the comparable prior periods ended September
30, 2000.
Policy Acquisition and Other Insurance Expenses. Policy acquisition and
other insurance expenses for the three and nine month periods ended
September 30, 2001 were $49,118,000 and $86,793,000, respectively, as
compared with $15,316,000 and $43,712,000 for the comparable prior periods
ended September 30, 2000. This expense consists primarily of allowances and
amortization of deferred policy acquisition costs which will fluctuate with
business volume and changes in product mix. As a result of continued
adverse lapse experience on the Company's largest annuity reinsurance
contract the Company wrote down the deferred acquisition costs associated
with the contract to its net realizable value. The significant increase in
Policy Acquisition and Other Insurance Expenses in the third quarter of
this year is the result of the $24.7 million write down and normal
increases in these costs resulting from the growth and development of the
Company's life and annuity business.
Other Operating Expenses. Operating expenses for the three month and nine
month periods ended September 30, 2001 were $2,478,000, or 2.5% of total
revenue and $7,833,000, or 3.0% of total revenue, respectively, as compared
with $2,329,000, or 3.4% of total revenue and $6,485,000, or 3.3% of total
revenue, for the comparable prior periods ended September 30, 2000. We
consider the Company's operating expense level to be low by industry
standards and consistent with the Company's strategy to be a low cost
provider. The reduction in the expense ratio is primarily due to growth and
development of our reinsurance operations.
3. FINANCIAL CONDITION
Investments
Cash & Fixed Maturity Investments
Invested assets including cash, cash equivalents, and fixed maturity
investments amounted to $335,220,000 at September 30, 2001 as compared
with $321,819,000 at December 31, 2000. At September 30, 2001 the
Company's net unrealized gain on fixed maturity investments was
$10,292,000, an $8,227,000 improvement relative to December 31, 2000
generally reflecting changes in interest rates during the period.
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.
12
Funds Withheld at Interest - Interest Sensitive Contracts Liabilities
Invested assets included on the Company's Balance Sheet as Funds
Withheld at Interest with a carrying value of approximately
$1,599,100,000 at September 30, 2001 and $1,530,110,000 at December
31, 2000 are held by and managed by the ceding companies in segmented
portfolios. The related liability for annuity reinsurance is included
on the Company's Balance Sheet as Interest Sensitive Contracts
Liabilities. During the nine month period ended September 30, 2001
these liabilities increased approximately 2% primarily related to
interest credited to policyholders and new business offset by 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,
and proceeds from investments called, redeemed, or sold. The principal
obligations and uses of the funds are the payment of policy benefits,
acquisition and operating costs, and the purchase of investments.
The Company's capital structure consists entirely of equity. At September
30, 2001 the Company's total capitalization was $434,467,000 as compared
with $441,216,000 at December 31, 2000. The Company continuously reviews
its capital adequacy and believes its current capital level is sufficient
to support the Company's reinsurance writings and growth for the
foreseeable future.
At September 30, 2001 the Company had no outstanding debt. At September 30,
2001 and December 31, 2000 letters of credit totaling approximately $162
million and $184 million, respectively, have been issued in the ordinary
course of the Company's business by the Company's banks in favor of certain
ceding insurance companies to provide security and meet regulatory
requirements. Approximately $116 million of these letters of credit are
collateralized by the Company's investments.
On July 24, 2001 the Board of Directors declared a quarterly stockholder
dividend of $.05 per share payable to shareholders of record on August 23,
2001. The Board intends to continue to declare and pay a quarterly
dividend. The continued payment of dividends is dependent on the ability of
our operating subsidiaries to achieve satisfactory underwriting and
investment results along with other factors determined to be relevant by
the Company's Board of Directors.
The Company currently has no material commitments for capital expenditures
at September 30, 2001.
4. 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 the actual results of operations or financial condition of
the Company to differ include, but are not necessarily limited to, the
Company's ability to attract clients and generate business; the competitive
environment; the Company's ability to underwrite business; performance of
outside service providers; mortality risk; surrender risk; investment risk
(including asset value risk, reinvestment risk, and disintermediation
risk);
13
the impact of unforeseen economic changes (such as changes in interest
rates, currency exchange rates, inflation rates, recession, and other
external economic factors); the impact of recent and possible future
terrorist attacks and the U.S. government's response thereto; regulatory
changes (such as changes in U.S. tax law and insurance regulation which
directly affect the competitive environment for the Company's products);
rating agency policies and practices; 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
ANNUITY AND LIFE RE (HOLDINGS), LTD.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes since December 31, 2000. Please refer to
"Item 7A: Quantitative and Qualitative Disclosures About Market Risk" in our
Annual Report on Form 10-K.
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Employment Agreement dated as of October 24, 2000 between
Patricia E. McWeeney and the Company.
10.2 Employment Agreement dated as of September 17, 2001 between John
F. Burke and the Company.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the period ended
September 30, 2001.
15
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: November 14, 2001 / s / Lawrence S. Doyle
------------------ ------------------------
Name: Lawrence S. Doyle
Title: President and Chief
Executive Officer
(Principal Executive
Officer)
Date: November 14, 2001 / s / John F. Burke
------------------ ------------------------
Name: John F. Burke
Title: Chief Financial Officer
and Treasurer (Principal
Accounting and Financial
Officer)
16