UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
| x | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES |
| EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2004
OR
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES |
| EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 000-33047
MAX RE CAPITAL LTD.
(Exact name of registrant as specified in its charter)
| BERMUDA | Not Applicable | |
| (State or other jurisdiction of incorporation or organization) |
(IRS Employer Identification No.) |
Max Re House
2 Front Street
Hamilton, HM 11
Bermuda
(Address of principal executive offices)
(Zip Code)
(441) 296-8800
(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 ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No ¨
The number of the Registrant’s common shares (par value $1.00 per share) outstanding as of April 30, 2004 was 45,725,811.
INDEX
| PAGE | ||
| PART I—FINANCIAL INFORMATION |
||
| ITEM 1. Financial Statements |
1 | |
| Consolidated Balance Sheets as of March 31, 2004 (unaudited) and December 31, 2003 |
1 | |
| 2 | ||
| 3 | ||
| Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2004 and 2003 (unaudited) |
4 | |
| Notes to the Interim Consolidated Financial Statements (unaudited) |
5 | |
| ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
13 | |
| ITEM 3. Quantitative and Qualitative Disclosure About Market Risk |
21 | |
| ITEM 4. Controls and Procedures |
22 | |
| PART II—OTHER INFORMATION |
||
| ITEM 1. Legal Proceedings |
24 | |
| ITEM 2. Changes in Securities |
24 | |
| ITEM 3. Defaults Upon Senior Securities |
24 | |
| 24 | ||
| ITEM 5. Other Information |
24 | |
| ITEM 6. Exhibits and Reports on Form 8-K |
24 | |
| S-1 | ||
PART I. FINANCIAL INFORMATION
MAX RE CAPITAL LTD.
(Expressed in thousands of United States Dollars, except share amounts)
| March 31, 2004 |
December 31, 2003 |
|||||||
| (Unaudited) | ||||||||
| ASSETS |
||||||||
| Cash and cash equivalents |
$ | 171,467 | $ | 201,515 | ||||
| Fixed maturities, available for sale at fair value |
1,666,500 | 1,604,430 | ||||||
| Alternative investments, at fair value |
988,077 | 831,359 | ||||||
| Accrued interest income |
15,840 | 14,608 | ||||||
| Premiums receivable |
454,391 | 389,393 | ||||||
| Losses recoverable from reinsurers |
305,522 | 273,711 | ||||||
| Funds withheld |
19,216 | 56 | ||||||
| Deferred acquisition costs |
129,901 | 87,116 | ||||||
| Deferred charges |
9,774 | 5,259 | ||||||
| Prepaid reinsurance premiums |
75,248 | 67,343 | ||||||
| Other assets |
28,418 | 20,769 | ||||||
| Total assets |
$ | 3,864,354 | $ | 3,495,559 | ||||
| LIABILITIES |
||||||||
| Property and casualty losses and experience refunds |
$ | 1,137,861 | $ | 991,687 | ||||
| Life and annuity benefits and experience refunds |
474,025 | 480,099 | ||||||
| Deposit liabilities |
242,774 | 267,350 | ||||||
| Funds withheld from reinsurers |
238,702 | 213,483 | ||||||
| Unearned property and casualty premiums |
678,194 | 471,625 | ||||||
| Reinsurance balances payable |
54,233 | 74,693 | ||||||
| Accounts payable and accrued expenses |
21,666 | 41,392 | ||||||
| Bank loan |
150,000 | 150,000 | ||||||
| Total liabilities |
2,997,455 | 2,690,329 | ||||||
| SHAREHOLDERS’ EQUITY |
||||||||
| Preferred shares par value $1; 20,000,000 shares authorized; no shares issued or outstanding |
— | — | ||||||
| Common shares par value $1; 200,000,000 shares authorized; 45,725,811 shares issued and outstanding (2003 – 45,184,611) |
45,726 | 45,185 | ||||||
| Additional paid-in capital |
650,354 | 637,772 | ||||||
| Loans receivable from common share sales |
(11,965 | ) | (11,965 | ) | ||||
| Unearned stock grant compensation |
(15,694 | ) | (4,032 | ) | ||||
| Accumulated other comprehensive income |
44,380 | 25,790 | ||||||
| Retained earnings |
154,098 | 112,480 | ||||||
| Total shareholders’ equity |
866,899 | 805,230 | ||||||
| Total liabilities and shareholders’ equity |
$ | 3,864,354 | $ | 3,495,559 | ||||
See accompanying notes to unaudited interim consolidated financial statements.
1
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (Unaudited)
(Expressed in thousands of United States Dollars, except shares and per share amounts)
| Three Months Ended March 31 |
||||||||
| 2004 |
2003 |
|||||||
| REVENUE |
||||||||
| Gross premiums written |
$ | 439,531 | $ | 430,545 | ||||
| Reinsurance premiums ceded |
(42,787 | ) | (31,852 | ) | ||||
| Net premiums written |
$ | 396,744 | $ | 398,693 | ||||
| Earned premiums |
$ | 233,290 | $ | 158,065 | ||||
| Earned premiums ceded |
(34,392 | ) | (14,337 | ) | ||||
| Net premiums earned |
198,898 | 143,728 | ||||||
| Net investment income |
18,846 | 14,507 | ||||||
| Net gains on alternative investments |
38,476 | 21,802 | ||||||
| Net realized gains on sales of fixed maturities |
5,781 | 2,490 | ||||||
| Other income |
1,168 | 2,002 | ||||||
| Total revenue |
263,169 | 184,529 | ||||||
| LOSSES AND EXPENSES |
||||||||
| Losses, benefits and experience refunds |
166,385 | 114,463 | ||||||
| Acquisition costs |
31,783 | 38,737 | ||||||
| Interest expense |
11,843 | 5,981 | ||||||
| General and administrative expenses |
10,169 | 8,196 | ||||||
| Total losses and expenses |
220,180 | 167,377 | ||||||
| INCOME BEFORE MINORITY INTEREST |
42,989 | 17,152 | ||||||
| Minority interest |
— | (2,590 | ) | |||||
| NET INCOME |
42,989 | 14,562 | ||||||
| Change in net unrealized appreciation of fixed maturities |
18,729 | (728 | ) | |||||
| Foreign currency translation adjustment |
(139 | ) | — | |||||
| COMPREHENSIVE INCOME |
$ | 61,579 | $ | 13,834 | ||||
| Basic earnings per share |
$ | 0.94 | $ | 0.38 | ||||
| Diluted earnings per share |
$ | 0.87 | $ | 0.38 | ||||
| Weighted average shares outstanding—basic |
45,547,393 | 38,172,645 | ||||||
| Weighted average shares outstanding—diluted |
49,332,004 | 45,293,477 | ||||||
See accompanying notes to unaudited interim consolidated financial statements.
2
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)
(Expressed in thousands of United States Dollars)
| Three Months Ended March 31 |
||||||||
| 2004 |
2003 |
|||||||
| Preferred Shares |
||||||||
| Balance, beginning and end of period |
$ | — | $ | — | ||||
| Common shares |
||||||||
| Balance, beginning of period |
45,185 | 37,999 | ||||||
| Issuance of shares |
541 | 335 | ||||||
| Repurchase of shares |
— | (202 | ) | |||||
| Balance, end of period |
45,726 | 38,132 | ||||||
| Additional paid-in capital |
||||||||
| Balance, beginning of period |
637,772 | 526,582 | ||||||
| Issuance of shares |
12,453 | 3,633 | ||||||
| Stock option expense |
129 | — | ||||||
| Repurchase of shares |
— | (2,140 | ) | |||||
| Balance, end of period |
650,354 | 528,075 | ||||||
| Loans receivable from common share sales |
||||||||
| Balance, beginning of period |
(11,965 | ) | (12,575 | ) | ||||
| Loans repaid |
— | 610 | ||||||
| Balance, end of period |
(11,965 | ) | (11,965 | ) | ||||
| Unearned stock grant compensation |
||||||||
| Balance, beginning of period |
(4,032 | ) | (2,656 | ) | ||||
| Stock grants awarded |
(12,994 | ) | (3,741 | ) | ||||
| Amortization |
1,332 | 518 | ||||||
| Balance, end of period |
(15,694 | ) | (5,879 | ) | ||||
| Accumulated other comprehensive income |
||||||||
| Balance, beginning of period |
25,790 | 49,108 | ||||||
| Holding gains on fixed maturities arising in period |
24,510 | 1,594 | ||||||
| Net realized gains included in net income |
(5,781 | ) | (2,490 | ) | ||||
| Currency translation adjustments |
(139 | ) | — | |||||
| Reallocation to minority interest |
— | 168 | ||||||
| Balance, end of period |
44,380 | 48,380 | ||||||
| Retained earnings (deficit) |
||||||||
| Balance, beginning of period |
112,480 | (4,299 | ) | |||||
| Net income |
42,989 | 14,562 | ||||||
| Dividends paid |
(1,371 | ) | (766 | ) | ||||
| Balance, end of period |
154,098 | 9,497 | ||||||
| Total shareholders’ equity |
$ | 866,899 | $ | 606,240 | ||||
See accompanying notes to unaudited interim consolidated financial statements.
3
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Expressed in thousands of United States Dollars)
| Three Months Ended March 31 |
||||||||
| 2004 |
2003 |
|||||||
| OPERATING ACTIVITIES |
||||||||
| Net income |
$ | 42,989 | $ | 14,562 | ||||
| Adjustments to reconcile net income to net cash from operating activities: |
||||||||
| Minority share of income |
— | 2,590 | ||||||
| Amortization of unearned stock based compensation |
1,461 | 518 | ||||||
| Amortization of discount on fixed maturities |
2,046 | 1,111 | ||||||
| Net realized gains on sale of fixed maturities |
||||||||