UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarterly Period Ended JUNE 30, 2002
-----------------------------------------------------------
Commission file number 1-11238
----------------------------------------------------------
NYMAGIC, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
NEW YORK 13-3534162
- --------------------------------------------------------------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
330 MADISON AVENUE, NEW YORK, NEW YORK 10017
- --------------------------------------------------------------------------------
(Address of principal executive offices, including zip code)
(212) 551-0600
- --------------------------------------------------------------------------------
(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 [ ]
On July 1, 2002 there were 9,276,398 shares of the Registrant's common
stock, $1.00 par value, outstanding.
FORWARD-LOOKING STATEMENTS
This report contains certain forward-looking statements concerning the Company's
operations, economic performance and financial condition, including, in
particular, the likelihood of the Company's success in developing and expanding
its business. Any forward-looking statements concerning the Company's
operations, economic performance and financial condition contained herein,
including statements related to the outlook for the Company's performance in
2002 and beyond, are made under the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. These statements are based upon a
number of assumptions and estimates which inherently are subject to
uncertainties and contingencies, many of which are beyond the control of the
Company. Some of these assumptions may not materialize and unanticipated events
may occur that could cause actual results to differ materially from such
statements. These include, but are not limited to, the cyclical nature of the
insurance and reinsurance industry, premium rates, the estimation of loss
reserves and loss reserve development, the uncertainty surrounding the loss
amounts related to the attacks of September 11, 2001, net loss retention, the
effect of competition, the ability to collect reinsurance receivables, the
availability and cost of reinsurance, and changes in the ratings assigned to the
Company by rating agencies. These risks could cause actual results to differ
materially from those expressed in any forward-looking statements. The Company
undertakes no obligation to update publicly or revise any forward-looking
statements unless required by law.
Such statements are made under the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. These statements may include, but are
not limited to, projections of premium revenue, investment income, other
revenue, losses, expenses, earnings, cash flows, plans for future operations,
common stockholders' equity, investments, capital plans, dividends, plans
relating to products or services as well as assumptions of any of the foregoing
and are generally expressed with words such as "believes," "estimates,"
"expects," "anticipates," "plans," "projects," "forecasts," "goals," "could
have," "may have" and similar expressions. We undertake no obligation to update
forward-looking statements, whether as a result of new information, future
events or otherwise. You are advised, however, to consult any further
disclosures we make in our reports to the Securities and Exchange Commission
including, but not limited to, the Company's 10-Q and 8-K reports.
NYMAGIC, INC.
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
Item 1. Financial Statements
Consolidated Balance Sheets
June 30, 2002 and December 31, 2001 2
Consolidated Statements of Income
Six months ended June 30, 2002 and
June 30, 2001 3
Consolidated Statements of Income
Three months ended June 30, 2002 and
June 30, 2001 4
Consolidated Statements of Cash Flows
Six months ended June 30, 2002 and
June 30, 2001 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Changes in Securities and Use of Proceeds 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NYMAGIC, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
JUNE 30, DECEMBER 31,
---------------------------------
2002 2001
---- ----
ASSETS
Investments:
Fixed maturities available for sale
at fair value (amortized cost
$308,538,140 and $250,861,503) $316,656,919 $254,485,045
Equity securities available for sale
at fair value (cost $37,889,644
and $38,930,182) 42,987,821 46,257,871
Short-term investments 30,962,906 65,423,833
------------- -------------
Total investments 390,607,646 366,166,749
------------- ------------
Cash 828,360 2,881,077
Accrued investment income 5,022,253 4,247,031
Premiums and other receivables, net 72,349,531 74,893,585
Reinsurance receivables 350,746,234 361,748,784
Deferred policy acquisition costs 8,205,835 8,167,663
Prepaid reinsurance premiums 11,742,950 18,786,075
Deferred income taxes 11,959,955 12,787,627
Property, improvements and equipment, net 908,939 1,091,449
Other assets 5,078,614 6,226,696
------------ -------------
Total assets $857,450,317 $856,996,736
============ ============
LIABILITIES
Unpaid losses and loss adjustment expenses $530,692,599 $534,189,062
Reserve for unearned premiums 58,731,445 65,070,990
Ceded reinsurance payable 26,922,366 27,393,696
Notes payable 6,661,253 7,911,253
Other liabilities 29,053,451 23,159,868
------------ ------------
Total liabilities 652,061,114 657,724,869
------------ ------------
SHAREHOLDERS' EQUITY
Common stock 15,132,224 15,123,658
Paid-in capital 29,828,711 29,702,414
Accumulated other comprehensive income 9,206,338 7,930,180
Retained earnings 200,360,629 195,654,314
------------ ------------
254,527,902 248,410,566
Treasury stock, at cost,
5,855,826 and 5,855,826 shares (49,138,699) (49,138,699)
------------- -------------
Total shareholders' equity 205,389,203 199,271,867
------------ ------------
Total liabilities and shareholders' equity $857,450,317 $856,996,736
============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
-2-
NYMAGIC, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
SIX MONTHS ENDED JUNE 30,
------------------------------
2002 2001
---- ----
REVENUES:
Net premiums earned $57,243,831 $37,005,422
Net investment income 7,890,705 9,325,937
Net realized investment gains (losses) (2,771,393) 618,451
Commission and other income 1,375,400 3,214,804
------------ ------------
Total revenues 63,738,543 50,164,614
------------ ------------
EXPENSES:
Net losses and loss adjustment expenses incurred 37,122,775 29,495,340
Policy acquisition expenses 9,303,364 7,931,784
General and administrative expenses 10,353,861 8,545,165
Interest expense 278,098 288,442
----------- ------------
Total expenses 57,058,098 46,260,731
----------- ------------
Income before income taxes 6,680,445 3,903,883
----------- ------------
Income taxes:
Current 1,939,463 1,060,584
Deferred 34,667 1,057,528
----------- ------------
Total income taxes 1,974,130 2,118,112
----------- ------------
Net income $ 4,706,315 $ 1,785,771
=========== ============
Weighted average shares of common stock
outstanding-basic 9,273,310 9,202,238
Basic earnings per share $ .51 $ .19
=========== ============
Weighted average shares of common stock
outstanding-diluted 9,292,383 9,225,645
Diluted earnings per share $ .51 $ .19
=========== ============
Dividends declared per share $ .00 $ .20
=========== ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
-3-
NYMAGIC, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS ENDED JUNE 30,
---------------------------
2002 2001
---- ----
REVENUES:
Net premiums earned $30,107,258 $16,515,936
Net investment income 3,943,115 4,576,115
Net realized investment losses (2,184,255) (1,561,401)
Commission and other income 1,217,841 2,708,787
------------ ------------
Total revenues 33,083,959 22,239,437
------------ ------------
EXPENSES:
Net losses and loss adjustment expenses incurred 19,410,603 13,971,377
Policy acquisition expenses 4,647,673 3,499,152
General and administrative expenses 6,009,224 4,109,827
Interest expense 112,932 126,991
----------- ------------
Total expenses 30,180,432 21,707,347
----------- ------------
Income before income taxes 2,903,527 532,090
----------- ------------
Income taxes:
Current 1,560,909 323,369
Deferred (695,342) 172,329
----------- ------------
Total income taxes 865,567 495,698
----------- ------------
Net income $ 2,037,960 $ 36,392
=========== ============
Weighted average shares of common stock
outstanding-basic 9,276,112 9,221,506
Basic earnings per share $ .22 $ .00
=========== ============
Weighted average shares of common stock
outstanding-diluted 9,296,407 9,247,797
Diluted earnings per share $ .22 $ .00
=========== ============
Dividends declared per share $ .00 $ .10
=========== ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
-4-
NYMAGIC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED JUNE 30,
-----------------------------
2002 2001
---- ----
Cash flows from operating activities:
Net income $ 4,706,315 $ 1,785,771
----------- ------------
Adjustments to reconcile net income to
net cash provided by (used in) operating
activities:
Provision for deferred taxes 34,667 1,057,528
Net realized investment losses (gains) 2,771,393 (618,451)
Net bond amortization 861,200 382,485
Depreciation and other, net 202,375 204,407
Changes in:
Premiums and other receivables 2,544,054 (2,468,450)
Reinsurance receivables 11,002,550 16,272,147
Ceded reinsurance payable (471,330) (2,028,480)
Accrued investment income (775,222) 228,371
Deferred policy acquisition costs (38,172) (550,921)
Prepaid reinsurance premiums 7,043,125 362,421
Other assets 1,148,082 (3,339,106)
Unpaid losses and loss adjustment expenses (3,496,463) (20,551,653)
Reserve for unearned premiums (6,339,545) (10,168,726)
Other liabilities 5,893,583 2,811,294
Other (196,563) 139,751
------------ ------------
Total adjustments 20,183,734 (18,267,383)
------------ ------------
Net cash provided by (used in) operating
activities 24,890,049 (16,481,612)
------------ ------------
Cash flows from investing activities:
Fixed maturities acquired (115,513,731) (110,700,002)
Equity securities acquired (9,053,126) (12,861,149)
Fixed maturities matured 4,771,241 12,282,382
Fixed maturities sold 50,860,611 108,992,647
Equity securities sold 8,664,371 17,114,242
Net sale of short-term investments 34,462,870 4,995,494
Acquisition of property, improvements
and equipment (19,865) (193,088)
------------- ------------
Net cash provided by (used in)
investing activities (25,827,629) 19,630,526
------------- ------------
Cash flows from financing activities:
Proceeds from stock issuance and other 134,863 1,655,271
Cash dividends paid to stockholders ----- (1,835,503)
Net sale of common stock ----- 66,011
Loan principal repayments (1,250,000) (2,500,000)
------------ ------------
Net cash used in financing activities (1,115,137) (2,614,221)
------------ ------------
Net increase (decrease) in cash (2,052,717) 534,693
Cash at beginning of period 2,881,077 552,322
------------ ------------
Cash at end of period $ 828,360 $ 1,087,015
============ ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
-5-
NYMAGIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1) The interim consolidated financial statements are unaudited but, in the
opinion of management, reflect all material adjustments necessary for a
fair presentation of results for such periods. Adjustments to financial
statements consist of normal recurring items. The results of operations for
any interim period are not necessarily indicative of results for the full
year. These financial statements should be read in conjunction with the
financial statements and notes thereto contained in the Company's Annual
Report on Form 10-K for the year ended December 31, 2001.
2) The Company's subsidiaries include two domestic insurance companies, three
domestic agency subsidiaries, and MMO London, which includes the operations
of MMO EU, Ltd. and MMO UK Ltd.
The financial information by segment is as follows:
SIX MONTHS ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30,
---------------- ------------------
2002 2001 2002 2001
---- ---- ---- ----
(in thousands)
Revenues, excluding net investment
income and net realized investment
gains (losses):
Domestic Insurance Companies/Agencies $55,674 $33,974 $30,682 $17,143
MMO London 2,945 6,246 643 2,082
Other (includes corporate operations and
consolidating adjustments) -- -- -- --
------- ------- ------- -------
Total $58,619 $40,220 $31,325 $19,225
======= ======= ======= =======
-6-
NYMAGIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002 AND 2001
SIX MONTHS ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ------------------
2002 2001 2002 2001
---- ---- ---- ----
(in thousands)
Net investment income:
Domestic Insurance Companies/Agencies $ 7,623 $ 8,782 $ 3,809 $ 4,339
MMO London 244 526 110 233
Other (includes corporate operations and
consolidating adjustments) 24 18 24 4
-------- -------- -------- --------
Total $ 7,891 $ 9,326 $ 3,943 $ 4,576
======== ======== ======== ========
Net realized investment gains (losses):
Domestic Insurance Companies/Agencies $(2,321) $ 487 $(1,735) $(1,686)
MMO London (450) 126 (449) 125
Other (includes corporate operations and
consolidating adjustments) -- 5 -- --
-------- -------- -------- --------
Total $(2,771) $ 618 $(2,184) $(1,561)
======== ======== ======== ========
Income (loss) before tax expense:
Domestic Insurance Companies/Agencies $ 8,491 $ 7,394 $ 4,185 $ 2,615
MMO London (501) (2,590) (475) (1,466)
Other (includes corporate operations and
consolidating adjustments) (1,310) (900) (806) (617)
-------- -------- -------- --------
Total $ 6,680 $ 3,904 $ 2,904 $ 532
======== ======== ======== ========
Income tax expense (benefit):
Domestic Insurance Companies/Agencies $ 2,511 $ 2,321 $ 1,246 $ 757
MMO London (118) 100 (140) (54)
Other (includes corporate operations and
consolidating adjustments) (419) (303) (240) (207)
-------- -------- -------- --------
Total $ 1,974 $ 2,118 $ 866 $ 496
======== ======== ======== ========
Net income (loss):
Domestic Insurance Companies/Agencies $ 5,980 $ 5,073 $ 2,939 $ 1,858
MMO London (383) (2,690) (335) (1,412)
Other (includes corporate operations and
consolidating adjustments) (891) (597) (566) (410)
-------- -------- -------- --------
Total $ 4,706 $ 1,786 $ 2,038 $ 36
======== ======== ======== ========
-7-
NYMAGIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002 AND 2001
3) The Company's comparative comprehensive income is as follows:
SIX MONTHS ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30,
------------------------ --------------------------
2002 2001 2002 2001
---- ---- ---- ----
(in thousands)
Net income $ 4,706 $ 1,786 $ 2,038 $ 36
Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on securities, net of
deferred tax benefit (expense) of
$177, $1,109 and $(811), $115 (328) (2,060) 1,506 (214)
Less: reclassification adjustment for
gains (losses) realized in net income, net of
tax benefit (expense) of
$970, $(216) and $764, $546 (1,801) 402 (1,420) (1,015)
Foreign currency translation adjustment (197) 140 (230) 465
----------- ----------- ---------- ----------
Other comprehensive income (loss) 1,276 (2,322) 2,696 1,266
----------- ----------- ---------- ----------
Total comprehensive income (loss) $ 5,982 $ (536) $ 4,734 $ 1,302
=========== =========== ========== ==========
4) Note payable. On June 27, 2002, the Company entered into a credit agreement
with a bank. The agreement combined the Company's existing credit agreements
together with a facility to fund future cash draw downs on the Company's issued
letter of credit (approximately $15.3 million at June 30, 2002). The interest
rate on the loan is fixed, at the Company's option, for a period of one to six
months. The interest rate is equal to the bank's Adjusted London Interbank
Offered Rate at the time of the interest rate adjustment period plus 2.5%.
Principal repayments are to be paid quarterly in equal installments of
$2,000,000, except for a payment of $2,500,000 on September 30, 2002, until all
letter of credit and existing loan obligations are repaid. If the Company earns
at least $10 million in 2002 and 2003, an additional repayment is required of
25% of net income in excess of $10 million but less than $15 million and 50% of
net income in excess of $15 million. Any loan balance outstanding on March 31,
2005 must be fully paid down. The Company has the option to prepay amounts in
excess of the required repayments.
The credit agreement requires the Company to maintain a minimum net
worth of $175,000,000 plus 50% of net income earned during each year on a
cumulative basis. In addition, other significant covenants include limitations
on total indebtedness, investment purchases, dividends to shareholders, pledging
and sales of assets and minimum net income. The Company's domestic insurance
subsidiaries are required to maintain a minimum amount of statutory surplus, and
its gross and net premiums written to surplus ratios and total liabilities to
surplus ratio are subject to certain limitations. In connection with the credit
agreement, the Company entered into a pledge agreement with the same bank which
requires the Company to pledge the common stock of its two domestic insurance
company subsidiaries to the bank and which becomes automatically effective in
the event that either of their AM Best ratings falls below A-.
-8-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
DESCRIPTION OF BUSINESS
NYMAGIC, INC., a New York corporation (the "Company" or "NYMAGIC"), is
a holding company which owns and operates the following insurance companies,
risk bearing entities and insurance underwriters and managers:
INSURANCE COMPANIES AND LLOYD'S CORPORATE CAPITAL VEHICLE:
---------------------------------------------------------
New York Marine And General Insurance Company - ("New York Marine")
Gotham Insurance Company - ("Gotham")
MMO UK, Ltd. - ("MMO UK")
MMO EU, Ltd. - ("MMO EU")
INSURANCE UNDERWRITERS AND MANAGERS:
-----------------------------------
Mutual Marine Office, Inc. - ("MMO")
Pacific Mutual Marine Office, Inc. - ("PMMO")
Mutual Marine Office of the Midwest, Inc. - ("Midwest")
New York Marine and Gotham each maintains an A.M. Best rating of A. The
Company's insureds rely on ratings issued by rating agencies. Any adverse change
in the rating assigned to the Company may adversely impact its ability to write
premiums and may impact the credit agreement referred to in Note 3 to the
Company's Consolidated Financial Statements, June 30, 2002 and 2001.
The Company specializes in underwriting ocean marine, inland marine,
aircraft and other liability insurance through insurance pools managed by MMO,
PMMO, and Midwest (collectively referred to as "MMO and affiliates") since 1964.
The Company announced in a press release, dated March 14, 2002, that it will
withdraw from writing any new or renewal aircraft policy, effective after March
31, 2002.
In addition to managing the insurance pools, the Company participates
in the risks underwritten for the pools through New York Marine and Gotham. All
premiums, losses and expenses are prorated among pool members in accordance with
their pool participation percentages.
In 1997, the Company formed MMO EU as a holding company for MMO UK,
which operates as a limited liability corporate vehicle to provide capacity, or
the ability to underwrite a certain amount of business, for syndicates within
Lloyd's of London. In 1997, the Company acquired ownership of a company, which
was subsequently renamed MMO Underwriting Agency, Ltd. and commenced
underwriting in 1998 as a Lloyd's managing agency for the Company's wholly owned
subsidiary MMO UK, which provided 100% of the capacity for Syndicate 1265. In
2000, the Company sold MMO Underwriting Agency Ltd. in exchange for a minority
interest in Cathedral Capital PLC and Syndicate 1265 was placed into runoff. In
2001, MMO UK provided approximately $13.6 million, or 11.2%, of the capacity for
Syndicate 2010, which is managed by Cathedral Capital. In 2002, MMO UK will not
be providing capacity to any Lloyd's syndicate. MMO EU, MMO UK, Syndicate 1265
and Syndicate 2010 are collectively hereinafter referred to as "MMO London".
-9-
RESULTS OF OPERATIONS
Net income for the second quarter ended June 30, 2002 totaled $2.0
million, or $.22 per diluted share, compared with $36,000, or $.00 per diluted
share, for the second quarter of 2001. Net income for the six months ended June
30, 2002 totaled $4.7 million, or $.51 per diluted share, compared with $1.8
million, or $.19 per diluted share, for the six months ended June 30, 2001.
Operating income, which excludes the effects of realized investment
gains or losses and non-recurring charges after taxes, totaled $4.4 million, or
$.48 per diluted share, for the second quarter of 2002, compared with $1.1
million, or $.11 per diluted share, for the same period of the prior year. For
the first six months of 2002, operating income was $7.5 million, or $.80 per
diluted share, compared with $1.4 million, or $.15 per diluted share, for the
first half of 2001.
Net realized investment losses after taxes in the second quarter of
2002 were $1.4 million, or $.15 per diluted share, compared with $1.0 million,
or $.11 per diluted share for the same period in 2001. Net realized investment
losses after taxes for the six months ended June 30, 2002 were $1.8 million, or
$.19 per diluted share, compared with net realized investment gains after taxes
of $402,000, or $.04 per diluted share, for the same period in 2001. During the
second quarter of 2002 non-recurring charges of $1.0 million after taxes, or
$.11 per diluted share, related to the reorganization of the Company's
management structure.
Net premiums earned for the three months and six months ended June 30,
2002 grew by 82% and 55%, respectively, when compared to the same periods of the
prior year.
NYMAGIC NET PREMIUMS WRITTEN
BY LINE OF BUSINESS SIX MONTHS ENDED JUNE 30, THREE MONTHS ENDED JUNE 30,
- ---------------------------- ----------------------------------------------------------------------------------
2002 2001 2002 2001
----------------------------------------------------------------------------------
(Dollars in thousands)
Ocean marine (a)..................... $33,761 58% $20,287 75% $19,759 63% $12,273 88%
Inland marine/fire................... 971 2% 277 1% 433 1% 192 1%
Aircraft............................. 17,559 30% (2,984) (11)% 8,208 26% (1,915) (14)%
Other liability...................... 5,873 10% 3,416 12% 3,115 10% 1,339 10%
Other (b)............................ (217) -- 6,203 23% (170) -- 2,075 15%
----------------------------------------------------------------------------------
Total................................ $57,947 100% $27,199 100% $31,345 100% $13,964 100%
==================================================================================
NYMAGIC NET PREMIUMS EARNED
BY LINE OF BUSINESS SIX MONTHS ENDED JUNE 30, THREE MONTHS ENDED JUNE 30,
- ---------------------------- ----------------------------------------------------------------------------------
2002 2001 2002 2001
----------------------------------------------------------------------------------
(Dollars in thousands)
Ocean marine (c).................... $28,055 49% $22,256 60% $15,611 52% $10,939 66%
Inland marine/fire.................. 910 2% 193 1% 447 2% 79 --
Aircraft............................ 23,644 41% 10,767 29% 12,335 41% 4,330 26%
Other liability..................... 2,645 5% 2,025 5% 1,281 4% 739 5%
Other (d)........................... 1,990 3% 1,764 5% 433 1% 429 3%
-----------------------------------------------------------------------------------
Total............................... $57,244 100% $37,005 100% $30,107 100% $16,516 100%
===================================================================================
-10-
(a) Includes net premiums written from MMO London of $426 and $(1,665) for the
six months ended June, 2002 and 2001, respectively; and $59 and $(55) for
the three months ended June, 2002 and 2001, respectively.
(b) Includes net premiums written from MMO London of $(312) and $6,044, for
the six months ended June, 2002 and 2001, respectively; and $(321) and
$2,027 for the three months ended June, 2002 and 2001, respectively.
(c) Includes net premiums earned from MMO London of $998 and $4,452 for the
six months ended June, 2002 and 2001, respectively; and $324 and $1,612
for the three months ended June, 2002 and 2001, respectively.
(d) Includes net premiums earned from MMO London of $1,888 and $1,648 for the
six months ended June, 2002 and 2001, respectively; and $282 and $404 for
the three months ended June, 2002 and 2001, respectively.
The domestic insurance companies/agencies segment reported an increase
of 76% in premiums earned for the six months ended June 30, 2002 to $54.4
million as compared to $30.9 million for the same period of the prior year
primarily as a result of rate increases across all lines of business and new
production opportunities. Net premiums earned by line of business within this
segment are listed as follows:
Ocean marine net premiums earned grew by 52% during the first six
months of 2002 when compared to the same period of the prior year and reflect
higher marine rates across its various classes, particularly in the rig class,
and additional production in the hull and marine liability classes. The Company
believes ocean marine premiums will grow throughout the year as the pricing
environment is expected to remain strong.
Aircraft net premiums earned grew 120% for the six months ended June
30, 2002 as a result of rate increases despite a reduction in policy count from
the same period of the prior year. Contributing to this increase were premium
surcharges for terrorism coverage after September 11, 2001. The Company recorded
approximately $20.8 million in gross premiums written from such premium
surcharges in 2002. No assurance can be given as to the continuance or renewal
of such premium surcharges in the future. In addition, net premiums written are
expected to decline in subsequent periods in the aircraft line as the Company is
not planning to write new or renewal aircraft policies subsequent to March 31,
2002.
Other liability net premiums earned rose in 2002 due to new production
opportunities arising from policies covering errors and omissions/professional
liability risks, additional production in existing classes and larger premium
rates on policy renewals. The prior year's amount reflected premiums earned from
an assumed auto liability reinsurance treaty which subsequently was not renewed.
Inland marine/fire premiums earned increased in 2002 over the prior
year due to a program insuring excess and surplus lines property risks,
additional premium volume and improved pricing.
Premiums earned from MMO London were down in 2002 by 53% to $2.9
million from $6.1 million in the prior year's first six months and reflected
reduced capacity for premium writings at Lloyd's. Premiums earned are expected
to further decrease in MMO London during 2002 when compared to 2001 as the
Company will not be providing capacity (the ability to write premiums) to any
Lloyd's syndicate for the 2002 underwriting year.
Net losses and loss adjustment expenses incurred as a percentage of net
premiums earned (the loss ratio) were 64.5% for the three months ended June 30,
2002 as compared to 84.6% for the same period of 2001. For the six months ended
June 30, 2002, the loss ratio was 64.9% compared to 79.7% for the same period of
the prior year. The domestic insurance companies reported lower overall loss
ratios in 2002 as a result of a decrease in the frequency and severity of losses
in the aircraft line. In addition, losses from the underwriting operations of
MMO London contributed to higher overall loss ratios in the prior year.
Policy acquisition costs as a percentage of net premiums earned for the
three months ended June 30, 2002 were 15.4% as compared with 21.2% for the same
period of the prior year. The same ratio was 16.3% for the six months ended June
30, 2002 as compared with 21.4% for the same period in 2001. The decrease was
primarily attributable to a lower aircraft expense ratio in the domestic
insurance companies as much of the premium surcharges in 2002 were recorded with
a nominal processing charge.
-11-
Net investment income for the three months and six months ended June
30, 2002 decreased by 14% and 15%, respectively, as compared to the same periods
of the prior year. The decreases reflect lower investment yields on new
investment purchases as well as larger positions in tax exempt securities in
2002.
Commission and other income decreased to $1.2 million for the three
months ended June 30, 2002 from $2.7 million for the three months ended June 30,
2001, and to $1.4 million for the six months ended June 30, 2002 from $3.2
million for the same period of the prior year. In 2001, larger profit
commissions were earned based upon the ceded results of aviation reinsurance
treaties.
General and administrative expenses increased by 21% to $10.4 million
for the six months ended June 30, 2002 as compared to $8.5 million for the same
period in 2001. The increase is principally attributable to $1.5 million in one
time charges resulting from the reorganization of the Company's management
structure in the second quarter of 2002.
Net realized investment losses were $2.2 million for the three months
ended June 30, 2002 as compared to $1.6 million for the same period of the prior
year. Net realized investment losses were $2.8 million for the six months ended
June 30, 2002 as compared to net realized investment gains of $618,000 for the
same period of 2001. The sale of fixed maturities contributed to realized losses
in the first six months of 2002 and realized gains in the prior year's first six
months. Write-downs from other than temporary declines in the fair value of
equity securities amounted to $1.2 million and $1.9 million for the six months
ended June 30, 2002 and 2001, respectively.
Total income taxes as a percentage of income before taxes decreased to
29.6% for the six months ended 2002 from 54.3% for the same period in 2001. The
percentage decline principally reflects prior year increases in the valuation
account for deferred income taxes with respect to loss carryforwards derived
from the operations of MMO London. The decline also results from increases in
tax exempt income in the current year.
LIQUIDITY AND CAPITAL RESOURCES
Cash and total investments increased from $369.0 million at December
31, 2001 to $391.4 million at June 30, 2002, which included $31.8 million in
cash and short-term investments. The increase is due in large part to net cash
provided by operating activities of $24.9 million during the first six months of
2002 and reflects increases in net premiums written and declines in net loss
payments.
In June, 2002, the Company entered into a credit agreement with a bank
that combined its existing credit agreements together with a facility to fund
future cash draw downs on the Company's issued letter of credit (approximately
$15.3 million at June 30, 2002). Principal repayments are to be paid quarterly
in equal installments of $2,000,000, except for a payment of $2,500,000 on
September 30, 2002, until all letter of credit and existing loan obligations are
paid. The Company may be required to make additional payments until all
obligations to the bank are completed, depending upon future years net income
exceeding certain levels. For a more complete description of the credit
agreement, see Note 3 to the Company's Consolidated Financial Statements June
30, 2002 and 2001.
There were no repurchases made of the Company's common stock during 2002.
The Company adheres to investment guidelines as prescribed by the
finance committee of the Board of Directors. The Company believes that such
guidelines were designed to provide the Company with adequate capital protection
and sufficient liquidity to meet existing obligations. The Company anticipates
that its cash and cash equivalents as of June 30, 2002 should be sufficient to
meet its liquidity requirements as of that date for the foreseeable future.
-12-
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The investment portfolio has exposure to market risks which includes
the effect of adverse changes in interest rates, credit quality, equity prices
and foreign exchange rates on the portfolio. Interest rate risk includes the
changes in the fair value of fixed maturities based upon changes in interest
rates. Credit quality risk includes the risk of default by issuers of debt
securities. Foreign currency risk includes exposure to changes in foreign
exchange rates on the market value and interest income of foreign denominated
investments. Equity risk includes the potential loss from changes in the fair
value of equity securities. With the exception of changes in the market value of
the Company's equity securities and fixed maturities, there have been no
material changes to the Company's exposure to market risks during the six months
ended June 30, 2002, as compared to those disclosed in the Company's financial
statements for the year ended December 31, 2001.
-13-
PART II - OTHER INFORMATION
ITEM 1. - LEGAL PROCEEDINGS
The Company is not currently involved in any legal proceedings other
than litigation all of which, collectively, is not expected to have a
material adverse effect on the business, financial condition or
results of operations of the Company.
ITEM 2. - CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. - DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of Shareholders on May 22, 2002.
The following matters were voted upon by the Company's shareholders:
1. Directors. The following persons were elected as Directors of the Board of
Directors, each to hold office until the next Annual Meeting of
Shareholders to be held in 2003.
TOTAL VOTES FOR TOTAL VOTES WITHHELD
EACH DIRECTOR FOR EACH DIRECTOR
--------------- --------------------
JOHN R. ANDERSON 8,385,112 11,866
GLENN J. ANGIOLILLO 8,382,912 14,066
ROBERT W. BAILEY 8,297,205 99,773
MARK W. BLACKMAN 8,382,912 14,066
JOHN N. BLACKMAN, JR. 8,382,912 14,066
A. GEORGE KALLOP 8,384,412 12,566
WILLIAM J. MICHAELCHECK 8,384,412 12,566
WILLIAM D. SHAW JR. 8,384,412 12,566
ROBERT G. SIMSES 8,384,412 12,566
GEORGE R. TRUMBULL, III 8,382,912 14,066
GLENN R. YANOFF 8,383,612 13,366
2) Election of Independent Public Accountants. KPMG LLP were elected as the
Company's independent public accountants for the current fiscal year of
the Company.
FOR AGAINST ABSTAIN
--- ------- -------
8,393,878 3,000 100
-14-
3) Approval of the adoption of the NYMAGIC, INC. 2002 Nonqualified Stock
Option Plan. Shareholders approved the 2002 Nonqualified Stock Option
Plan which is a successor equity plan to the Company's 1991 Stock Option
Plan.
FOR AGAINST ABSTAIN NON-VOTE
--- ------- ------- ---------
5,200,428 484,073 919,760 1,792,717
ITEM 5. - OTHER INFORMATION
The Company entered into a Severance Agreement with its Chief Financial
Officer, Thomas J. Iacopelli , which provides Mr. Iacopelli with severance
benefits in the event of a change in control of the Company.
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(i) Credit Agreement;
(ii) Severance Agreement between NYMAGIC, INC. and Thomas J. Iacopelli;
and,
(iii) Certifications pursuant to Section 906 of the Sarbanes - Oxley
Act of 2002.
(b) Reports on Form 8-K
The Company filed no reports on Form 8-K for the three months ended
June 30, 2002.
-15-
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.
NYMAGIC, INC.
--------------
(Registrant)
Date: August 14, 2002
/s/ George R. Trumbull
-------------------------------
George R. Trumbull
(Chief Executive Officer)
/s/ Thomas J. Iacopelli
-------------------------------
Thomas J. Iacopelli
(Chief Financial Officer)