Back to GetFilings.com
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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 March 31, 2003
-------------------------------------------------
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Transition Period Ended
------------------------------------------------
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
--------------- -------------
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes No X
--------------- -------------
On April 1, 2003 there were 9,706,498 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 2003 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 which 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, the occurrence of wars and acts of
terrorism, net loss retention, the effect of competition, the ability to
collect reinsurance receivables and the timing of such collections, the
availability and cost of reinsurance, the ability to pay dividends, regulatory
changes, and changes in the ratings assigned to the Company by rating agencies.
These risks could cause actual results for the 2003 year and beyond to differ
materially from those expressed in any forward-looking statements made. The
Company undertakes no obligation to update publicly or revise any
forward-looking statements made.
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, adequacy of
Asbestos/Environmental reserves, collectability of receivables from Equitas
and other events and estimates concerning the effects of litigation or other
disputes, as well as assumptions underlying 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-K, 10-Q and 8-K reports.
-2-
NYMAGIC, INC.
INDEX
Page No.
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets
March 31, 2003 and December 31, 2002 4
Consolidated Statements of Income
Three months ended March 31, 2003 and 5
March 31, 2002
Consolidated Statements of Cash Flows 6
Three months ended March 31, 2003 and
March 31, 2002
Notes to Consolidated Financial Statements 7
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
Item 4. Controls and Procedures 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 14
Item 6. Exhibits and Reports on Form 8-K 14
-3-
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
NYMAGIC, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
March 31, December 31,
2003 2002
---- ----
ASSETS
Investments:
Fixed maturities available for sale at fair value
(amortized cost $75,637,592 and $29,923,407) $ 76,716,387 $ 30,480,249
Equity securities available for sale at fair value
(cost $0 and $4,728,485) ---- 4,728,485
Limited partnerships at equity
(cost $45,000,000 and $37,500,000) 46,410,397 38,477,219
Short-term investments (at cost which approximates fair value) 312,035,904 355,803,960
------------ ------------
Total investments 435,162,688 429,489,913
------------ ------------
Cash 618,000 980,109
Accrued investment income 960,304 391,949
Premiums and other receivables, net 35,097,971 35,690,128
Reinsurance receivables, net 325,123,731 326,422,340
Deferred policy acquisition costs 7,680,626 7,708,186
Prepaid reinsurance premiums 7,381,890 6,397,405
Deferred income taxes 11,580,856 12,000,806
Property, improvements and equipment, net 717,219 731,406
Other assets 3,360,102 4,194,725
------------ ------------
Total assets $827,683,387 $824,006,967
============ ============
LIABILITIES
Unpaid losses and loss adjustment expenses $515,812,677 $516,002,310
Reserve for unearned premiums 46,777,202 45,399,375
Ceded reinsurance payable 17,833,657 19,718,427
Notes payable ---- 6,219,953
Other liabilities 16,169,169 15,714,152
------------ ------------
Total liabilities 596,592,705 603,054,217
------------ ------------
SHAREHOLDERS' EQUITY
Common stock 15,162,324 15,158,324
Paid-in capital 33,479,684 30,206,370
Accumulated other comprehensive income 701,217 361,947
Retained earnings 225,700,911 224,364,808
------------ ------------
275,044,136 270,091,449
Treasury stock, at cost,
5,455,826 and 5,855,826 shares (43,953,454) (49,138,699)
------------ ------------
Total shareholders' equity 231,090,682 220,952,750
------------ ------------
Total liabilities and shareholders' equity $827,683,387 $824,006,967
============ ============
The accompanying notes are an integral part of these consolidated financial statements.
-4-
NYMAGIC, INC.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
Three months ended March 31,
----------------------------
2003 2002
---- ----
Revenues:
Net premiums earned $21,696,560 $27,136,573
Net investment income 1,506,510 3,947,590
Net realized investment losses (32,606) (587,138)
Commission and other income 398,338 157,559
----------- -----------
Total revenues 23,568,802 30,654,584
----------- -----------
Expenses:
Net losses and loss adjustment expenses incurred 12,012,866 17,712,172
Policy acquisition expenses 4,182,324 4,655,691
General and administrative expenses 4,406,230 4,344,637
Interest expense 25,652 165,166
------------ -----------
Total expenses 20,627,072 26,877,666
---------- -----------
Income before income taxes 2,941,730 3,776,918
--------- ---------
Income taxes:
Current 785,971 378,554
Deferred 237,266 730,009
------- -----------
Total income tax expense 1,023,237 1,108,563
----------- -----------
Net income $ 1,918,493 $ 2,668,355
=========== ===========
Weighted average shares of common stock outstanding-basic 9,570,587 9,270,476
Basic earnings per share $ .20 $ .29
=========== ===========
Weighted average shares of common stock outstanding-diluted 9,659,942 9,295,223
Diluted earnings per share $ .20 $ .29
=========== ===========
Dividends declared per share $ .06 $ -----
=========== ===========
The accompanying notes are an integral part of these consolidated financial statements.
-5-
NYMAGIC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Three months ended March 31,
----------------------------
2003 2002
---- ----
Cash flows from operating activities:
Net income $ 1,918,493 $ 2,668,355
----------- ------------
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for deferred taxes 237,266 730,009
Net realized investment losses 32,606 587,138
Equity in earnings of limited partnerships (433,177) -----
Net bond amortization 18,319 390,444
Depreciation and other, net 81,103 90,919
Changes in:
Premiums and other receivables 592,157 10,316,503
Reinsurance receivables 1,298,609 4,735,480
Ceded reinsurance payable (1,884,770) 2,963,160
Accrued investment income (568,355) 94,745
Deferred policy acquisition costs 27,560 521,622
Prepaid reinsurance premiums (984,485) 974,587
Other assets 834,623 396,802
Unpaid losses and loss adjustment expenses (189,633) (2,571,504)
Reserve for unearned premiums 1,377,827 (1,509,581)
Other liabilities (127,373) 4,361,061
Other ----- 32,981
----------- ------------
Total adjustments 312,277 22,114,366
----------- ------------
Net cash provided by operating activities 2,230,770 24,782,721
----------- ------------
Cash flows from investing activities:
Fixed maturities acquired (49,562,500) (92,309,714)
Equity securities acquired ----- (4,387,375)
Limited partnerships acquired (7,500,000) -----
Fixed maturities matured ----- 4,304,188
Fixed maturities sold 3,850,885 23,975,154
Equity securities sold 4,658,759 4,226,754
Net sale of short-term investments 43,784,287 38,435,352
Acquisition of property, improvements and equipment (66,916) (9,986)
----------- ------------
Net cash used in investing activities (4,835,485) (25,765,627)
----------- ------------
Cash flows from financing activities:
Proceeds from stock issuance and other 62,559 126,258
Net sale of treasury stock 8,400,000 -----
Loan principal repayments (6,219,953) (1,250,000)
----------- ------------
Net cash provided by (used in) financing activities 2,242,606 (1,123,742)
----------- ------------
Net decrease in cash (362,109) (2,106,648)
Cash at beginning of period 980,109 2,881,077
----------- ------------
Cash at end of period $ 618,000 $ 774,429
=========== ============
Supplemental disclosures:
Interest paid $ 25,652 $ 73,540
Federal income tax (received) $(1,360,160) $ -----
The accompanying notes are an integral part of these consolidated financial statements.
-6-
NYMAGIC, INC.
Notes to Consolidated Financial Statements
March 31, 2003 and 2002
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, 2002.
2) The Company's subsidiaries include two insurance companies and three
insurance agencies. These subsidiaries underwrite commercial insurance in
four major lines of business. The Company considers ocean marine, inland
marine/fire, other liability, and aircraft as appropriate segments for
purposes of evaluating the Company's overall performance; however, the
Company has ceased writing any new policies covering aircraft risks
subsequent to March 31, 2002. The fifth segment, MMO London, includes the
operations of MMO EU, Ltd. and MMO UK, Ltd., its limited liability
corporate capital vehicle. Effective January 1, 2002 and in subsequent
years, MMO UK, Ltd. will no longer provide capacity to any Lloyd's
syndicate.
The financial information by segment is as follows:
Three Months Ended March 31,
---------------------------------------------------------------
2003 2002
---------------------------------------------------------------
(in thousands)
Income Income
Revenues (Loss) Revenues (Loss)
---------------------------------------------------------------
Ocean marine $15,506 $4,674 $11,801 $2,651
Inland marine/Fire 889 (25) 463 72
Aircraft 1,435 750 11,309 3,704
Other liability 3,806 41 1,364 (1,563)
MMO London --- --- 2,281 (14)
- -------------------------------------------------------------------------------------------------------
Subtotal 21,636 5,440 27,218 4,850
Net investment income 1,506 1,506 3,948 3,948
Net realized investment losses (33) (33) (587) (587)
Other income 460 460 76 76
General and administrative expenses --- (4,406) --- (4,345)
Interest expense --- (26) --- (165)
Income tax expense --- (1,023) --- (1,109)
- -------------------------------------------------------------------------------------------------------
Total $23,569 $1,918 $30,655 $2,668
----------------------------------------------------------------------------------------------
-7-
NYMAGIC, INC.
Notes to Consolidated Financial Statements
March 31, 2003 and 2002
3) The Company's comparative comprehensive income is as follows:
Three months ended
March 31,
------------------
2003 2002
---- ----
(in thousands)
Net income $1,918 $2,668
Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on securities, net of
deferred tax benefit (expense) of
$(171) and $988 318 (1,835)
Less: reclassification adjustment for
losses realized in net income, net of
tax benefits of
$11 and $205 (21) (382)
Foreign currency translation adjustment --- 33
------ ------
Other comprehensive income (loss) 339 (1,420)
------ ------
Total comprehensive income $2,257 $1,248
====== ======
4) The Company accounts for the grants of stock options under Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB 25") including the disclosure requirements of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock Based Compensation"
("SFAS 123") and Statement of Financial Accounting Standards No. 148,
"Accounting for Stock Based Compensation - Transition and Disclosure"
("SFAS 148"). Under APB 25, the Company records the difference, if any,
between the exercise price of the Company's stock options and the market
price of the underlying stock on the date of grant, as an expense over the
vesting period of the option.
The following table illustrates the effect on net income and earnings
per share if the Company had applied the fair value recognition provisions
of SFAS 123 and SFAS 148:
March 31, 2003 March 31, 2002
-------------- --------------
(in thousands)
Net income, as reported $1,918 $2,668
Add: Stock based employee
compensation expense included
in reported net income, net
of related tax effects 2 4
Deduct: Total stock-based
employee compensation expense
determined under fair value
based method for all awards,
net of related tax effects (89) (22)
Pro forma net income $1,831 $2,650
Earnings per share:
Basic EPS - as reported $.20 $.29
Basic EPS - pro forma $.19 $.29
Diluted EPS - as reported $.20 $.29
Diluted EPS - pro forma $.19 $.29
-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 insurance companies, risk bearing
entities and insurance underwriters and managers.
The Company's two insurance subsidiaries, New York Marine And General
Insurance Company ("New York Marine") and Gotham Insurance Company ("Gotham"),
each maintain a rating of A (Excellent) from A.M. Best Company, Inc. The
Company's insureds rely on ratings issued by rating agencies. Any adverse
change in the ratings assigned to New York Marine or Gotham may adversely
impact their ability to write premiums.
The Company specializes in underwriting ocean marine, inland
marine/fire and other liability insurance through insurance pools managed by
the Company's insurance underwriters and managers, Mutual Marine Office, Inc.,
Pacific Mutual Marine Office, Inc. and Mutual Marine Office of the Midwest,
Inc. In prior years, the Company issued policies covering aircraft insurance;
however, the Company has ceased writing any new policies covering aircraft
risks subsequent to March 31, 2002.
From 1997 to 2001, the Company provided capacity, or the ability to
underwrite a certain amount of business, to certain syndicates within Lloyd's
of London through MMO UK, Ltd. ("MMO UK"), a wholly owned limited liability
corporate capital vehicle. Effective January 1, 2002, MMO UK no longer
provided capacity to any Lloyd's syndicate. Business obtained through MMO UK
is hereinafter referred to as "MMO London".
-9-
Results of Operations
Net income for the three months ended March 31, 2003, was $1.9
million, or $.20 per share on a diluted basis, compared with $2.7 million, or
$.29 per diluted share, for the first quarter of 2002.
Realized investment losses after taxes, were $21,000, or $.00 per
diluted share, for the first quarter of 2003, as compared with $382,000, or
$.04 per diluted share, for the same period of the prior year.
As described in more detail in the table below, gross premiums
written, net premiums written and earned for the three months ended March 31,
2003 declined by 26%, 17% and 20%, respectively, when compared to the same
period of 2002. However, gross premiums written, net premiums written and
earned from the Company's core segments (ocean marine, inland marine/fire and
other liability) increased by 22%, 23% and 49%, respectively, in the first
quarter of 2003 over the same period of the prior year.
NYMAGIC Gross Premiums Written
by Segment Three months ended March 31,
- ------------------ --------------------------------------
2003 2002 Change
(Dollars in thousands)
Ocean marine .................. $22,098 $18,879 17%
Inland marine/fire............. 3,726 2,674 39%
Other liability................ 4,261 3,164 35%
--------------------------------------
Subtotal 30,085 24,717 22%
Aircraft....................... 1,551 17,086 (91%)
MMO London..................... --- 811 (100%)
--------------------------------------
Total.......................... $31,636 $42,614 (26%)
======================================
NYMAGIC Net Premiums Written
by Segment Three months ended March 31,
- ------------------ --------------------------------------
2003 2002 Change
(Dollars in thousands)
Ocean marine .................. $15,904 $13,579 17%
Inland marine/fire............. 1,082 538 101%
Other liability................ 3,707 2,758 34%
--------------------------------------
Subtotal 20,693 16,875 23%
Aircraft....................... 1,397 9,351 (85%)
MMO London..................... --- 376 (100%)
--------------------------------------
Total.......................... $22,090 $26,602 (17%)
======================================
NYMAGIC Net Premiums Earned
by Segment Three months ended March 31,
- ------------------ --------------------------------------
2003 2002 Change
(Dollars in thousands)
Ocean marine .................. $15,494 $11,721 32%
Inland marine/fire............. 889 463 92%
Other liability................ 3,806 1,364 179%
--------------------------------------
Subtotal 20,189 13,548 49%
Aircraft....................... 1,508 11,309 (87%)
MMO London .................... --- 2,280 (100%)
--------------------------------------
Total.......................... $21,697 $27,137 (20%)
======================================
-10-
Premiums for each segment are as follows:
o Ocean marine net premiums written and earned grew by 17% and 32%,
respectively, during the first three months of 2003 when compared to
the same period of the prior year and reflect higher ocean marine
rates across the various ocean marine classes, particularly in the
drill rig and hull classes, and additional production in the drill rig
and marine liability classes. The Company believes that net ocean
marine premiums will increase throughout 2003, but the rate of
increase in gross and net premiums written are expected to be
substantially lower in 2003 than they were in 2002.
The gross writings by class are as follows:
NYMAGIC Gross Premiums Written
for the Ocean Marine Segment Three months ended March 31,
- ------------------------------- --------------------------------------
2003 2002 Change
(Dollars in thousands)
Ocean marine liability ........ $9,599 $ 6,807 41%
Drill rig...................... 3,651 3,212 14%
Hull........................... 4,837 3,918 23%
War............................ 2,105 2,212 (5%)
Cargo.......................... 1,443 2,259 (36%)
Other marine................... 463 471 (2%)
---------------------------------------
Total.......................... $22,098 $18,879 17%
=======================================
o Inland marine/fire net premiums written and earned increased by 101%
and 92%, respectively, for the three months ended March 31, 2003 when
compared to the same period of last year largely due to an
underwriting program insuring excess and surplus lines property risks,
improved pricing and higher net loss retention levels.
o Other liability net premiums written and earned rose by 34% and 179%,
respectively, for the three months ended March 31, 2003 when compared
to the same period of 2002 due to additional production in existing
classes, higher net loss retention levels and larger premium rates on
policy renewals. Net premiums in the other liability line are
expected to increase in 2003 as premium rates are firm within this
line of business, but increases in premiums written are expected to
be substantially lower in 2003 than they were in 2002.
o Aircraft premiums have decreased substantially in 2003 as a result
of the Company having ceased writing new aircraft policies subsequent
to March 31, 2002.
o MMO London premiums earned have decreased substantially in 2003 as
the Company has not provided capacity (the ability to write premiums)
to any Lloyd's syndicate for the 2002 underwriting year and subsequent
years.
-11-
Net losses and loss adjustment expenses incurred as a percentage of net
premiums earned (the loss ratio) were 55.4% for the three months ended March
31, 2003 as compared to 65.3% for the same period of 2002. The Company
recorded lower loss ratios in 2003 for both the ocean marine and other
liability lines of business, which largely reflected the beneficial impact of
increased rates in those lines.
Policy acquisition costs as a percentage of net premiums earned (the
acquisition cost ratio) for the three months ended March 31, 2003 were 19.3%
as compared with 17.2% for the same period of the prior year. Premiums earned
in the first quarter of 2002 reflected larger amounts of aircraft premiums
which have a lower acquisition cost ratio than other lines of business. A
large part of the aircraft premium written in 2002 reflected premium
surcharges for terrorism coverage, which were recorded with a nominal
processing charge.
General and administrative expenses increased by 1% from $4.3 million to
$4.4 million for the three months ended March 31, 2003.
The Company's combined ratio (the loss ratio, the acquisition cost ratio
and general and administrative expenses divided by premiums earned) improved
to 95.0% for the first quarter of 2003 as compared with 98.4% for the same
period of 2002.
Net investment income for the three months ended March 31, 2003
decreased by 62% to $1.5 million from $3.9 million in the same period of the
prior year. The decrease reflects a lower investment yield on the investment
portfolio held in 2003 as a result of a substantial position held by the
Company in short-term investments. The relatively large level of short-term
investments held was a direct result of the sale of a substantial amount of
fixed maturity investments at the end of 2002. These sales were made in an
effort to reposition the investment portfolio and the reinvestment of funds
under the Company's investment strategy may take several months in 2003 to
implement fully. Income derived from limited partnership hedge fund
investments approximated $433,000 for the three months ended March 31, 2003.
The Company started to invest in hedge funds in the fourth quarter of 2002. As
of March 31, 2003 the investment in limited partnerships amounted to
approximately $46.4 million.
Commission and other income increased to $400,000 for the three months
ended March 31, 2003 from $158,000 for the same period in the prior year
primarily as a result of other income received from an arbitration settlement
in 2003.
Net realized investment losses were $33,000 for the three months ended
March 31, 2003 as compared to $587,000 for the same period in the prior year.
The sale of fixed maturities led to realized investment losses in the prior
year.
Total income taxes as a percentage of income before taxes increased to
34.8% in the first quarter of 2003 from 29.4% in the same period of 2002. The
increase in the percentage is principally the result of decreases in tax
exempt income in the current year.
Liquidity and Capital Resources
Cash and total investments increased from $430.5 million at December
31, 2002 to $435.8 million at March 31, 2003, which included $312.7 million in
cash and short-term investments. The level of short-term investments is a
direct result of the sale of a substantial amount of fixed maturity
investments at the end of 2002. These sales were made in an effort to
reposition the investment portfolio and the reinvestment of funds under the
Company's investment strategy may take several months in 2003 to implement
fully.
Cash flows from operating activities were $2.2 million for the three
months ended March 31, 2003 as compared to $24.8 million for the same period
in 2002. The prior year amounts reflect significant cash flows from aircraft
premiums as a result of premium surcharges for terrorism coverage. Cash flows
used in investing activities were also greater in the prior year's first
quarter as a substantial portion of the cash provided from operating
activities were then used in investing activities.
-12-
In 2002, the Company entered into a credit agreement with a bank. The
loan balance as of December 31, 2002 was $6.2 million. On February 7, 2003,
the Company repaid its entire loan balance outstanding to the bank following
the sale of equity to Conning Capital Partners VI, L.P. ("Conning") on January
31, 2003. In this transaction, Conning acquired 400,000 investment units from
the Company, each unit consisting of one share of the Company's common stock
and an option to purchase an additional share of common stock from the
Company. Conning paid $21.00 per unit resulting in $8.4 million in proceeds to
the Company. The option exercise price was based on a formula contained in the
Option Certificate (which was attached as an exhibit to the Company's current
report on Form 8-K filed on February 4, 2003). The Company used common stock
held in treasury to effect the transaction with Conning.
On March 12, 2003, the Company declared a dividend of six (6) cents per
share to shareholders of record on March 31, 2003, payable on April 8, 2003.
The Company did not declare or pay a dividend at any time during 2002.
During the first quarter of 2003, the Company granted options to certain
Directors to purchase 20,000 shares of the Company's common stock. The
exercise prices of the stock options were equal to the closing prices of the
Company's stock on the New York Stock Exchange on the dates of the underlying
stock grants.
Critical Accounting Policies
Management considers certain accounting policies to be critical with
respect to the understanding of the Company's financial statements. Such
policies require significant management judgment and the resulting estimates
have a material effect on reported results and will vary to the extent that
future events affect such estimates and cause them to differ from the
estimates provided currently. These critical accounting policies include
unpaid losses and loss adjustment expenses, allowance for doubtful accounts
and impairment of investments as described in the Company's Annual Report on
Form 10-K for the year ended December 31, 2002.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The investment portfolio has exposure to market risks which include
the effect on the portfolio of adverse changes in interest rates, credit
quality, equity prices and foreign exchange rates. 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. Equity risk includes the potential loss from changes in the
fair value of equity securities. Foreign currency risk includes exposure to
changes in foreign exchange rates on the market value and interest income of
foreign denominated investments. There have been no material changes to the
Company's exposure to market risks during the three months ended March 31,
2003, as compared to those disclosed in the Company's financial statements for
the year ended December 31, 2002.
Item 4. Controls and Procedures
Under the supervision and with the participation of management,
including the Company's Chief Executive Officer and Chief Financial Officer,
the Company evaluated the effectiveness of the design and operation of its
disclosure controls and procedures as defined in Rule 13a-14 under the
Securities Exchange Act of 1934 within 90 days of the date of this quarterly
report. Based upon that evaluation, the Company's Chief Executive Officer and
Chief Financial Officer concluded that the Company's disclosure controls and
procedures are effective in allowing timely decisions regarding disclosure.
There were no significant changes in the Company's internal controls or in
other factors that could significantly affect these controls subsequent to the
date of their evaluation.
-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
On January 31, 2003, Conning acquired 400,000 investment units from the
Company in a private placement exempt from registration under Section 4(2) of
the Securities Act of 1933. Each investment unit consisted of one share of the
Company's common stock issued out of treasury shares and an option to purchase
an additional share of common stock out of treasury shares. The option is
currently exercisable and expires on January 31, 2008. The option exercise
price is based on a formula contained in the Option Certificate (which was
attached as an exhibit to the Company's current report on Form 8-K filed on
February 4, 2003). Conning paid $21.00 per investment unit resulting in $8.4
million in proceeds to the Company. The Company used the proceeds on February
7, 2003 to repay the entire loan balance outstanding under its bank credit
agreement.
See Item 6(b) (Reports on Form 8-K) below.
Item 3. - Defaults Upon Senior Securities
None
Item 4. - Submission of Matters to a Vote of Security Holders
None
Item 5. - Other Information
None
Item 6. - Exhibits and Reports on Form 8-K
(a) Exhibits
99.1 Certification pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
99.2 Certification pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
(b) Reports on Form 8-K
A current report on Form 8-K was filed on February 4, 2003, (a)
reporting under Item 5 thereof that the Company had entered into a Securities
Purchase Agreement for the sale to Conning of 400,000 investment units, with
each unit consisting of one share of common stock issued out of treasury
shares and an option to purchase one additional share of common stock out of
treasury shares, (b) filing as exhibits under Item 7 thereof the Securities
Purchase Agreement, a Registration Rights Agreement and the Option
Certificate, each dated January 31, 2003, and (c) reporting under Item 5
thereof the appointment of an additional independent member of the board of
directors and the signing of a sublease for the Company's principal offices in
New York.
A current report on Form 8-K was filed on February 20, 2003, under
Item 9, incorporating by reference the Company's press release setting forth
our fourth-quarter and year-end 2002 financial results.
A current report on Form 8-K was filed on March 14, 2003, under
Item 9, incorporating by reference the Company's press release concerning the
declaration of a dividend and the appointment of an additional independent
member of the board of directors.
-14-
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: May 15, 2003 /s/ George R. Trumbull, III
------------------- ------------------------------------
George R. Trumbull, III
Chairman and Chief Executive Officer
Date: May 15, 2003 /s/ Thomas J. Iacopelli
------------------- -------------------------------------
Thomas J. Iacopelli
Chief Financial Officer and Treasurer
-15-
CERTIFICATION
I, George R. Trumbull, certify that:
1. I have reviewed this quarterly report on Form 10-Q of NYMAGIC, INC.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within these entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5.The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee
of the registrant's board of directors:
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls;
and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
May 15, 2003 /s/ George R. Trumbull, III
---------------------------------------
George R. Trumbull, III
Chairman and Chief Executive Officer
CERTIFICATION
I, Thomas J. Iacopelli, certify that:
1. I have reviewed this quarterly report on Form 10-Q of NYMAGIC, INC.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within these entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5.The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee
of the registrant's board of directors:
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls;
and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
May 15, 2003 /s/ Thomas J. Iacopelli
-----------------------------------
Thomas J. Iacopelli,
Chief Financial Officer