01—Abstract
Summary
Summary of the 10-K filed March 31, 1997. Cited figures are marked; the original filing is the authoritative source.
Risk Capital Holdings, Inc. ("RCHI") is a holding company whose wholly owned subsidiary, Risk Capital Reinsurance Company, writes traditional and finite risk property and casualty reinsurance, with an integrated strategy of investing a significant portion of its portfolio in equity securities of insurance and reinsurance companies, advised by Marsh & McLennan Risk Capital Corp. The company was incorporated in March 1995 and completed its initial public offering and concurrent direct sales in September 1995 for net proceeds of approximately $335.0 milliona, of which $328.0 million was contributed to Risk Capital Reinsurance.
At December 31, 1996, the company reported total assets of $432.5 millionb, stockholders' equity of $352.2 million ($20.68 per share), and statutory surplus of $334.3 million at its reinsurance subsidiary. For 1996, the company reported net premiums written of $72.5 million, net income of $4.1 million, or $0.24 per share, and a 1996 statutory composite ratio of 106.3%, compared with a domestic reinsurer aggregate of 103.5%. Approximately 45% of 1996 net premiums written came from unearned premium portfolios and other non-recurring transactions, and the filing states that 1996 results are not necessarily indicative of future results.
Management expects to record approximately $110 millionc of net premiums written in 1997 from 55 in-force treaties at January 1, 1997, excluding renewals and new treaties. The filing also highlights risks. Investment income is expected to be smaller and less predictable than that of competitors because of the equity-heavy portfolio, and realized and unrealized gains and losses may have a greater effect on results and equity.
The company has not yet received an A.M. Best rating, is licensed in only a limited number of states, and its reserves are estimates for a new reinsurer. Dividends are restricted under Nebraska insurance law, and the company did not declare any dividends in 1996.
02—Key points
Key Highlights
- Net premiums written of $72.5 million in 1996, with approximately 45% ($32.9 million) from unearned premium portfolios and other non-recurring transactions
- Net income of $4.1 million, or $0.24 per share, for 1996, versus $1.0 million, or $0.06 per share, for the June 23 to December 31, 1995 period
- Total assets of $432.5 million and stockholders' equity of $352.2 million ($20.68 per share) at December 31, 1996
- Statutory composite ratio of 106.3% in 1996, compared with a domestic reinsurer aggregate of 103.5%
- Cash and invested assets of $392.9 million at year-end 1996, with equity securities representing 37% of the investment portfolio at fair value
- Approximately 55 in-force treaties at January 1, 1997, with about $128 million of annualized in-force premiums and an expected approximately $110 million of 1997 net premiums written from those treaties
- No dividends declared in 1996; dividend payments are restricted under Nebraska insurance law and depend on the subsidiary's ability to pay
03—Questions
Frequently Asked Questions
What is the company's business model?
Risk Capital Holdings operates through Risk Capital Reinsurance Company, writing traditional and finite risk property and casualty reinsurance treaties, mainly sourced through intermediaries. It also invests a significant portion of its portfolio in equity securities of insurance and reinsurance companies, with advice from Marsh & McLennan Risk Capital Corp.
How profitable was the company in 1996?
The company reported net income of $4.1 million, or $0.24 per share, for 1996. The filing notes that approximately $32.9 million of net premiums written came from unearned premium portfolios and other non-recurring transactions, and that 1996 results are not necessarily indicative of future results.
What are the main risks highlighted in the filing?
Key risks include the cyclicality of the reinsurance industry, a portfolio concentrated in insurance-sector equities that can produce volatile and less predictable investment income, reserve estimates that may prove inadequate for a new reinsurer, reliance on intermediaries, the absence of an A.M. Best rating, limited state licensing, and restrictions on dividends under Nebraska law.
How well capitalized is the company?
At December 31, 1996, stockholders' equity was $352.2 million, or $20.68 per share, and statutory surplus of Risk Capital Reinsurance was approximately $334.3 million. The company states that it intends to keep its premium-to-surplus ratio at or below 0.7x, though it may underwrite at a higher ratio depending on opportunities.
What did the company's 1997 outlook look like at the time of filing?
The company estimated approximately $110 million of net premiums written over the twelve months ending December 31, 1997 from its 55 in-force treaties at January 1, 1997, excluding renewals and any new treaties bound during the year. It also said 1997 results may vary from quarter to quarter and could include operating losses.
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