Annual Report (Form 10-K), fiscal year 1993

Item 1. BUSINESS
ORGANIZATION AND SEGMENTS
Capital Holding Corporation (the "Company"), an insurance and diversified financial services holding company based in Louisville, Kentucky, was incorporated in Delaware in 1969 by Commonwealth Life Insurance Company ("Commonwealth Life"). The objective was to achieve earnings growth through acquisitions of other insurance companies and, thus, effect economies of scale and the sharing of commonly needed resources, while preserving the strengths of acquired companies' marketing operations.
Through affiliates of its Agency Group, Direct Response Group and Accumulation and Investment Group, the Company offers accumulation, life and annuity, accident and health and property and casualty insurance products. The Company's Banking Group affiliates provide consumer loans, deposits and other banking services.
Agency Group
By 1976, the Company had acquired Peoples Life Insurance Company ("Peoples Life") in Washington, D.C.; National Standard Life Insurance Company ("National Standard") in Orlando, Florida; Georgia International Life Insurance Company ("Georgia International") in Atlanta, Georgia; Home Security Life Insurance Company ("Home Security") in Durham, North Carolina; and several other companies that were subsequently merged into these affiliates. On October 1, 1985, Peoples Life and Home Security were merged to form Peoples Security Life Insurance Company ("Peoples Security") with headquarters in Durham. On March 31, 1987, the Company sold Georgia International to Southmark Corporation. On April 1, 1988, National Standard was merged into Commonwealth Life. On September 8, 1989, the Company acquired Southlife Holding Company and its primary operating companies, Public Savings Life Insurance Company ("Public Savings Insurance") and Security Trust Life Insurance Company ("Security Trust"). In December 1991 the Company created Capital Security Life Insurance Company ("Capital Security") with headquarters in Durham, as the successor to Public Savings Insurance. On November 14, 1991, the Company acquired Durham Corporation ("Durham") and its primary operating company, Durham Life Insurance Company ("Durham Life"), with headquarters in Raleigh, North Carolina. Agency Group's business is conducted primarily through four affiliates: Commonwealth Life, Peoples Security, Capital Security and Durham Life.
Direct Response Group
National Liberty Corporation ("National Liberty") in Valley Forge, Pennsylvania, was acquired on January 14, 1981, and added a nationwide direct marketing operation to what previously had been a regional, agent based marketing system. In addition, National Home Life Assurance Company ("National Home"), domiciled in Missouri, was also acquired as National Liberty's primary operating company, together with its principal subsidiaries, Veterans Life Insurance Company ("Veterans Life") and National Home Life Insurance Company of New York ("National Home NY").
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Item 1. (continued)
In 1979, Commonwealth Life's property and casualty operation was recapitalized, made a direct subsidiary of the Company and later renamed Capital Enterprise Insurance Company ("Capital Enterprise"). On December 31, 1986, the Company acquired Worldwide Underwriters Insurance Company ("Worldwide Insurance"), located in St. Louis, Missouri, and the personal lines property and casualty insurance business of the Wausau Insurance Companies. Concurrently, it made Capital Enterprise a direct subsidiary of Worldwide Insurance. These two affiliates, together with Capital Landmark Insurance Company, a subsidiary of Capital Enterprise, and Worldwide Underwriters Insurance Company of North Carolina, a subsidiary of Worldwide Underwriters Insurance, form the property and casualty line of business of the Company's Direct Response Group.
On January 15, 1993, Worldwide Insurance acquired Academy Insurance Group ("Academy") and its subsidiaries, Academy Life Insurance Company and Pension Life Insurance Company. Academy principally markets life insurance to active duty military service personnel.
Accumulation And Investment Group
In 1987, the institutional accumulation product business, previously managed in Agency Group, and the retail accumulation product business, previously managed by National Liberty, were moved to the Accumulation and Investment Group. Affiliates of Agency Group and Direct Response Group offer these institutional and retail accumulation products. In addition to the marketing and management of accumulation (investment-type) products, Accumulation and Investment Group manages the Company's insurance-related investment portfolios.
Banking Group
In April 1984, the Company acquired a controlling interest in First Deposit Corporation ("First Deposit"), located in San Francisco, California, which owns a consumer bank (First Deposit National Bank) and a credit card bank (First Deposit National Credit Card Bank). Ownership in First Deposit was increased each year until 1989 when the remaining shares were purchased. These affiliates form the Banking Group.
Financial information about business segments is included in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations.
PRODUCTS
Insurance
Commonwealth Life, Peoples Security, Capital Security, Durham Life, National Home, Veterans Life, National Home NY and Academy write a variety of individual, nonparticipating life insurance products. These include universal life contracts, traditional and interest-sensitive whole life insurance, term life insurance, endowments, accidental death and dismemberment coverage and premium waiver disability insurance.
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Item 1. (continued)
The following table progresses total life insurance in force for the year ended December 31, 1993: Total Life Insurance (dollars in thousands)
In force at December 31, 1992 $58,262,410
Sales and additions 18,483,161 76,745,571 Terminations: Surrender and Conversion 2,380,274 Lapse 6,664,218 Reinsurance - Other 1,714,575
Subtotal 10,759,067
In force at December 31, 1993 $65,986,504 (1)
Number of policies in force before reinsurance ceded at December 31, 1993 1,850,455 (1)
(1) Reinsurance assumed has been included. Reinsurance ceded has not been deducted.
Commonwealth Life, Peoples Security, Capital Security, Durham Life, National Home, Veterans Life, National Home NY and Academy also issue an assortment of individual accident and health insurance products. These include coverages for regular income during periods of hospitalization, scheduled reimbursement for specific hospital/surgical expenses and cancer treatments, hospice care, deductible and co-payment amounts not covered by other health insurance, lump sum payments for accidental death or dismemberment and benefits for death and injury resulting from an accident. Additionally, National Home and Academy offer a Medicare supplement product.
Worldwide Insurance, Capital Enterprise and their subsidiaries underwrite personal lines automobile, homeowners and umbrella liability coverages, mainly for standard and preferred risks.
Accumulation
The institutional line of accumulation products, offered through Commonwealth Life, Peoples Security and National Home, consists of fixed rate guaranteed investment contracts ("GICs") and floating rate GICs which can receive interest based on rates indexed to either short-, intermediate- or long-term rates. In addition, the institutional line includes Trust GICs where the plan sponsor owns and retains assets related to these contracts and Commonwealth Life and Peoples Security provide benefit responsiveness in the event that benefit requests and other contractual commitments exceed current cash flows. Further, Commonwealth Life and Peoples Security offer to institutional customers Total Return Account Contracts ("TRACs"), which guarantee the total return of selected indices without the additional transaction costs, including
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Item 1. (continued)
the S & P 500 Index, the Shearson Lehman Aggregate Index and the Government Corporate Index.
Through National Home, Commonwealth Life and Peoples Security, the Company offers retail products including immediate life annuities (primarily structured settlements), variable annuities, single premium and flexible premium deferred annuities and individual retirement annuities. Single premium deferred annuities and flexible premium deferred annuities are offered at a fixed interest rate on either a fixed or indexed basis. In addition, flexible premium deferred annuities are offered on a variable contract basis.
Banking
Banking Group affiliates offer both secured and unsecured loan accounts, as well as a broad range of deposit products. The receivables portfolio consists primarily of unsecured consumer loans which use a VISAR or MasterCardR credit card as the credit extension vehicle, a revolving cash loan product without a credit card, a secured line of credit using a VISAR or MasterCardR credit card, a home equity secured loan product called Select EquityR and insurance premium finance installment loans. Banking Group affiliates also offer fee-based products designed to suspend certain customer payment obligations in situations such as loss of income due to unemployment or disability. Deposit products include retail and institutional certificates of deposit and money market deposit accounts.
MARKETING
Agency Group markets individual insurance products primarily through home service agents, who call on customers in their homes to sell policies and provide related services. Home office and field associates, including individuals who provide direct customer sales and those who deliver service and support, are organized as Customer Service Units ("CSUs"), each of which operates under a single management structure, as opposed to the prior organization where marketing and administration were managed separately. There are 11 CSUs providing full service to customers in particular geographic and/or market segments. Substantially all of the home service representatives are employees of Agency Group affiliates and do not represent other insurers. Such representatives receive compensation from sales commissions and from renewal and service commissions. The compensation arrangement is designed to reward representatives who not only sell new policies, but who also effectively maintain and service in-force business to meet Company sales and persistency objectives. In addition to its home service sales organization, marketing partnerships have also been formed whereby products are distributed through the insurance and marketing organizations of third parties.
Direct Response Group primarily uses television and print media solicitation, direct mail, telephone and third-party programs to market its insurance products. Additional mail correspondence and telephone communications are used to follow up and close sales. Sponsored marketing programs are conducted through major banks, oil companies, department stores, associations and other businesses with large customer bases. Products are also marketed to active duty military personnel on military bases through Agents/Counselors. Property and casualty products are also marketed through some of the home service agents of Agency Group.
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Item 1. (continued)
Institutional accumulation products of the Accumulation and Investment Group are marketed through a small sales staff, bank trustees, municipal GIC brokers, GIC fund managers, brokers and direct marketing. Retail products are marketed through financial planners, stock brokerage firms, pension consultants, savings and loan associations, banks and other financial institutions.
Banking Group's consumer loan and deposit products are primarily marketed using direct mail and telemarketing channels and other direct response methods. Installment loans are primarily marketed through agents. In 1993, the Banking Group also entered into joint marketing arrangements with unaffiliated third parties whereby the Banking Group's consumer credit products would be endorsed by, or offered in connection with the products or services of, such third parties.
The Company's Agency Group affiliates concentrate their marketing efforts in the Southeast and Mid-Atlantic states, while the Direct Response, Accumulation and Investment and Banking Groups market their products nationwide.
RISK
Risk is integral to insurance but, as is customary in the insurance business, risk exposure is kept within acceptable limits. The Company's subsidiaries retain no more than $1,000,000 of life insurance and $250,000 of accidental death benefits for any single life. Excess coverages are reinsured externally. At December 31, 1993, approximately $4.6 billion, or approximately 6.9 percent of total life insurance in force, was reinsured with nonaffiliated insurance companies. The Company would become liable for the reinsured risks if the reinsurers could not meet their obligations.
The Company's life insurance affiliates in many cases require evidence of insurability before issuing individual life policies including, in some cases, a medical examination or a statement by an attending physician. Home office underwriters review that evidence and approve the issuance of the policy in accordance with the application if the risk is acceptable. Some applicants who are substandard risks are rejected, but many are offered policies with higher premiums or restricted coverages. As of December 31, 1993, approximately 1.9 percent of life insurance in force was represented by risks which were substandard at the time the policy was issued. The majority of individual health insurance is Direct Response Group business and written without evidence of insurability, relying on safeguards such as product design, limits on the amount of coverage, and premiums which recognize the resultant higher level of claims.
Banking Group's unsecured consumer loans are principally generated through direct mail solicitations sent to a prescreened list of prospective account holders, followed by credit verification. Four principles guide development of specific underwriting criteria for each mailing: (i) sufficient credit history; (ii) no unacceptable derogatory credit remarks; (iii) necessary income qualification; and (iv) no rapid increase in outstanding debt or credit availability.
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Item 1. (continued)
As a diversified financial services company, many of the Company's assets and liabilities are monetary in nature and thus are sensitive to changes in the interest rate environment.
Detailed discussions about the Company's investments are included in Note C to the Consolidated Financial Statements on pages 44 through 46 of the Company's 1993 Annual Report and Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations.
REGULATION
Insurance
The business of the Company's insurance subsidiaries is subject to regulation and supervision by the insurance regulatory authority of each state in which the subsidiaries are licensed to do business. Such regulators grant licenses to transact business; regulate trade practices; approve policy forms; license agents; approve certain premium rates; establish minimum reserve and loss ratio requirements; review form and content of required financial statements; prescribe type and amount of investments permitted; and assure that capital, surplus and solvency requirements are met. Insurance companies can also be required under the solvency or guaranty laws of most states in which they do business to pay assessments up to prescribed limits to fund policyholder losses or liabilities of insolvent insurance companies. They are also required to file detailed annual reports with supervisory agencies, and records of their business are subject to examination at any time. Under the rules of the National Association of Insurance Commissioners (the "NAIC"), a self-regulatory organization of state insurance commissioners, insurance companies are examined periodically by one or more of the regulatory authorities.
The NAIC adopted, in December of 1992, a "Risk Based Capital for Life and/or Health Insurers Model Act" (the "Model Act") which was designed to identify inadequately capitalized life and health insurers. The Model Act defines two key measures: (i) Adjusted Capital, which equals an insurer's statutory capital and surplus plus its Asset Valuation Reserve, plus half its liability for policyholder dividends, and (ii) Risk Based Capital. Risk Based Capital is determined by a complex formula which is intended to take into account the various risks assumed by an insurer. Should an insurer's Adjusted Capital fall below certain prescribed levels (defined in terms of its Risk Based Capital), the Model Act provides for four different levels of regulatory attention:
"Plan Level": Triggered if an insurer's Adjusted Capital is less than 100% but greater than or equal to 75% of its Risk Based Capital; requires the insurer to submit a plan to the appropriate regulatory authority that discusses proposed corrective action.
"Action Level": Triggered if an insurer's Adjusted Capital is less than 75% but greater than or equal to 50% of its Risk Based Capital; authorizes the regulatory authority to perform a special examination of the insurer and to issue an order specifying corrective actions.
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Item 1. (continued)
"Authorized Control Level": Triggered if an insurer's Adjusted Capital is less than 50% but greater than or equal to 35% of its Risk Based Capital; authorizes the regulatory authority to take whatever action it deems necessary.
"Mandatory Control Level": Triggered if an insurer's Adjusted Capital falls below 35% of its Risk Based Capital; requires the regulatory authority to place the insurer under its control.
Since the Adjusted Capital levels of the Company's insurance subsidiaries currently exceed all of the regulatory action levels as defined by the NAIC's Model Act, the Model Act currently has no impact on the Company's operations or financial condition.
The federal government does not directly regulate insurance business, except with respect to Medicare supplement plans; however, legislation and administration policies concerning premiums, age and gender discrimination, financial services and taxation, among other areas, can significantly affect the insurance business.
Banking
First Deposit's consumer banking subsidiaries are subject to federal and state regulation with respect to lending and investment practices, capital requirements, and financial reporting. The primary regulator for these consumer banking subsidiaries is the Office of the Comptroller of the Currency.
Holding Company
States have enacted legislation requiring registration and periodic reporting by insurance companies domiciled within their respective jurisdictions that control or are controlled by other corporations so as to constitute a holding company system. The Company and its subsidiaries have registered as a holding company system pursuant to such legislation in Kentucky, Missouri, North Carolina, New York, Illinois, Pennsylvania and New Jersey.
Insurance holding company system statutes and rules impose various limitations on investments in subsidiaries and may require prior regulatory approval for the payment of dividends and other distributions in excess of statutory net gain from operations on an annual noncumulative basis by the registered insurance company to the holding company or its affiliates.
Separate Accounts
Separate accounts of the Company's subsidiaries which offer retail variable annuities are registered with the Securities and Exchange Commission under the Investment Company Act of 1940 and are governed by the provisions of the Internal Revenue Code of 1986, as amended, pertaining to the tax treatment of annuities.
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Item 1. (continued)
COMPETITION
The insurance industry is highly competitive with over 2,000 life insurance companies competing in the United States, some of which have substantially greater financial resources, broader product lines and larger staffs than the Company's insurance subsidiaries. Additionally, life insurance companies face increasing competition from banks, mutual funds and other financial entities for attracting investment funds.
The Company's insurance subsidiaries differentiate themselves through progressive marketing techniques, product features, price, customer service, stability and reputation, as well as competitive credit ratings. The insurance subsidiaries maintain their competitive position by their focus on low risk/high return markets and an efficient cost structure. Other competitive strengths include integrated asset/liability management, risk management and innovative product engineering.
The credit card and consumer revolving loan industry business in which First Deposit's subsidiaries are engaged is also highly competitive. The industry has recently experienced consolidation, lower growth and rising charge-offs. Competitors are increasing their use of advertising, target marketing, pricing competition and incentive programs and have also announced changes in the terms of certain credit cards, including lowering the fixed annual percentage rate charged on balances or converting the annual percentage rate charged on balances from a fixed per annum rate to a variable rate. In addition, other credit card issuers have announced "tiered" or "risk-adjusted" rates under which the annual percentage rate for the issuer's most creditworthy customers is lowered.
In response to the competitive environment, First Deposit's subsidiaries have implemented a variety of new programs to attract and retain customers, including reducing interest rates on selected accounts. First Deposit's subsidiaries have generally retained the right to alter various charges, fees and other terms with respect to consumer credit accounts. In addition, the Banking Group has experienced steady growth in its secured loan products and is increasing its efforts to offer its products to underserved markets.
EMPLOYEES
The total number of persons employed by the Company and its subsidiaries was approximately 9,360 as of December 31, 1993, including an agency sales force of 3,609. The Company has approximately 350 employees.
FOREIGN OPERATIONS
Substantially all of the Company's operations are conducted in the United States.
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Item 2.



Item 2. PROPERTIES
Principal properties of the Company and its affiliates include home offices located in Louisville, Kentucky (Commonwealth Life) and Valley Forge, Pennsylvania (National Liberty and Worldwide Insurance), which are owned; and Louisville, Kentucky (Capital Holding Corporation), Durham, North Carolina (Peoples Security, Capital Security and Durham Life) and San Francisco and Pleasanton, California (First Deposit), which are leased.
Item 3.

Item 3. LEGAL PROCEEDINGS
The last subsection, titled "Legal Proceedings", of Note J - Commitments and Contingencies on page 53 of the Annual Report for the year ended December 31, 1993, is incorporated by reference.
Item 4.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
EXECUTIVE OFFICERS OF THE REGISTRANT
Name and Age Principal Occupation and Business Experience
Irving W. Bailey II Chairman of the Board of Directors, Capital Holding Age: 52 Corporation, since November 1988, and President and Chief Executive Officer, Capital Holding Corporation, since April 1988. President and Chief Operating Officer, Capital Holding Corporation, September 1987 to April 1988. Executive Vice President and Chief Investment Officer, Capital Holding Corporation, from February 1981 to September 1987. He was with Phoenix Mutual Life Insurance Company for 9 1/2 years, serving as Senior Vice President, Investments from 1979 to 1981 and Vice President, Investments from 1976 to 1979.
Robert L. Walker Senior Vice President - Finance and Chief Financial Age 43 Officer, Capital Holding Corporation, since August 1993. He served as Vice President and General Counsel, Capital Holding Corporation, from December 1991 to August 1993, and Vice President, Corporate Tax, Capital Holding Corporation, from March 1988 to December 1991. Prior to joining Capital Holding Corporation, he was with The Mead Corporation from 1975 to 1988, serving most recently as Tax Counsel.
Steven T. Downey Vice President and Controller, Capital Holding Age: 36 Corporation, since November 1993. He served as Director, Finance and Accounting - Accumulation and Investment Group, Capital Holding Corporation, from January 1993 to November 1993, and Second Vice President and Assistant Controller from August 1991 to January 1993. Prior to joining Capital Holding Corporation, he was with Ernst & Young, Certified Public Accountants, from 1978 to 1991.
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EXECUTIVE OFFICERS OF THE REGISTRANT (continued)
Name and Age Principal Occupation and Business Experience
Shailesh J. Mehta Executive Vice President, Capital Holding Age: 44 Corporation and President and CEO - Direct Response Group, Capital Holding Corporation, since August 1993. Also, President and CEO - Banking Group, Capital Holding Corporation, and Chairman of the Board, President and Chief Executive Officer of First Deposit Corporation (FDC) and subsidiaries since April 1988. He served as Executive Vice President and Chief Operating Officer of FDC from March 1986 until his selection as CEO. Prior to joining FDC, he served as Vice President, 1977 to 1982; Senior Vice President of Bank Operations, 1982 to 1985; and finally Executive Vice President, 1985 to 1986, of AmeriTrust Bank, Cleveland, Ohio. During his thirteen year tenure at AmeriTrust, he also served on the boards of AmeriTrust Venture Capital Corporation, AmeriTrust Development Bank, NationNet National ATM Network, and InstaNet National ATM Network. He is one of the founders of the Cirrus debit card network.
Lee Adrean President and CEO - Agency Group, Capital Holding Age: 42 Corporation, since August 1993. He served as Senior Vice President, Planning and Finance and Chief Financial Officer, Capital Holding Corporation, from December 1991 to August 1993, and Senior Vice President, Strategic Planning and Corporate Development, Capital Holding Corporation, from September 1990 to August 1993. Prior to joining Capital Holding Corporation, he was with Bain & Company, Inc. from 1979 to 1990, serving as Vice President, 1985 to 1990; Manager, 1982 to 1985; and Consultant, 1979 to 1982.
Joseph M. Tumbler President and CEO - Accumulation and Investment Age: 45 Group, Capital Holding Corporation, since November 1989. He served as Senior Vice President - Strategic Planning and Corporate Development, Capital Holding Corporation, from January 1988 to November 1989. Previously with National Liberty Corporation as Executive Vice President - Financial Marketing from September 1986 to January 1988. He was with CIGNA Corporation from 1978 to 1986, serving as Senior Vice President, International Life and Group, 1983 to 1986; Vice President, Planning, CIGNA Worldwide, Inc., 1981 to 1983; Director - Corporate Strategy, INA Corporation, 1978 to 1981.
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EXECUTIVE OFFICERS OF THE REGISTRANT (continued)
Name and Age Principal Occupation and Business Experience
Lawrence Pitterman Senior Vice President of Administration, Capital Age: 46 Holding Corporation, since January 1991. Previously with First Deposit Corporation as Vice President, Human Resources, from July 1990 to December 1990; Vice President, Corporate Communications, from 1989 to 1990; and Vice President, First Deposit Savings Bank, from 1987 to 1989. Prior to joining FDC, he served as Director, Human Resources, for Data General Corporation from 1983 to 1987.
Elaine J. Robinson Vice President and Treasurer, Capital Holding Age 45 Corporation, since December 1991, Second Vice President and Assistant Treasurer, Capital Holding Corporation, from November 1987 to December 1991, and Second Vice President, Corporate Finance, Capital Holding Corporation, from August 1987 to November 1987. Prior to joining Capital Holding Corporation, she was with Brown-Forman Corporation from 1971 to 1987, serving most recently as Assistant Vice President, Corporate Finance and Treasury.
Bruce E. Ogle Vice President and Corporate Auditor, Capital Holding Age 38 Corporation, since 1989. He served as Director, Marketing Support-Agency Group, Capital Holding Corporation, from 1987 to 1988, and as Manager, Computer Audit Function-Agency Group, Capital Holding Corporation, from 1984 to 1987.
Frederick C. Kessell Vice President and Chief Investment Officer - Age 45 Accumulation and Investment Group, Capital Holding Corporation, since 1988, and Vice President, Fixed Income Securities - Accumulation and Investment Group, Capital Holding Corporation from May, 1985 to 1988. Prior to joining Capital Holding Corporation, he was with Schroder Capital Management from 1979 to 1985, serving as Vice President.
PART II
Item 5.

Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Common Stock Dividend and Market Data, and Quarterly Price Ranges of Common Stock and Dividends Per Common Share on pages 32 and 34 of the Annual Report for the year ended December 31, 1993 are incorporated by reference.
Item 6.

Item 6. SELECTED FINANCIAL DATA
Selected Financial Data on pages 18 and 19 of the Annual Report for the year ended December 31, 1993, is incorporated by reference.
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PART II (continued)
Item 7.

Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Consolidated Results and Analysis on pages 18 and 19, Results by Business Segment on pages 20 through 31, Business Segment Data on pages 22 and 23, Supplemental Earnings Data on page 35 and Liquidity and Capital Resources and Inflation on pages 31 and 32 of the Annual Report for the year ended December 31, 1993, are incorporated by reference.
Item 8.


Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements of Capital Holding Corporation and Subsidiaries included on pages 37 through 53 and Quarterly Financial Data on page 34 of the Annual Report for the year ended December 31, 1993, are incorporated by reference.
Item 9.

Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
Item 10.



Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Election of Directors on pages 3 through 5 of the Proxy Statement for the Annual Meeting of Stockholders to be held May 11, 1994, is incorporated by reference.
Item 11.

Item 11. EXECUTIVE COMPENSATION
Compensation of Directors and Executive Officers on pages 5 through 14 of the Proxy Statement for the Annual Meeting of Stockholders to be held May 11, 1994, is incorporated by reference.
Item l2. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Security Ownership of Certain Beneficial Owners and Management on pages 1 and 2 and Compliance with Section 16(a) of the Securities Exchange Act of 1934 on page 18 of the Proxy Statement for the Annual Meeting of Stockholders to be held May 11, 1994, are incorporated by reference.
Item 13.


Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
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PART IV
Item 14.

Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) and (2)--The response to these portions of Item 14 is submitted as a separate section of this report.
(a) (3)--The response to this portion of Item 14 is submitted as a separate section of this report.
(b) No reports on Form 8-K were filed for the three month period ended December 31, 1993.
(c) Exhibits are submitted as a separate section of this report.
(d) Financial statement schedules are submitted as a separate section of this report.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, in the City of Louisville, and the Commonwealth of Kentucky, on the 16th day of February 1994: CAPITAL HOLDING CORPORATION
Irving W. Bailey II Irving W. Bailey II Chairman, President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities indicated on the 16th day of February 1994:
SIGNATURE TITLE
Irving W. Bailey II Chairman, President, Chief Executive Irving W. Bailey II Officer and Director
Robert L. Walker Senior Vice President and Robert L. Walker Chief Financial Officer
Steven T. Downey Vice President and Controller Steven T. Downey (Principal Accounting Officer)
John L. Clendenin Director John L. Clendenin
Director John M. Cranor III
Joseph F. Decosimo Director Joseph F. Decosimo
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SIGNATURE TITLE
Lyle Everingham Director Lyle Everingham
Raymond V. Gilmartin Director Raymond V. Gilmartin
J. David Grissom Director J. David Grissom
Watts Hill, Jr. Director Watts Hill, Jr.
F. Warren McFarlan Director F. Warren McFarlan
Martha R. Seger Director Martha R. Seger
Director Florence R. Skelly
Larry D. Thompson Director Larry D. Thompson
Director John L. Weinberg
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ANNUAL REPORT ON FORM 10-K
ITEM l4(a)(1), (2) and (3), (c) and (d)
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
FINANCIAL STATEMENT SCHEDULES
LIST AND INDEX OF EXHIBITS
YEAR ENDED DECEMBER 31, 1993
CAPITAL HOLDING CORPORATION
LOUISVILLE, KENTUCKY
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FORM 10-K--ITEM 14(a)(1) and (2)
CAPITAL HOLDING CORPORATION AND SUBSIDIARIES
INDEX OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
The following Consolidated Financial Statements of Capital Holding Corporation and Subsidiaries, included on pages 37 through 53 of the Annual Report for the year ended December 31, 1993, are incorporated by reference in Item 8:
Page
Consolidated Statements of Income - Years Ended December 31, 1993, 1992 and 1991 37
Consolidated Statements of Financial Condition - December 31, 1993 and 1992 38-39
Consolidated Statements of Cash Flows - Years Ended December 31, 1993, 1992 and 1991 40
Consolidated Statements of Shareholders' Equity - Years Ended December 31, 1993, 1992 and 1991 41
Notes to Consolidated Financial Statements 42-53
The following financial statement schedules and the related Report of Independent Auditors are included in Item 14(d):
Schedule I - Summary of Investments - Other Than Investments in Related Parties Schedule III - Condensed Financial Information of Registrant Schedule V - Supplementary Insurance Information Schedule VI - Reinsurance Schedule IX - Short-term Borrowings
Information required in Schedule VIII, "Valuation and Qualifying Accounts," is included in Note C to the consolidated financial statements of Capital Holding Corporation and subsidiaries, incorporated herein by reference. All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and, therefore, have been omitted.
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REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders Capital Holding Corporation
We have audited the consolidated financial statements of Capital Holding Corporation and subsidiaries listed in the accompanying Index to financial statements (Item 14(a)). Our audits also included the financial statement schedules listed in the Index at Item 14(a). These financial statements and schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Capital Holding Corporation and subsidiaries at December 31, 1993 and 1992, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1993, in conformity with generally accepted accounting principles. Also, in our opinion, the financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.
ERNST & YOUNG
Louisville, Kentucky February 9, 1994
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SCHEDULE III--CONDENSED FINANCIAL INFORMATION OF REGISTRANT - CONTINUED
CAPITAL HOLDING CORPORATION (PARENT COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
In the parent company only condensed financial statements, the Company's investment in subsidiaries is stated at cost plus equity in undistributed income of subsidiaries since date of acquisition. The condensed financial statements of the parent company should be read in conjunction with the Consolidated Financial Statements and Notes of Capital Holding Corporation and Subsidiaries.
Note A Federal Income Tax
The Company files a consolidated federal income tax return with certain of its subsidiaries. The federal income tax benefit in the accompanying condensed financial statements reflects the Company's allocable share of the consolidated provision. See Note G to the Consolidated Financial Statements of Capital Holding Corporation and Subsidiaries for a description of the components of the consolidated federal income tax provision.
Note B Long-Term Debt
Long-term debt of the Company at December 31, 1993 and 1992 consisted of Debentures and Notes in the amount of $587,750,000. See Note H to the Consolidated Financial Statements of Capital Holding Corporation and Subsidiaries for a description of the terms and aggregate maturities of the Company's long-term debt.
Note C Common Stock
On February 17, 1993, the Board of Directors declared a two-for-one stock split of the Company's common stock effected in the form of a stock dividend. The stock dividend was payable on April 30, 1993, to holders of record on April 15, 1993.
Note D Preferred Stock
The Company has 6,000,000 shares of preferred stock, par value $5, authorized for issuance in series.
Redeemable Cumulative Preferred Stock Held By Subsidiary The Company has designated 827,400 shares of preferred stock as redeemable cumulative preferred stock to be issued in different series with varying annual dividend rates. The shares outstanding at December 31, 1993 and 1992 were 707,400 and 768,600, respectively. The subsidiary has the right, on an annual basis, to waive receipt of dividends and has waived any dividends payable through 1993. The characteristics of the redeemable preferred stock are as follows:
SCHEDULE III--CONDENSED FINANCIAL INFORMATION OF REGISTRANT - CONTINUED
CAPITAL HOLDING CORPORATION (PARENT COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS - NOTE D - CONTINUED
Shares outstanding Dividend Shares Year at December 31 Period of Series rate authorized issued 1993 1992 redemption B 12.25% 57,400 1980 57,400 65,600 1991-2000 C 14.00% 120,000 1981 120,000 135,000 1992-2001 D 15.00% 90,000 1982 90,000 100,000 1993-2002 E 14.25% 135,000 1982 135,000 150,000 1993-2002 G 12.00% 237,000 1983 117,000 130,000 1993-2002 H 11.50% 100,000 1984 100,000 100,000 1994-2003 I 12.00% 88,000 1984 88,000 88,000 1994-2003 827,400 707,400 768,600
Mandatory pro-rata sinking fund payments are required to redeem 10% of each series of redeemable preferred stock annually, beginning approximately ten years after issuance at $100 per share. As the shares are redeemed, they are retired thereby reducing the total authorized shares. The Company redeemed the following shares of cumulative preferred stock in 1993: 8,200 of the Series B; 15,000 of the Series C; 10,000 of the Series D; 15,000 of the Series E; and 13,000 of the Series G. The aggregate amount of mandatory pro-rata sinking fund payments required for redemption of the redeemable preferred stock in each of the following years are: 1994-$8,000,000; 1995-$8,000,000; 1996-$8,000,000, 1997-$8,000,000 and 1998-$8,000,000. The Company shall have the annual non-cumulative option to double any sinking fund payment subject to an aggregate limitation of 25% of the total issue. The redeemable preferred stock is non-callable for approximately ten years and callable thereafter at $105 per share plus accrued dividends. However, in the event the Company is required to obtain approval of a specified percentage of the holders of the issue to effect a merger, consolidation, or sale of assets and such approval is denied, then the Company may redeem the preferred stock in its entirety at $100 per share plus accrued dividends.
Noncumulative Convertible Junior Preferred Stock On November 14, 1991, the Company issued 1,918,200 shares of Noncumulative Convertible Junior Preferred Stock, Series J, par value $5, in connection with the acquisition of Durham Corporation. Effective June 16, 1993, each outstanding share of Series J preferred stock was exchanged for 5.55 shares of the Company's common stock and all rights of the holders of Series J preferred stock, including the rights to receive dividends, were terminated.
Adjustable Rate Cumulative Preferred Stock In 1982, the Company issued 1,000,000 shares of Adjustable Rate Cumulative Preferred Stock, Series F, par value $5, at face value of $100 per share. See Note I to the Consolidated Financial Statements of Capital Holding Corporation and Subsidiaries for a description of the terms and dividend rate of the Series F Preferred Stock. On March 2, 1994, the Company redeemed the preferred stock for cash at face value.
Note E Management and Service Fees
The Company provides its subsidiaries with general management support, including services in the data processing, human resources, legal and financial areas. The related charges are billed to the subsidiaries being serviced as management fees, and are computed using various allocation methods which are, in the opinion of management, reasonable in relation to services rendered.
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FORM 10-K--ITEM 14(a)(3) AND (c)
CAPITAL HOLDING CORPORATION AND SUBSIDIARIES
LIST AND INDEX OF EXHIBITS
Reference Number Per Exhibit Exhibit Table Description of Exhibit Number Page
(3) Certificate of Incorporation as amended 3.1 - on October 17, 1991. (Incorporated by reference as Exhibit 3.1 of the Company's Annual Report on Form 10-K for the year ended December 31, 1991.)
(3) By-Laws of Capital Holding Corporation as 3.2 - amended on February 17, 1988. (Incorporated by reference as Exhibit 3.3 of the Company's Annual Report on Form 10-K for the year ended December 31, 1989.)
(4) Indenture dated April 1, 1983 between 4.1 - the Company and Connecticut National Bank (as successor to National Westminster Bank USA) for Debt Securities (which now are 8 3/4% Sinking Fund Debentures due January 15, 2017 and Medium Term Notes due 1995 to 2022). (Incorporated by reference as Exhibit 4.2 to Registration Statement on Form S-3, Registration No. 2-82957 filed with the Commission on April 8, 1983.)
(4) Supplemental Indenture, dated 4.2 - September 1, 1989, between the Company and Connecticut National Bank (as successor to National Westminster Bank USA), Supplements the Indenture dated April 1, 1983, between the Company and Connecticut National Bank (as successor to National Westminster Bank USA). (Incorporated by reference as Exhibit 4.1 of Form 8-K dated September 18, 1989.)
(4) Capital Holding Corporation 1987 4.3 - Shareholder Rights Agreement as amended on November 4, 1992. (Incorporated by reference as Exhibit 4.5 of the Company's Annual Report on Form 10-K for the year ended December 31, 1992.)
(4) Indenture between the Company and 4.4 - Morgan Guaranty Trust Company of New York, as Trustee, dated as of January 1, 1994. (Provided as part of electronic submission).
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FORM 10-K--ITEM 14(a)(3) AND (c)
CAPITAL HOLDING CORPORATION AND SUBSIDIARIES
LIST AND INDEX OF EXHIBITS (CONTINUED)
Reference Number Per Exhibit Exhibit Table Description of Exhibit Number Page
(10) Capital Holding Corporation 1981 10.1 - Stock Option Incentive Plan, through August 7,1991 (Incorporated by reference as Exhibit 10.1 of the Company's Annual Report on Form 10-K for the year ended December 31, 1990.)
(10) 1991 amendments to 1981 Stock Option 10.2 - Incentive Plan and 1989 Stock Option Plan. (Incorporated by reference as Exhibit 10.2 of the Company's Annual Report on Form 10-K for the year ended December 31, 1991.)
(10) Capital Holding Corporation 1981 Tax- 10.3 - Qualified Stock Option Plan, as amended. (Incorporated by reference as Exhibit 10.2 of the Company's annual Report on Form 10-K for the year ended December 31, 1990.)
(10) Employment Agreement between Capital 10.4 - Holding Corporation and Irving W. Bailey II. (Incorporated by reference as Exhibit 10.6 of the Company's Annual Report on Form 10-K for the year ended December 31, 1987.)
(10) Descriptions of Company's Management 10.5 - Incentive Plan, First Deposit Corporation's Annual Incentive Plan and Company's Long-Term Incentive Plan. (Incorporated by reference to the descriptions of the Incentive Compensation Plans as described on Pages 6 and 7 of the Proxy Statement for the Annual Meeting of Stockholders held May 1, 1992.)
(10) Capital Holding Corporation 1989 Stock 10.6 - Option Plan, through August 7, 1991. (Incorporated by reference as Exhibit 10.6 of the Company's Annual Report on Form 10-K for the year ended December 31, 1990.)
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FORM 10-K--ITEM 14(a)(3) AND (c)
CAPITAL HOLDING CORPORATION AND SUBSIDIARIES
LIST AND INDEX OF EXHIBITS (CONTINUED)
Reference Number Per Exhibit Exhibit Table Description of Exhibit Number Page
(10) Amendment to Employment Agreement 10.7 - between Capital Holding Corporation and Irving W. Bailey II. (Incorporated by reference as Exhibit 10.7 of the Company's Annual Report on Form 10-K for the year ended December 31, 1989.)
(10) Employment Agreements between 10.8 - Capital Holding Corporation and Joseph M. Tumbler. (Incorporated by reference as Exhibit 10.8 of the Company's Annual Report on Form 10-K for the year ended December 31, 1989.)
(10) Employment Agreements between Capital 10.9 - Holding Corporation and Lee Adrean, Shailesh J. Mehta and Lawrence Pitterman. (Incorporated by reference as Exhibit 10.9 of the Company's Annual Report on Form 10-K for the year ended December 31, 1990.)
(10) Employment Agreements between Capital 10.10 - Holding Corporation and Frederick C. Kessell and Robert L. Walker. (Incorporated by reference as Exhibit 10.11 of the Company's Annual Report on Form 10-K for the year ended December 31, 1991.)
(10) First Deposit Corporation Equity Unit 10.11 - Plan. (Incorporated by reference as Exhibit 10.12 of the Company's Annual Report on Form 10-K for the year ended December 31, 1991.)
(10) Capital Holding Corporation Deferred 10.12 - Compensation Plan for Deferral of Payments under the Capital Holding Corporation Management Incentive Plan. (Incorporated by reference as Exhibit 10.13 of the Company's Annual Report on Form 10-K for the year ended December 31, 1991.)
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FORM 10-K--ITEM 14(a)(3) AND (c)
CAPITAL HOLDING CORPORATION AND SUBSIDIARIES
LIST AND INDEX OF EXHIBITS (CONTINUED)
Reference Number Per Exhibit Exhibit Table Description of Exhibit Number Page
(10) Capital Holding Corporation Deferred 10.13 - Compensation Plan under the Capital Holding Corporation Long-Term Incentive Plan. (Incorporated by reference as Exhibit 10.14 of the Company's Annual Report on Form 10-K for the year ended December 31, 1991.)
(10) First Deposit Corporation Deferred 10.14 - Compensation Plan under the First Deposit Corporation Annual Incentive Plan. (Incorporated by reference as Exhibit 10.15 of the Company's Annual Report on Form 10-K for the year ended December 31, 1991.)
(10) Descriptions of Capital Holding 10.15 - Corporation Supplemental Non-qualified Thrift Savings Plan and Non-qualified Pension Agreements. (Incorporated by reference to the descriptions of the Retirement Plans and Thrift Savings Plan as described on pages 7 through 9 of the Proxy Statement for the Annual meeting of Stockholders held May 1, 1992.)
(10) Capital Holding Corporation Stock 10.16 - Ownership Plan (Incorporated by reference as Exhibit 10.17 of the Company's Annual Report on Form 10-K for the year ended December 31, 1992.)
(12) Computation of ratio of earnings to fixed 12.1 35 charges (Provided as part of electronic transmission.)
(13) Portions of the Annual Report for the year 13.1 - ended December 31, 1993. (Provided as part of electronic transmission.)
(21) List of subsidiaries. (Provided as part 21.1 37 of electronic transmission.)
(23) Consent of independent auditors. (Provided 23.1 39 as part of electronic transmission.)
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