The increase in gross premiums written on the current underwriting year arises from:
Income Tax Expense. Income tax expense increased $1.2 million, to $17.8 million in 1996 from $16.6 million in 1995, as a consequence of the increase in operating income of the United Kingdom subsidiaries.
Other Operating Expenses. Other operating expenses increased 18.8% to $10.1 million in 1995 from $8.5 million in 1994. Other operating expenses as a percentage of net premiums earned increased to 4.0% in 1995 from 3.4% in 1994. The increase was due to an increase in the resources of the actuarial and finance departments during 1995 in response to the growth in size of the Company.
Total investments and cash were $1,290.5 million at December 31, 1996. At December 31, 1996, 86.8%, 9.3% and 3.9% of total investments and cash were held in fixed maturities, common stocks and cash and cash equivalents, respectively. At December 31, 1996, approximately 96% of the Company's fixed income investments were rated "A" or better by Moody's or S&P. The Company's investment portfolio earned interest and dividend income, net of investment management fees, of 6.3% and 6.7% in 1996 and 1995, respectively. The Company had realized investment gains of $11.8 million and $9.4 million in 1996 and 1995, respectively.
On February 26, 1997 the Company announced that net premiums written for 1997 would exceed 1996 by 40% primarily because of the large increase in the Company's participation in syndicates managed by Octavian.
. Notes to Consolidated Financial Statements - including summarized consolidated financial information of Terra Nova Insurance (UK) Holdings plc as of December 31, 1996 and 1995. 53
On December 21, 1994 Terra Nova (Bermuda) Holdings Ltd. acquired 94.83% of the outstanding shares of Terra Nova through its wholly owned subsidiary, Terra Nova Insurance (UK) Holdings plc ("UK Holdings"). On the same date, Terra Nova (Bermuda) Holdings Ltd. acquired 87.97% of the outstanding shares of Underwriters Capital (Merret) Limited ("UCM") which was renamed Terra Nova (Bermuda). The total purchase price and capital contributed by Terra Nova (Bermuda) Holdings Ltd. to acquire Terra Nova and Terra Nova (Bermuda) was $186,322,000 which approximates the fair value at December 31, 1994.
Agency income $8,998 Agency expenses 8,537 Amortization of goodwill 1,105 Net loss (818)
Proceeds from sales of investments in fixed maturity securities during 1996, 1995 and 1994, respectively, were $291,803,000, $207,581,000 and $282,145,000. Realized net capital gains on sale of fixed maturities for the years ended December 31, 1996, 1995 and 1994 included gross capital gains of $6,802,000, $2,947,000 and $2,722,000 and gross capital losses of $5,293,000, $2,014,000 and $6,291,000, respectively.
Due in one year or less $74,943 $75,422 Due after one year through five years 523,931 533,718 Due after five years through ten years 443,309 457,367 Due after ten years 52,943 53,024 ========== ========== $1,095,126 $1,119,531 ========== ==========
TERRA NOVA (PREDECESSOR) YEAR ENDED DECEMBER 31, DOLLARS IN THOUSANDS 1996 1995 1994 - ------------------------------------------------------------------------------
(f) Since 1983 the U.K. Inland Revenue had asserted that certain technical provisions should have been discounted in determining underwriting results for corporation tax purposes, although the Company did not accept discounting as an appropriate accounting policy nor the U.K. Inland Revenue's assertion in this regard. On January 26, 1996 the U.K. Inland Revenue withdrew their assertion and have stated that they currently have no intention of raising the issue in relation to the tax liability on all years prior to and including 1995. In March 1996, the Inland Revenue repaid all the taxes (including interest on the overdue amount) due to Terra Nova relating to this dispute.
during 1996. The release for doubtful accounts was $1,142,000, for the year ended December 31, 1996 and a charge to doubtful accounts of $3,000,000 and $3,890,000 was made for the years ended December 31, 1995 and 1994, respectively.
Insurance cover provided under Aviation policies issued by Terra Nova ceased upon the expiration of the last policy on December 31, 1992. However, Terra Nova may continue to receive payments from policyholders pursuant to existing contracts and to make payments under ceded reinsurance contracts. In addition, Terra Nova will continue to settle claims and make recoveries from its reinsurers. These future receipts and payments, together with the costs of running off the Aviation business, have been considered as part of estimating the loss from abandonment of Aviation business for periods up to December 31, 1994. However, as explained in Note 14, estimates of ultimate liabilities for losses and loss adjustment expenses may vary as a result of subsequent development. Following the Acquisition charges or credits resulting from changes in estimates after December 31, 1994 are reflected in continuing operations of the Company. Terra Nova estimates that in excess of 90% of Aviation liabilities will have been settled within three years after December 31, 1996.
Gross premiums written $4,432 $9,009 $5,856 Net premiums earned 1,624 4,668 (1,561) Losses and loss adjustment expenses, net 997 4,407 8,612 Other expenses 627 261 20 Net loss - - (6,830)
(b) Terra Nova (Bermuda)'s ability to pay dividends is subject to certain regulatory restrictions. Under the Insurance Act of 1978, amendments thereto and related regulations of Bermuda (the "Act"), Terra Nova (Bermuda) is required to file in Bermuda statutory financial statements and a statutory financial return. The Act also requires Terra Nova (Bermuda) to maintain certain measures of solvency and liquidity during the year.