On March 23, 1995, shareholders of American Premier Underwriters, Inc. ("American Premier") approved a transaction whereby the owners of 100% of AFC's Common Stock will exchange their shares for approximately 55% of the voting shares of a newly formed holding company, American Premier Group, Inc. ("New American Premier"), making AFC a subsidiary of New American Premier. In addition, American Premier will merge with a newly formed subsidiary of New American Premier and all shareholders of American Premier, including AFC and its subsidiaries, will receive shares of New American Premier common stock on a one-for-one basis. Consummation of the merger is pending receipt of a ruling from the Internal Revenue Service which is expected at the end of March or early April. See Note A to the financial statements.
Generally, over 90% of the dividends (including non-cash dividends) received from subsidiaries have been from GAI. Payments of dividends by GAI are subject to various laws and regulations which limit the amount of dividends that can be paid without regulatory approval. Under Ohio law, the maximum amount of dividends which may be paid without (i) prior approval or (ii) expiration of a 30 day waiting period without disapproval is the greater of statutory net income or 10% of policyholders' surplus as of the preceding December 31, but only to the extent of earned surplus as of the preceding December 31. The maximum amount of
Management of AFC has always believed in the use of leverage (borrowing funds at predetermined rates) to increase the return on its equity. Historically, AFC has relied more on the use of fixed-rate debt and preferred stock issuances in its financing activities. AFC borrows from both public and private sources, with parent only debt at December 31, 1994, coming almost entirely from public sources.
Whenever possible, AFC tries to do its financing on a long-term basis, even if the current costs associated are slightly higher. At December 31, 1994, the average maturity of AFC's borrowings on a parent only basis was approximately 7 years; the average interest rate on those borrowings was 10.7%. Comparable figures for three years ago are 8 years maturity and 11.6% stated interest rate (12.9% effective rate).
At December 31, 1994, AFC's mortgage-backed securities portfolio, which consisted primarily of collateralized mortgage obligations ("CMOs"), represented approximately 25% of AFC's bonds and mandatory redeemable preferred stocks. At that date, interest only (I/Os), principal only (P/Os) and other "high risk" CMOs represented approximately eight-tenths of one percent of AFC's total mortgage-backed securities portfolio. AFC invests primarily in CMOs which are structured to minimize prepayment risk. In addition, the majority of CMOs held by AFC were purchased at discounts to par value. Management believes that the structure and discounted nature of the CMOs will minimize the effect of prepayments on earnings over the anticipated life of the CMO portfolio. Substantially all of AFC's CMOs are rated "AAA" by Standard & Poor's Corporation and are collateralized primarily by GNMA, FNMA and FHLMC single-family residential pass-through certificates. The market in which these securities trade is highly liquid. Aside from interest rate risk, AFC does not believe a material risk (relative to earnings and liquidity) is inherent in holding such investments.
Sales of Federal Systems and Diversified Products and Services represent American Premier's revenues from systems and software engineering services and the manufacture and supply of industrial products and services. Sales of petroleum products reflect Spelling's revenues from petroleum marketing activities. Entertainment revenues reflect Spelling's television production and distribution operations.
Annuity receipts totaled $443 million in 1994, $400 million in 1993 and $360 million in 1992. Annuity receipts in 1994 increased 10.6% over 1993 due to strong growth in sales of single premium products. Receipts in 1993 increased primarily due to the introduction of new single premium products in the second half of 1992. Annuity surrender payments have averaged approximately 8% of statutory reserves over the past three years.
1993 compared to 1992 Benefits to annuity policyholders decreased $13 million (5%) in 1993 due to a reduction in rates being credited to policyholders. The effect of this decrease more than offset an increase of 7% in the average amount of accumulated policyholders' funds held.