The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the
For contracts with mortality risk, but with premiums paid for only a limited period (such as single premium immediate annuities with benefits paid for the life of the annuitant), the accounting treatment is similar to traditional contracts. However, the excess of the gross premium over the net premium is deferred and recognized in relation to the present value of expected future benefit payments.
Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations, with or without call or prepayment penalties, and because most mortgage-backed securities provide for periodic payments throughout their lives.
The Company had no investments on nonaccrual status as of December 31, 1996, compared to $0.6 million and $13.6 million at December 31, 1995 and 1994, respectively. The Company had no fixed maturities in default as to the payment of principal or interest at December 31, 1996 and 1995, compared to $13.6 million at December 31, 1994. During 1996, 1995, and 1994, the Company recorded writedowns of fixed maturities totaling $5.6 million, $6.4 million, and $0.4 million, respectively. Of the $5.6 million in 1996, $1.6 million of the writedowns were related to value impairments for credit risk.
During 1994, the Company transferred trading account securities with carrying values of $73.3 million to the actively managed fixed maturities category. The Company suspended trading account activities during 1994.
At December 31, 1996, Western had total mortgage loans of $122.7 million, or 1.3% of total invested assets, consisting of $89.6 million of commercial mortgages and $33.1 million of mortgage investments in junior and residual interests of CMOs ("CMO residuals"). Total mortgage loans at year-end 1996 increased by $36.2 million from year-end 1995. This increase reflects Western's reclassification during the second quarter 1996 of $43.5 million of investments from the credit-tenant loan category to the mortgage loan
The Company had no investments in any entity in excess of 10% of shareholders' equity, or $91.5 million, as of December 31, 1996, excluding investments issued, assumed or guaranteed by the U.S. government or U.S. government agencies. The Company's largest twenty non-U.S. government issuer concentrations were as follows:
Fixed maturities and equity securities: The estimated fair values for fixed maturities are based on quoted market prices, where available. For fixed maturities not actively traded, the estimated fair values are determined using values obtained from independent pricing services or, in the case of private placements, are determined by discounting expected future cash flows using a current market rate applicable to the yield, credit quality, and maturity of the securities. The estimated fair values for equity securities are based on quoted market prices.
Our report on the consolidated financial statements of Western National Corporation and its subsidiaries is included on page 46 of this Form 10-K. In connection with our audits of such consolidated financial statements, we have also audited the related financial statement schedules listed in the index on page 44 of this Form 10-K.