felanders/preprocessed huggingface dataset:
Our net realized investment gains in 2015 and 2014 were $1.9 million and $3.1 million, respectively. The net realized investment gains in 2015 and 2014 resulted from normal turnover within our investment portfolio. We did not recognize any impairment losses during 2015 or 2014.
The carrying value of our fixed maturity investments represented 90.1% and 89.1% of our total invested assets at December 31, 2015 and 2014, respectively.
Our insurance subsidiaries establish their property and casualty insurance premium rates before they know the amount of losses and loss settlement expenses or the extent to which inflation may impact such expenses. Consequently, our insurance subsidiaries attempt, in establishing rates, to anticipate the potential future impact of inflation. Our insurance subsidiaries account for inflation in the reserving function through analysis of costs and trends and reviews of historical reserving results.
Our insurance subsidiaries seek to enhance their underwriting results by carefully selecting the product lines they underwrite. Our insurance subsidiaries’ personal lines products primarily include standard and preferred risks in private passenger automobile and homeowners lines. Our insurance subsidiaries’ commercial lines products primarily include business offices, wholesalers, service providers, contractors, artisans and light manufacturing operations. Our insurance subsidiaries have limited exposure to asbestos and other environmental liabilities. Our insurance subsidiaries write no medical malpractice liability risks.
On July 18, 2013, our board of directors authorized a share repurchase program pursuant to which we have the authority to purchase up to 500,000 additional shares of our Class A common stock at prices prevailing from time to time in the open market subject to the provisions of the SEC Rule 10b-18 and in privately negotiated transactions. We purchased 57,658 shares of our Class A common stock under this program during 2015. We did not purchase any shares of our Class A common stock under this program during 2013 or 2014. We have purchased a total of 57,658 shares of our Class A common stock under this program from its inception through December 31, 2015.
The weighted-average grant date fair value of options we granted during 2013 was $2.20. We calculated this fair value based upon a risk-free interest rate of 1.63%, an expected life of five years, an expected volatility of 23% and an expected dividend yield of 3%.
The registered capital increase of Anhou is in response to the promulgations of certain regulations by China Insurance Regulatory Commission (“CIRC”). On April 27, 2013, CIRC issued the Decision on Revising the Provisions of the Supervision and Administration of Specialized Insurance Agencies (the “Decision on Revising the Agency Provisions”), pursuant to which, CIRC has mandated any insurance agency established subsequent to the Decision on Revising the Agency Provisions to meet a minimum registered capital requirement of RMB50 million ($8,165,890). On May 16, 2013, CIRC issued Notice for Further Clarification on Related Issues of Access to Professional Insurance Intermediary Market (the “Notice”), pursuant to which, professional insurance agencies established prior to the issuance of the Decision on Revising the Agency Provisions, with registered capital less than RMB50 million ($8,165,890), can continue operation of their existing business within the provinces where they have the registered office or branch office, but shall not set up any new branches in any province where they do not have the registered office or any branch office.
Law Enterprise is a holding company for its operating subsidiaries in Taiwan. Law Broker primarily engages in insurance brokerage and insurance agency service business across Taiwan, while Risk Management and Law Agent are not active. We operate our Taiwan business primarily through Law Broker.
As a distributor of insurance products, we derive our revenue primarily from commissions and fees paid by insurance companies, typically calculated as a percentage of premiums paid by our customers to the insurance companies. We generate revenue primarily through our sales force, which consists of individual sales agents in our distribution and service network. The acquisition of AHFL enabled us to reach the untapped market in Taiwan. For the years ended December 31, 2014 and 2013, the revenue generated respectively from Taiwan and PRC is as follows:
The corporate structure as of December 31, 2015 is as follows:
At December 31, 2000 and 1999, the Company's carrying value of available for sale debt securities including debt securities pledged to creditors (herein after referred to as "total debt securities") represented 95% of the general account invested assets. For the same periods, $8.9 billion, or 79% of total debt securities, and $8.9 billion, or 78% of total debt securities supported experience rated products. Total debt securities reflected net unrealized capital gains of $126.9 million at December 31, 2000 and net unrealized capital losses of $247.9 million at December 31, 1999.
It is management's objective that the portfolio of debt securities be of high quality and be well-diversified by market sector. The debt securities in the Company's portfolio are generally rated by external rating agencies, and, if not externally rated, are rated by the Company on a basis believed to be similar to that used by the rating agencies. The average quality rating of the Company's debt security portfolio at December 31, 2000 and 1999 was AA.
Discontinued Operations include universal life, variable universal life, traditional whole life and term insurance.
Changes in shareholder's equity related to changes in accumulated other comprehensive income (unrealized capital gains and losses on securities including securities pledged to creditors, excluding those related to experience-rated contractholders) were as follows:
The Company is included in the consolidated federal income tax return of Lion through December 13, 2000. For tax settlements related to tax periods ending on or prior to December 13, 2000, the purchase agreement between ING America Insurance Holdings, Inc. and the former Aetna provides for the settlement of balances owed by the Company based on an amount approximating the tax the Company would have incurred were it not a member of the consolidated group, and owed to the Company for the use of its tax saving attributes in the consolidated federal income tax return.
The Company is also involved in other lawsuits arising, for the most part, in the ordinary course of its business operations. While the outcome of these other lawsuits cannot be determined at this time, after consideration of the defenses available to the Company, applicable insurance coverage and any related reserves established, these other lawsuits are not expected to result in liability for amounts material to the financial condition of the Company, although it may adversely affect results of operations in future periods.
Financial position on 31 Decemlber, 1907. CAPITAL fully subscribed (25 7o paid-up) Frs. 8,000,000. — RESERVE FUND ... . . . „ 1,000,000.— SPECIAL RESERVE . „ 700,000.—
Balance of Profit and Loss Account . . . .... 353,113 68
Income Tax Expense (Benefit). We had income tax expense of $173.0 million and income tax benefits of $170.7 million and $36.6 million in 2012, 2011 and 2010, respectively. Our income tax is primarily a function of the statutory tax rates coupled with the impact from tax-preferenced investment income. Variations in our effective tax rate generally result from changes in the relative levels of pre-tax income. The increases in tax expense were mainly due to the improvement in taxable income resulting from lower catastrophe losses in 2012. The 2012 income tax expense also reflects tax benefits of $17.5 million realized due to corrections of understatement in the deferred tax asset account and $31.9 million of tax benefits from a reduction in our reserve for uncertain tax positions due to the re-measurement of our exposure following the closing of an IRS audit. The tax benefit in 2010 resulted primarily from a tax audit settlement.
(2) Combined ratios have been computed for all years on a GAAP basis (see
Operating income by segment is shown in the chart below. Additional information on business segments is included in Note 20 of the Notes to Consolidated Financial Statements which are included in this document.
The costs of the year 2000 project and the date on which the Company believes it will complete the year 2000 modifications are based on management's best estimates, which were derived using numerous assumptions of future events, including the continued availability of certain resources, third party modification
The Company is subject to market risk exposures of varying correlations and volatilities, including foreign exchange rate risk, interest rate risk and equity price risk. The following disclosure reflects estimates of future performance and economic conditions. Actual results may differ.
The Company adopted SFAS No. 131 "Disclosures about Segments of an Enterprise and Related Information" ("SFAS No. 131") in 1998. SFAS No. 131 supersedes SFAS No. 14 "Financial Reporting for Segments of a Business Enterprise". SFAS No. 131 establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports. SFAS No. 131 also establishes standards for related disclosures about products and services, geographic areas, and major customers. The adoption of SFAS No. 131 did not affect results of operations or financial position, but did affect the disclosure of segment information (see note 20).
There are no other significant pending material legal proceedings to which the Company or its subsidiaries is a party or of which any of the properties of the Company or its subsidiaries is subject, except for claims arising in the ordinary course of business. In the opinion of management, the ultimate resolution of such litigation will not have a material effect on the financial condition of the Company.
To the Stockholders and Board of Directors of First Commonwealth, Inc.:
LHSCWI was incorporated in Wisconsin in 1996 and is a wholly owned subsidiary of FC Inc. LHSCWI is licensed to operate as a Limited Service Health Organization under Chapter 611 of the Wisconsin insurance statutes ("Statutes") and is registered with the Office of the Commissioner of Insurance of Wisconsin. The Statutes require, among other provisions, that LHSCWI meet certain net worth and deposit requirements discussed in Note 4. It is management's opinion that LHSCWI was in compliance with these provisions as of December 31, 1998, 1997 and 1996.
Depreciation is calculated using the straight-line method over the assets' estimated useful lives which are as follows:
It is management's opinion that the Company was in compliance with these provisions at December 31, 1998, 1997 and 1996.
Retail insurance brokerage companies principally serve businesses, public institutions and individual clients by placing P&C insurance coverage on their behalf with insurance carriers, or insurers, and providing risk management services. Through their knowledge of the insurance markets and strong relationships with insurers, insurance brokers assist their clients by negotiating competitive rates and policy
Also during 2005, we acquired the stock or substantially all of the assets of nine other insurance agencies and books of business for an aggregate preliminary purchase price of $55.9 million.
Total expenses. The $103.0 million increase in total expenses was due to the items noted above and, primarily, to an increase in acquisition integration expense of $8.3 million, an increase in amortization expense of $7.5 million due to the impact of recent acquisitions, an increase in interest expense of $6.5 million due to greater borrowings at higher interest rates, partially offset by a decrease in margin improvement plan expense of $4.2 million.
The $11.3 million increase in total expenses in 2006, compared to 2005, is primarily due to acquisitions and higher enrollment costs. The $14.1 million increase in total expenses in 2005, compared to 2004, was due primarily to product sales mix and the timing of core enrollment sales. As a percentage of revenues, total expenses were 101.3%, 83.7% and 85.9% in 2006, 2005 and 2004, respectively. The increase in total expenses as a percentage of revenues in 2006, compared to 2005, was primarily due to the revenue items noted above and to higher enrollment expenses. The decrease in total expenses as a percentage of revenues in 2005, compared to 2004, was primarily due to product sales mix and timing of core enrollment sales.
At December 31, 2006 and 2005, we had state NOL and tax credit carry-forwards of approximately $23.9 million and $67.0 million, respectively. Such loss and credit carry-forwards will expire from 2007 to 2026. We have provided a valuation allowance due to the uncertainty of the realization of the deferred tax assets related to the state NOL and tax credit carry-forwards. The amount of state NOL and tax credit carry-forwards for which a valuation allowance has been provided is $19.5 million and $67.0 million at December 31, 2006 and 2005, respectively.
An increase in our errors and omissions (“E&O”) lines primarily due to growth in our Brown & Brown Small Lawyers business
We recognized $41.3 million of net realized gains in 2010 compared to $9.2 million of net realized gains in 2009. Net realized gains and losses were generated from the sale of securities in the normal course of management of the investment portfolio. Our net realized gains for the year ended December 31, 2010 included the sale of the majority of our general obligation municipal obligations in the second quarter of 2010, the proceeds of which were reinvested in corporate bonds and agency mortgage-backed securities.
Cash flow from operations was $118.2 million, $103.9 million and $245.3 million in 2010, 2009 and 2008, respectively. The increase in cash flow from operations in 2010 compared to 2009 was primarily a result of improved collections on reinsurance recoverable as well as premiums receivable.
The Lloyd’s Operations recorded $5.9 million of net favorable development which included $11.0 million on Marine business concentrated in the liability specie and cargo books due to reported losses being less than our expectations in underwriting years 2004 to 2008 and $2.5 million on offshore energy business due to favorable loss trends in several years, partially offset by $4.7 million of adverse loss development in the professional liability books due to reported loss activity in excess of our expectations in the lawyers liability book of business for losses occurring in 2007 and $3.0 million in the property book due to an extension in the loss development pattern for the 2006 and 2007 underwriting years.
The net earned premium decreased 8.4% in 2010 primarily due to the reduction in net written premiums in our construction liability and D&O lines. In addition, there was a total of $11.2 million of net reinstatement premiums related to the Deepwater Horizon loss event. Net earned premiums increased 3.4% in 2009 reflecting overall decreased retention of the business written, higher average renewal rates in 2009, expansion of our professional liability business and overall business growth. These factors were partially offset by a decline in our property casualty business in 2009 as well as overall average renewal rate declines in 2008.
The 2010, 2009 and 2008 results included provisions of $0.5 million, $1.6 million and $0.7 million, respectively, for declines in the market value of securities which were considered to be other-than-temporary. The after-tax effects of such provisions on the 2010, 2009 and 2008 net income were $0.4 million, $1.2 million and $0.5 million, respectively.
The following tables provide GAAP ratios, net written premiums and earned insurance premiums for OneBeacon’s ongoing businesses and in total for the years ended December 31, 2005, 2004, and 2003:
OneBeacon’s total revenues for 2004 increased by 10% compared to 2003, due principally to an increase in earned premiums resulting primarily from the Atlantic Specialty Transaction. Total revenues for 2004 were also impacted by an increase in other revenues due mainly to the commencement of two new private equity funds that are consolidated as a result of OneBeacon’s significant investment in the funds.
White Mountains sold a portion of its investment in Montpelier common shares during the first quarter of 2004 resulting in a $35 million pre-tax realized gain and, as a result, changed the method of accounting for its remaining Montpelier common shares to the fair value method, resulting in a $33 million increase in after-tax unrealized gains in the first quarter of 2004.
Sirius International has the ability to pay dividends subject to the availability of unrestricted statutory surplus. Historically, Sirius International had allocated the majority of its earnings to the Safety Reserve (see “Safety Reserve” below). As a result, Sirius International currently has no unrestricted statutory surplus.
In May 2003, Fund American issued the Senior Notes for net proceeds of $693 million. Using proceeds from the Senior Notes, Fund American repaid the entire $615 million of term loans outstanding under its previous bank facility. In addition, on May 27, 2003, using the remaining $78 million in proceeds from the Senior Notes and cash on hand, Fund American repaid the entire $125 million of revolving loans outstanding under its previous bank facility. In connection with the repayment of its previous bank facility, Fund American paid an aggregate $56 million to unwind all of its existing interest rate swap agreements.
for litigation or arbitration. However, in the infrequent situations where a resolution is not possible, White Mountains Re will vigorously defend our position in such disputes.
Total combined Mutual and MNH or “group-wide” direct premiums written (DWP) for the year ended December 31, 2005 were $195,228,000, an increase of $4,090,000, or 2%, from $191,138,000 in 2004. The Company’s pro-forma share of combined direct premiums written in 2005, in accordance with the Reinsurance Pooling Agreement, was $58,569,000 compared to $66,900,000 in 2004. The table below shows a comparison of direct premiums written by major category in 2005 and 2004:
The Company has made no changes to its procedures for processing or reserving for commercial package and general liability claims and is not aware of any changes to its business that might have caused a change in loss development patterns.
The 31% decrease in group-wide involuntary DWP resulted primarily from a decrease in assignments from the NYAIP. DWP related to policies assigned from the NYAIP decreased to $2,783,000 for 2004 from $3,909,000 for 2003. NYAIP credits purchased reduced the Company’s share of the NYAIP. The credits purchased decreased DWP related to NYAIP assignments during 2004 by approximately $2,351,000 and by approximately $2,256,000 for 2003.
portfolio for declines in value that are other-than-temporary. This assessment requires significant judgment. The investment committee considers the nature of the investment, the severity and length of the decline in fair value, events specific to the issuer including valuation modeling, overall market conditions, and the Company’s intent and ability to retain the investment for a period of time sufficient to allow for any anticipated recovery in market value. When a decline in the fair value of a security is determined to be other-than-temporary, the Company adjusts the cost basis of that security to fair value and records a charge to earnings. Future increases in fair value and future decreases in fair value if not other-than-temporary are included in other comprehensive income.
The securities in the Company's portfolio are subject to economic conditions and market risks. The Company considers relevant facts and circumstances in evaluating whether a credit or interest-related impairment of a security is other-than-temporary. Relevant facts and circumstances include the extent and length of time the fair value of an investment has been below cost.
Other Expenses: Other operating expenses primarily include miscellaneous operating expenses of the trust division and other miscellaneous expenses of the title segment. These amounts typically fluctuate with transaction volume of the title segment and the trust division.
Cash flows from operating activities increased from 2010 to 2011, primarily due to the pace of the collection of receivables relative to sales, lower claim payments and the deferral of accounts payable and accrued liability payments. Cash and cash equivalents at year end increased approximately $9,900,000 from the prior year to approximately $18,000,000, due to cash provided by operating activities in 2011. Cash flows from operations have historically been the primary source of financing for expanding operations, additions to property and equipment, dividends to shareholders, and operating requirements.
The net effect of all activities on total cash and cash equivalents was an increase of $9,925,227 for 2011 and a decrease of $616,190 for 2010. As of December 31, 2011, the Company held cash and cash equivalents of $18,042,258, short-term investments of $14,112,262, fixed maturity securities of $85,407,365 and equity securities of $22,549,975.
The Level 2 category includes fixed maturity investments such as corporate bonds, U.S. government and agency bonds and municipal bonds. Their fair value is principally based on market values obtained from a third party pricing service. Factors that are used in determining their fair market value include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two sided markets, benchmark securities, bids, offers and reference data. The Company receives one quote per security from the pricing service, although as discussed below, the Company does consult other price resources when confirming that the prices it obtains reflect the fair values of the instruments in accordance with ASC 820, Fair Value Measurements and Disclosures. Generally, quotes obtained from the pricing service for instruments classified as Level 2 are not adjusted and are not binding. As of December 31, 2011 and 2010, the Company did not adjust any Level 2 fair values.
A reconciliation of income tax as computed for the years ended December 31 at the U.S. federal statutory income tax rate (34%) to income tax expense follows:
Investment Income. Investment income for the year ended December 31, 2006 increased by $3.7 million, or 29.8%, to $16.1 million from $12.4 million in the comparable 2005 period. The increase was primarily due to an increase in our average book yield to maturity which was 5.47% and 5.22% at December 31, 2006 and 2005, respectively. The increase in yield was due to the purchase of securities with higher yields. In addition, invested assets increased to $318.8 million at December 31, 2006 from $300.0 million at December 31, 2005.
The Company entered into a four-year lease agreement for the use of additional office space and equipment commencing on September 11, 2004. Rent expense for 2006, 2005 and 2004 was $212,400, $212,400 and $70,800, respectively.
As of December 31, 2006, there were no equity and preferred securities having an unrealized loss that were in a continuous unrealized loss position for less than twelve months. As of December 31, 2005, equity and preferred securities having an unrealized loss of $255,490 a fair value of $2,902,740 and an amortized cost of $3,158,230 were in a continuous unrealized loss position for less than twelve months.
at a gain for liquidity purposes. Our investment manager is restricted with respect to the sales of all securities in an unrealized loss position. These transactions require the review and approval by senior management prior to execution.
The Company’s $0.2 million of gross unrealized losses within the corporate - financial services sector has a fair value of $2.9 million. The majority of the unrealized loss within the financial services sector relates to the banking sub-sector. There are no individual issuers rated below investment grade in this sector which have an unrealized loss position greater than $0.2 million.
During 2013 and 2012, the Company did not receive a capital contribution from AUSA. In 2013 and 2012, the Company did not pay a dividend to AUSA.
Policy charge revenue decreased $0.4 million to $12.5 million during 2013, as compared to $12.9 million in 2012. The following table provides the changes in policy charge revenue by type for each respective period:
Fees and other income increased by $35 million, or 90%, from $39 million in 2001 to $74 million in 2002 primarily due to a full year of fee revenue from CORE, which was acquired on July 12, 2001. CORE fee revenue was $66 million in 2002, as compared to the half-year of revenue recorded in 2001 of $31 million.
Net realized losses on investments decreased by $1 million, or 1%, from $119 million in 2001 to $118 million in 2002. In 2002, we had other-than-temporary impairments of $85 million, as compared to $78 million in 2001. Impairments of available for sale securities in excess of $10 million in 2002 consisted of an $18 million writedown of fixed maturity investments in NRG Energy, a $12 million writedown of fixed maturity investments in AT&T Canada and an $11 million writedown of fixed maturity investments in MCI WorldCom. Impairments of available for sale securities in excess of $10 million in 2001 consisted of a $22 million writedown of fixed maturity investments in Enron.
For a description of our reserving methodology, see Note 15 of the Notes to Consolidated Financial Statements included elsewhere in this report.
Key sensitivities for group long-term disability claim reserves include the discount rate and claim termination rates. If the discount rate were reduced (or increased) by 100 basis points, reserves at December 31, 2003 would be approximately $52 million higher (or lower). If claim termination rates were 10% lower (or higher) than currently assumed, reserves at December 31, 2003 would be approximately $38 million higher (or lower).
As set forth in Note 15 of the Notes to Consolidated Financial Statements for the years ended December 31, 2003, 2002 and 2001, Group Disability incurred losses related to prior years were approximately $53 million more, $3 million less and $7 million less than the reserves that were previously estimated for the years ended December 31, 2003, 2002 and 2001, respectively. Group Disability reserves are estimated based on claims incurred in several prior years. The Group Disability reserve deficiency in 2003, and its related upward revision reflects the result of reserve adequacy studies concluded in the third quarter of 2003. Based on results of those studies, reserves were increased by $44 million, almost all of which was attributable to a reduction in the discount rate to reflect current yields on invested assets. The Group Disability reserve redundancies in 2002 and 2001, which were less than 1% of prior year reserves, arose as a result of our actual claim recovery rates exceeding those assumed in our beginning-of-year case reserves, after taking into account an offset of one less year of discounting reflected in the Company’s end-of-year case reserves.
For those product lines where there is exposure to catastrophes, we closely monitor and manage the aggregate risk exposure by geographic area, and we have entered into reinsurance treaties to manage exposure to these types of events.
Dividends to Policyholders. The policyholder dividends ratio for the Company's property and casualty insurance operation was 0.9% and 0.8% in 1998, and 1997, respectively. There were no dividends accrued in 1996. The Company believes that these ratios are low by industry standards. The low ratios are due primarily to the type of workers' compensation insurance policies written by the Company. Fremont's workers' compensation insurance policies are predominately written as non-participating, which means that they do not include provisions for dividend consideration. The dividends accrued in 1998 and 1997 were due mainly to the acquisition of Industrial. (See "Item 1. Business -- Property and Casualty Insurance Operation -- Policyholders' Dividends.")
Company's thrift issued, through the Fremont Home Loan Owner Trust 1999-1, its first securitization of these loans in the amount of approximately $415 million. This trust issued notes collateralized by a pool of these first lien residential mortgage loans. The notes are subject to an unconditional and irrevocable guarantee of timely payment of interest and ultimate payment of loan principal provided by a financial guarantee insurance policy (issued by Financial Security Assurance Inc.) Servicing of the loans will be provided by Fairbanks Capital Corporation. These notes have been rated AAA by Standard and Poor's and Aaa by Moody's.
that its level of reserves is sufficient to cover potential credit losses, Fremont's reserves could prove to be inadequate due to unanticipated adverse changes in economic conditions or discrete events that adversely affect specific borrowers, industries or markets. Any of these changes could impair Fremont's ability to realize the expected value of the collateral securing certain of its finance receivables.
The Company has evaluated all of its telephone systems to determine the extent of any Year 2000 Problems. The majority of the Company's telephone systems have been rendered Year 2000 compliant. The remaining non-compliant systems are expected to be compliant by June 30, 1999.
Corporate Interest and Amortization. Interest and amortization expenses were $10.1 million for the year ended December 31, 1996 compared to $7.8 million for the same period in 1995. Interest and amortization on the Senior Notes was $6.0 million for the year ended December 31, 1996 and $8.0 million for the comparable period in 1995. The 1996 amount was reduced due to the redemption of 35% of the principal amount of outstanding Senior Notes on April 8, 1996. Interest expense for the year ended December 31, 1996 also includes $1.4 million of interest and amortization expense on a $20.0 million bank facility established on the date of Merger, $2.2 million of interest and amortization on the Company's CI Notes and $0.5 million of interest and amortization related to the Archer acquisition.
Consolidated Net Investment Income and Net Realized Capital Gains (Losses). Consolidated net investment income, exclusive of realized and unrealized capital gains and losses, for 1996 was $44.1 million, an increase of $24.2 million, or 121%, over 1995. The improvement reflects the increase in invested assets principally from the net proceeds of Chartwell's public stock offering in the first half of 1996 and continued positive cash flow from operations of $12.2 million offset by a decline in the value of marked-to-market investments of $10.0 million. In addition, on June 28, 1996, the Company received $7.9 million in settlement of the Reserve Indemnification Agreement which further
Net Income Before Extraordinary Item. Net income before extraordinary item increased to $22.9 million for the year ended December 31, 1996 as compared to $6.2 million for the same period in 1995, and basic earnings per share increased 51.8% to $2.52 from $1.66 for the year ended December 31, 1995. Diluted earnings per share before extraordinary item increased 50.0% to $2.49 from $1.66. The largest components of these increases were increases in net investment income and income from service operations as described above. Basic and diluted after-tax operating income per share (which excludes net realized capital gains on the sale of investments) for the year ended December 31, 1996 increased 120.9% and 121.1%, respectively to $2.43 and $2.41, from $1.10 and $1.09, respectively, for the same period in 1995.
Results of Operations - Three Years Ended December 31, 2000, 1999 and 1998
Investors-IN is domiciled in the State of Indiana. Under the Indiana insurance code, a domestic insurer may make dividend distributions upon proper notice to the Department of Insurance, as long as the distribution is reasonable in relation to adequate levels of policyholder surplus and quality of earnings. Under Indiana law the dividend must be paid from earned surplus. Extraordinary dividend approval would be required where a dividend exceeds the greater of 10% of surplus or the net gain from operations for the prior fiscal year. Investors-IN had earned surplus of $ 23.8 million at December 31, 2000.
(3) Per share amounts and weighted-average number of common share amounts have been restated to reflect the two-for-one stock splits in 1996 and 1995.
As part of the Turnaround Plan, the Company decided that it was not in a position to make the investment in noncore markets required to achieve normalized operating results. Accordingly, the Company decided to withdraw from certain states, namely Pennsylvania, New Hampshire, Florida and Illinois, and focus on its core businesses of commercial and Medicare membership in New York, New Jersey and Connecticut. The Company was prohibited by the various state regulators from simply canceling the outstanding policies and immediately withdrawing from these noncore markets. As a result, the Company was required to continue to service the outstanding policies. Using these assumptions, the premium deficiency reserve aggregating $25.2 million was established for the noncore businesses in accordance with SFAS 5 and the AICPA Healthcare Audit Guide.
During the second quarter of 1998, the Company incurred a net loss of $507.6 million. At that time, the Company evaluated the deferred tax assets arising from the net loss and established a full valuation allowance pending the results of its Turnaround Plan. Subsequent to the second quarter of 1998, the Company performed detailed analyses to assess the realizability of the Company's deferred tax assets. These analyses included an evaluation of the results of operations for 1998 and prior periods, the progress to date in its Turnaround Plan and projections of future results of operations, including the estimated impact of the Turnaround Plan. Based on these analyses, the Company did not believe that it was more likely than not that all of its deferred tax assets would be fully realizable. The Company recorded a valuation allowance of $282.6 million.
On February 13, 1999, the Company entered into a Share Exchange Agreement (the "Exchange Agreement") with TPG, its affiliates and others to make an adjustment of the dividends payable on the shares of Series A Preferred Stock and Series B Preferred Stock in connection with the possible sale of shares of Preferred Stock by the holders thereof to institutional holders. Pursuant to the Exchange Agreement, the
Exchange gains in 2000 and 1999 arise from the translation of foreign currency assets and liabilities, primarily from exchange rate movements between U.K sterling and the U.S. dollar in the year.
The following table sets forth other revenues and expenses of the Company for each of the three years ended December 31, 2000 (U.S. dollars in thousands):
Investments in which the Company has significant influence over the operations are classified as affiliates and are carried under the equity method of accounting. Under this method, the Company records its proportionate share of income or loss from such investments in its results of operations.
(3) Corporate operating expenses include one-time charges of $17.5 million related to the merger with Mid Ocean.
The Company has minority investments ranging from 20% to 30% in several investment fund managers. The significant investments include Highfields Capital Management LP, a global equity investment firm, and MKP Capital Management, a fixed income investment manager specializing in mortgage-backed securities. The Company has invested in certain closed end funds, including funds managed by these investment fund managers, all of which are included in investment management companies and related investment funds, above.
On June 18, 1999, the Company merged with NAC in an all-stock transaction. Shareholders of NAC received 0.915 Company shares for each NAC share in a tax-free exchange. Approximately 16.9 million of the Company's ordinary shares were issued in this transaction. The merger transaction has been accounted for as a pooling of interests under U.S. GAAP.
Total pre-tax interest expense on the borrowings described above was $32.1 million, $37.4 million and $33.4 million for the years ended December 31, 2000, 1999 and 1998, respectively. Associated with the Company's bank and loan commitments are various loan covenants with which the Company was in compliance throughout the three-year period.
12. SHARE CAPITAL (CONTINUED) The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions:
The Company has a qualified defined contribution plan which is managed externally and whereby employees and the Company contribute a certain percentage of the employee's gross salary into the plan each month. The Company's contribution generally vests over 5 years.
NAC also maintains a qualified contributory defined contribution plan for substantially all its U.S. employees.
Unaudited condensed pro forma financial information shown below relates to the Company's acquisition of Mid Ocean in August 1998 and is based upon the assumption that Mid Ocean had been a part of the Company's operations since January 1, 1998.
Income Per Share: Net income per share is calculated by dividing net income by the weighted average number of common share and common equivalent shares outstanding. The weighted average number of common shares and common equivalent shares outstanding for each period was 18,810,752, 18,841,756 and 18,860,427 for 1994, 1995 and 1996, respectively.
Depreciation expense on property and equipment used in the business was $706 thousand, $1,037 thousand, and $1,415 thousand in each of the years 1994, 1995, 1996.
Deferred policy acquisition costs for the years ended December 31, 1994 1995 and 1996 are summarized as follows:
The table below presents a reconciliation of beginning and ending loss and loss adjustment expense reserves for the last three years:
On July 19, 1995, the Company issued $100 million of its 8.75% Senior Debentures due July 15, 2025. The Debentures are not subject to redemption or any sinking fund prior to maturity. The Debentures are unsecured and rank on parity with all of its other unsecured and unsurbordinated indebtedness. The Debentures contain covenants that limit the ability of the Company or its subsidiaries to issue, sell or otherwise dispose of shares of voting common stock of any Restricted Subsidiary and limit the ability of the Company or its subsidiaries to pledge the shares of capital stock of any subsidiary. The Debentures also place certain limitations on the Company's ability to consolidate or merge with or sell its assets substantially as an entirety. The Company used the proceeds from the sale to repay the $28,000,000 loan from United Investors Management Company,
Income from continuing operations before provision for income taxes increased by approximately $97,000, or 2%, to approximately $5,038,000 for the year ended October 31, 1999, as compared to approximately $4,941,000 for the same period in 1998, exclusive of the non recurring gain on settlement. For the year ended October 31, 1999, the Company had income from continuing operations before provision for income taxes of approximately $5,038,000 and recorded a provision for income taxes on continuing operations of approximately $1,949,000, as compared to income from continuing operations before provision for income taxes of approximately $5,442,000 and a provision for income taxes on continuing operations of approximately $2,138,000 in the same period in 1998. Income from continuing operations decreased approximately $215,000, or 7%, to approximately $3,089,000 for the year ended October 31, 1999 as compared to approximately $3,304,000 for the year ended October 31, 1998. The decrease in income from continuing operations is the result of the $500,000 non-recurring gain on settlement received in fiscal 1998.
INTERSTATE NATIONAL DEALER SERVICES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE YEARS ENDED OCTOBER 31, 2000
Reserve for claims represents claims that were approved for payment as of October 31, 2000 and 1999, but not paid as of those respective dates.
October 31, 2000 1999 1998 ---- ---- ---- Federal: Current $1,745,704 $1,967,697 $2,182,830 Deferred (689,251) (517,656) (480,872)
In February 1999, the Company formed a subsidiary, Uautobid.com, which developed an internet web site where a car buyer could purchase a new or used vehicle online directly from a participating dealer. In July 2000, after an extensive review and evaluation, the Company decided to abandon the operations of its Uautobid.com subsidiary. The Company determined that further investment in this operation was not prudent due to the higher level of risk associated with the rapidly changing and increasingly competitive internet car buying market.
Revenues $13,232,786 $15,347,002 $16,825,617 $16,249,220 Operating income 405,745 507,791 480,561 33,812 Income from continuing operations 653,826 740,644 837,548 638,640 Loss from discontinued operations (237,163) (261,021) (305,062) - Net income 416,663 479,623 532,486 638,640 Basic earnings per share Continuing operations .14 .16 .19 .15 Discontinued operations (.05) (.06) (.07) - Net income .09 .10 .12 .15 Diluted earnings per share Continuing operations .13 .15 .18 .14 Discontinued operations (.04) (.05) (.07) - Net income .09 .10 .11 .14
Interest expense for the year ended December 31, 1998 was $4,685,000 as compared to $8,146,000 in the prior year. Interest expenses was primarily related to the non-prime automobile financing business and the debt outstanding under the Company's senior credit facilities, securitized notes and subordinated and other debt. The senior credit facility and the securitized notes were repaid during 1998, primarily as a result of the collection of customer accounts in the ordinary course of business and the sale of automobile receivables. The decrease in interest expense of $3,461,000 is directly related to the sale of portfolio assets and the ceasing to operate as a non-prime automobile finance company.
Depreciation and amortization expense for the year ended December 31, 1998 was $438,000 as compared to $708,000 in the prior year. The decrease in depreciation and amortization expense of $270,000 is related to the closing of the company's Northeast operating center (November 1997) and Mid-Atlantic operating center (December 1998) and the related sale and write off of property and equipment.
The loss from continuing operations before income tax benefit was $15,108,000 as compared to a loss of $23,452,000 in the prior year. This loss is primarily attributable to the provision for credit losses ($12.5 million). The decrease in the loss from continuing operations of $8,344,000 is directly related to the write-off of goodwill and other intangible assets ($11.2 million) and the additional provision for credit losses on the acquired portfolio ($8.1 million) for the year ended December 31, 1996.
The Company's principal revenue source is the net interest income, or net spread, earned on its automobile receivables. This net spread is the differential between interest income received on loans receivable and the interest expense on related loans payable. The following table summarizes the
Depreciation and amortization expense for the year ended December 31, 1996 of $1,189,000 was primarily attributable to the amortization of goodwill and other intangible assets associated with the acquisition of FFC in December 1995. Approximately $784,000 of this amortization was related to the goodwill and other intangibles written off as of December 31, 1996.
The Company has sold a wide array of deferred and immediate variable annuities with (1) fixed interest rate allocation options, subject to a market value adjustment, that are registered with the United States Securities and Exchange Commission (the “SEC”), and (2) fixed-rate allocation options not subject to a market value adjustment and not registered with the SEC. In addition, the Company has a relatively small inforce block of variable life insurance policies, but it no longer actively sells such policies.
We amortize DAC and other costs over the expected lives of the respective contracts, based on our estimates of the level and timing of gross profits on the underlying product. Total gross profits include both actual gross profits and estimates of gross profits for future periods. In calculating gross profits, we consider mortality, persistency, and other elements as well as rates of return on investments associated with these contracts, the costs
Management monitors the liquidity of Prudential Financial, Prudential Insurance and the Company on a daily basis and projects borrowing and capital needs over a multi-year time horizon through our quarterly planning process. We believe that cash flows from the sources of funds available to us are sufficient to satisfy the current liquidity requirements of Prudential Financial, and the Company, including under reasonably foreseeable
Our regulatory capital levels are also affected by statutory accounting rules, which are subject to change by each applicable insurance regulator. As discussed above in “-Executive Summary-Regulatory Developments,” the NY DFS has notified us that it does not agree with our calculation of statutory reserves (including the applicable credit for reinsurance) for New York purposes in respect of certain variable annuity products. If we are ultimately required to establish material additional reserves on a New York statutory accounting basis or cause material amounts of additional collateral to be posted with respect to such variable annuity or other products, our ability to deploy capital for other purposes could be affected.
We also manage certain risks associated with our variable annuity products through arrangements with an affiliated captive reinsurance company. We reinsure variable annuity living benefit guarantees to Pruco Re. This enables Prudential Financial to aggregate these risks within Pruco Re and manage them more efficiently through a hedging program. We believe Pruco Re currently maintains an adequate level of capital and access to liquidity to support this hedging program. However, Pruco Re’s capital and liquidity needs can vary significantly due to, among other things, changes in equity markets, interest rates, mortality and policyholder behavior. Through our Capital Protection Framework, Prudential Financial holds on-balance sheet capital and maintains access to committed sources of capital that are available to meet these needs as they arise.
The following table provides information regarding the Company's allowance for credit losses as of December 31, 1996 and 1995:
At December 31, 1997 the Company had tangible net worth, as defined, of approximately $2.1 million and, accordingly, did not meet the tangible net worth standard under the CSFB facility. As of December 31, 1997, CSFB is no longer funding the acquisition of non-prime automobile receivables generated by the Company.
During the third quarter of 1997, the Company explored the sale of approximately $40 million of securitized notes backed by approximately $48 million of automobile receivables. However, several factors, including adverse market conditions, prevented the consummation of this transaction.