The Company's income before income taxes and extraordinary item for 1996 was $1,779,000. This income was primarily the result of the recognition of $4,291,085 of other income related to a legal settlement (see Discontinued Realtors' Errors and Omissions Program under Certain Events). In 1996, particularly in the first half, the Company continued to experience adverse loss development on discontinued lines of business. Adverse development on discontinued Farmowners and related lines amounted to $800,000. The Company's new Property and Casualty products, in particular Commercial Auto, had a positive underwriting result in 1996. The premium earned on this line has been continuing to grow.
Although the cumulative effects of inflation on premium growth cannot be fully determined, increases in the retail price of automobiles have generally resulted in increased amounts being financed which constitute the basis of premiums charged for credit insurance. Anticipated increases in automobile repairs also provide the primary basis for increases in extended service contract premium rates.
Subsequent to the Rights Offering, the Company commenced a Supplemental Offering to employees, agents and customers which concluded on September 30, 1996. Shares were offered under this Supplemental Offering at $2.25 per share. A total of 63,050 shares were subscribed for under this offering. No soliciting fees or other compensation were paid in connection with such offering. The net cash proceeds from these offerings have been used to repay intercompany advances ($2,647,000), for the redemption of Subordinated Notes which were not tendered in the Rights Offering ($600,000) and for general corporate purposes.
Reclassifications: Certain amounts in the 1995 and 1994 consolidated financial statements have been reclassified to conform with the 1996 presentation.
On July 31, 1996 this agreement was terminated. The obligations relating to the in-force business shall remain in effect until such business expires.
Net policy benefits $ 24,338 $ 20,118 $ 24,997 ========= ========= =========
In 1996, 1995 and 1994, the Company paid $1,100,000, $410,000 and $140,000, respectively, in federal income taxes.
December 31, 1996 1995 --------- --------- (Thousands of dollars) Deferred Tax Liabilities: Deferred policy acquisition costs $ 10,400 $ 10,656 Other 2,233 2,621 --------- --------- 12,633 13,277 --------- --------- Deferred Tax Assets: Deferred reinsurance commissions 4,819 5,420 Net operating loss carryforward 994 1,766 Insurance reserves 1,457 1,328 Unrealized losses on investments 204 119 Service contracts 1,900 1,757 Amount due reinsurers 277 - Other 228 95 --------- --------- Total deferred tax assets 9,879 10,485 Valuation allowance (1,924) (2,232) --------- --------- Net deferred tax assets 7,955 8,253 --------- --------- Net deferred tax liability $ 4,678 $ 5,024 ========= =========
ANIC, a wholly owned subsidiary of ACCEL, in the normal course of business, issued certain policy endorsements on Galaxy policies in 1992, some of which had pending claims open at the time of liquidation (see Note N).
The Acceleration Retirement Savings Plan became effective in 1985. During 1989, ACCEL's Board of Directors approved changes to this plan to include an ESOP and concurrently changed the plan name to the "Acceleration Retirement Savings and Stock Ownership Plan" ("Plan"). For 1996, 1995 and 1994 the Board authorized contributions to the Plan at a level that would fund a 100% match of the first 6% of each participating employees tax deferred contributions. The Company incurred a contribution expense for 1996, 1995 and 1994 of $187,000, $198,000 and $178,000, respectively.