(4) Effective January 1, 1992, the Company adopted SFAS 106, which changed the method of accounting for certain postretirement benefits.
In 1994, transfer agent revenue increased $5.9 million primarily due to increased shareholder transaction volumes on Kemper mutual funds, as well as from client and account growth at KSvC's wholly owned subsidiary, SSC, which has provided transfer agent services to non-affiliated mutual fund groups. In March 1995, KSvC executed a definitive agreement to sell the business operations of SSC. (See "ASSET MANAGEMENT SEGMENT" in ITEM 1(c) on page 4.) SSC accounted for approximately $8.7 million of the Company's transfer agent revenue in 1994.
Securities gains revenue declined approximately $25 million in 1994 from the 1993 and 1992 levels, primarily reflecting the tightening in the credit markets resulting from rising interest rates as well as significant market volatility. In contrast, 1993 and 1992 saw generally strong credit markets, particularly within the tax-exempt and mortgage-backed arenas. Investment banking fees decreased $4.9 million, from $24.5 million in 1993 to $19.5 million in 1994, primarily due to reduced municipal underwriting activity. Investment banking fees were $28.3 million in 1992, a result of increased activity industry wide and KSI's greater level of participation in both corporate and public finance offerings.
This segment consists of the Company's real estate subsidiaries. These subsidiaries include companies which act as general or limited partners in and lenders to various joint ventures. Loans held by these subsidiaries are subordinate to loans held by the Company's life insurance subsidiaries.
The $1.37 billion real estate portfolio held by the Company's continuing operations constituted 18.0 percent of cash and invested assets at December 31, 1994, compared with $1.48 billion, or 17.7 percent, at December 31, 1993. The real estate portfolio consists of joint venture and third-party mortgage loans and other real estate-related investments. The majority of the Company's real estate loans are on properties or projects where the Company has taken ownership positions in joint ventures with a small number of partners. (See the notes captioned "Unconsolidated investees" and "Concentration of credit risk" on pages 57 and 59, respectively.)
The deficit in equity investments in real estate, at December 31, 1994, consisted of $110.5 million of loans to Spanish projects (described on page 35), $67.8 million of unsecured loans to joint ventures treated as equity investments, a $230.7 million deficit in the Company's other equity investments in joint ventures and reserves of $36.6 million. The deficit includes the Company's share of periodic operating results. The Company, as an equity owner, has the ability to fund, and historically has elected to fund, operating requirements of certain joint ventures.
Foregone investment income from the nonaccrual of real estate-related investments is net of the Company's share of interest expense on these loans excluded from the Company's share of joint venture operating results. Based on the level of nonaccrual real estate-related investments at December 31, 1994, the Company estimates foregone investment income in 1995 will decrease slightly compared with the 1994 level. Any nonperforming securities, and either worsening or stagnant real estate conditions, would increase the expected adverse effect on the Company's future investment income and realized investment results.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS The Board of Directors and Stockholders Kemper Corporation:
Mortgage loans are carried at their unpaid balance net of unamortized discount and any applicable reserve. Other real estate-related investments net of any applicable reserves and write-downs include certain bonds issued by real estate finance or development companies; notes receivable from real estate ventures; investments in real estate ventures carried at cost, adjusted for the equity in the operating income or loss of such ventures; and real estate owned carried primarily at fair value.
The Company adopted SFAS 114, Accounting by Creditors for Impairment of a Loan, in the fourth quarter of 1993. SFAS 114 defines "impaired loans" as loans in which it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. In the fourth quarter of 1994, the Company adopted SFAS 118, Accounting by Creditors for Impairment of a Loan -- Income Recognition and Disclosures. SFAS 118 amends SFAS 114, providing clarification of income recognition issues and requiring additional disclosures relating to impaired loans. The adoption of SFAS 118 had no effect on the Company's financial position or results of operations at or for the year ended December 31, 1994.
Kemper Corporation files a consolidated federal income tax return with its subsidiaries. Consolidated income tax is allocated among the subsidiaries participating in the consolidated return based on the tax that would be incurred if each filed a separate tax return. Subsidiaries that have losses generally receive tax benefit to the extent such losses can be utilized in the consolidated tax return.
The Company issued the Series C Cumulative Preferred Stock in 1992 to Lumbermens. Lumbermens has certain rights to request the Company to register its Series C shares. Each Series C share has a stated value of $50.00; accrues annual dividends of $4.375 through January 1, 1996, $4.625 from January 2, 1996 through January 1, 1998, and $5.00 thereafter, payable on a quarterly basis; and is redeemable by the Company upon certain conditions, for its stated value plus any accrued and unpaid dividends, from and after December 31, 1995, if held by Lumbermens, and December 31, 1997, if held by any other holder.
Unrealized gains (losses) are computed below as follows: fixed maturities--the difference between market and amortized cost, adjusted for other-than-temporary declines in value; equity securities and other--the difference between market value and cost. The realized and change in unrealized investment gains (losses) by class of investment for the years ended December 31, 1994, 1993 and 1992 were as follows:
The Company has outstanding short-term loans with banks and other creditors. Kemper Corporation previously had an $80 million line of credit with Lumbermens, which at December 31, 1993, was unused. On January 12, 1994, the Company and Lumbermens mutually agreed to cancel this line of credit.
Income tax (benefit) was as follows for the years ended December 31, 1994, 1993 and 1992:
Variable and fixed-rate annuities and term, interest-sensitive and other life insurance.
Cash and short-term investments: The carrying amounts reported in the consolidated balance sheet for these financial instruments approximate fair values.