Applicable tax rate 35.0% 35.0% 35.0% Tax-free income (3.3)% (3.3)% (.6)% Additional provision - - 3.0%
Cash flows-operating activities Net income $23,685 $18,428 $14,608 Adjustments to reconcile net income to net cash provided by operating activities Amortization of deferred policy acquisition costs 20,687 19,815 18,298 Depreciation and amortization 5,381 5,774 6,015 Realized securities (gains) losses (174) 10 (227) (Decrease) increase current and deferred income taxes (4,437) 5,207 8,316 Increase in reserves 61,981 39,519 23,982 Increase (decrease) in other liabilities 2,600 533 (1,225) Deferred policy acquisition costs (43,384) (42,045) (40,036) (Increase) decrease in all other assets (4,651) (1,793) 600
The Company's operations consist of the underwriting and sale of life and accident and health insurance. The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles (GAAP). The Company is a marketer and underwriter of long term care insurance. The Company's long term care products consist of both nursing home and home health care policies which provide limited benefit payments primarily to senior citizens. The Company also markets and underwrites other supplemental accident and health insurance policies, as well as life insurance. The Company's long term care products accounted for 89.3%, 82.4%, and 74.5% of its annualized premiums in force at December 31, 1995, 1994, and 1993, respectively.
Deferred income taxes are recorded for temporary differences in reporting certain transactions for financial statement and income tax purposes, principally deferred policy acquisition costs and policy benefits. Income taxes are accounted for using the asset and liability method in accordance with SFAS 109. This method requires that deferred tax assets and liabilities at the end of the year be determined using the tax rates and limitations expected to be in effect at such time as the taxes are projected to be paid or recovered. Consequently, income tax expense will increase or decrease in the period in which a change in tax law or rates is enacted.
In March 1995, the FASB issued SFAS 121, Accounting for the Impairment of Long-Lived Assets and for Long Lived Assets to be Disposed of. This statement, which must be adopted by March 31, 1996 establishes accounting standards for the impairment of long lived assets, certain identifiable intangibles and goodwill related to (1) those assets to be held and used in the business, and (2) for assets to be disposed of. The Company does not anticipate a material effect on the financial statements from this new accounting standard.
(c) The value of business acquired resulting from purchases of blocks of accident and health business is being amortized over the life of the acquired policies. Under statutory accounting practices, any ceding allowances paid are expensed in the year incurred.
Proceeds from sales of investments were $16,615 in 1995, $156 in 1994 and $3,910 in 1993. Proceeds from maturities and security calls were $33,037 in 1995, $15,295 in 1994 and $24,275 in 1993. Gross gains of $194, $10 and $266 and gross losses of $19, $20 and $39 in 1995, 1994 and 1993, respectively, were realized on sales and calls.
Pursuant to the requirements of SFAS 109, the Company recorded an additional deferred tax provision of $702 during 1993 to reflect the impact on deferred tax assets and liabilities resulting from the increase in U.S. statutory maximum corporate tax rates from 34% to 35%.
Less claims paid during the year related to- Current year: 49,794 35,200 30,049 Prior years: 57,141 42,703 35,919
The Company does not have any other obligations to provide post- retirement benefits to employees.
ATC currently is party to a $20,000 Revolving Credit Agreement (the "Agreement"). The revolving credit availability will be reduced by $1,667 each quarter beginning no later than March 31, 2002. No borrowings are outstanding at December 31, 1995.
Future minimum lease rentals on operating leases which consist principally of the Company's Home Office facility and computers are as follows:
Quarterly financial data for the years ended December 31, 1995 and 1994 are as follows:
*Eliminated in consolidation The condensed financial information should be read in conjunction with the American Travellers Corporation and Subsidiaries December 31, 1995, consolidated financial statements and notes thereto.