The following analysis of the consolidated results of operations and financial condition of ALLIED should be read in conjunction with the Selected Financial Data and Consolidated Financial Statements and related footnotes included elsewhere herein.
Investment income increased 11.2% to $5.8 million from $5.2 million. Investment income increased because a larger average balance of invested assets more than offset a 10 basis-point decline in the pretax yield from the previous year's 6.8%. Invested assets rose 21.2% from the previous year-end to $96.4 million at December 31, 1995.
Revenues for the noninsurance operations (including investment services, data processing, and employee lease fees from affiliates) increased 4.5% to $161.3 million from $154.5 million in 1994. The increase was primarily the result of an increase in employee lease fees in 1995. The increase in revenues generated from employee lease fees more than offset the decreases in revenue from investment services and data processing. Investment services was affected by a decrease in investment income brought on by a low average balance of mortgage loans held for sale, and data processing was down primarily as a result of the reduction in revenues generated from the affiliated property-casualty segment.
ALLIED's mortgage banking subsidiary, ALLIED Group Mortgage Company (ALLIED Mortgage), has separate credit agreements to support its operations. Short-term and long-term notes payable to nonaffiliated companies are used by ALLIED Mortgage to finance its mortgage loans held for sale, to purchase servicing rights, and to purchase short-term investments. These notes payable are not guaranteed by ALLIED. At December 31, 1996, ALLIED Mortgage had short-term borrowings of $19.7 million, which are to be repaid through the subsequent sale of its mortgage loan inventory. The amount of short-term borrowings fluctuates daily depending on the level of inventory being financed. Long-term borrowings amounted to $12 million to be repaid over the next eight years. See note 8 of Notes to Consolidated Financial Statements for a further discussion of ALLIED Mortgage's finance arrangements. In the normal course of its business, ALLIED Mortgage also makes commitments to buy and sell securities that may result in credit and market risk in the event the counterparty is unable to fulfill its obligation. See note 14 of Notes to Consolidated Financial Statements for a further discussion of such commitments.
The accompanying financial statements include the accounts of ALLIED Group, Inc. (ALLIED) and its subsidiaries (collectively, the Company) on a consolidated basis. The consolidated financial statements have been prepared in conformity with generally accepted accounting principles (GAAP), which differ in some respects from those followed in reports to insurance regulatory authorities. The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities for the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. All significant intercompany balances and transactions have been eliminated. Certain amounts in the financial statements for prior years have been reclassified to conform to the current year's presentation.