felanders/preprocessed huggingface dataset:
(1) Net income includes $121 million and $29 million of reported investment portfolio gains in 1997 and 1996, respectively.
We have audited the accompanying consolidated balance sheets of The Travelers Insurance Company and Subsidiaries as of December 31, 1997 and 1996, and the related consolidated statements of income and retained earnings and cash flows for each of the years in the three-year period ended December 31, 1997. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
Contractholder funds represent receipts from the issuance of universal life, pension investment and certain deferred annuity contracts. Contractholder fund balances are increased by such receipts and credited interest and reduced by withdrawals, mortality charges and administrative expenses charged to the contractholders. Interest rates credited to contractholder funds range from 3.5% to 9.45%.
Most leasing functions for TIGI and its subsidiaries are administered by TAP. In 1996, TAP assumed the obligations for several leases. Rent expense related to all leases are shared by the companies on a cost allocation method based generally on estimated usage by department. Rent expense was $15 million, $24 million, and $22 million in 1997, 1996 and 1995, respectively.
Tax benefits allocated directly to shareholder's equity for the years ended December 31, 1997, 1996 and 1995 were $17 million, $8 million and $7 million, respectively.
Starting in 1994 and continuing for at least five years, the Company and its life insurance subsidiaries will file a consolidated federal income tax return. Federal income taxes are allocated to each member of the consolidated group on a separate return basis adjusted for credits and other amounts required by the consolidation process. Any resulting liability will be paid currently to the Company. Any credits for losses will be paid by the Company to the extent that such credits are for tax benefits that have been utilized in the consolidated federal income tax return.
Aggregate annual maturities on mortgage loans at December 31, 1997 are as follows:
Total revenue 112.5 144.4 143.9 161.1 152.5 ------ ------ ------ ------ ------ Expenses: Medical expenses 101.8 129.5 126.3 136.0 115.6 General and administrative expenses 22.7 32.6 34.5 39.3 30.3 Depreciation and amortization expenses 1.1 6.0 3.6 3.3 2.3
Provision(benefit)for Income taxes (2.2) 5.5 -- (8.0) 1.1 ------ ------ ------ ------ ------ Net loss(income) before extraordinary item (14.5) (30.9) (22.1) (11.8) 1.7
The Company has achieved net income in 1999 but sustained net operating losses in 1998 and 1997. At December 31, 1999, the Company has a working capital deficiency of $7.4 million. At December 31, 1999, WCNY and WCCT were not in compliance with the statutory net worth requirements in New York and Connecticut, respectively. The consummation of certain transactions in March 2000 has provided the Company with capital sufficient to meet its statutory compliance requirement. (See Business-Business Developments)
Medical expense increased 2.6%, or $3.2 million, to $129.5 million in 1998, increased 8.1% on a PMPM basis, and increased as a percentage of premiums earned (the "medical loss ratio") from 88.8% in 1997 to 90.7% in 1998. The 1998 medical expense includes a $3.7 million charge for adverse development relating to 1997 and 1996 medical claims, less a credit of $0.8 million relating to the New York State distribution of surplus market stabilization pool funds relating to years 1993 to 1996. Medical expense for 1997 included a charge of $2.5 million for adverse development relating to medical claims reserves for 1996; a $1.7 million charge for the estimated liability related to NYSID's audit of the demographic pool payments and assessments for the years 1993-1996; and a reduction of $0.4 million for various adjustments related to prior periods. The 1997 medical expense does not reflect the $3.5 million of adverse development expense recorded in subsequent periods.
Total direct premiums written were $40.1 million for 1997, an increase of 53.3% compared to $26.2 million in 1996. Net premiums written increased by 60.0% to $38.3 million in 1997 compared to $24.0 million in 1996. Earned premiums increased 55.8% to $38.5 million for 1997 from $24.7 million in 1996. This growth in written and earned premium resulted from the increase in new insurance written, offset slightly by the decline in the Company's persistency rate. Sales under the Company's monthly premium plan represented 94.3% of new insurance written in 1997 compared to 93.0% in 1996. Annualized persistency was 84.2% for 1997 compared to 85.3% for 1996.
Board of Directors: E. HUrlimann, Chairman Hans Sulzer, Deputy-Chairman Max Huber C. J. Abegg Emil Bebier Fritz Baumgartner Paul Ruegger R. S. Hegner Rud. V. Heberlein
The Profit and Loss Account closed with a profit of . . Frs. 21,096,569.08 which, at the General Meeting of the Shareholders, it was decided to distribute as follows: Special Reserve Fund Frs. 2,500,000.— Staff Life Insurance and Pension Fund ..... » 1,800,000.— Dividend Frs. 225.— per share » 13,500,000.— Social Welfare Contributions » 250,000.— Directors' Remuneration » 291,800.— Carry Forward » 2,755,269.08
Life Department. Premiums for Retrocession 13,646,002 74 Commission, less Retrocession 15,652,286 96 Surrenders, less Retrocession 12,130,924 80 Losses paid, less Retrocession 25,358,493 82 Annuities paid, less Retrocession. . 659,715 59 Premium Reserve, less Retrocession 415,033,609 21 Annuity Fund, less Retrocession 6,939,755 18 Reserve for Unsettled Claims, less Retrocession 4,002,697 45 493,423,485 75
The decrease in income before provision for income tax was driven by the following key unfavorable items:
lower fee income due to lower asset-based fees resulting from lower average separate account balances; and
We pledge collateral to, and have collateral pledged to us by, counterparties in connection with our derivatives. At December 31, 2019 and 2018, counterparties were obligated to return cash collateral pledged by us of $0 and $64 million, respectively. At December 31, 2019 and 2018, we were obligated to return cash collateral pledged to us by counterparties of $1.3 billion and $1.4 billion, respectively. See Note 8 of the Notes to the Consolidated Financial Statements for additional information about pledged collateral. We also pledge collateral from time to time in connection with funding agreements.
Gross unrealized losses on fixed maturity securities decreased $1.2 billion during the year ended December 31, 2019 to $166 million. The decrease in gross unrealized losses for the year ended December 31, 2019, was primarily attributable to decreasing longer-term interest rates and narrowing credit spreads.
The Company receives investment administrative services from MetLife Investment Management, LLC (formerly known as MetLife Investment Advisors, LLC), which was considered a related party investment manager until the completion of the MetLife Divestiture. The related investment administrative service charges were $49 million and $93 million for the years ended December 31, 2018 and 2017, respectively.
Total revenue $85,244,243 $73,639,526 Income before income tax 839,290 4,163,329 Net income 672,960 2,611,153 Earnings per share $0.17 $0.68
- A requirement that OGGI pay all purchasers of common stock, either on a mandatory basis or at the election of the purchaser, as damages or otherwise, (i) the purchase price paid per share of common stock acquired in the subscription offering, plus interest, (ii) the market value per share of common stock acquired, or (iii) the greater of (i) or (ii), less, in each case, any proceeds received by such purchaser from the sale of the common stock. No assurance can be given that OGGI would have sufficient funds at that time to honor any such obligation; or
Other operating expenses. Other operating expenses totaled $86.2 million in 1999 compared with $89.4 million in 1998. Other operating expenses decreased due to the Company amending its advisory and data processing agreements with FHC in June 1999. The effect of these amendments was to lower the fees paid to FHC by $5.9 million. Also, other operating expenses decreased $2.8 million related to the relocation of the Company's Columbus, Ohio operations to other Company locations during 1998. In addition, other operating expenses increased in 1999 principally due to costs associated with litigation.
Management’s Discussion and Analysis of Financial Condition and Results of Operations is based on our consolidated financial statements and related notes, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements. Actual results could differ from those estimates.
Net cash used in investing activities of $2.3 million in 2006 primarily consisted of purchases of fixed assets.
Net cash provided by financing activities in 2006 of $5.8 million primarily consisted of loan proceeds of $6.0 million resulting from our credit agreement with Washington National.
In September 2006, the U.S. Securities and Exchange Commission issued Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements in Current Year Financial Statements” (“SAB 108”) which provides guidance on the consideration of the effects of prior year misstatements in quantifying current year misstatements for the purpose of a materiality assessment. We have determined that the guidance in SAB 108 does not have a material impact on our financial position or results of operations.
Regan Holding Corp. (the “Company”) is a holding company, incorporated in California in 1990, whose primary operating subsidiaries are Legacy Marketing Group (“Legacy Marketing”) and Legacy Financial Services, Inc. (“Legacy Financial”).
Fixed assets are stated at cost, less accumulated depreciation and amortization. The Company capitalizes consulting fees and salaries and benefits for employees who are directly associated with the development of software for internal use when both of the following occur:
On July 20, 2006, Legacy Marketing entered into a credit agreement (the “Agreement”) with Washington National Insurance Company (the “Lender”). Pursuant to the terms of the Agreement, the Lender made a non-revolving multiple advance term loan (the “Term Loan”) to Legacy Marketing totaling $6.0 million. As of December 31, 2006, the balance due under this Agreement was $6.0 million.
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of deferred tax assets will, or will not, be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences become deductible. Due to cumulative losses in recent years, management established a valuation allowance of $9.8 million as of December 31, 2006. This represents a net increase in the valuation allowance on deferred tax assets of $3.1 million and $4.7 million in 2006 and 2005.
Real estate holdings represent approximately 4% of the total assets of the Company net of accumulated depreciation of $1,341,000 and $1,050,000 at year end 1996 and 1995 respectively. The Company owns an office complex in Springfield, Illinois, which houses the primary insurance operations. The office buildings contain 57,000 square feet of office and warehouse space. The properties are carried at approximately $2,688,000. In addition, an insurance subsidiary owns a home office building in Huntington, West Virginia. The building has 15,000 square feet and is carried at $198,000. The facilities occupied by the Company are adequate relative to the Company's present operations.
Net cash provided by (used in) financing activities was ($14,150,000), $8,408,000 and $5,844,000 for 1996, 1995 and 1994, respectively. The change between 1996 and 1995 is due to a coinsurance agreement with First International Life Insurance Company as of September 30, 1996. At closing of the transaction, UG received a reinsurance credit of $28,318,000 for policy liabilities covered under the agreement. UG transferred assets equal to the credit received. This transfer included policy loans of $2,855,000 associated with policies under the agreement and a net cash transfer of $19,088,000 after deducting the ceding commission due UG of $6,375,000.
The Company's investments are generally managed to match related insurance and policyholder liabilities. The Company, in conjunction with the decrease in average yield of the Company's fixed maturity portfolio has decreased the average crediting rate for the insurance and investment products. The comparison of investment return with insurance or investment product crediting rates establishes an interest spread. The minimum interest spread between earned and credited rates is 1% on the "Century 2000" universal life insurance product, the Company's primary product. The Company monitors investment yields, and when necessary takes action to adjust credited
The NAIC has adopted Risk-Based Capital ("RBC") requirements for life/health insurance companies to evaluate the adequacy of statutory capital and surplus in relation to investment and insurance risks such as asset quality, mortality and morbidity, asset and liability matching and other business factors. The RBC formula will be used by state insurance regulators as an early warning tool to identify, for the purpose of initiating regulatory action, insurance companies that potentially are inadequately capitalized. In addition, the formula defines new minimum capital standards that will supplement the current system of low fixed minimum capital and surplus requirements on a state-by-state basis. Regulatory compliance is determined by a ratio of the insurance company's regulatory total adjusted capital, as defined by the NAIC, to its authorized control level RBC, as defined by the NAIC. Insurance companies below specific trigger points or ratios are classified within certain levels, each of which requires specific corrective action. The levels and ratios are as follows:
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND CONSOLIDATED RESULTS OF OPERATIONS.
Following is a summary of fixed maturities held for investment and available for sale by rating class as of December 31, 1995.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying values of assets and liabilities for financial reporting purposes and federal income tax purposes. The net deferred tax liability at December 31, 1995 and 1994 is composed of the following:
On January 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 106 "Employers' Accounting for Postretirement Benefits Other than Pensions" (SFAS No. 106). The cumulative effect of this change in accounting resulted in a charge to earnings net of tax of $263,000. The components of the net periodic postretirement benefit cost for the years ended December 31 are as follows:
J. RIDLEY HOWARD GARY W. MEADER PRESIDENT AND CHIEF EXECUTIVE OFFICER CHIEF FINANCIAL OFFICER
See the table in the previous discussion of “Deferred Acquisition Costs” for the estimated impact to benefits and claims expense related to variable annuity and VUL insurance contracts resulting from a decrease of 100 basis points in separate account fund growth rate assumptions.
Consolidated Statements of Comprehensive Income - Years ended December 31, 2018, 2017 and 2016
Nearly all of the Company’s business is sold through the retail channel of Ameriprise Financial Services, Inc. (“AFSI”), a subsidiary of Ameriprise Financial. RiverSource Distributors, Inc., a subsidiary of Ameriprise Financial, serves as the principal underwriter and distributor of variable annuity and life insurance products issued by the Company.
The liabilities for non-traditional long-duration products include fixed account values on variable and fixed annuities and UL and VUL policies, liabilities for guaranteed benefits associated with variable annuities and embedded derivatives for variable annuities, indexed annuities and IUL products.
On January 1, 2018, the Company adopted the new accounting standard for revenue from contracts with customers on a retrospective basis.
The recorded investment in financing receivables by impairment method was as follows:
Significant increases (decreases) in utilization and volatility used in the fair value measurement of the GMWB and GMAB embedded derivatives in isolation would have resulted in a significantly higher (lower) liability value. Significant increases (decreases) in nonperformance risk and surrender rate used in the fair value measurement of the GMWB and GMAB embedded derivatives in isolation would have resulted in a significantly lower (higher) liability value. Utilization of guaranteed withdrawals and surrender rates vary with the type of rider, the duration of the policy, the age of the contractholder, the distribution channel and whether the value of the guaranteed benefit exceeds the contract accumulation value.
Charges by Ameriprise Financial and affiliated companies to the Company for use of joint facilities, technology support, marketing services and other services aggregated $365 million, $390 million and $400 million for the years ended December 31, 2018, 2017 and 2016, respectively. Certain of these costs are included in DAC. Expenses allocated to the Company may not be reflective of expenses that would have been incurred by the Company on a stand-alone basis.
The Company has a macro hedge program to provide protection against the statutory tail scenario risk arising from variable annuity reserves on its statutory surplus and to cover some of the residual risks not covered by other hedging activities. As a means of economically hedging these risks, the Company may use a combination of futures, options, swaps and swaptions. Certain of the macro hedge derivatives contain settlement provisions linked to both equity returns and interest rates. The Company’s macro hedge derivatives that contain settlement provisions linked to both equity returns and interest rates are shown in Other contracts in the tables above.
During 1996, commissions increased to $12,447,664 from $10,273,173 in 1995. During 1995, commissions declined to $10,273,173 from $12,382,372 in 1994. The majority of such amounts paid relates to first year commissions which were $8,677,297, $7,292,264 and $9,925,028, respectively, in 1996, 1995, and 1994. The 1996 increases relate to improved sales activity in CICA and approximately $1.5 million associated with ALLIC. The decline in first year commissions during 1995 relates to the slowdown in new sales discussed earlier.
Capitalized deferred policy acquisition costs were $10,531,222 in 1996, compared to $10,579,704 in 1995 and $13,128,049 in 1994. The decline in amounts in 1995 reflects the lower level of new sales experienced during the year, as well as the lower interest rate environment. There was an adjustment of capitalization for 1994 and after issued policies to reflect the lower interest rates available to be earned on the Company's investment portfolio compared to earlier years. Amortization of these costs was $10,221,917, $8,511,876 and $7,203,593 respectively in 1996, 1995, and 1994. The increased surrender activity discussed above contributed to the increased amortization in 1996.
Cash balances of the Company in its primary depository, Texas Commerce Bank Austin, Texas, were significantly in excess of Federal Deposit Insurance Corporation (FDIC) coverage at December 31, 1996. Management monitors the solvency of all financial institutions in which it has funds to minimize the exposure for loss. At December 31, 1996, management does not believe the Company is at risk for such a loss. During 1997, the Company intends to utilize short-term Treasury Bills and highly-rated commercial paper as cash management tools to minimize excess cash balances and enhance return.
In May 1993, the FASB issued Statement 114 "Accounting by Creditors for Impairment of a Loan" ("Statement 114"). Statement 114 requires impaired loans to
- Short-term investments -- at cost, which approximates current market value.
Combinations of futures contracts and options on treasury notes are currently being used as hedges for asset/liability management of certain investments, primarily mortgage loans on real estate, and liabilities arising from interest-sensitive products such as guaranteed investment contracts and individual annuities. Realized investment gains and losses on such contracts are deferred and amortized over the life of the hedged asset. Net realized gains of $7.9 million were deferred in 1994. At December 31, 1994, open futures contracts with a notional amount of $137.5 million were in a $0.4 million net unrealized loss position.
NOTE A -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) - Universal Life and Investment Products -- Universal life and investment products include universal life insurance, guaranteed investment contracts, deferred annuities, and annuities without life contingencies. Revenues for universal life and investment products consist of policy fees that have been assessed against policy account balances for the costs of insurance, policy administration, and surrenders. That is, universal life and investment product deposits are not considered revenues in accordance with generally accepted accounting principles. Benefit reserves for universal life and investment products represent policy account balances before applicable surrender charges plus certain deferred policy initiation fees that are recognized in income over the term of the policies. Policy benefits and claims that are charged to expense include benefit claims incurred in the period in excess of related policy account balances and interest credited to policy account balances. Interest credit rates for universal life and investment products ranged from 3.0% to 9.4% in 1994.
NOTE A -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) profits on acquisitions made during the year was capitalized, and $11.0 million was amortized. The unamortized present value of future profits for all acquisitions was $110.3 million at December 31, 1994 and $69.9 million at December 31, 1993.
Mortgage loans to Fletcher Bright and Edens & Avant, totaling $99.4 million and $65.6 million, respectively, exceeded ten percent of stockholder's equity at December 31, 1994.
Included in indebtedness to related parties are three surplus debentures issued by Protective to PLC. At December 31, 1994, the balance of the three surplus debentures combined was $39.4 million.
Based on net operating income and excluding accumulated other comprehensive income.
Asset fees declined 20% to $176.8 million in 2001 compared to $220.2 million in 2000 and totaled $190.3 million in 1999. The decline was driven by a 17% decrease in average separate account assets in 2001 compared to an increase of 24% in 2000. Other policy charges are down in 2001 as a result of additional administration fees in 2000 from case terminations.
The average duration and average maturity of the Company’s general account fixed maturity securities as of December 31, 2001 were approximately 4.31 and 5.15 years, respectively. The market value of the Company’s general account investments may fluctuate significantly in response to changes in interest rates. In addition, the Company may also be likely to experience investment losses to the extent its liquidity needs require the disposition of general account fixed maturity securities in unfavorable interest rate environments.
Prepayment risk is an inherent risk of holding MBSs. However, the degree of prepayment risk is particular to the type of MBS held. The Company limits its exposure to prepayments by purchasing less volatile types of MBSs. As of December 31, 2001, $800.9 million (or 39%) of the carrying value of the general account MBS portfolio was invested in planned amortization class CMOs/REMICs (PACs). PACs are securities whose cash flows are designed to remain constant over a variety of mortgage prepayment environments. Other classes in the CMO/REMIC security are structured to accept the volatility of mortgage prepayment changes, thereby insulating the PAC class.
The following table also reflects the reconciliation of net income to operating income for each of the five years ended December 31, 2002.
o a $28.9 million increase in net investment income during the year, which was primarily due to the $785 million increase in our assets from our net capital raising activities in the second half of 2001 and the $935 million increase in our assets during 2002, primarily resulting from the $778 million of cash flows generated from our operating activities during 2002. The impact of the increase in available assets was partially offset by a reduction in investment returns due to lower interest rates, plus
o an increase in tax expense during 2001 as a result of a $14.0 million increase to our valuation allowance on our deferred tax asset as a result of further reductions of our U.S. based insurance operations, less
o a decrease in investment income of $2.7 million primarily as a result of declining interest rates.
The amount of the realized gains or realized losses that will be recorded in the future will be dependent upon the level of our investments, the changes in the interest rate environment and how quickly or slowly we choose to turn over our investment portfolio. A larger investment portfolio, greater fluctuations in the interest rate environment, and turning over an investment portfolio quickly, will affect the magnitude of realized gains or realized losses.
In order to encourage employee ownership of common shares, we have guaranteed certain loan and pledge agreements between certain employees and Bank of America, Illinois ("BofA"). Pursuant to the terms of this employee credit facility, BofA has agreed to loan the participating employees up to an aggregate of $25.0 million. The balance outstanding at December 31, 2002 was $22.9 million, compared to $24.1 million in 2001. Each loan under this employee credit facility is required to be initially collateralized by the respective participating employee with common shares or other collateral acceptable to BofA. If the value of the collateral provided by a participating employee subsequently decreases, the participating employee is required to contribute additional collateral in the amount of such deficiency, failing which BofA can accelerate the loan and liquidate the remaining collateral. Loans under this employee credit facility are otherwise non-recourse to the participating employees. Given the level of collateral, we do not presently anticipate that we will be required to honor any guarantees under the employee credit facility, although there can be no assurance that we will not be so required in the future. No further loans or draws will be made under this facility. We anticipate the repayment of these loans and the subsequent closure of this facility prior to December 31, 2003.
Net Investment Income Net investment income increased 9% in 1995 and 5% in 1994 due primarily to an increase in the Company's average invested asset base. Investment income is reflected net of investment expenses of $5.4 million in 1995, and $4.9 million in both 1994 and 1993.
Common Stock: Balance at beginning of year $ 39.1 $ 35.1 $ 35.1 Issued during the year 4.0 4.0 - Balance at end of year $ 43.1 $ 39.1 $ 35.1
American Annuity Group, Inc. ("AAG" or "the Company") markets (i) individual and group annuities nationwide to the savings and retirement markets, (ii) individual life insurance and annuity policies with the sponsorship of state associations of funeral directors as well as individual funeral directors across the country and (iii) various forms of life, accident and health insurance and annuities through payroll deduction plans and financial institutions.
To the extent that realized gains and losses result in adjustments to the amortization of DPAC, such adjustments are reflected as components of realized gains.
Statement of Cash Flows For cash flow purposes, "investing activities" are defined as making and collecting loans and acquiring and disposing of debt or equity instruments and property and equipment. "Financing activities" include annuity receipts, benefits and withdrawals and obtaining resources from owners and providing them with a return on their investments. All other activities are considered "operating". Short-term investments having original maturities of three months or less when purchased are considered to be cash equivalents for purposes of the financial statements.
Pretax earnings from operations $ 5.6 $ 6.0 $10.3 Net earnings from operations 4.6 5.6 10.4 Net earnings 4.3 7.1 7.9
On March 21, 2001, the Board of Directors authorized the payment of dividends aggregating $3,083,096 to eligible holders of Shares. See "Market for Registrant's Common Equity and Related Stockholders Matters" for a discussion of dividends paid and legal restriction on the payment of dividends.
The cost and fair value of investments in debt securities and equity are as follows: Gross Gross Fair Unrealized Unrealized Value Cost Appreciation Depreciation ------------ ------------ ------------ ----------- December 31, 2000
Total $ 89,389,256 $ 2,871,192 $ (138,769) $92,121,679 ============ =========== =========== ===========
Balance December 31, 2000 $ 25,951 $16,221,053 $16,247,004 ========== =========== ===========
DHC leases a minimal amount of space for use as administrative and executive offices. DHC's lease has a term of approximately five years which is scheduled to expire in 2003. DHC believes that the space available to it is adequate for DHC's current and foreseeable needs.
Total Investments. Total investments increased $19.5 billion, or 46.1%, to $61.8 billion at December 31, 2000 from $42.3 billion at December 31, 1999. The increase is primarily a result of (i) investments acquired from Toho of $6.4 billion; (ii) purchases of fixed securities of $8.3 billion as a result of the deployment of cash acquired as a result of the Toho Transfer; (iii) investments received related to other acquisitions in 2000; (iv) investment growth in core operations; and (v) investment income of $3.7 billion, offset by cash outflows for other investing activities.
Changes in the market values of investments available-for-sale, net of the effect on deferred acquisition costs, present value of future profits, and deferred federal income taxes, are reflected as unrealized investment gains or losses in a separate component of shareholder's interest and, accordingly, have no effect on net income. Unrealized losses that are considered other than temporary are recognized in earnings through an adjustment to the amortized cost basis of the underlying securities. The Company engages in certain securities lending transactions, which require the borrower to provide collateral, primarily consisting of cash and government securities, on a daily basis, in amounts equal to or exceeding 102% of the market value of the applicable securities loaned.
In March 2000, GE Edison, a subsidiary of the Company, acquired, by means of a comprehensive transfer ("the Transfer") in accordance with the Insurance Business Law of Japan ("IBL"), the insurance policies and related assets of Toho Mutual Life Insurance Company ("Toho"). GE Edison assumed $21.6 billion of policyholder liabilities, $0.3 billion of accounts payable and accrued expenses, and acquired $20.3 billion of cash, investments and other tangible assets. The $1.6 billion difference between acquired assets and assumed liabilities represents PVFP on the transferred insurance policies. Assets acquired by GE Edison include approximately $0.5 billion of redeemable preferred stock and warrants issued by another subsidiary of the Company. The redeemable preferred stock and warrants have been eliminated in the accompanying Consolidated Balance Sheets as of December 31, 2000. The corresponding amount eliminates the minority interest in the Company previously held by Toho.
Options and instruments containing option features that behave based on limits (primarily "floors", "S&P call options" or "Bermudan swaptions") on interest rate and S&P index movements are used primarily to hedge prepayment risk in certain of the Company's business activities, such as annuity liabilities and debt securities.
General insurance (property and liability) and level-term credit life insurance premiums are reflected in income on a pro-rata basis. Earned but unbilled premiums are generally taken into income on the billing date, and adjustments for retrospective premiums, commissions and similar charges are accrued on the basis of periodic evaluations of current underwriting experience and contractual obligations. First year and renewal mortgage guaranty premiums are recognized as income on a straight-line basis except that a portion of first year premiums received for certain high risk policies is deferred and reported as earned over the estimated policy life, including renewal periods. Single premiums for mortgage guaranty policies covering more than one year
Because of the above issues and uncertainties, estimation of reserves for losses and allocated loss adjustment expenses for the above noted types of claims is much more difficult or impossible. Accordingly, no representation can be made that the Corporation's reserves for such claims and related costs will not prove to be overstated or understated in the future.
Based upon the higher level of payments we expect to receive from CMS as a result of the recently enacted Medicare Prescription Improvement and Modernization Act, subject to CMS approval, we will eliminate the additional premiums required by members of our Medicare+Choice program in Rockland and Westchester counties, reduce the additional premium required by members in Nassau and Suffolk counties and increase benefits available to New York City members. This increase in payments from CMS will not have a material impact on operations, as they will either be utilized to provide additional benefits or as a reduction in premiums required by members.
During the fourth quarter of 2002, we reevaluated our tax position for financial statement purposes related to HealthChoice’s ability to utilize the Section 833(b) deduction and determined that when HealthChoice converted to a for-profit entity, its ability to utilize the Section 833(b) deduction was uncertain. No authority directly addresses whether a conversion transaction will render the 833(b) deduction unavailable. We are aware, however, that the Internal Revenue Service has taken the position related to other Blue Cross Blue Shield plans that a conversion could result in the inability of a Blue Cross Blue Shield plan to utilize the 833(b) deduction. In light of the absence of governing authority, while we intend to continue to take the deduction on our tax returns for periods after the conversion, we will assume, for financial statement reporting purposes, that the deduction will be disallowed. Accordingly, we have utilized $77.0 million of regular operating loss carryforwards for financial statement purposes in excess of those utilized for tax purposes.
In February 2002, we discontinued the operations of NexxtHealth, Inc., a development stage subsidiary formed in March 2000 to develop Internet portal software to market to other health benefit companies. We discontinued these operations as part of our overall strategy to outsource certain technology functions.
• Corporate insurance expense increased $9.4 million. As a result of our for-profit conversion, the cost of our directors and officers liability insurance significantly increased effective November 2002.
Our New Jersey operations are not subject to the Blue Cross Blue Shield Association capital and surplus licensure requirement. At December 31, 2003, WellChoice Insurance of New Jersey met the minimum capital and surplus requirements of the New Jersey Department of Banking and Insurance.
We are subject to state laws and regulations that require diversification of our investment portfolios and limit the amount our insurance company subsidiaries may invest in certain investment categories, such as below-investment-grade fixed income securities, mortgage loans, real estate and equity investments. Failure to comply with these laws and regulations might cause investments exceeding regulatory limitations to be treated as non-admitted assets for purposes of measuring statutory surplus and risk-based capital and, in some instances, require the sale of those investments.
Material appearing under the caption "SELECTED FINANCIAL DATA" in the Company's Annual Report is hereby incorporated by this reference.
Material appearing under the captions "REPORT ON CONSOLIDATED FINANCIAL STATEMENTS," and "INDEPENDENT AUDITORS' REPORT" and contained in the Company's CONSOLIDATED FINANCIAL STATEMENTS and Notes thereto in the Company's Annual Report are hereby incorporated by this reference.
Independent Auditors' Report 14 Consolidated Financial Statements Consolidated Statements of Income -- For the years ended December 31, 1999, 1998 and 1997 15 Consolidated Balance Sheets - As of December 31, 1999 and 1998 16 Consolidated Statements of Cash Flows -- For the years ended December 31, 1999, 1998 and 1997 17 Consolidated Statements of Stockholders' Equity -- For the years ended December 31, 1999, 1998 and 1997 18 Notes to Consolidated Financial Statement 19 Supplementary Financial Information
Security Capital Corporation ("Security Capital") operates as a financial buyer of established companies as portfolio investments. Primarily, Security Capital participates in the management of its portfolio companies at the board level, and encourages operating autonomy and preservation of entrepreneurial environments. Currently, Security Capital has three portfolio subsidiary activities (together with Security Capital, referred to as the "Company"), known as Primrose, Pumpkin, and Possible Dreams. Primrose is a 98%-owned subsidiary involved in the franchising of educational child care centers, with related activities in real estate consulting and site selection services. Primrose also operates one child care center. The Primrose activities are primarily based in the southern, central and western United States. Pumpkin is an 80%-owned subsidiary in the business of manufacturing and distributing pumpkin and watermelon carving kits and related accessories, and has a business line of sidewalk chalk. Pumpkin's activities are centered in the United States. Possible Dreams is a 90%-owned subsidiary that operates as an importer, designer, and distributor of collectible Christmas figurines and ornaments and, to a lesser extent, religious articles, primarily in the United States.
Primrose recognizes royalties based on the monthly revenues of the franchisees. Franchise fees are collected at various intervals prior to the opening of a school and are deferred until the franchised school has commenced operations. Real estate service fees are recognized as earned. Assignment fee revenue is recognized in two intervals: a portion of this revenue is recognized at the date of contract and the other portion is deferred until the franchised school has commenced operations. School tuition revenue is recognized as earned over the school year.
Warrants to acquire subsidiary shares issued in connection with the acquisitions of the subsidiaries can be settled in cash at the option of the holders. Accordingly, the estimated fair value of the warrants have been recorded as liabilities and changes in the estimated fair value of the warrants are recorded as income or expense in the respective statements of income.
The Company is included in the consolidated federal income tax return with all Skandia Insurance Company Ltd. subsidiaries in the U.S. The federal and state income tax provision is computed on a separate return basis as adjusted for consolidated items such as net operating losses which are utilized in the consolidated federal income tax return in accordance with the provisions of the Internal Revenue Code, as amended. Prior to 1995, the Company filed a separate income tax return.
The financial position and results of operations of the Company's foreign operations are measured using local currency as the functional currency. Assets and liabilities of the operations are translated at the exchange rate in effect at each year-end. Statements of operations and shareholder's equity accounts are translated at the average rate prevailing during the year. Translation adjustments arising from the use of differing exchange rates from period to period are included in shareholder's equity.
The amortized cost and market value of fixed maturities, by contractual maturity, at December 31, 1996 are shown below.
Such ceded reinsurance does not relieve the Company from its obligations to policyholders. The Company remains liable to its policyholders for the portion reinsured to the extent that any reinsurer does not meet the obligations assumed under the reinsurance agreements.
The Company has issued surplus notes to its Parent in exchange for cash. Surplus notes outstanding as of December 31, 1996 were as follows:
Net investment income also includes the effect of income earned on the excess of average invested assets over average interest-bearing liabilities. This excess amounted to $13.8 million in 1996, $17.6 million in 1995 and $17.4 million in 1994. The difference between the Company's yield on average invested assets and the rate paid on average interest-bearing liabilities was 1.47% in 1996, 1.69% in 1995 and 1.13% in 1994.
Non-investment-grade securities generally provide higher yields and involve greater risks than investment-grade securities because their issuers typically are more highly leveraged and more vulnerable to adverse economic conditions than investment-grade issuers. In addition, the trading market for these securities is usually more limited than for investment-grade securities. The Company intends that the proportion of its portfolio in such securities not exceed current levels, but its policies may change from time to time, including in connection with any possible acquisition. The Company had no material concentrations of non-investment-grade securities at September 30, 1996.
As part of its asset-liability matching discipline, the Company conducts detailed computer simulations that model its fixed-maturity assets and liabilities under commonly used stress-test interest rate scenarios. Based on the results of these computer simulations, the investment portfolio has been constructed with a view to maintaining a desired investment spread between the yield on portfolio assets and the rate paid on its reserves under a variety of possible future interest rate scenarios. At September 30, 1996, the weighted average life of the Company's investments was approximately 4.3 years and the duration was approximately 2.3.
There are risks associated with some of the techniques the Company uses to provide liquidity, enhance its spread income and match its assets and liabilities. The primary risk associated with Reverse Repos is counterparty risk. The Company believes, however, that the counterparties to its Reverse Repos are financially responsible and that the counterparty risk associated with those transactions is minimal. The primary risk associated with MBSs is that a changing interest rate environment might cause prepayment of the underlying obligations at speeds slower or faster than anticipated at the time of their purchase.
Net investment income decreased 2.5% to $31.3 million for the year ended December 31, 2011, compared to $32.1 million for 2010 due to lower yields on increased average invested assets. Yield compression during 2011 impacted investment income as cash flow and portfolio maturities were reinvested at lower rates. Average invested assets increased to $850.8 million as of December 31, 2011, from $784.4 million as of December 31, 2010.
The $10.2 million of favorable development in the E&S division was primarily attributable to construction business (not construction defect). The $12.1 million of unfavorable development in the ART division was attributable to one program terminated in 2011. The $9.4 million in development in the Reinsurance division was attributable to two contracts that have been non-renewed.
Net investment income increased 5.2% to $32.1 million for the year ended December 31, 2010, compared to $30.6 million for 2009 due to increased average invested assets generated by operating cash flow of $59.6 million. Yield compression during 2010 impacted investment income as cash flow and portfolio maturities were reinvested at lower rates. Average invested assets increased to $784.4 million as of December 31, 2010, from $712.1 million as of December 31, 2009. The average pre-tax investment yield decreased to 4.1% for 2010 from 4.3% for 2009.
The funds available to the Parent Company from operating sources continue to be limited. Pending the completion of the proposed Life Insurance Reorganization (see "Item 1. Business - HISTORICAL DEVELOPMENT - Proposed Transactions Life Insurance Reorganization"), sources of funds available to the Parent Company include: management fees and expense reimbursements for services provided to the Company's subsidiaries; funds that may be generated from the sale of unrestricted assets; and intercompany advances from AFAC. The Company anticipates that these sources, together with cash on hand, will be adequate to meet the Company's liquidity needs through late June 1996, by which time the Company expects to have completed the Life Insurance Reorganization.
The Company estimates the December 1994, sale of the Aztec business generated a decrease in pre-tax profits of the life insurance operations of $2.5 million in 1995 compared to 1994.
During 1993, the Company sold or canceled virtually all of its remaining in force property and casualty business. On September 15, 1995, the Company completed the sale of Dependable to Medmarc. The Company realized a gain upon disposal of these operations of $2.7 million, including an additional payment to be received in 1996 of $.2 million for the acquisition of certain tax benefits by MedMarc. Under terms of the sale the Company provided indemnification for certain losses on various categories of liabilities. Terms of the indemnities provided by the Company vary in regards to time limits and maximum amounts. The Company believes that these indemnities will not have a material adverse effect on the Company's financial position, results of operations or cash flows.
The following table sets forth comparative information concerning the results of the Company's property and casualty operations.