The Company principally operates through one major business segment: Life and Annuities, which offers individual life, long-term care, annuities and investment products to individuals and small businesses, and investment products and services to employer-sponsored retirement and savings plans. The Company's Corporate and Other Operations segment manages the investment portfolio of the Company.
In August 1993, the Omnibus Budget Reconciliation Act of 1993 (the "Act") raised the tax rate on corporations from 34% to 35%. Under current generally accepted accounting principles, the Company was required to restate its deferred tax asset using the new 35% rate as of the enactment date of the legislation. This restatement produced a $25 million increase to the deferred tax asset (prior to adjustment to purchase accounting value) and a corresponding increase to earnings in 1993.
Scheduled maturities for guaranteed investment contracts ("GICs") for 1995, 1996, 1997, 1998 and 1999 are $1,443 million, $963 million, $279 million, $256 million and $200 million, respectively. At December 31, 1994, the interest rates credited on GICs had a weighted average of 5.96%.
Costs of acquiring individual life insurance, annuities, and health business, principally commissions and certain expenses related to policy issuance, underwriting and marketing, all of which vary with and are primarily related to the production of new business, are deferred. Acquisition costs relating to traditional life insurance and guaranteed renewable health contracts are amortized over the period of anticipated premiums; universal life in relation to estimated gross profits; and annuity contracts employing a level yield method. For life insurance, a 10- to 25-year amortization period is used; for guaranteed renewable health, a 10-year period, and a 10- to 15-year period is employed for annuities. Deferred acquisition costs are reviewed periodically for recoverability to determine if any adjustment is required.
In 1992, the Company adopted Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" (FAS 106). As required, the Company changed its method of accounting for retiree benefit plans effective January 1, 1992, to accrue for the Company's share of the costs of postretirement benefits over the service period rendered by employees. Previously these benefits were charged to expense when paid. The Company elected to recognize immediately the liability for postretirement benefits as the cumulative effect of a change in accounting principle. This resulted in a noncash after-tax charge to net income of $126 million. See note 10 for additional information relating to FAS 106.
Dividend payments to the Company from its insurance subsidiaries are subject to similar restrictions and statutory surplus of the subsidiaries is not available in 1995 for dividends to the Company without prior approval of insurance regulatory authorities.
The Company markets a variable annuity product through its affiliate, Smith Barney. Sales of this product were $158 million in 1994.
Changes in net unrealized investment gains (losses) that are included as a separate component of shareholder's equity were as follows:
Prior to December 31, 1993, fixed maturities that were intended to be held to maturity were recorded at amortized cost and classified as held for investment. Sales from the amortized cost portfolios have been made periodically. Such sales were $97 million and $195 million in 1993 and 1992, respectively. Gross gains of $7 million and $10 million in 1993 and 1992, respectively, and gross losses of $1 million and $6 million in 1993 and 1992, respectively, were realized on those sales.