The Company's available for sale fixed maturity securities at December 31, 1995 include $26.9 million of mortgage-backed securities and $13.7 million of asset-backed collateralized securities. The mortgage and asset-backed securities are subject to risks associated with variable prepayments. As such, those securities may have a different actual maturity and yield than planned at the time of purchase. The degree to which a security is susceptible to either gains or losses is influenced by the difference between its amortized cost and par value, relative sensitivity of the underlying mortgages to prepayment risk in a changing interest rate environment and relative priority of the securities in the overall securitization.
NET LOSS $ (1,460) $ (5,238) $ (5,281) ========== ========== ==========
referred to herein as the "Company") have been prepared in accordance with generally accepted accounting principles which, as to the insurance company subsidiaries, differ in some respects from statutory accounting practices prescribed or permitted by state insurance departments. The significant accounting policies followed by the Company that materially affect financial reporting are summarized below.
RECLASSIFICATIONS: Certain amounts in the 1994 and 1993 consolidated financial statements have been reclassified to conform with the 1995 presentation.
------- ------- ----- (Thousands of dollars) Available for sale: Fixed maturities $ 6,417 $(8,054) $ 1,603 Equity securities 50 (114) 103
In July 1991, ACCEL issued $5,848,000 of subordinated notes (the "Subordinated Notes") in connection with the purchase of all outstanding common shares of RGL (see Note K). The Subordinated Notes have a nine-year term with no principal payable until maturity, and bear interest at 10.125% per annum. Effective June 30, 1992, ACCEL amended the notes to permit the issuance of additional notes for the purpose of making interest payments, provided, however, that ACCEL may at its option pay cash in lieu of issuing additional notes in any denomination of less than $1,000. As a result, ACCEL issued additional notes totaling $569,000 and $515,000 for the 1995 and 1994 interest payments, respectively.
At December 31, 1994, the Company had an outstanding loan balance of $13,000,000 under the terms of a credit agreement (the "Credit Agreement") with a bank, and the effective interest rate was 6.25%. During 1993, the Company did not meet all of the requirements contained in the various financial tests under the covenants contained in the Credit Agreement. On March 30, 1994, the bank and the Company agreed to a waiver of certain covenants of the Credit Agreement such that the Company would not be in default at December 31, 1993 and through January 1, 1995.
During 1995, 1994 and 1993, ACCEL paid interest on notes of $1,125,000, $974,000 and $924,000, respectively.
OTHER REINSURANCE: Credit life and credit accident and health premiums assumed by the Company relating to business written in Pennsylvania by an unaffiliated carrier, amounted to $6,308,000, $7,640,000 and $7,154,000 in 1995, 1994 and 1993, respectively. Unearned premium reserves and the liability for insurance claims at December 31, 1995 include $10,904,000 and $3,243,000, respectively ($11,460,000 and $3,208,000 at December 31, 1994, respectively), for risks assumed under this agreement.
The Company files a consolidated income tax return with its subsidiaries, including its life insurance subsidiary. For tax purposes, certain amounts have been accumulated by the life insurance subsidiary in a memorandum tax account designated as "policyholders' surplus" that will be taxed only when distributed to shareholders. Policyholders' surplus on a tax basis was $4,489,000 at December 31, 1995. Management considers the likelihood of distributions from this account to be remote; therefore, no Federal income tax has been provided for such distributions in the accompanying consolidated financial statements. As of December 31, 1995, approximately $2,549,000 could be distributed to shareholders before a distribution would be designated as from the policyholders' surplus account.
The table above reflects decreases in the liability for insurance claims resulting from discontinued lines of business and the write off of Galaxy Insurance Company ("Galaxy"), a wholly owned subsidiary of RGL (see Note K). In 1995 and 1994, increases in policy benefits incurred for events of prior years relate to management's reevaluation of discontinued lines of business.
ACCEL's Board of Directors approved an Employee Stock Ownership Plan ("ESOP") during 1989. In 1990, the ESOP entered into an agreement with ALIC to borrow up to $1,000,000 for the purchase of ACCEL's common stock. At December 31, 1995, the unpaid balance on this loan was $161,000.
The operating results of AICL have been translated into U.S. dollars using the average exchange rates in effect during the period. The consolidated results of operations include $(137,000), $(82,000) and $25,000 of pre-tax income (loss) from AICL for the years ended December 31, 1995, 1994 and 1993, respectively.
At December 31, 1994, the Company had a $1,250,000 (256,200 shares, 17%) investment in First International Bancorp. First International Bancorp is affiliated with CIHC. During 1995, the Company sold its investment in First International Bancorp to entities associated with CIHC. The sales price was $1,250,000; no gain or loss was realized on the disposition.