The Company leases approximately 5,354 square feet in La Jolla, California for its Principal Executive Offices.
However, this was not the case in 1995 for Sequoia. A large portion of these acquisition costs amounting to $1.3 million were expensed in the year incurred instead of being deferred and amortized over the premium recognition period. A write off of deferred acquisition costs is required when the sum of expected claim costs and claim adjustment expenses, expected dividends to policyholders, unamortized acquisition costs, and maintenance costs exceed related unearned premiums.
Property and casualty operations contributed pre-tax operating income of $3.3 million during 1996, consisting of $35.3 million in revenues, less losses and loss adjustment expenses incurred of $20.3 million and operating expenses of $11.7 million. This compares to 1995 pre-tax operating loss of $3.7 million.
PICO management hopes to maximize the return of all assets, including those needed to fund the eventual wrap-up of the MPL reserves through, among other things, value investing and managing the invested assets internally rather than liquidating assets to pay a third party to oversee the runoff of the existing claims. Management also elected to handle the runoff of the MPL claims internally to continue to maintain a high standard of claims handling and to maximize shareholder values. While management expects that the Company's current and future investments will increase in value, offsetting some of the decline in assets during the period of runoff and increasing shareholder value, the impact of future market fluctuations on the value of the Company's invested assets cannot be accurately predicted. Although assets will be managed to mature or liquidate according to expected payout projections, at times, in response to abnormal funding demands, some invested assets may need to be sold at inopportune times during periods of decline in the stock market or declines in the market values of the individual securities. Such forced sales are expected to occur infrequently and only under extreme circumstances; however, this cannot be guaranteed.
Financing activities provided cash in all three years ($69,000 in 1996, $439,000 in 1995, and $3.6 million in 1994). Most of the cash provided related to capital infusions by GPG in 1994 ($3 million) and the issuance of common stock in 1995 ($350,000) pursuant to the exercise of stock options issued under PICO's 1993 Stock Option Plan. Life and annuity insurance products also provided financing cash flows of $ 306,000 in 1996, $166,000 in 1995, and $743,000 in 1994.
As discussed in Note 10, approximately 19% and 40% of the Company's common stock was owned by Guinness Peat Group plc as of December 31, 1996 and 1995, respectively. In addition, GEC and CIC own approximately 13% and 1%, respectively, of the Company's common stock as of December 31, 1996. The Company's common stock owned by GEC and CIC has been accounted for as treasury stock in the Company's consolidated financial statements.
A decline in the market value of any available for sale security below cost that is deemed other than temporary is charged to earnings and results in the establishment of a new cost basis for the security. There were no such declines in 1996, 1995, or 1994.
On May 9, 1996, the Company, Guinness Peat Group plc ("GPG"), and GEC entered into an agreement whereby GPG agreed to sell 4,258,415 common shares (adjusted for the merger exchange rate) of the Company's common stock to GEC in two blocks, subject to regulatory approval, at an average price of approximately US $3.60 per share. GPG agreed to sell the shares to GEC at a discount to market due to their status as restricted stock and in consideration of the quantity of shares to be purchased. On May 13, and June 4, 1996 GEC purchased the shares. Prior to these transactions, GPG owned approximately 40% of the Company's common stock. Following these transactions, GPG and GEC owned approximately 23% and 16% of the Company's common stock, respectively. GPG and GEC owned approximately 19% and 13%, respectively, of the Company's common stock subsequent to the merger with CIG in November 1996. The shares of the Company owned by GEC have been accounted for as treasury shares as of December 31, 1996 in the Company's consolidated financial statements.
Under the Plans, Physicians is authorized to issue 2,955,148 shares of Common Stock pursuant to awards granted in various forms, including incentive stock options (intended to qualify under Section 422 of the Internal Revenue Code of 1986, as amended), non-qualified stock options, and other similar stock-based awards to full-time employees (including officers) and directors. The total options available for future grants as of December 31, 1996 were 70,377. The Company granted stock options in 1996 and 1995 under the Plans in the form of incentive stock options and non-qualified stock options. In conjunction with the Merger, the Company assumed all of Physicians' options outstanding. The exercise price of all options granted was equal to the fair market value of the Company's common stock at the date of grant.
The regulations of the Departments of Insurance in the states where the Company's insurance subsidiaries are domiciled generally restrict the ability of insurance companies to pay dividends or make other distributions. Based upon statutory financial statements filed with the insurance departments as of December 31, 1996, $8.6 million was available for distribution by the Company's wholly-owned insurance subsidiaries to the parent company without the prior approval of the Department of Insurance in the states in which the Company's insurance subsidiaries are domiciled, through December 29, 1997. The total eligible distributions in 1997 are approximately $21.8 million. See Note 20, "Subsequent Events". A dividend payment of $13,212,593 was made on December 30, 1996 from Physicians to PICO Holdings, Inc.
The Company leases some of its offices under noncancellable operating leases which expire through February 2001. Total rental expense for the years ended December 31, 1996 and 1995 was $1,714,265 and $307,155, respectively. Future minimum rental payments required under the leases are as follows:
- PREMIUM NOTES RECEIVABLE: The carrying amounts of premium notes receivable are reasonable estimates of fair value.
- POLICYHOLDER LIABILITIES FOR ANNUITY AND OTHER POLICYHOLDER FUNDS: Policyholder liabilities for annuity and other policyholder funds include reserves without mortality or morbidity risks. The fair value is estimated by discounting future payments at rates currently offered for similar financial instruments.