RESULTS OF OPERATIONS Years Ended December 31, 1995, 1994 and 1993 INSURANCE PREMIUMS AND POLICY CHARGES increased $2.2 million or 35%, to $8.5 million from $6.3 million in 1994, due to an increase in surrender charges assessed on the surrender of annuity policies. This follows a decrease of $.3 million or 5%, to $6.3 million in 1994 from $6.6 million in 1993. This decrease reflects a $.5 million decrease in SPIA sales which was partially offset by a $.3 million increase in surrender charges assessed on the surrender of annuity policies. Surrender benefits increased $113.4 million to $307.4 million in 1995 from $194.0 million in 1994. The 1994 amount of $194.0 million represents a decrease of $76.8 million from $270.8 million in 1993. The increase in surrenders realized in 1995 reflects both the increased number of policies no longer covered by a surrender charge and the returns available on alternative investments as annuity rates decline. The decrease realized in 1994 reflects the reduction in surrenders from "bailout" products to $18.3 million in 1994 from $139.6 million in 1993. NET INVESTMENT INCOME increased $14.5 million, or 10%, to $156.5 million from $142.0 million in 1994. This increase resulted from both an increase in average invested assets from $1,862.3 million in 1994 to $1,992.7 million in 1995 and an increase in the average yield on invested assets from 7.6% in 1994 to 7.9% in 1995. Net investment income increased $3.5 million, or 3%, to $142.0 million in 1994 from $138.5 million in 1993. This increase resulted from an increase in average invested assets from $1,770.9 million in 1993 to $1,862.3 million in 1994, offset in part by a reduction in the average yield on invested assets from 7.8% in 1993 to 7.6% in 1994. The 1994 yield was impacted by losses generated by an investment in investment partnerships. These partnerships form a fund of funds totalling $23.1 million on December 31, 1995, which is structured in an attempt to consistently provide returns in excess of the Standard & Poor's (S&P) 500 over time without regard to the general direction of financial markets. This fund genera ted income of $3.6 million in 1995 compared with a loss of $1.9 million in 1994 and income of $1.2 million in 1993. NET TRADING LOSSES of $.9 million in 1995 primarily result from a program designed to create capital losses for tax purposes which can be carried back against capital gains realized in 1992. To accomplish this, the company utilized a preferred stock dividend roll program, buying the stock at prices which included the dividend, collecting the dividend and then selling the stock at prices excluding the dividend. The net effect of this program was to generate dividend income of $1.0 million, included in net investment income, and capital losses of $1.0 million. The company had no trading activity in either 1994 or 1993. NET INVESTMENT GAINS increased $.2 million, or 25%, to $1.0 million in 1995 from $.8 million in 1994. This follows a decrease of $16.2 million, or 95%, to $.8 million in 1994 from $17.0 million in 1993. The 1995 gain reflects the release of the allowance for credit losses that was first established in 1989. The release of this reserve increased 1995 investment gains by $2.2 million. Gains and losses may be realized upon securities which are disposed of for various reasons. The gains realized in 1994 are the result of general portfolio management while those taken in 1993 were to reduce the effects of the statutory losses resulting from
Consolidated Balance Sheets - as of December 31, 1995 and 1994 34-35 Consolidated Statements of Earnings - for the years ended December 31, 1995, 1994 and 1993 36 Consolidated Statements of Stockholders' Equity for the years ended December 31, 1995, 1994 and 1993 37 Consolidated Statements of Cash Flows - for the years ended December 31, 1995, 1994 and 1993 38-39 Notes to Consolidated Financial Statements - for the years ended December 31, 1995, 1994 and 1993 40-60
1. Summary of Significant Accounting Policies: ______________________________________________________ A. PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the accounts of AmVestors and its wholly-owned subsidiaries American Investors Life Insurance Company, Inc. (American), American Investors Sales Group, Inc. (American Sales), AmVestors Investment Group, Inc. (AIG), (collectively the company). All significant intercompany accounts and transactions have been eliminated. B. INVESTMENTS: Debt securities held-to-maturity are carried at amortized cost, except that those securities with an other than temporary impairment in value are carried at estimated net realizable value. Debt securities available-for-sale are carried at estimated market value, with any unrealized gains or losses recorded in stockholders' equity. Investments are reviewed on each balance sheet date to determine if they are impaired. In determining whether an investment is impaired, the company considers whether the decline in market value at the balance sheet date is an other than temporary decline; if so, then the investment's carrying value is reduced to a new cost basis which represents estimated net realizable value. The decline in value is reported as a realized loss, and a recovery from the new cost basis is recognized as a realized gain only at sale. The estimates of net realizable value are based on information obtained from published financial information provided by issuers, independent sources such as broker dealers or the company's independent investment advisor. Such amounts represent an estimate of the consideration to be received in the future when the defaulted company's debt is settled through the sale of their assets or the restructuring of their debt. These estimates do not represent the discounted present value of these future considerations. Investments in common stock and preferred stock are carried at market, with unrealized gains (losses) recorded in stockholders' equity for securities available-for-sale. Investments in debt and equity securities which were purchased principally for the purpose of selling such securities in the near term are classified as trading securities and are carried at market. Unrealized gains (losses) are included currently in the results of earnings. The cost of securities sold is determined on the identified certificate basis. Other long-term investments include policy loans and mortgage loans on real estate which are carried at cost less principal payments since date of acquisition, and certain partnership investments which are carried at an amount equal to the partner's estimated market value with any unrealized gains or losses recorded in net investment income.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) 7. STOCKHOLDERS' EQUITY (CONTINUED): This represented a permitted accounting practice for regulatory purposes, the effect of which was to increase statutory surplus by $8,168,000 as of December 31, 1992 ($6,371,000 as of December 31, 1995). In addition, American received permission from the Commissioner of Insurance of Kansas to amortize the effects of changing to Actuarial Guideline No. 32 concerning the Commissioners Annuity Reserve Valuation Method for individual annuity contracts over a three-year period beginning in 1995 rather than to record the full amount of the change of $2,176,000. The effect of this permitted accounting practice was to increase statutory surplus by $943,150 as of December 31, 1995. On March 17, 1989, the Board of Directors of the company adopted the 1989 Nonqualified Stock Option Plan. The options granted under the 1989 Nonqualified Plan will cover the same number of shares and have the same exercise price as the cancelled options, and none of such options may be exercised beyond ten years from the original date of grant of the cancelled option. A total of 839,841 options to acquire common stock are outstanding under the 1989 Nonqualified Plan. The 1989 Nonqualified Plan is administered by the Board of Directors and officers of the company and its subsidiaries. The terms of the options, including the number of shares, and the exercise price are subject to the sole discretion of the Board of Directors. Changes during the years were as follows: