Insurance policy income, which consists of premiums received on traditional life insurance products and policy fund and surrender charges assessed against investment type products, increased 8 percent to $58.1 million in 1995 from $53.8 million in the 1994 periods, primarily because increased annuity policy withdrawals resulted in higher surrender charges. Surrender charges assessed against annuity withdrawals for 1995 were $15.4 million compared to $10.2 million for the 1994 periods while annuity policy withdrawals were $750.4 million and $532.8 million for the same periods, respectively. Surrender charges as a percentage of annuity policy withdrawals declined in 1995 as a result of increased withdrawals of a certain policy form whose surrender charge expired in 1995 upon such policies reaching their sixth anniversary. In addition, the Company has experienced increases in withdrawals during 1995 due to: (i) the increased size of the Company's annuity portfolio; and (ii) competition from other investment products in 1995 and the second half of 1994, which caused some policyholders to surrender policies and incur a surrender charge to invest funds in alternative investments.
Other income decreased 2 percent to $6.3 million in 1995 from $6.4 million in the 1994 periods. The decrease was principally due to a reduction in fees received from nonaffiliated companies for data processing services offset, in part, by interest earned in 1995 on cash segregated at the Acquisition date for the conversion of the Company's 6-1/4% Convertible Subordinated Debentures due 2003 (the "Convertible Debentures") and an increase in the interest earned on assets segregated for the future redemption of the redeemable preferred stock issued by a subsidiary.
other than temporary. The Company's investment portfolio is subject to the risk of further declines in realizable value, however, the Company attempts to mitigate this risk through the diversification and active management of its portfolio.
The Company's annuity and life insurance business generally provides the Company's insurance subsidiaries with positive cash flows from premium collections and investment income. Cash flows from insurance subsidiary financing activities principally result from the excess of premium collections from annuities and interest-sensitive insurance contracts over related benefit payments, including withdrawal and surrender payments. Changes in the account balances for insurance liabilities accounted for as universal life-type and investment-type contracts (primarily deferred annuities) (see note 1 in the consolidated financial statements) for the three years ended December 31, 1995 are summarized as follows:
Substantially all of the Company's annuity products have a surrender charge feature designed to reduce early withdrawal or surrender of the policies and to partially compensate the Company for its costs if policies are withdrawn early. Surrender charge periods on annuity policies currently being issued generally range from five years to 12 years with 90 percent or more of such policies issued during 1994 and 1995 having a surrender charge period of eight years or more. The initial surrender charge on annuity policies ranges from 6 percent to 12 percent of the accumulation value and generally decreases by approximately 1 to 2 percentage points per year during the surrender charge period.
In the fourth quarter of 1995, AGP completed the following financing transactions: (i) sold 2,142,857 shares of its common stock for $30.0 million in a private placement transaction; (ii) made a $30.0 million unscheduled principal payment on the then outstanding senior term loan; (iii) executed a new credit facility to provide for aggregate borrowings of up to $225.0 million (the "Senior Credit Facility"); and (iv) borrowed $125 million under the Senior Credit Facility and repaid in full the remaining principal balance under the then outstanding senior term loan. Eighty percent of the common shares sold were purchased by Partnership II and the remaining shares were purchased by other holders of the Company's common stock. The proceeds from the issuance of the shares were used to make a $30.0 million capital contribution to American Life Holding to enable American Life Holding to prepay its previous existing senior term loan. The general terms and conditions of the Senior Credit Facility are discussed in note 6 of the accompanying consolidated financial statements. The Company believes the Senior Credit Facility provides greater flexibility to American Life Holding than the prior senior term loan because the Senior Credit Facility: (i) provides additional available working capital by increasing the aggregate maximum borrowings to $225.0 million; (ii) provides for a revolving credit facility; (iii) provides for more favorable interest rates; (iv) has less restrictive covenants; and (v) has a more favorable repayment schedule.
We have audited the accompanying consolidated balance sheet of American Life Group, Inc. (formerly known as The Statesman Group, Inc.) and subsidiaries as of December 31, 1995 and 1994, and the related consolidated statements of operations, shareholders' equity, and cash flows for the year ended December 31, 1995, and the three months ended December 31, 1994. We have also audited the accompanying consolidated statements of operations, shareholders' equity and cash flows of American Life Group, Inc. and subsidiaries for the nine months ended September 30, 1994 based on the historical predecessor basis applicable to periods prior to the acquisition of the Company (see Note 1 of the notes to consolidated financial statements regarding the September 29, 1994 acquisition). These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
The consolidated financial statements include the accounts of the Company and its subsidiaries after elimination of all significant intercompany accounts and transactions. Certain amounts from prior periods were reclassified to conform to the 1995 presentation.
Effective January 1, 1994, when the Company recognizes changes in conditions that cause a fixed maturity investment to be transferred to a different category (e.g., actively managed, held to maturity or trading), the security is transferred to the new category at its fair value at the date of the transfer. At the date of transfer, the security's unrealized gain or loss (which was immaterial for 1994 and 1995) is accounted for as follows:
o For transfers from the trading category, the unrealized gain or loss already recognized in earnings is not reversed;
All share and per share amounts have been restated to give retroactive effect to: (i) the August 8, 1995 one-for-two stock split, and (ii) the 5 percent stock dividend paid in December 1993.
The Senior Credit Facility provides for mandatory prepayments under certain conditions and is collateralized by, among other things: (i) pledges of the capital stock of the Company's significant subsidiaries and a surplus note issued by American Life and Casualty to American Life Holding; and (ii) the assignment of investment advisory agreements among the Company's principal subsidiaries and a subsidiary of Conseco. In addition, the Company and another non-insurance subsidiary have unconditionally guaranteed the Senior Credit Facility.
American Life Holding purchased $99.0 million face amount of zero coupon U.S. Treasury securities maturing in September 2007 ($69.0 million) and February 2008 ($30.0 million). These securities have been placed in escrow accounts to be used for the future redemption of the redeemable preferred shares on or before the mandatory redemption date of each issue.
The Board of Directors has authorized the Company to issue 5 million shares of Series Preferred Stock $1 Par from time to time in one or more series and to fix the number of shares, designations, voting powers (if any), and other terms of each series. Each series shall be distinctly designated and, except as otherwise stated, shall rank equally and be identical in all respects.
On November 30, 1995, the Company issued 2,142,857 shares of its common stock for $30.0 million in a private placement transaction. Eighty percent of the shares were purchased by Partnership II and the remainder were purchased by other holders of the Company's common stock. The proceeds from the issuance of the shares were used to make a $30.0 million capital contribution to American Life Holding, which used the funds to make a $30.0 million principal payment on its senior term loan (see note 6). If the issuance of common stock and the resulting principal payment on the senior term loan had been completed at January 1, 1995, pro forma earnings per common share would have been $5.22 on both a primary and full diluted basis for the year ended December 31, 1995, rather than $5.87. Such pro forma amount reflects the sale of common stock and the reduction in interest expense (net of income taxes) resulting from the use of proceeds to reduce the senior term loan.