Significant fluctuations in the 1998 ratios are discussed in Part II
The Validation testing phase started in 1998. Validation testing is a joint effort by the Information Systems Department and senior analysts from each business area. Testing procedures were documented using guidelines developed by the ABIG Internal Audit Group. These procedures are used throughout the testing by senior analysts and will continue until all systems are tested. The Validation testing phase is expected to be completed during the first half of 1999.
In early 1997, ABIG completed an impact analysis of all major third party vendors to determine their Year 2000 compliance. Every software and hardware vendor was contacted and plans were executed to upgrade to the vendor's Year 2000 ready release. A few vendor software upgrades remain to be tested. During the first half of 1999, these products will be subject to the Validation testing described above.
A substantial portion of the business written by the Company's insurance subsidiaries is credit-related insurance. Most states and other jurisdictions in which the Company's insurance subsidiaries do business have enacted laws and regulations that apply specifically to credit-related insurance. The methods of regulation vary but generally relate to, among other things, the amount and term of coverage, the content of required disclosures to debtors, the filing and approval of policy forms and rates, and limitations on the amount of premiums that may be charged and on the amount of compensation that may be paid as a percentage of premium. In addition, some jurisdictions have enacted or are considering regulations which attempt to limit profitability arising from credit-related insurance based on underwriting experience.
Depreciation of buildings, furniture, and equipment are provided primarily on the accelerated method; software on the straight-line method; and autos on the 200% declining balance method.
At December 31, 1998 and 1997, the fair value, amortized cost, and gross unrealized gains and losses of investments in held-to-maturity and available-for-sale securities consisted of the following:
Stock insurance companies are subject to various states' insurance laws and regulations whereby amounts available for dividends are restricted. Net consolidated assets restricted as to distribution to the Company are $884,700,000. The maximum statutory allowed dividends in 1999 are $176,200,000.
Under the Stock Option/Restricted Stock Award Plan (SORSAP), key management employees were granted options on shares of common stock during the years 1990 through 1994. Option prices were equivalent to the fair market value of common stock on the grant date. The grantee received for no additional consideration three shares of common stock subject to certain transfer restrictions for every one primary share purchased upon the exercise of the option. As the result of the adoption in 1994 of the SMSOP, no new grants were made under the SORSAP. At December 31, 1998, there were no options outstanding, only restricted stock.
The 1994 Amended and Restated Directors' Deferred Compensation Plan (Deferred Plan) allows the directors to defer their fees in cash or in common stock equivalents. The fees that are deferred in common stock equivalents will accumulate and earn interest from the time the fees are deferred until the last day of each quarter when they are converted to common stock equivalents. Upon termination from the board, the director will receive, as elected, either cash or actual shares of the Company's common stock. The Deferred Plan provides for the issuance of up to 400,000 shares of the Company's common stock. At December 31, 1998, there were 130,080 shares allocated under this plan.
A summary of the approximate future minimum rental payments required under operating leases that have initial or remaining non-cancelable lease terms in excess of one year at December 31, 1998, is as follows:
information currently available, that any liabilities that could result are not expected to have a material effect on the Company's financial position or results of operations.
In late January and early February 1998, Cendant Corporation ("Cendant") commenced litigation (the "Cendant Florida Litigation") in the United States District Court for the Southern District of Florida, Miami, Division, against the Company, members of the Company's Board, American International Group, Inc. ("AIG") and a wholly owned subsidiary of AIG, challenging the validity of certain provisions in the merger agreement the Company originally entered into with AIG on December 21, 1997, which agreement was amended in January 1998 and again at the end of February 1998 ("AIG Merger Agreement"), with respect to acquisition proposals by third parties. Cendant's complaint in the Cendant Florida Litigation also challenged the terms of the stock option agreement between the Company and AIG. Pursuant to the terms of a settlement agreement providing for the termination of the AIG Merger Agreement and the payment to AIG by the Company of $100 million and by Cendant of $10 million (the "Settlement Agreement"), Cendant has taken the necessary actions to cause the dismissal of all claims asserted in the Cendant Florida Litigation against all defendants, including the Company and members of the Company's Board. Also pursuant to the terms of the Settlement Agreement, AIG has taken the necessary actions to cause the dismissal of claims against Cendant alleging violations of the federal securities laws in connection with Cendant's bid to acquire the Company.
- ------------- *Eliminated in consolidated financial statements. See accompanying notes to condensed financial statements.
AMERICAN BANKERS INSURANCE GROUP, INC. REINSURANCE FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (IN THOUSANDS)