During 1996, the Torchmark Board of Directors and its financial advisor, Morgan Stanley, reviewed a number of restructuring options to possibly enhance shareholder value, including splitting the operations into separate publicly traded entities and selling all or portions thereof. However, none of the reasonably achievable restructuring options provided sufficient likelihood of creating more long term shareholder value than the current structure. Accordingly, the following actions were agreed to and accomplished to the extent described in the following sections.
In addition to previously transferred securities, warrants, and Section 29 energy-related tax credits, which approximated $112 million at closing, Torchmark received subordinated debt and notes totalling $32.5 million along with $15.5 million in cash. After closing costs and retained liabilities, Torchmark recorded a pre-tax loss of $23 million and an after-tax loss of $7 million from the sale, or $.10 per share.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Torchmark Corporation and subsidiaries at December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1996, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.
The amount of interest accrued on the unamortized balance of value of insurance purchased was $18.9 million, $20.0 million, and $11.7 million, for the years ended December 31, 1996, 1995 and 1994, respectively. The average interest accrual rates used for the years ended December 31, 1996, 1995 and 1994 were 7.26%, 7.26% and 7.72%, respectively. The estimated amount of the unamortized balance at December 31, 1996 to be amortized during each of the next five years is: 1997, $27.8 million; 1998, $24.5 million; 1999, $21.6 million; 2000, $18.9 million; and 2001, $16.7 million.
Reinsurance: Insurance affiliates of Torchmark reinsure that portion of insurance risk which is in excess of their retention limits. Retention limits for ordinary life insurance range up to $2.5 million per life. Life insurance ceded represents less than 1.0% of total life insurance in force at December 31, 1996. Insurance ceded on life and accident and health products represents 1.0% of premium income for 1996. Torchmark would be liable for the reinsured risks ceded to other companies to the extent that such reinsuring companies are unable to meet their obligations.
Restrictions on cash: A portion of the cash held in financial service subsidiaries that function as broker-dealers has been segregated for the benefit of customers in compliance with security regulations. This amount was $15.0 million at December 31, 1996 and $11.8 million at December 31, 1995.
The following is a summary of quarterly results for the two years ended December 31, 1996. The information is unaudited but includes all adjustments (consisting of normal accruals) which management considers necessary for a fair presentation of the results of operations for these periods.