Cash and cash equivalents and short-term investments increased to $372.2 million as of December 31, 1996 compared to $260.8 million as of December 31, 1995, as a result of operating cash flows and sector shifts consistent with the Company's investment strategy.
ZURICH REINSURANCE CENTRE HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in thousands except share data)
INVESTMENTS The Company's fixed maturity securities and equity securities are classified as available-for-sale and are carried at market value with changes in the market value of such securities reported as unrealized appreciation (depreciation) directly in stockholders' equity, net of related tax effects, if any. The difference between cost and market value for fixed maturity securities and equity securities with declines in market value that are other than temporary, if any, are treated as realized losses and reflected in net income. Investments in equity securities are carried under the equity method of accounting when the Company has 20% or more of the voting power or has the ability to exert significant influence over the investee. Short-term investments, investments with a maturity of less than one year but greater than three months, are carried at cost, which approximates market.
STOCK-BASED COMPENSATION Effective January 1, 1996, the Company adopted the accounting provisions of the Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation". Under SFAS No. 123, the Company recognizes compensation expense based on the fair value of employee stock-based compensation plans on the date of grant. Refer to Footnote 10 for further discussion of employee stock-based compensation plans.
Gross gains on sales of fixed maturities, excluding calls, were $15.2 million, $51.2 million and $2.0 million during 1996, 1995 and 1994, respectively. Gross losses on sales of fixed maturities, excluding calls, were $24.5 million, $23.5 million and $40.8 million during 1996, 1995 and 1994, respectively.
Securities having a par value of $21.5 million and $24.2 million at December 31, 1996 and 1995, respectively, were on deposit with various state or governmental insurance departments in order to comply with applicable state insurance laws.
During May 1993, ZRC purchased two aggregate excess of loss reinsurance contracts from Zurich. The first contract provides for reimbursement by Zurich of all losses and allocated loss adjustment expenses incurred by ZRC subsequent to December 31, 1992, in connection with risks assumed prior to that date. While this coverage is considered retroactive, recoverables thereunder will be recognized immediately as ZRC will be reimbursed by Zurich as covered losses are incurred rather than as such losses are paid. The second contract provides for reimbursement by Zurich of all losses and allocated loss adjustment expenses incurred by ZRC subsequent to May 31, 1993 with respect to risks assumed from January 1, 1993 through May 31, 1993. In addition, under the second contract, Zurich will reimburse ZRC for losses and allocated loss adjustment expenses incurred by ZRC in excess of 75% of premiums earned after May 31, 1993 on business written prior to June 1, 1993. The total premiums for these contracts of $4.0 million were negotiated and evaluated by ZRC by application of the actuarial pricing methodologies generally used by ZRC in evaluating reinsurance contracts. As of December 31, 1996, there were no recoverables recorded pursuant to either of the aggregate excess of loss reinsurance contracts with Zurich. Zurich has a "AA+" claims-paying ability rating from Standard & Poor's Corporation and a "Aa1" financial strength rating from Moody's Investors Service.