Year Ended December 31, ------------------------ (DOLLARS IN THOUSANDS) 1996 1995 - ---------------------------------------------------------------- Investment income $ 250,031 $ 196,024 Interest credited on customer deposits (182,161) (146,867) ------------------------ Net investment spread $ 67,870 $ 49,157 ------------------------ ------------------------
SBM COMPANY Effective May 31, 1995, the Company completed the acquisition of substantially all of the assets and business operations of SBM, including all of the issued and outstanding capital stock of SBM's subsidiaries, SBM Life and ARM Securities (formerly known as SBM Financial Services, Inc.), as well as the State Bond Mutual Funds. The aggregate purchase price for the SBM acquisition was $38.8 million. The Company financed the acquisition by issuing a total of 9,770 shares of new common equity to private equity funds sponsored by Morgan Stanley Group Inc. and to New ARM, LLC (a limited liability company owning 170 shares of the Company's Class A common stock) and certain directors of the Company for an aggregate sale price of $63.5 million. The Company used proceeds from the issuance of the new common equity in excess of the adjusted purchase price for the acquisition to (i) make a $19.9 million capital contribution to SBM Life; (ii) acquire SBM Certificate Company from SBM Life for $3.3 million; and (iii) along with approximately $1.0 million of additional cash from the Company, provide for fees and expenses related to the acquisition of approximately $2.5 million. The capital contribution to SBM Life of $19.9 million was used to strengthen SBM Life's financial position and allowed for a significant investment portfolio restructuring immediately following the acquisition with no net adverse effect on statutory adjusted capital and surplus. On December 31, 1995, SBM Life was merged with and into Integrity to create certain operating efficiencies. The SBM acquisition provided the Company with expanded distribution channels, as well as a deposit base in the 403(b) tax-deferred annuity marketplace. On December 13, 1996, the Company transferred its responsibility for performing management and
The Company primarily invests in securities with fixed maturities with the objective of providing reasonable returns while limiting credit and liquidity risks. At amortized cost, fixed maturities at December 31, 1996 totaled $3.0 billion, compared with $2.5 billion at December 31, 1995, both representing approximately 91% of total cash and investments. This increase in investments in fixed maturities primarily resulted from the investment of the proceeds from sales of GIC products.
The Company analyzes its investment portfolio, including below investment grade securities, at least quarterly in order to determine if its ability to realize its carrying value on any investment has been impaired. For fixed maturity and equity securities, if impairment in value is determined to be other than temporary (i.e., if it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the security), the cost basis of the impaired security is written down to fair value, which becomes the security's new cost basis. The amount of the write-down is included in earnings as a realized loss. Future events may occur, or additional or updated information may be received, which may necessitate future write-downs of securities in the Company's portfolio. Significant write-downs in the carrying value of investments could materially adversely affect the Company's net income in future periods.
1 (AAA, AA, A) $2,210.8 72% $2,217.2 2 (BBB) 689.5 23 692.2 3 (BB) 110.2 4 105.9 4 (B) 38.3 1 39.2 5 (CCC, CC, C) -- -- -- 6 (CI, D) -- -- -- --------------------------------- Total fixed maturities $3,048.8 100% $3,054.5 --------------------------------- ---------------------------------
During the years ended December 31, 1996, 1995 and 1994, the Company met its liquidity needs entirely by cash flows from operating activities and principal payments and redemptions of investments. At December 31, 1996, cash and cash equivalents totaled $110.1 million compared to $76.9 million at December 31, 1995. The Company's aim is to manage its cash and cash equivalents position in order to satisfy short-term liquidity needs. In connection with this management of cash and cash equivalents, the Company may invest idle cash in short-duration fixed maturities to capture additional yield when short-term liquidity requirements permit.