The Company's principal executive offices are located in Wayne, Pennsylvania. It leases approximately 4,100 square feet of office space at 640 Lee Road, Suite 303, Wayne, Pennsylvania. The aggregate monthly rental is approximately $8,800.
CSW and IFA lease marketing and administrative space in their respective offices. The aggregate monthly rental for these locations is approximately $6,000.
The following selected consolidated financial data of the Company has been derived from the Consolidated Financial Statements of the Company. Certain reclassifications have been made to prior year amounts for comparative purposes.
The 1993 net income of $8.2 million, or $1.05 per share, compared favorably to 1992 net income of $6.7 million, or $0.80 per share. The improvement in net income was due primarily to increased realized capital gains on investments, as well as the Company's successful implementation of expense reduction programs.
Premium income improved marginally in 1992 as compared to 1991. Improvements in both new sales and inforce persistency at Prairie and Loyal more than offset a decline in renewal premium due to a substantial block of inforce business at Prairie attaining paid-up premium status during the year.
During 1994, there was a decrease of 1.7% in net investment income, realized investment gains and other income as compared to 1993. During 1993 and early 1994, the Company experienced substantial prepayments on its fixed maturity investments as individuals and corporations took advantage of low interest rates and refinanced their debt obligations. These significant prepayments were reinvested at lower interest rates and, as expected, lowered the overall portfolio yield during the year. This decrease during 1994 was partially offset by the Company's sale of its investment in North American National Corporation ('NANC') in the first quarter for a gross realized gain of $1.7 million. Also, partially offsetting the decline in portfolio yield has been an increase in invested assets. The increase in invested assets was partially offset by the Company's payment of $10 million in conjunction with its debt refinancing during 1994.
Benefits for 1993 increased as a percentage of premium to 94.7% from 90.4% in 1992. The increase in benefits was due primarily to higher levels of death and health claims in 1993 as compared to 1992. During 1993, the Company achieved sales improvement in single premium funeral related life insurance and cancer indemnity products. Both products have a higher initial benefit to premium ratio than the existing inforce insurance business and substantially account for the increase in benefit ratio.
Expenses as a percentage of premium income in 1993 decreased to 56.2% as compared to 59.5% in 1992. The decrease was due primarily to continued emphasis on cost containment and reduction as indicated by a $1.7 million decline in selling and administrative expenses.
The Company's effective tax rate has varied considerably in past years. Prior to 1992, one of the primary reasons for these variances was the difference in financial statement and tax reporting groups. For financial statement purposes, the profits and losses of all subsidiaries were reported on a consolidated basis; for tax purposes, Laurentian Capital Corporation filed a separate return, while Loyal and a former subsidiary, Defender, filed a consolidated return, as did Prairie and its subsidiary, Rushmore National Life Insurance Company ('Rushmore'). Filing separate tax group returns caused various effective tax rates to apply to the profits and losses of the financial statement filing group. Beginning in 1992, the Company qualified to file a consolidated life/non-life federal tax return, except that Rushmore and Assured do not qualify to join in the filing of the consolidated Company return until
1995 and 2000, respectively. The Company elected to file one consolidated return and, therefore, the financial reporting and federal tax reporting groups were primarily the same. However, variations in effective tax rates may persist as a result of limitations imposed by the Internal Revenue Code on the utilization of non-life insurance tax losses against life insurance taxable income. For 1992 and prior tax years, under then existing GAAP, effective tax rates also varied as a result of the differences between the tax bases of assets and liabilities and those assigned under purchase accounting ('Purchase Accounting Adjustments'). Pursuant to then existing GAAP, these Purchase Accounting Adjustments were treated as permanent differences. Accordingly, as these differences reversed, they increased or decreased the Company's effective tax rate. For 1993 and subsequent years under SFAS 109, Purchase Accounting Adjustments are treated as temporary differences and changes in these differences will not affect the Company's effective tax rate.
maturity. The balance of the Company's fixed maturity portfolio has been designated as available for sale, and must be reported at fair value. The initial effect of the adoption of SFAS 115 on the Company was an increase in stockholders' equity of $4.3 million (or $0.57 per share) as of the adoption date of January 1, 1994. Due to the general decline in the bond market experienced during 1994, the effect of SFAS 115 was to decrease stockholders' equity by $10.5 million (or $1.38 per share), at December 31, 1994.
In accordance with generally accepted accounting principles, all of the Company's investments are reported in the financial statements at either their original or amortized cost or their market value. At December 31, 1994, the fixed maturity investments had an amortized cost of $508.0 million with a market value of $461.8 million, $46.2 million below amortized cost. The Company's investment strategy is to hold its investments to maturity, and accordingly, the Company does not intend to realize the losses on its portfolio which have been generated as a result of increases in interest rates. The Company had $21.4 million in mortgage loans at December 31, 1994, which could reflect a small premium or discount if those mortgage loans had quoted market prices. The basis used for carrying these long-term fixed rate investments is consistent with the basis used in determining the liability for future policy benefits. Since these assets are invested for terms corresponding to anticipated future benefit payments and carry interest rates in excess of the assumed reserve interest rates, and because they produce predictable cash flows independent of premium income, they should be sufficient to fund the Company's future benefit payments in the ordinary course of business without any need for liquidation prior to maturity.
With the significant decline in interest rates during the second half of 1992 and the first three quarters of 1993, the Company experienced a substantial increase in the level of prepayments associated with its investments in MBS during 1993 and early 1994. The total prepayments received on the MBS portfolio amounted to $52.7 million during 1994, compared to $137.3 million during 1993. Amounts received associated with these prepayments were accounted for as adjustments to investment yield. The Company experienced a decline in portfolio yield as a result of reinvesting these proceeds into similar investments at lower interest rates. The Company's investment strategy for MBS is to emphasize certain types of MBS that have a more predictable pattern of repayment and therefore reduce risk of a loss of a portion of the original principal due to changes in interest rates. A substantial portion of the MBS portfolio consists of Planned Amortization Class ('PAC'), Target Amortization Class ('TAC') and subordinate instruments. These investments are designed to amortize in a more predictable manner by shifting the primary risk for prepayment of the underlying collateral to investors in other tranches of the MBS. No loss of principal has occurred on the Company's MBS portfolio in recent years. The Company's investment policy has been to avoid investments in highly leveraged
Policy loans at December 31, 1994 were $50.6 million. Policy loan rates for the Company's policies are generally in the 3 1/2% to 8% range, at least equal to the assumed interest rates used for future policy benefits; accordingly, policy loans should not result in negative cash flow.
During 1992, the Company restructured its holding in Prairie States. Following approval by the Division of Insurance, Prairie States was sold to Prairie National. As part of the consideration for
The financial statements and supplementary data filed with this Report are as set forth in the 'Laurentian Capital Corporation and Subsidiaries Index to Financial Statements' following Part IV hereof.