(3) Reflects the issuance of and the payment of dividends on $100.0 million of Capital Securities by Delphi Funding. See "Business - Other Transactions" and Note K to the Consolidated Financial Statements.
(4) The Company discontinued its long-term care business in 1996 and recorded a one-time after-tax charge of $5.8 million in 1996 attributable to this discontinuance. After-tax operating losses on this business were $0.8 million, $2.3 million and $0.1 million for the years ended December 31, 1996, 1995 and 1994, respectively. Additionally, the Company incurred an after-tax extraordinary loss of $12.0 million for the year ended December 31, 1993 associated with the early extinguishment of debt.
(6) Weighted average shares outstanding reflect the issuance of 2.1 million shares of Class A Common Stock in October 1993.
(7) Diluted book value per share is calculated by dividing shareholders' equity, as increased by the proceeds and tax benefit from the assumed exercise of outstanding stock options, by total shares outstanding, also increased by shares issued upon the assumed exercise of the options and deferred shares.
(8) In 1994, the Company adopted the provisions of Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" ("SFAS No. 115"). Equity was increased (decreased) by net unrealized appreciation (depreciation) on investments of $40.5 million, $(17.9) million, $(34.8) and $(57.9) million as of December 31, 1997, 1996, 1995 and 1994, respectively, due to the impact of SFAS No. 115.
(10) The interest coverage ratio is calculated by dividing income from continuing operations before interest and income tax expense by interest expense (1996 excludes interest paid in connection with the settlement of prior-year federal income taxes).
Insurance Premium and Policyholder Fees. Insurance premiums and policyholder fees in 1997 were $360.9 million as compared to $335.2 million in 1996, an increase of 8%. Premiums from the Company's group employee benefit products, excluding excess workers' compensation insurance, increased by $16.2 million primarily due to the impact of certain price increases, growth and development of the Company's distribution system and normal growth in employment and salary levels for the Company's existing customer base. Premiums from the Company's excess workers' compensation insurance product, which was acquired in March 1996 and included in the Company's results from the date of the acquisition, totaled $64.5 million in 1997 as compared to $56.2 million in 1996. Excess workers' compensation insurance premiums have decreased from full-year 1996 levels primarily due to state mandated reductions in workers' compensation premium rates and increased competition. The Company does not expect this reduction in premiums to have a material impact on the underwriting results for this product as decreased workers' compensation benefit levels, also mandated by the states, are expected to offset the decline in premiums. Deposits from the Company's SPDA products, including the Company's MVA annuity product, were $55.5 million in 1997 as compared to $57.5 million in 1996. Deposits for these products, which are long-term in nature, are not recorded as premiums; instead, the deposits are recorded as a liability.
Benefits and Expenses. Policyholder benefits and expenses were $402.7 million in 1997 as compared to $387.7 million in 1996, an increase of 4%. During 1997, benefits and expenses for group employee benefit products increased by $20.8 million as compared to 1996, primarily due to growth in these product lines. Also contributing to the increase was the inclusion of the Company's excess workers' compensation insurance product, which was acquired in March 1996, for the full year of 1997. The combined ratio (loss ratio plus expense ratio) for group employee benefit products was 95.9% and 96.7% for 1997 and 1996, respectively. While amortization of cost of business acquired related to asset accumulation products was accelerated by $4.8 million during 1996 due to better than expected investment results, there was no net acceleration or deceleration during 1997. The weighted average annual crediting rate on asset accumulation products for 1997 and 1996 was 5.3% and 5.2%, respectively.
Operating Income. Income from continuing operations before interest and income tax expense and dividends in 1997 was $132.9 million as compared to $99.6 million in 1996, an increase of 33%. The increase was primarily due to the inclusion of excess workers' compensation insurance results for the entire year of 1997 and realized investment gains in 1997 as compared to realized investment losses in 1996.
Interest Expense. Interest expense in 1997 was $15.0 million as compared to $18.3 million in 1996. This decrease is primarily due to the repayment of $50.0 million of borrowings under the Credit Agreement with a portion of the proceeds from the issuance of the Capital Securities, partially offset by the inclusion of a full year of interest expense on the SIG Senior Notes in 1997. In addition, the 1996 period includes interest paid in connection with the settlement of prior year federal income taxes.
Discontinued Operations. During 1997, the Company disposed of its long-term care business, which was discontinued in 1996. The proceeds from the disposal were not material and the actual results for this business subsequent to its discontinuance did not materially differ from the loss of $5.8 million, net of a tax benefit of $3.2 million, provided for in 1996 in connection with the discontinuance of this business. See Note Q to the Consolidated Financial Statements.
Insurance Premiums and Policyholder Fees. Insurance premiums and policyholder fees in 1996 were $335.2 million as compared to $260.9 million in 1995, an increase of 28%. Contributing to this increase was $56.2 million in premiums from the Company's excess workers' compensation business which was acquired as a result of the SIG Merger. Also contributing to the increase was growth in premiums from the Company's other group employee benefit products, including the impact of certain price increases, growth and development of the Company's sales force and normal growth in employment and salary levels for the Company's existing customer base. Deposits from the Company's SPDA products, including the Company's MVA annuity product, which it began marketing in the fall of 1995, were $57.5 million during 1996 as compared to $11.4 million in 1995. Deposits for the Company's asset accumulation products, which are long-term in nature, are not recorded as premiums; instead, the deposits are recorded as a liability.
Discontinued Operations. The Company recorded the discontinuance of its long-term care insurance business in 1996. Operating losses on this business totaled $0.8 million and $2.3 million, net of a tax benefit of $0.4 million and $1.2 million, in 1996 and 1995, respectively. The Company also recorded a one-time charge in 1996 of $5.8 million, net of a tax benefit of $3.2 million, as a result of the discontinuance of this business. See Note Q to the Consolidated Financial Statements.
The Company had approximately $216.8 million of financial resources available at the holding company level at December 31, 1997, as compared to $117.2 million at December 31, 1996. The increase in available financial resources was primarily due to funds received from the Capital Securities offering and earnings from the Company's non-insurance subsidiaries. The financial resources available at the holding company level are primarily comprised of investments in the common stock of its non-insurance subsidiaries and fixed maturity securities. The assets of these non-insurance subsidiaries are primarily invested in balances with independent investment managers and fixed maturity and other marketable securities. Substantially all of the amounts invested with independent investment managers are withdrawable at least annually, subject to applicable notice requirements. A shelf registration is also in effect under which up to $49.2 million in securities may be issued by the Company.
Thirty-nine percent of the Company's total invested assets were comprised of mortgage-backed securities, of which 52% are guaranteed by U.S. Government sponsored entities as to the full amount of principal and interest and the remaining 48% consists of investments in trusts created by banks and finance and mortgage companies. Ninety-nine percent of the Company's mortgage-backed securities portfolio, based on fair value, have been rated as investment grade by nationally recognized statistical rating organizations. The single largest investment in mortgage-backed securities backed by a single mortgage pool totaled $42.8 million, or 2% of total invested assets, at December 31, 1997.
The Company maintains an investment program in which securities were purchased using advances from the FHLB. The Company has utilized this program to manage the duration of its liabilities and to earn spread income, which is the difference between the financing cost and the earnings from the securities purchased with those funds. The advances from the FHLB, which are at a fixed rate, had an average term to maturity of 2.8 years. This program requires the Company to maintain securities on deposit with the FHLB as collateral for the advances outstanding. As the fair value of those securities increases or decreases, the Company may be allowed to retake possession of securities or be required to deposit additional securities.