In addition to the locations listed above, company field operations are conducted from approximately 100 leased offices aggregating approximately 350,000 square feet. These leases generally have terms of five years or less. Management considers the planned owned and leased office facilities adequate for the current and anticipated future level of operations.
(7) "Natural peril losses", which include catastrophe losses, is a Company-defined term for losses caused by wind, hail, water (including freezing water) and earthquake, regardless of the size of any individual event. The Company feels that this measure is a more meaningful management tool as compared to catastrophe losses. The majority of the Company's loss exposure base resides inland (away from coastal exposures) where frequency, rather than severity, of loss events has historically been a more significant factor to the Company.
showing the effect of the listed items. The resulting amounts are not intended to represent net income prepared in accordance with GAAP.
Except for historical information contained herein, the discussion in this Annual Report on Form 10-K includes certain forward-looking statements based upon management expectations. Factors which could cause future results to differ from these expectations include the following: financial markets (e.g. interest rates and securities markets), state and federal legislative and regulatory initiatives, acts of God (e.g. hurricanes, earthquakes and storms), other insurance risks and competition.
The Company's net income of $169.7 million for 1996 was down 4.8% from $178.3 million for 1995. The provision for consolidated income taxes was $26.0 million in 1996 compared to $30.8 million in 1995.
Net Premiums Earned and Other Revenue Consistent with the decrease in net premiums written, net premiums earned and other revenue (primarily finance and service fees) decreased by $72.4 million to $1,617.2 million for 1996, from $1,689.6 million for 1995.
Losses and Loss Adjustment Expense ("LAE") Losses and LAE increased by $6.2 million to $1,199.9 million for 1996, from $1,193.7 million for 1995. The SAP loss ratio for 1996 was 61.0% as compared to 59.3% for 1995. The 1.7 percentage point increase in the loss ratio in 1996 was the net result of several factors.
In addition, as discussed in the Business section under "Reserves for Losses and Loss Adjustment Expenses", the Company experienced $45.7 million in favorable prior year loss reserve development in 1996, an increase of $5.8 million when compared to favorable loss reserve development of $39.9 million in 1995. Of the total $45.7 favorable loss development in 1996, $71.9 million was attributable to personal and commercial lines excluding reinsurance in run-off, and ($26.2) million was attributable to the reinsurance operations. Of the total $39.9 million favorable loss development in 1995, $109.2 was attributable to personal and commercial lines excluding reinsurance in run-off, and ($69.3) was attributable to the reinsurance operations.
The SAP LAE ratio was 13.6% for 1996 compared to 11.8% for 1995. The increase was primarily attributable to an increase in LAE reserves of approximately $18.7 million compared to a $6.0 million decrease in 1995. This LAE reserve increase was primarily driven by an increase in legal expense reserves related to construction defect claims. As noted in the "Other Costs and Expenses" section below, the SAP LAE ratio also benefited to a slight degree from Realignment savings. Finally, earned premium decreased $68.6 million in 1996, creating upward pressure on the LAE ratio.
Other Costs and Expenses Other costs and expenses decreased by $47.4 million, or 8.6%, to $505.4 million for 1996, from $552.8 million for 1995. This was the result of several factors. The Company experienced a $16.7 million decrease, or 5.1%, in variable expenses, primarily commission expense and premium taxes, due to a 4.2% decline in net written premium in 1996. Realignment related fixed expense savings totaled approximately $13.4 million in 1996; approximately 77% of these savings, or $10.3 million, are attributable to Other Costs and Expenses, with the remaining 23%, or $3.1 million, reducing LAE expense. In addition, the Realignment, office closings prior to the Realignment and an early retirement program added $21.9 million to expenses in 1995.
The SAP underwriting expense ratio for 1996 was 31.2%, as compared to 32.3% for 1995. Realignment expense savings accounted for a reduction of approximately .7% in the underwriting expense ratio in 1996. In 1995, the Realignment, office closings prior to Realignment and early retirement accounted for 1.3% of the underwriting expense ratio. Including the continuing impact of Realignment related expense reduction measures undertaken in 1996, coupled with planned 1997 expense reduction activities, the Company expects to realize approximately $30 million in Realignment related expense savings in 1997, approximately 80% of which, or $24 million, will benefit the SAP underwriting ratio. This forward looking statement assumes successful completion of the Company's Realignment operational plan, including the closing and consolidation of various division, service center and other offices around the country into the Company's regional structure. The operational implementation of this plan was nearly 75% complete as of year end 1996.
Combined Ratio The SAP combined ratio, after policyholder dividends, was 105.8% in 1996, versus 103.6% in 1995. After peaking at 112.5% in 1992, the Company's combined ratio had decreased in 1993 through 1995, with an increase in 1996, due primarily to natural peril losses. The reinsurance in run-off has a negative impact of 1.6 percentage points on the Company's combined ratio in 1996, versus 4.2 percentage points in 1995.
Net Investment Income Net investment income increased $4.4 million, or 1.9%, to $238.2 million for 1996, from $233.8 million in 1995. This increase was due primarily to an increased investment in taxable securities. The pre-tax yield on invested assets (excluding realized and unrealized gains) was 6.6% for 1996, compared with 6.3% in 1995. The increase in net investment income occurred despite a decrease in average invested assets.
Income Tax Expense Federal income taxes decreased by $1.4 million to $22.1 million for 1996 from $23.5 million for 1995. The decrease in expense is due primarily to a decline in underwriting results.
Life insurance policy income was flat in 1996 compared to 1995. Account values at December 31, 1996, increased by 8.2% from December 31, 1995 levels. Net investment income increased by 3.7% during 1996, reflecting the growth in account values as well as the general growth of invested assets. Net investment income increased despite a decrease in the average pre-tax yield from 7.7% in 1995 to 7.5% in 1996. Realized gain on investments decreased $1.1 million to $1.2 million primarily as a result of 1995 sales of securities to take advantage of market opportunities. Net income declined slightly to $14.4 million compared to $14.5 million in 1995.
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1995 TO THE YEAR ENDED DECEMBER 31,
CONSOLIDATED. The Company's revenues for 1995 aggregated $2,025.6 million, virtually unchanged from its 1994 revenues which totaled $2,026.4 million. Net premiums earned and other revenue of $1,746.4 million for 1995 slightly exceeded the $1,746.0 million recorded in 1994. Net investment income increased by $6.1 million, or 2.3%, while realized gain on investments increased by $21.1 million.
The Company's net income of $178.3 million for 1995 was down 3.4% from $184.6 million for 1994. The cost relating to Realignment, which aggregated $49.5 million, resulted in the decrease in net income despite significant improved underwriting results. Realized gain on investments increased $21.1 million to $41.0 million in 1995 compared to $19.9 million in 1994. The provision for consolidated income taxes was $30.8 million in 1995 compared to $15.7 million in 1994. This increase was due to improved underwriting results and a greater proportion of taxable investment income.
For 1995, natural peril losses were $122.1 million versus $140.5 million for 1994. During the spring months of 1995, the Company experienced a relatively high frequency of wind and hail losses. Hurricane Opal, which struck the Florida panhandle in October, 1995, resulted in approximately $15.0 million of losses to the Company in Florida and other southeastern states. Natural peril losses in 1994 were largely due to a severe winter freeze and the Northridge, California earthquake. Gross losses from Northridge were $32.4 million; $31.1 million net of reinsurance recoveries. Additional incurred losses from the earthquake of $2.6 million were recorded in 1995.
Other Costs and Expenses Other costs and expenses increased by $16.5 million, or 3.1%, to $552.8 million for 1995, from $536.3 million for 1994. The SAP underwriting expense ratio for 1995 was 32.3%, as compared to 31.6% for 1994. The Realignment, office closings prior to the Realignment and early retirement added $21.9 million to expenses and accounted for 1.3% of the underwriting expense ratio for 1995.
Combined Ratio The SAP combined ratio, after policyholder dividends, was 103.6% in 1995, versus 104.6% in 1994. After peaking at 112.5% in 1992, the Company's combined ratio has decreased each of the last three years. Both commercial and personal lines reflected improvement due to lower natural peril losses, the continued favorable impact of New Directions and the release of losses and LAE reserves related to prior accident years. The reinsurance in run-off has a negative impact of 4.2 percentage points on the Company's combined ratio in 1995, versus 1.4 percentage points in 1994.
Commercial Lines Commercial lines results were substantially improved in 1995, with the SAP combined ratio decreasing to 95.8% from 100.1% in 1994. Improved results, as reflected by the loss ratio, were broad based across most commercial lines. The key lines of BOPs, commercial multi-peril, commercial auto and workers' compensation all improved.
Personal Lines The personal lines SAP combined ratio also improved in 1995, decreasing to 104.8% from 107.8% in 1994. Improvement, as reflected by the loss ratio, was evident in both personal automobile and homeowners.
LIFE. The following table sets forth certain summarized financial and key operating data for the Company's life insurance operations for 1995 and 1994.
Net cash provided by operating activities of the Company was $45.4 million, $107.9 million and $73.8 million for 1996, 1995 and 1994, respectively. The decrease in cash provided by operating activities for 1996 compared to 1995 is primarily due to a decrease in premiums collected. The decrease in collected premiums was driven by (i) a $70.7 million decrease in net premiums written and (ii) a $35.6 million increase in premium receivable, which was largely the result of the Company allowing more of its customer base to pay its premium on a monthly basis in 1996. The decrease in premiums collected was offset in part by a decrease in claims and operating expenses paid. The increase for 1995 compared to 1994 was primarily due to a decrease in the level of paid losses and LAE relative to the amount of
The total investment portfolio decreased $87.7 million in 1996. This decrease is the net result of (i) the distribution of the Dividended Assets to LNC, (ii) a decrease in unrealized gains on securities available-for-sale and (iii) offset by an increase in invested assets from the proceeds of the issuance of Common Stock to the public.
The Company's fixed maturity securities are classified as available-for-sale and accordingly, are carried at fair value. The difference between amortized cost and fair value, less deferred income taxes, is reflected as a component of shareholders' equity.
The following table summarizes the Company's capitalization at the end of the last three years:
The net proceeds from the Offering (after deduction of underwriting discounts and offering expenses) were $215.2 million. The Company contributed $140.5 million of such net proceeds to ASI to enable it to invest in taxable securities for its investment portfolio to partially replace the Dividended Assets. The remainder of the net proceeds were retained by the Company for general corporate purposes. As a result of the Offering, LNC's ownership was reduced to approximately 83%. The Company retained $74.7 million of the net proceeds from the Offering for general corporate purposes, including the funding of its regular cash dividends, debt service obligations and other general corporate obligations. Until utilized for such purposes, the net proceeds from the Offering not contributed to ASI is invested and will continue to be invested in short-term, interest bearing, investment-grade securities.
Historically, ASI has paid dividends to LNC, as its parent, based upon its annual operating results and statutory surplus requirements. ASI paid cash dividends to LNC of $46.1 million, $244.0 million and $215.0 million in 1996, 1995 and 1994 respectively. After taking into account the one-time distribution of the Dividended Assets paid by ASI to LNC, ASI will not be able to pay any additional dividends to the Company until May 15, 1997 without notifying the Indiana Commissioner of Insurance and giving the Commissioner 30 days to object. Regulatory restrictions on the ability of ASI to pay dividends or make other payments to the Company could affect the Company's ability to pay dividends and service its debt.
The Term Note pays interest quarterly at a rate of 50 basis points over the rate on three year Treasury Notes from the effective date through and including November 14, 1997, 50 basis points over the rate on two year Treasury Notes from November 15, 1997 through and including November 14, 1998 and 50 basis points over the rate on one-year Treasury Bills from November 15, 1998 through the maturity date. The current rate on the Term Note is approximately 6.7%. The Term Note will be payable in three equal principal payments of $66.7 million due on August 15, 1997, 1998 and 1999. Pursuant to the provisions on the Term Note, the Company has the right to prepay the Term Note at any time. The Term Note also contains covenants that, among other things, (i) requires the Company to maintain certain levels of adjusted consolidated net worth (as defined in the Term Note), and (ii) restricts the ability of the Company to incur indebtedness in excess of 50% of its adjusted consolidated net worth and to enter into a major corporate transaction unless the Company is the survivor and would not be in default.
The Company incurred $12.4 million in interest expense on the foregoing debt in 1996.
On May 29, 1996, the Company entered into a revolving credit agreement with third party financial institutions in which the Company may borrow and repay amounts up to a maximum of $200 million (the "Line of Credit"). Borrowings using the Line of Credit will bear interest generally at variable rates tied to LIBOR, an adjusted certificate of deposit rate or other short-term indices. No debt was outstanding using the Line of Credit at December 31, 1996.
The effects of inflation on the Company are implicitly considered in estimating reserves for unpaid losses and LAE, and in the premium rate-making process. The actual effects of inflation on the Company's results of operations cannot be accurately known until the ultimate settlement of claims. However, based upon the actual results reported to date, it is management's opinion that the Company's loss reserves, including reserves for losses that have been incurred but not yet reported, make adequate provision for the effects of inflation.
_____________________ (1) Represents net income or net income per share before realized gain on investments, net of federal income taxes. In addition, the fourth quarter of 1995 excludes the loss on operating properties and the Realignment implementation costs, net of federal income taxes.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of American States Financial Corporation and subsidiaries at December 31, 1996 and 1995, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statements and 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.
AMERICAN STATES FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Dollars in Thousands)
On February 5, 1996, American States Financial Corporation (the "Company") was incorporated in the State of Indiana to serve as a holding company. The consolidated financial statements include the accounts of American States Insurance Company ("ASI") and its wholly-owned insurance subsidiaries and have been presented as if the holding company formation occurred at the earliest date presented herein. The Company was a wholly owned subsidiary of Lincoln National Corporation ("LNC") until May 22, 1996, when LNC's ownership was reduced to 83% as a result of an initial public offering by the Company. ASI has licenses to write business in all 50 states and the District of Columbia. ASI and its subsidiaries write standard commercial and personal lines, and life insurance business throughout the United States with the greatest volume in the Midwest and Pacific Northwest. All significant intercompany accounts and transactions are eliminated in consolidation.
During 1994, American Union Reinsurance Company and Amstats Insurance Company were sold. These transactions had no significant effect on the results of operation for that year.
The 50,000,000 shares held by LNC are "restricted shares" as defined by Rule 144 of the Securities Act of 1993, as amended (the "Securities Act"). Such shares may not be resold in the absence of registration under the Securities Act or exemptions from such registration including, among others, the exemption provided by Rule 144 of the Securities Act. As an affiliate of the Company, LNC is subject to certain volume restrictions on the sale of shares of the Company's Common Stock.
Fixed maturity and equity securities (common and perpetual preferred stocks) are classified as available-for-sale and accordingly, are carried at fair value.
For the mortgage-backed bond portion of the fixed maturity securities portfolio, the Company recognizes income using a constant effective yield based on anticipated prepayments and the estimated economic life of the securities. When actual prepayments differ significantly from anticipated prepayments, the effective yield is recalculated to reflect actual payments to date and anticipated future payments. The net investment in the securities is adjusted to the amount that would have existed had the new effective yield been applied since the acquisition of the securities. This adjustment is reflected in net investment income.
Realized gains and losses on investments are recognized in net income using the specific identification method. Changes in the fair values of securities carried at fair value are reflected directly in shareholders' equity after deductions for related adjustments for deferred policy acquisition costs and deferred taxes.
The liability for losses and loss adjustment expense is determined using case basis evaluation and statistical analysis and represents estimates of the ultimate net cost of all reported and unreported losses which are unpaid at year end. This liability includes estimates of future trends in claim severity and frequency and other factors which could vary as the losses are ultimately settled. Although it is not possible to measure the degree of variability inherent in such estimates, management believes that the liability for losses and loss adjustment expense is adequate. The estimates are continually reviewed and as adjustments become necessary to this liability, they are made and reflected in current operations. The reserve for losses and loss adjustment expense is stated at an amount after deduction of salvage and subrogation recoverable. At December 31, 1996, the Company has guaranteed and is contingently liable in the amount of $43,855 with respect to annuities purchased to fund structured settlements. In the normal course of settling losses, the Company has been named in various lawsuits. The ultimate settlement of these lawsuits is not expected to be material to the Company's operations.
Future policy benefits on traditional life insurance have been computed using principally a net-level premium method and assumptions for investment yields, withdrawals and mortality based principally on Company experience projected at the time of policy issue, with provision for possible adverse deviations. Interest assumptions for direct individual life reserves range from approximately 4.5% for 1958 issues to 6.75% for 1996 issues. With respect to universal life and annuity products, the retrospective deposit accounting method is used. Policy reserves represent the premiums received plus accumulated interest, less mortality and administrative charges.
A consolidated federal income tax return is filed by LNC and includes the Company. Pursuant to an agreement with LNC, the Company provides for income taxes on the basis of a separate return calculation. The taxes computed are remitted to or collected from LNC.
Further, the Company sponsors an unfunded defined benefit plan that provides postretirement medical and life insurance benefits to full-time employees who have worked 10 years and attained age 55 while in service with the Company. The plan is contributory, with retiree contributions adjusted annually, and contains other cost-sharing features such as deductibles and coinsurance.
Fair values for fixed maturity securities are based on quoted market prices, where available. For fixed maturity securities not actively traded, fair values are estimated using values obtained from independent pricing services or, in the case of private placements, are estimated by discounting expected future cash flows using a current market rate applicable to the yield, credit quality, and maturity of the investments. The fair values for equity securities are based on quoted market prices.
The carrying value of short-term investments and other invested assets approximate fair value.
Activity in the liability for losses and loss adjustment expense for property and casualty operations is summarized as follows:
Included in the liability for losses and loss adjustment expense, net of related reinsurance recoverables, is the liability for environmental and asbestos losses of $250,521 and $241,216 as of December 31, 1996 and 1995, respectively. In establishing liabilities for losses and loss adjustment expense related to environmental and asbestos matters, management considers facts currently known and the current state of the law and coverage litigation. Liabilities are recognized for known losses, including the cost of related litigation, when sufficient information has been developed to indicate the involvement of a specific insurance policy and management can reasonably estimate its liability. In addition, liabilities have been established to cover additional exposures on both known and unasserted losses. Estimates of the liabilities are reviewed and updated continually. Developed case law and adequate claim history do not exist for a portion of the Company's environmental and asbestos exposure, especially because significant uncertainty exists about the outcome of coverage litigation and whether past loss experience will be representative of future loss experience. Management believes the estimated liabilities provided for environmental and asbestos losses at December 31, 1996, are adequate; however, it is reasonably possible that a change in estimate of the required liability could occur in the future. It is not possible to provide a meaningful estimate of a range of possible outcomes at this time.
The Company writes personal and commercial lines of property and casualty insurance throughout the United States. As a result, the Company is always at risk that there could be significant losses arising in certain geographic areas from catastrophes, such as earthquakes and hurricanes. In 1996 the Company's property catastrophe reinsurance program, its "primary coverage", provided protection of 93% of $150,000, or approximately $139,500, in excess of a $30,000 retention per occurrence. In 1997, the Company's primary coverage will provide protection of 90% of $150,000, or approximately $135,000, in excess of a $30,000 retention per occurrence. In addition, in 1997 the Company has also purchased an additional coverage layer of 90% of $100,000, or $90,000, in excess of its primary coverage. This additional 1997 layer provides protection solely for non-California earthquake exposure.
The Company's policies providing earthquake, hurricane and related coverage in the midwest, western and southeastern coastal areas of the United States could expose the Company to losses exceeding its reinsurance limits. Although the exposure exists, the Company has not encountered losses in excess of its reinsurance limits during the past twenty years. It is also possible that catastrophes could have an adverse effect on the Company's reinsurers. As the Company is not relieved of its primary obligation to the policyholder in a reinsurance transaction, an event or series of events which render uncollectible any amounts due from its reinsurers could have a material adverse effect on the Company.
The following is a reconciliation of the activity in the liability for losses and loss adjustment expense for property and casualty operations to the consolidated balance sheets and statements of income:
Minimum repayments on the outstanding Assumed Debt and Term Note at December 31, 1996 are scheduled as follows:
As defined by previous life insurance company tax law, certain amounts were accumulated tax free in a special memorandum account designated as "Policyholders' Surplus Account" and generally are not subject to federal income taxes until distributed to stockholders. The aggregate accumulation in this account is $17,623 at December 31, 1996. No provision has been made for federal income taxes on this account since distributions are not presently contemplated.
Generally, the net assets of the Company's insurance subsidiaries available for transfer to ASFC are limited to the amounts that the insurance subsidiaries' net assets, as determined in accordance with statutory accounting practices, exceed minimum statutory capital requirements; however, payments of such amounts as dividends may be subject to approval by regulatory authorities. At December 31, 1996, $7,200 of consolidated shareholders' equity represents net assets of the Company's insurance subsidiaries that cannot be transferred in the form of dividends, loans or advances to ASFC.
Net income of ASI and subsidiaries, as determined in accordance with statutory accounting practices, was $171,822, $197,058 and $177,654, for 1996, 1995 and 1994, respectively. Consolidated statutory shareholder's equity for ASI was $965,987 and $1,010,992 at December 31, 1996 and 1995, respectively.
PENSION PLAN. The funded status of the defined benefit pension plan and the amount recognized in the balance sheet are as follows:
The change in discount rate increased the accumulated benefit obligation by $17,800 as of December 31, 1995.
Assumptions used in the foregoing calculation at December 31 are as follows:
INCENTIVE PLANS. Prior to the initial public offering, certain employees of the Company participated in various incentive plans maintained by LNC. In conjunction with the initial public offering, the Company established various incentive plans for eligible employees that provide for the issuance of stock options, restricted stock, stock appreciation rights, phantom stock or cash. These plans are comprised primarily of stock option incentive plans. Stock options are granted at the market price on the date of grant and, subject to termination of employment, expire 10 years from the date of grant. The options are exercisable in 25% increments on the option issuance anniversary in the four years following issuance. The maximum number of shares which can be granted from the stock option incentive plan is 1,000,000 from the inception of the plan to the plan expiration date on July 1, 2000. During 1996, options for 199,400 shares were granted with an exercise price of $23 per share. None of these options were exercisable nor were any forfeited during the year.
The principal leased property is the home office which is leased through a sale-leaseback agreement. The agreement, which was entered into in 1984, provides for a 25 year lease period with options to renew for six additional terms of five years each. The agreement also provides the Company with the right of first refusal to purchase the property during the term of the lease, including renewal periods, at a price as defined in the agreements. In addition, the Company has the option to purchase the leased property at fair market value as defined in the agreements on the last day of the initial 25 year lease period ending in 2009 or the last day of any of the renewal periods.
Rent expense included in benefits and expenses amounted to approximately $16,980, $16,123 and $16,898 in 1996, 1995 and 1994, respectively. At December 31, 1996, future minimum payments, by year and in the aggregate, for noncancelable operating leases with initial or remaining terms of one year or more consisted of the following:
Benefits and settlement expenses were reduced by $33,821, $22,904 and $24,399 in 1996, 1995 and 1994, respectively, as a result of ceded reinsurance arrangements. The Company remains contingently liable with respect to losses reinsured in the event any reinsurer is unable to meet obligations assumed.
On March 29, 1995, the Company purchased 4,986,507 shares, or 29.22% of EMPHESYS Financial Group, Inc. from LNC for $193,227. This investment was accounted for using the equity method and resulted in earnings of $6,449 being included in net investment income through September 30, 1995. On August 22, 1995, a tender offer was extended by Humana, Inc. and on October 7, 1995, the Company tendered its investment in EMPHESYS stock resulting in an after-tax loss of $9,004.
In January of 1996, the Company agreed to assume $63.7 million of liabilities, primarily loss and loss adjustment expense reserves, from an affiliate of LNC, on a closed block of specialty lines business. The Company received $63.7 million in assets, primarily cash, as part of the transaction. This run-off business covers primarily property, casualty, accident and health exposures on sports, leisure and entertainment venues.
In addition to the above, the Company has various other transactions with LNC and its affiliates in the normal course of operations. These transactions include systems, strategic planning and management advice, financial services, investment services, legal services, accounting services, and assistance with employee benefits, information services, data processing, actuarial, marketing and human resources. In addition, the Company pays to LNC affiliates investment advisory fees. In 1996, 1995 and 1994, the Company paid LNC and its affiliates fees totaling $10,145, $10,454, and $7,614.
The Company provides supervision and administrative services to wholly-owned property and casualty insurance subsidiaries of LNC. In 1996, 1995 and 1994, LNC paid the Company fees totaling $432, $924, and $625, respectively.
The Company, operates within the property/casualty and the life insurance industry through a network of independent agents. The property/casualty insurance industry is further broken down into commercial, personal and reinsurance business in runoff. Revenues, pre-tax operation income and identifiable assets for the property/casualty, life and holding company segments are as follows:
The Company is routinely involved in pending or threatened legal proceedings. Those proceedings sometimes involve alleged breaches of contract, torts (including bad faith and fraud claims) and miscellaneous other causes of action. Some of the pending litigation includes claims for punitive damages in addition to compensatory damages and other relief. While the aggregate dollar amounts involved in these legal proceedings cannot be determined with certainty, the amounts at issue could have a significant effect on the Company's results of operations. However, based upon information presently available, and in light of legal and other defenses available to the Company, management does not believe that any of these routine proceedings will have a material adverse effect on the financial results or operations of the Company.