Selected consolidated financial data for the Company are presented below for each of the five years in the period ended December 31, 1995. This data should be read in conjunction with the Company's Consolidated Financial Statements and notes thereto and Item 7, Management's Discussion and Analysis of Results of Operations and Financial Condition.
In June, 1995 the Insurance Company was notified that its A.M. Best rating was reaffirmed at "A- (Excellent)".
Comparison of Fiscal Year 1995 to Fiscal Year 1994 and Fiscal Year 1994 to Fiscal Year 1993.
Total annuity considerations and life insurance premiums increased to approximately $8.2 million in fiscal 1995 from approximately $5.8 million in fiscal 1994, an increase of approximately 40.7%. Of this amount, annuity considerations increased to approximately $3.8 million in fiscal 1995 from approximately $1.6 million in fiscal 1994, an increase of approximately $2.2 million. In accordance with generally accepted accounting principles, sales of single premium deferred annuities are not reported as insurance revenues, but rather as additions to policyholder account balances. Sales of single premium deferred annuities were approximately $86.9 million and $34.9 million in fiscal 1995 and 1994, respectively.
Total annuity considerations and life insurance premiums decreased to approximately $5.8 million in fiscal 1994 from approximately $7.8 million in fiscal 1993, a decrease of approximately 25.1%. Of this amount, annuity premiums decreased to approximately $1.6 million in fiscal 1994 from approximately $3.0 million in fiscal 1993, a decrease of approximately 48.2%.
General expenses, taxes and commissions to agents totaled approximately $15.0 million in fiscal 1995 as compared to approximately $10.0 million in fiscal 1994 and approximately $13.8 million in fiscal 1993. This represents approximately a 49.6% increase comparing fiscal 1995 to fiscal 1994 and approximately a 27.3% decrease comparing fiscal 1994 to fiscal 1993. The increase in fiscal 1995 compared to fiscal 1994 is primarily attributable to an increase in (i) commissions and related expenses as a result of an increase in sales of single premium deferred annuities and (ii) data processing related expenses as a result of upgrading certain computer systems. The decrease in fiscal 1994 compared to fiscal 1993 is attributable to an increase in accounting and legal fees in fiscal 1993.
For the reasons discussed above, income before income taxes amounted to approximately $56.4 million in fiscal 1995, as compared to approximately $37.2 million in fiscal 1994 and approximately $57.2 million in fiscal 1993.
For the reasons discussed above, the Company had net income of approximately $49.1 million in fiscal 1995, net income of approximately $39.9 million in fiscal 1994 and net income of approximately $46.8 million in fiscal 1993.
The Insurance Company is subject to various regulatory restrictions on the maximum amount of payments, including loans or cash advances, that it may make to the Company without obtaining prior regulatory approval. As a New York domiciled insurance company, the Insurance Company is subject to restrictions on the payment of dividends under New York law. New York law states that no domestic stock life insurance company shall distribute any dividend to its shareholders unless a notice of its intention to declare such dividend and the amount thereof shall have been filed with the Superintendent not less than 30 days in advance of such proposed declaration. The Superintendent may disapprove such distribution by giving written notice to such company within 30 days after such filing that he or she finds that the financial condition of the company does not warrant such distribution. The NYSDI has established informal guidelines for the Superintendent's findings which focus upon, among other things, the overall financial condition and profitability of the insurer under statutory accounting practices. During fiscal 1995, 1994, and 1993, the Insurance Company paid dividends of $5 million, $12 million and $-0- million, respectively, to the Company.
Capital expenditures during fiscal 1995 were approximately $38,300. As of December 31, 1995, the Company had no outstanding commitments for significant capital expenditures.
The Company maintains a portfolio which includes below investment grade securities which were purchased to achieve a more favorable investment yield, all of which are classified as available for sale and reported at fair value. As of December 31, 1995, the carrying value of these securities was approximately $159.6 million (representing approximately 6.8% of the Company's total assets and 39.8% of shareholders' equity).
Investments in below investment grade debt securities have different risks than investments in corporate debt securities rated investment grade. Risk of loss upon default by the borrower is significantly greater with respect to below investment grade debt securities than with other corporate debt securities because below investment grade debt securities generally are unsecured and often are subordinated to other creditors of the issuer. Also, issuers of below investment grade debt securities usually have high levels of indebtedness and often are more sensitive to adverse economic conditions, such as recession or increasing interest rates, than are investment grade issuers. Typically, there is only a thinly traded market for such securities and recent market quotations may not be available for some of these securities. Market quotes generally are available only from a limited number of dealers and may not represent firm bids of such dealers or prices for actual sales. The Company attempts to reduce the overall risk in its below investment grade portfolio, as in all of its investments, through careful credit analysis, investment policy limitations, and diversification by company and by industry. Below investment grade debt investments, as well as other investments, are being monitored on an ongoing basis.
As of December 31, 1995, approximately 6.6% of the Company's total invested assets were invested in limited partnerships. Such investments are included in the Company's consolidated balance sheet under the heading "Other invested assets." See "Note 2 to the Notes to Consolidated Financial Statements." The Company is committed, if called upon during a specified period, to contribute an aggregate of approximately $37 million of additional capital to certain of these limited partnerships. However, management does not expect this entire amount to be called because certain of these limited partnerships are nearing the end of the period during which investors are required to make contributions. Although the Company has no specific plans to make additional limited partnership investments, it may make selective investments as opportunities arise. Pursuant to NYSDI regulations, the Company's investments in equity securities (other than preferred stock), including limited partnership interests, may not exceed 20% of the Insurance Company's admitted assets. Interests held by the Company in limited partnerships usually are not registered with the Commission and typically are illiquid. In addition, there can be no assurance that the Company will continue to achieve the same level of returns on its investments in limited partnerships as it has historically or that the Company will achieve any returns on such investments at all. Further, there can be no assurance that the Company will receive a return of all or any portion of its current or future capital investments in limited partnerships. The failure of the Company to receive the return of a material portion of its capital investments in limited partnerships, or to achieve historic levels of return on such investments, could have a material adverse effect on the Company's financial condition and results of operations.
As part of a proposed rehabilitation plan for Fidelity Mutual Life Insurance Company ("Fidelity"), on January 11, 1995 the Insurance Company signed a definitive purchase agreement with the Pennsylvania Insurance Commissioner and Fidelity to invest up to $45 million for a minority (49.9%) stake in a Fidelity subsidiary insurance holding company. In addition, the Company has agreed to purchase $25 million of Senior Notes of such company.
The Company was informed by Pennsylvania Insurance Commissioner Linda S. Kaiser, that in response to the significant improvement in the invested assets of Fidelity, she has reopened the process to select an equity investor for the recapitalization and rehabilitation of Fidelity.
Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" ("SFAS No. 115"), requires that investments in debt and equity securities be classified in three categories (held-to-maturity, trading and available-for-sale). SFAS No. 115 has previously been adopted by the Company, and the Company classified its investments in accordance with the standard. Management has since adopted the implementation guidance contained in the November 1995 Financial Accounting Standards Board Special Report "Questions and Answers - A Guide to Implementation of Statement 115 on Accounting for Certain Investments in Debt and Equity Securities" (the "Special Report"). The Special Report permitted management to reassess the appropriateness of the classifications of all securities held when such guidance was implemented (no later than December 31, 1995) and account for the reclassification at fair value. On December 29, 1995, management transferred 100% of its Held-to-Maturity Securities to the Available-for-Sale classification at fair value. The net unrealized gains on such securities transferred is included in shareholders' equity at December 31, 1995.
The Company has not yet determined which method of accounting for stock-based compensation it will use in the future.