Reference is made to the audited Consolidated Financial Statements contained in Item 8 herein, including the consolidated balance sheets as of December 31, 1996 and 1995, the statements of operations for the fiscal years ended December 31, 1996, 1995 and 1994, the related Notes to the Consolidated Financial Statements, and to "
Management of Western National Corporation and its subsidiaries is responsible for the reliability of the financial information in this annual report. The consolidated financial statements are prepared in accordance with generally accepted accounting principles and the other financial information in this annual report, except where otherwise noted, is consistent with that of the consolidated financial statements.
The integrity of the financial information relies in large part on maintaining a system of internal control that is established by management to provide reasonable assurance that assets are safeguarded and transactions are properly authorized, recorded and reported. Reasonable assurance is based upon the premise that the cost of controls should not exceed the benefits derived from them.
The Company engages independent accountants to audit its consolidated financial statements and express their opinion thereon. They have full access to each member of management in conducting their audits. Such audits are conducted in accordance with generally accepted auditing standards and include a review of internal controls, tests of the accounting records, and such other auditing procedures as they consider necessary to express an opinion on the Company's consolidated financial statements.
The Audit Committee of the Board of Directors, composed solely of non-management directors, meets periodically with management and the independent accountants to review internal accounting controls, audit activities and financial reporting matters. The independent accountants have full and free access to the Audit Committee.
We have audited the accompanying consolidated balance sheet of Western National Corporation and its subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 1996. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
CONSOLIDATED BALANCE SHEET DECEMBER 31, 1996 AND 1995 (DOLLARS IN MILLIONS)
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (DOLLARS IN MILLIONS)
On December 23, 1994, AGC Life Insurance Company ("AGC Life"), a Missouri-domiciled life insurer, purchased the remaining shares of common stock held by Conseco. These shares represented approximately 40% of the Company's outstanding common stock. AGC Life is a wholly-owned subsidiary of American General Corporation, a Texas corporation ("AGC"). References to "American General" are references to AGC and its direct and indirect majority controlled subsidiaries. As of December 31, 1996, American General owned approximately a 46.2% equity interest in the Company. The increase in American General's equity interest was the result of the Company issuing preferred stock to American General in September 1996. See Note 8 for a description of the transaction involving the preferred stock.
Western develops, markets and issues annuity products through niche distribution channels. Western sells deferred annuities, including its proprietary fixed annuities, to the savings and retirement markets through financial institutions (principally banks and thrifts), and sells deferred annuities to both the tax-qualified and nonqualified retirement markets through personal producing general agents ("PPGAs"). Western also sells deferred annuities through its direct sales operations. Under a joint marketing arrangement with American General Life Insurance Company ("AGLIC"), Western markets and coinsures single premium immediate annuities ("SPIAs") through specialty brokers to the structured settlement market. Western also sells SPIAs (other than structured settlement SPIAs) through its financial institution and PPGA distribution channels. Western commenced sales of its first variable annuity product in fourth quarter 1995. Sales of deferred annuities through financial institutions comprised 82%, 68%, and 74% of net premiums collected in 1996, 1995, and 1994, respectively. Sales through a single financial institution comprised 45% of net premiums collected in 1996.
- Held to maturity securities are those debt securities that the Company has the ability and positive intent to hold to maturity, and are carried at amortized cost. The Company may dispose of such securities under certain unforeseen circumstances, such as issuer credit deterioration or changes in regulatory requirements. The Company had no securities classified as held to maturity as of December 31, 1996, compared to $1.1 million at December 31, 1995.
- Trading account securities are fixed maturity and equity securities that are bought and held primarily for the purpose of selling them in the near term. Trading account securities are carried at estimated fair value and the net unrealized gains (losses) are included as a component of net trading income. The Company had no trading account activities in 1996 or 1995.
Changes in interest rates have a direct, inverse impact on the market value of fixed-income investments. It is reasonably possible that changes in interest rates will occur in the near term and, as a result of SFAS 115, such changes will have a material impact on the carrying value of actively managed fixed maturity and equity securities, with an offsetting effect to shareholders' equity, net of the related effects on cost of policies purchased and produced and deferred income taxes.
Mortgage loans and credit-tenant loans are carried at amortized cost. Policy loans are carried at their current unpaid principal balance. Fees received and costs incurred in connection with Western's origination of these loans are deferred, and are amortized as yield adjustments over their remaining contractual lives in accordance with SFAS 91. Short-term investments, which principally include commercial paper, cash and
Discounts and premiums of investment securities to par are amortized as yield adjustments over the contractual lives of the underlying securities and callable corporate bonds. Principal prepayments can alter the cash flow pattern and yield of prepayment-sensitive investments such as mortgage-backed securities ("MBS"). The accretion of discount and amortization of premium takes into consideration actual and estimated principal prepayments. In the case of MBS, the Company utilizes estimated prepayment speed information obtained from published sources or from estimates developed by its investment advisors. The effects on the yield of a security from changes in principal prepayments are recognized retrospectively, except for interest only or residual interests in structured securities that are recognized prospectively. The degree to which a security is susceptible to yield adjustments is influenced by the difference between its carrying value and par, the relative sensitivity of the underlying assets backing the securities to changing interest rates, and the repayment priority of the securities in the overall securitization structure. Prepayments may also reduce future yield to the extent that proceeds are reinvested in a lower rate environment.
Western manages these risks by (i) principally purchasing securities that are backed by collateral with lower prepayment sensitivity (such as seasoned MBS priced at or near par value), (ii) avoiding securities with values heavily influenced by changes in prepayments (such as interest-only and principal-only securities), and (iii) purchasing securities with prepayment protected structures.
The specific identification method is used to account for the disposition of investments. The differences between the sales proceeds and the carrying values are reported as gains (losses), or in the case of prepayments, as adjustments to investment income. Declines in values of investments that are considered other than temporary are recognized as realized losses. Subsequent recoveries in value are recognized in income only when the investments are sold.
Western occasionally enters into mortgage dollar roll and reverse repurchase transactions (collectively, "dollar rolls") when earnings enhancement opportunities arise. Dollar rolls are agreements with an outside source, usually broker/dealers, to sell MBS and then, at a predetermined date, to buy back "substantially the same securities". Western's investment guidelines require that the original term of a dollar roll be no longer than thirty days and that all proceeds of such short-term transactions be invested in short-term investments. The securities involved must also have been issued, assumed or guaranteed by the Government National Mortgage Association ("GNMA"), the Federal National Mortgage Association ("FNMA"), or the Federal Home Loan Mortgage Corporation ("FHLMC").
Western enters into dollar rolls whenever a positive spread can be realized from the implicit interest cost of the investment borrowings and the reinvestment of the proceeds in short-term financial instruments.
Other invested assets include investments in limited partnerships. The Company follows the equity method of accounting for these investments. Limited partnership investments are likely to result in a higher degree of volatility in reported earnings than is typically the case with fixed income investments, and present a greater risk of loss, as they reflect claims on an issuer's capital structure junior to that of most fixed-income investments.
The cost of policies purchased represents the portion of Conseco's cost of acquiring Western in 1987 that was attributable to the value of the right to receive future cash flows from insurance contracts existing at the date of acquisition. The value of the cost of policies purchased is the actuarially determined present value of the projected future cash flows from the acquired policies.
The cost of policies purchased is amortized (with interest at the same rate used to determine the discounted value of the asset) based on the incidence of the expected cash flows. Recoverability of the cost of policies purchased is evaluated regularly by comparing the current estimate of expected future cash flows (discounted at the rate of interest that accrues to the policies) to the unamortized asset balance by line of insurance business. If such current estimate indicates that the existing insurance liabilities, together with the present value of future net cash flows from the business, will not be sufficient to recover the cost of policies purchased, the difference is charged to expense. Amortization is also adjusted for the current and future years to reflect (i) the revised estimate of future cash flows and (ii) the revised interest rate (but not greater than the rate initially used and not lower than the rate of interest earned on invested assets) at which the discounted present value of such expected future profits equals the unamortized asset balance. Expected future cash flows used in determining the amortization pattern and recoverability of cost of policies purchased is based on historical gross profits and management's estimates and assumptions regarding future investment spreads, maintenance expenses, and persistency of the block of business. The accuracy of the estimates and assumptions is affected by several factors, including factors outside the control of management such as movements in interest rates and competition from other investment alternatives. It is reasonably possible that conditions affecting the estimates and assumptions will change and that such changes will result in future adjustments to cost of policies purchased.
- For universal life-type contracts and investment-type contracts (including SPDAs and FPDAs), in relation to the present value of expected gross profits from these contracts, discounted using the interest rate credited to the policy;
INSURANCE LIABILITIES, RECOGNITION OF INSURANCE POLICY INCOME AND RELATED BENEFITS AND EXPENSES
Reserves for universal life-type and investment-type contracts are based on the contract account balance, if future benefit payments in excess of the account balance are not guaranteed, or on the present value of future benefit payments when such payments are guaranteed. Additional increases to insurance liabilities are made if future cash flows, including investment income, are insufficient to cover future benefits and expenses.
For traditional insurance contracts, premiums are recognized as income when due. Benefits and expenses are associated with earned premiums so as to result in their recognition over the premium-paying period of the
contracts. Such recognition is accomplished through the provision for future policy benefits and the amortization of deferred policy acquisition costs.
Liabilities for incurred claims are determined using historical experience and represent an estimate of the present value of the ultimate net cost of all reported and unreported claims. Management believes these estimates are adequate. Such estimates are periodically reviewed and any adjustments are reflected in current operations.
Earnings per common share is computed by dividing net income by the weighted average number of shares of common stock and common stock equivalents outstanding during the year and assuming the common shares issued in the Reorganization in 1994 were outstanding for all of 1994.
The amortized cost, gross unrealized gains and losses, estimated fair value and carrying value of actively managed and held to maturity fixed maturities were as follows:
Net investment income for the years indicated consisted of the following:
The proceeds from sales of actively managed fixed maturities were $3.1 billion, $3.2 billion, and $3.5 billion for the years ended December 31, 1996, 1995, and 1994, respectively.
Net trading income for the year ended December 31, 1994, was as follows (dollars in millions):
Changes in unrealized appreciation (depreciation) on investments carried at estimated fair value, net of the effects on other balance sheet accounts, were as follows:
At December 31, 1996, the aggregate carrying value of Western's MBS portfolio was $2.3 billion, or 24.7% of total invested assets. The following table sets forth the carrying value of Western's MBS portfolio by structural type and underlying collateral coupon class as of December 31, 1996:
category. The reclassified investments represented credit-tenant loans on which the commercial credit rating of the tenant, Kmart Corp., was downgraded to below investment grade status by several rating services. Additionally, approximately 12% of the collateral underlying Western's CMO residuals were supported by Kmart Corp. credit at December 31, 1996. The Company has not incurred any losses as a result of its investments involving Kmart Corp.
Approximately 72% of the commercial mortgages were on properties located in four states -- Florida (24%), Texas (21%), North Carolina (15%) and Indiana (12%), respectively. No other state comprised greater than 7% of the total commercial mortgage loan balance.
CMO residuals entitle Western to the excess cash flows arising from the difference between (i) the cash flows required to make principal and interest payments on the other tranches of the CMO and (ii) the actual cash flows received on the mortgage loan assets backing the CMO. If prepayments or credit losses on the underlying mortgage loan assets vary from projections, the total cash flows to Western could differ from projections. Changes in projected cash flows which impact the yields of the CMO residuals are recognized in investment income prospectively. The average yield of the Company's CMO residual was 9.5% at December 31, 1996. If the carrying value of CMO residuals exceed the projected cash flows discounted at a risk free rate, the carrying value is adjusted to fair value and a realized loss is recognized.
As part of its investment strategy, the Company enters into mortgage dollar roll and reverse repurchase transactions principally to increase investment earnings and improve liquidity. These transactions are terminable after thirty days and are accounted for as short-term investment borrowings, with the proceeds of such borrowings generally reinvested in short-term financial instruments. The borrowings are collateralized by mortgage-backed agency pass-throughs with fair values approximating the underlying loan value. Such borrowings were $134.6 million and $257.3 million as of December 31, 1996, and 1995, respectively.
The Company had outstanding interest rate swap agreements with total notional contract amounts of $330.0 million at December 31, 1996 and 1995, and which expire at various dates through October 1999. At December 31, 1996 and 1995, Western's average contractual floating-pay rates approximated 5.7% and 5.9%, respectively, and fixed-receipt rates approximated 7.3% for both years. Based on these rates, the Company's interest rate swaps had an estimated fair value of a positive $4.4 million and $12.2 million at year-end 1996 and 1995, respectively.
(c) Principally modifications of the 1965-70 Basic, Select and Ultimate Tables.
(d) In 1996 and 1995, approximately 95% of this liability represented account balances where future benefits were not guaranteed and 5% represented the present value of guaranteed future benefits determined using interest rates ranging from 3% to 12%.
Realized gains on fixed maturities during 1994 reduced the expected future yields on the investment of policyholder balances to the extent that future cash flows on certain limited-payment contracts were insufficient to cover future benefits and expenses. Accordingly, an additional estimated insurance liability of $2.2 million was established by a charge to expense in 1994. No additions to liabilities were required in 1996 and 1995.
Direct and assumed life insurance in force totaled $561.5 million, $628.6 million and $706.3 million at December 31, 1996, 1995 and 1994, respectively, and ceded life insurance in force totaled $247.6 million, $286.1 million and $329.1 million at December 31, 1996, 1995 and 1994, respectively.
Since 1994, Western has been a party to a standby reinsurance agreement for new SPDA sales through selected financial institutions, which becomes effective only if Western's risk-based capital ratio falls below a prescribed level. No reinsurance pursuant to this agreement has become effective.
Net operating losses incurred by Western National Corporation cannot be utilized by Western since each files separate income tax returns. Net operating loss carryforwards of Western National Corporation were $38.3 million at December 31, 1996, and will expire beginning in 2009 if not previously utilized. Management believes that it is more likely than not that the related deferred tax asset of $13.4 million at December 31, 1996, will be utilized to offset future taxable income of Western National Corporation during the carryforward period.
Statement of Financial Accounting Standards No. 107, Disclosures about Fair Values of Financial Instruments ("SFAS 107") requires disclosures of fair value information about financial instruments, and includes assets and liabilities recognized or not recognized in the balance sheet, for which it is practicable to estimate their fair value. In instances where quoted market prices are not available, fair values are based on estimates using discounted cash flow or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rates and estimates of the amount and timing of future cash flows. SFAS 107 excludes certain insurance liabilities and other non-financial instruments from its disclosure requirements, such as the amount for the value associated with customer or agent relationships, the expected interest margin (interest earnings over interest credited) to be earned in the future on investment-type products, or other intangible items. Accordingly, the aggregate fair value amounts presented herein do not necessarily represent the underlying value of the Company; likewise, care should be exercised in deriving conclusions about the Company's business or financial condition based on the fair value information presented herein.
Mortgage loans, credit-tenant loans, and policy loans: The estimated fair values for mortgage loans, CTLs and policy loans are determined by discounting future expected cash flows using interest rates currently being offered for similar loans to borrowers with similar credit ratings.
Insurance liabilities for investment contracts: The estimated fair values are determined using discounted cash flow calculations based on interest rates currently being offered for similar contracts with maturities consistent with those remaining for the contracts being valued. The estimated fair values of the insurance liabilities for investment contracts were approximately equal to the carrying values as of December 31, 1996 and 1995, because interest rates credited on the vast majority of account balances approximate current rates paid on similar investments and are not generally guaranteed beyond one year. Fair values for the Company's insurance liabilities other than those for investment-type insurance contracts are not required to be disclosed. However, the estimated fair values of liabilities for all insurance contracts are taken into consideration in the Company's overall management of interest rate risk, which minimizes exposure to changing interest rates through the matching of investment maturities with amounts due under insurance contracts.
The estimated fair values and carrying values of the Company's financial instruments were as follows:
On September 17, 1996, the Company issued 7,254,464 shares of convertible stock to a subsidiary of American General for an aggregate purchase price of $130.0 million. The Company incurred a discount in lieu of underwriting and other fees incident to a public offering and other direct issue costs totaling $4.1 million, resulting in net proceeds to the Company of $125.9 million. The preferred stock shares pro rata on a share-for-share basis with the Company's common stock in dividends and in liquidation, subject to a $.001 per share liquidation preference. No dividends may be paid on the Company's common stock unless a corresponding dividend is paid on the Company's preferred stock. The preferred stock automatically converts with no further action on the part of the Company or its holder into an equal number of shares of the Company's common stock upon approval of the common stock shareholders at the Company's 1997 Annual Meeting of Shareholders. The preferred stock is considered a common stock equivalent in deriving earnings per share. The proceeds from the issuance of preferred stock in excess of the liquidation preference has been recorded as a component of common shareholders' paid-in capital.
In February 1994, the Company loaned approximately $1.1 million to an officer for the purchase of 100,000 shares of the Company's common stock under the terms of a promissory note bearing interest at the prime rate plus 1% with principal and accrued interest payable in February 1999. The note receivable is collateralized by the 100,000 shares purchased by the officer and has been recorded as a reduction to common stock and additional paid-in capital. The accompanying balance sheet as of December 31, 1995, and the statements of shareholders' equity for the years ended December 31, 1995 and 1994, have been restated to reflect the reclassification of the note receivable from other assets to common stock and additional paid-in capital.
The Western National Corporation 1993 Stock and Incentive Plan (the "1993 Plan") was adopted by the Company effective December 31, 1993, and will terminate on December 31, 2003. The 1993 Plan provides for the grant of any or all of the following types of awards: (i) stock options, including incentive stock options and non-qualified stock options; (ii) stock appreciation rights; (iii) restricted stock; (iv) incentive awards; and (v) performance awards. The number of shares of common stock that may be issued under the 1993 Plan, or
as to which stock appreciation rights or other awards may be granted, may not exceed 5,000,000. Under the Plan, the maximum number of such shares awardable to an individual was limited to 1,350,000 in the year ended December 31, 1994, and 100,000 for any year thereafter. Options have a ten-year term and vest equally over a five-year period with the exception of 1.25 million options granted in 1994 which vest over a four-year period. The exercise price of options granted will not be less than the fair market value of the common stock at the date of grant. Shares issued under restricted stock awards vest one-third per year beginning on the third anniversary of the grant date.
A summary of changes in common stock options is as follows:
The Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation ("SFAS 123") in 1995 which, if fully adopted by the Company, would change the methods the Company applies in recognizing the cost of the Plan. Adoption of the cost recognition provisions of SFAS 123 is optional and the Company has decided not to elect those provisions. As a result, the Company continues to apply Accounting Principles Board Opinion No. 25 and
The total amount of compensation expense recognized in the accompanying statements of operations under the provisions of APB 25 was $0.3 million and $0.1 million during the years ending December 31, 1996 and 1995, respectively.
The pro forma disclosures as if the Company adopted the cost recognition requirements of SFAS 123 are presented below (in millions, except per share amounts):
The effects of applying SFAS 123 in this pro forma disclosure are not indicative of future amounts. SFAS 123 does not apply to awards prior to 1995 and additional awards in future years are anticipated.
Rent expense was $1,018,000, $752,000 and $788,000 in 1996, 1995, and 1994, respectively.
At December 31, 1996, the Company's total commitment to limited partnership investments was $50.0 million, of which $1.1 million had been funded.
Until May 1, 1997, Western is committed to reimburse the WNL Series Trust for administrative expenses in excess of .12% of the market value of investments related to variable annuity policies issued by Western. During 1996, Western incurred approximately $0.6 million related to this commitment.
Certain officers of the Company are employed pursuant to long-term employment agreements. The agreements provide, among other things, for base salaries plus bonuses and may be terminated at any time for any reason upon written notice to the other party, subject to, in the case of termination by the Company without cause, to the payment of contractually specified amounts to the terminated employee. In the event of termination following a "change in control" (as defined), certain additional amounts may become payable.
From time to time, the Company is involved in lawsuits which are related to its operations. In most cases, such lawsuits involve claims under insurance policies or other contracts of the Company. None of the lawsuits currently pending, either individually or in the aggregate, is expected to have a material effect on the Company's financial condition or results of operations.
The Company sponsors a qualified defined contribution plan (the "Plan") covering all full-time employees. The Plan provides for the Company to match, with equivalent value of Company stock, 50% of a participant's voluntary contributions up to 4% of a participant's compensation (subject to certain Internal Revenue Code limitations). The Company can also elect to make additional discretionary contributions to the Plan. For 1996 and 1995, the Company made a matching contribution in an amount equal to 65% and 50%, respectively, of each participant's elective contributions, up to 6% of annual compensation (subject to Internal Revenue Code limitations). Subsequent to year end, the Company's matching contribution was increased to 75% for 1997 contributions. The Company's Supplemental Plan is an unfunded, nonqualified plan that provides to certain employees similar benefits that cannot be provided by a qualified defined contribution plan due to Internal Revenue Code limitations. Participants can also defer additional amounts of salary and bonus under the Supplemental Plan, but there is no employer match for such additional contributions. Expense recorded related to the Company's matching contributions under both plans was approximately $394,000, $232,000 and $92,000 in 1996, 1995 and 1994, respectively.
See Note 4 for a description of the modified coinsurance agreement with AGLIC.
The Company was an affiliate of Conseco through December 23, 1994. In 1994, the Company incurred $17.3 million of fees under investment management and service agreements with Conseco and its subsidiaries. Subsequent to 1994, Conseco has continued to provide investment accounting and investment advisory services for a substantial majority of the Company's portfolio. Total investment accounting and advisory fees incurred from Conseco and other advisors were $7.4 million and $7.9 million for the years ended December 31, 1996 and 1995, respectively.
Statutory accounting practices prescribed or permitted for Western by regulatory authorities differ from generally accepted accounting principles. Western reported the following amounts to regulatory agencies:
Statutory accounting practices require that certain investment-related portions of surplus, called the asset valuation reserve ("AVR") and the interest maintenance reserve ("IMR"), be appropriated and reported as liabilities. The purpose of these reserves is to stabilize statutory surplus against fluctuations in the market value of investments. The AVR captures realized and unrealized investment gains and losses related to changes in creditworthiness. The IMR captures realized investment gains and losses on debt instruments resulting from changes in interest rates and provides for subsequent amortization of such amounts into statutory net income on a basis reflecting the remaining life of the assets sold.
The following table compares the pre-tax income determined on a statutory accounting basis with such income reported herein in accordance with generally accepted accounting principles:
Western National Corporation's investment in subsidiaries is stated at cost plus equity in undistributed earnings of subsidiaries since the date of acquisition. Western National Corporation's share of net income of its unconsolidated subsidiaries is included in income using the equity method. These financial statements should be read in conjunction with Western National Corporation's Consolidated Financial Statements.
On September 17, 1996, the Company issued 7,254,464 shares of convertible stock to a subsidiary of American General for an aggregate purchase price of $130.0 million. The Company incurred a discount in lieu of underwriting and other fees incident to a public offering and other direct issue costs totaling $4.1 million, resulting in net proceeds to the Company of $125.9 million. The preferred stock shares pro rata on a share-for-share basis with the Company's common stock in dividends and in liquidation, subject to a $.001 per share liquidation preference. No dividends may be paid on the Company's common stock unless a corresponding dividend is paid on the Company's preferred stock. The preferred stock automatically converts with no further action on the part of the company or its holder into an equal number of shares of the Company's common stock upon approval of the common stock shareholders at the Company's 1997 Annual Meeting of Shareholders. The preferred stock is considered a common stock equivalent in deriving earnings per share. The proceeds from the issuance of preferred stock in excess of the liquidation preference has been recorded as a component of common shareholders' paid-in capital.
Additionally, included in other liabilities is $50.0 million and $57.6 million at December 31, 1996 and 1995, respectively, of outstanding borrowings under an unsecured credit agreement with a syndicate of banks, which matures in 2000 (the "Credit Agreement"). Under the Credit Agreement, the Company could borrow on a revolving basis an aggregate principal amount of up to $100.0 million as of December 31, 1996. Subsequent to year end the borrowing base was increased to $150.0 million. At December 31, 1996, the interest rate under the Credit Agreement was either the agent bank's prime rate or LIBOR plus .375% (5.975% at December 31, 1996). The Credit Agreement contained certain provisions that required the Company to maintain specified levels of financial solvency during the term of the agreement, including provisions concerning its consolidated net worth, adjusted statutory capital and surplus, market capitalization, A.M. Best rating, and risk based capital levels.