On March 21, 1996, the building was sold by ALIC to an unrelated party for a price of $3.5 million. The Company realized a pre-tax gain of $170,000 on this sale. The Company remains in the building and occupies approximately 16,000 square feet of home office space under a five-year lease at an annual rental of approximately $264,000. In late 1995 the Company began renting approximately 6,000 square feet of office space in Stafford, Texas, to house its executive offices. The annual rental on the five-year lease approximates $70,000.
Gross premium writings for 1995 were $55.4 million compared to $60.5 million for 1994. The decrease in 1995 was primarily the result of decreases in premium levels related to discontinued lines of business. See Table II on page 15.
The Company's "available for sale" fixed maturity securities at December 31, 1996 include $16.5 million of mortgage-backed securities; $16.0 million of collateralized mortgage obligation securities and $8.2 million of asset-backed collateralized securities. The mortgage and asset-backed securities are subject to risks associated with variable prepayments. As such, those securities may have a different actual maturity and yield than planned at the time of purchase. The degree to which a security is susceptible to either gains or losses is influenced by the difference between its amortized cost and par value, relative sensitivity of the underlying mortgages to prepayment risk in a changing interest rate environment and relative priority of the securities in the overall securitization.
The Company's cash flow projections for 1996 assumed that certain events would take place in order to have sufficient cash to meet its debt service and other requirements. One of these events included the liquidation of AICL, which was concluded in the first quarter of 1996. The Company will monitor its current and future debt service requirements to coincide with cash flow availability. The Company has used a portion of the proceeds from a Rights Offering and the payment from a judgment entered in its favor in a legal proceeding (see Rights Offering and Discontinued Realtor's Errors and Omissions Program under Certain Events) to repay $4,296,000 in advances received in 1992 and 1993 from ACCEL's subsidiaries. These outstanding advances were eliminated in consolidation.
In a separate transaction, ACCEL retired $731,533 principal amount of Subordinated Notes held by an unrelated third party for consideration of $600,000. ACCEL recognized an extraordinary gain on this transaction of $131,533. No federal income tax was recognized related to this gain due to the current consolidated tax position of the Company. The result of the two aforementioned transactions was to retire all outstanding Subordinated Notes.
During the second quarter of 1991, the Company purchased 11,000 additional common shares of RGL at a cost of $992,000. The additional investment increased the Company's ownership to 31% at June 30, 1991. In July 1991, the Company purchased the remaining 69% of RGL for cash and Subordinated Notes (see "Note D" in the Notes to Consolidated Financial Statements) of $2.1 million and $5.8 million, respectively. The purchase price included goodwill of $1.2 million, of which the outstanding balance was written off in 1993.
For the three years ended December 31, 1993, RGL recorded losses and Galaxy's underwriting results deteriorated, resulting in the New York Department of Insurance ("New York Department") placing a moratorium on all new business as of February 28, 1994. Due to significant loss development during 1994 on Galaxy's liability lines of business, the Company contracted with an independent actuarial consultant to review the adequacy of Galaxy's loss and LAE reserves as of June 30, 1994. The findings of this review indicated the need for additional reserves which resulted in the statutory insolvency of Galaxy at June 30, 1994. Statutory capital and surplus after the reserve strengthening was a negative $2.3 million.
Claims Asserted by Liquidation Bureau under Certificates of Suretyship: On October 7, 1994, the Liquidation Bureau of the New York Department (the "Liquidation Bureau") took control of Galaxy pursuant to an order of liquidation of the New York Supreme Court. Prior to the liquidation of Galaxy, ANIC had issued certain certificates of suretyship ("Certificates") with respect to certain Galaxy insurance policies each of which provided that ANIC would assume the responsibilities of Galaxy under the specified policy if Galaxy became insolvent or financially unable to meet its obligations on the underlying policy, but only if certain conditions were met. In particular, the Certificates provided that ANIC's assumption of liability was contingent upon the insured's executing and delivering all agreements, assignments or evidences of subrogation satisfactory to ANIC respecting payments made or liabilities assumed.
The Company intends to vigorously defend any claims for indemnification or reimbursement made by the Liquidation Bureau, on behalf of the Guaranty Fund, with respect to the Certificates. Although the Company is not in a position to estimate the magnitude of the potential claims for indemnification or reimbursement, it does not believe that the ultimate resolution of such claims will have a material adverse effect on the financial condition or results of operations of the Company.
Discontinued Realtors' Errors and Omissions Program: As a result of the losses sustained in the REO program, and in particular, conduct discovered by the Company after it assumed responsibility for claims processing and handling, the Company filed suit in November 1991 against the non-affiliated marketing organization and broker involved in the program.
In late 1995, ACCEL was awarded $5,300,000 in damages related to this litigation. Pursuant to settlements reached with all of the parties, ACCEL received a total of $4,291,085 in 1996. With the approval of the Ohio Department, the proceeds from the settlement were shared equally between ACCEL and ANIC. The Company requested the sharing agreement due to the continuing losses in the REO program realized by ANIC since 1991. The Company has recorded the recovery as "Other income" in the accompanying consolidated statement of operations for the year ended December 31, 1996.
ITEM 8, ITEM 14 (a) (1) and (2), (c) and (d)
Accrued investment income 652 557 Prepaid reinsurance premiums--Note F 15,036 14,895 Reinsurance premium deposits--Note F 42,615 51,634 Deferred policy acquisition costs 30,946 31,839 Equipment--at cost, less accumulated depreciation (1996--$162,000; 1995--$564,000) 231 187 Leasehold improvements, less accumulated amortization (1996--$26,000) 152 - Property occupied by the Company--at cost, less accumulated depreciation (1995--$2,382,000) - 3,167 Other assets: Cost in excess of fair value of net assets of subsidiaries at dates of acquisition ($4,448,000) less accumulated amortization 716 822 Funds held under reinsurance agreements--Note F 406 829 Other 939 273 --------- --------- 2,061 1,924 --------- --------- $189,308 $183,507 ========= ========= (Continued)
December 31, 1996 1995 --------- --------- (Thousands of dollars) LIABILITIES AND COMMON STOCKHOLDERS' EQUITY
Common stockholders' equity--Notes C, D, G, I and P: Common stock, $.10 par value Authorized shares (1996--15,000,000; 1995--10,000,000) Issued shares (1996--9,401,162; 1995--5,243,852) 940 524 Additional paid-in capital 32,507 23,702 Retained earnings 5,403 3,299 Less 797,420 treasury shares at cost (6,599) (6,599) ESOP loan--Note L (32) (161) Net unrealized depreciation on investment securities--Note B (578) (205) --------- --------- Net common stockholders' equity 31,641 20,560 --------- --------- $189,308 $183,507 ========= =========
Credit Risk is the risk that issuers of securities owned by the Company will default or that other parties, including reinsurers, which owe the Company money, will not pay. The Company minimizes this risk by adhering to a conservative investment strategy, by maintaining reinsurance and credit and collection policies and by providing for any amounts deemed uncollectible.
Interest Rate Risk is the risk that interest rates will change and cause a decrease in the value of an insurer's investments. The Company mitigates this risk by attempting to match the maturity schedule of its assets with the expected payouts of its liabilities. To the extent that liabilities come due more quickly than assets mature, an insurer would have to borrow funds or sell assets prior to maturity and potentially recognize a gain or loss.
Investments: The Company classifies its fixed maturity and equity securities as available for sale, therefore these securities are carried at fair value and the unrealized appreciation or depreciation is reported as a separate component of common stockholders' equity after giving effect to applicable income taxes.
Other invested assets are carried at cost which approximates fair value.
Fair Values of Financial Instruments: The fair value of a financial instrument is the amount at which the financial instrument could be exchanged in a current transaction between willing parties. In cases where quoted market prices are not available, fair value is based on estimates using present value or other valuation techniques.
The carrying amounts reported in the consolidated balance sheets for cash, short-term investments, accrued investment income, premiums in process of transmittal, and amounts due from reinsurers approximate their fair value.
Deferred Policy Acquisition Costs: The costs (principally commissions and certain expenses of policy issuance) of acquiring or renewing insurance business, all of which vary with and are directly related to the production of business, have been deferred. These deferred policy acquisition costs are amortized in a manner related to the recognition of premiums earned. Substantially all such deferred costs are amortized within a four-year period. Anticipated investment income is considered in determining recoverability of deferred costs.
Equipment and Depreciation: Equipment is carried at cost less accumulated depreciation. Depreciation is provided using the straight-line method over an estimated useful asset life of five years.
Leasehold Improvements: Leasehold improvements are carried at cost less accumulated amortization. Amortization is provided using the straight-line method over the term of the five year lease.
Property Occupied by Company: Home office property is carried at cost less accumulated depreciation. Depreciation is provided using the straight-line method over an estimated life of thirty-five years.
Goodwill Amortization: Cost in excess of fair value of net assets of subsidiaries at dates of acquisition is being amortized primarily over a thirty-five year period. It is the Company's policy to account for goodwill at the lower of amortized cost or fair value. On an ongoing basis, management reviews the valuation and amortization of its goodwill.
Premium Income Recognition and Unearned Premium Reserves: Unearned premium reserves on credit life and credit accident and health insurance are calculated primarily under the "Rule of 78's Method", which results in premium income being recognized in decreasing proportions over the terms of the policies, which approximates the pattern of policy benefits incurred.
Unearned premium reserves on property and casualty products are calculated on the pro rata method.
Insurance Claims: The liabilities for insurance claims are determined using statistical analyses and represent estimates of the ultimate net cost of all reported and unreported claims that are unpaid at year end. Considerable variability is inherent in such estimates and actual results will likely differ from those estimates.
Deferred Reinsurance Commissions: Commissions and ceding fees received in connection with premiums ceded are deferred and amortized in a manner related to the recognition of premiums earned. Substantially all such commissions and ceding fees are amortized within a four-year period. Earned ceding fees, commissions and experience refunds are reported as reinsurance expense recoveries in the consolidated statements of operations.
Earnings Per Common Share: Net income and net loss per common share are computed using the weighted average number of common shares outstanding during the period. The inclusion of common stock equivalents (options) would not be dilutive.
Year Ended December 31, 1996 1995 1994 ----------- ----------- ----------- (Thousands of dollars) Securities available for sale: Fixed maturities $(385) $ 6,417 $(8,054) Equity securities (21) 50 (114) Short-term investments 33 - - ----------- ----------- ----------- $(373) $ 6,467 $(8,168) =========== ========== ===========
Securities available for sale: Fixed maturities: Gross realized gains $ 158 $ 607 $ 194 Gross realized losses (150) (284) ( 35)
December 31, 1996 - ----------------- U. S. Treasury and U. S. government agency securities $ 13,120 $ 99 $ (26) $ 13,193 State and political subdivision securities 940 20 - 960 Mortgage-backed securities 16,590 48 (638) 16,000 Collateralized mortgage obligations 15,972 101 (135) 15,938 Asset-backed securities 8,181 73 (160) 8,094 U. S. corporate securities 3,541 51 (38) 3,554 Redeemable preferred stocks 545 - (3) 542 --------- ---------- --------- --------- Total $ 58,889 $ 392 $ (1,000) $ 58,281 ========= ========== ========= =========
Amortized Fair Maturity cost value - -------- ---------- ---------- (Thousands of dollars) Due in one year or less $ 4,972 $ 4,989 Due after one year through five years 7,446 7,522 Due after five years through ten years 4,288 4,308 Due after ten years 1,440 1,430 Mortgage-backed securities 16,590 16,000 Collateralized mortgage obligations 15,972 15,938 Asset-backed securities 8,181 8,094 ---------- ---------- Total $ 58,889 $58,281 ========== ==========
Proceeds from the sale of securities available-for-sale during 1996, 1995 and 1994 were $2,973,000, $18,456,000 and $3,467,000, respectively. Gross gains of $408,000 ($444,000 in 1995 and $211,000 in 1994) and gross losses of $-0- ($25,000 in 1995 and $31,000 in 1994) were realized on those sales.
Generally, the net assets of the consolidated insurance subsidiaries available for transfer to ACCEL are limited to the amounts that the insurance subsidiaries' net assets, as determined in accordance with statutory accounting practices, exceed minimum statutory capital and surplus requirements; however, payments of such amounts as dividends from each insurance subsidiary are currently subject to regulation by Ohio law. Based on this law, Acceleration Life Insurance Company ("ALIC") could pay a dividend of $1,543,315 to ACCEL in 1997 without approval of the Department of Insurance of the State of Ohio ("Ohio Department"). Acceleration National Insurance Company ("ANIC") would require Ohio Department approval to pay any dividend to ACCEL during 1997.
The statutory basis capital and surplus and net income (loss) of the insurance subsidiaries included in the Company's consolidated financial statements, as reported to insurance regulatory authorities, are summarized as follows:
Life/ Property/ Health Casualty -------- ----------- (Thousands of dollars) Statutory capital and surplus at December 31: 1996 $15,122 $13,017 1995 13,010 10,037
Statutory net income (loss) for year ended December 31: 1996 $1,543 $ 884 1995 (713) (2,574) 1994 1,165 (1,537)
In 1991, ACCEL issued $5,848,000 of subordinated notes (the "Subordinated Notes"). The Subordinated Notes had a nine-year term with no principal payable until maturity, and bear interest at 10.125% per annum. Effective June 30, 1992, ACCEL amended the notes to permit the issuance of additional notes for the purpose of making interest payments, provided, however, that ACCEL may at its option pay cash in lieu of issuing additional notes in any denomination of less than $1,000. As a result, ACCEL issued additional notes totaling $403,000 and $569,000 for the 1996 and 1995 interest payments, respectively.
On July 25, 1996, the Company commenced an offering of non-transferable rights (the "Rights Offering") to stockholders of record as of June 18, 1996. Under the provisions of the Rights Offering, the Company permitted CIHC and its affiliate to tender the principal amount of their Subordinated Notes for cancellation as consideration (in lieu of cash) for the purchase of shares of common stock pursuant to the Rights Offering. On August 23, 1996, CIHC and its affiliate tendered $5,619,046 principal amount of their Subordinated Notes plus an additional $83,759 of accrued interest thereon under the terms of the Rights Offering. At the conclusion of the offering, CIHC and its affiliate had reduced their holding of Subordinated Notes to $0.
In a separate transaction, the Company retired $731,533 principal amount of Subordinated Notes held by an unrelated third party for consideration of $600,000. The Company recognized an extraordinary gain on this transaction of $131,533. No federal income tax was recognized related to this gain due to the current consolidated tax position of the Company.
On December 29, 1995, the Company issued senior notes (the "Senior Notes") totaling $16,500,000 at 9.50%, maturing on April 1, 2001. The proceeds from these notes were used to retire the loan outstanding under the aforementioned Credit Agreement and to liquidate an intercompany loan between ACCEL and an insurance subsidiary. In addition, as of January 1, 1996, ALIC entered into a reinsurance agreement with an unaffiliated company to reinsure the majority of the in-force credit business. The Senior Notes are payable to the same unaffiliated company which is a party to the reinsurance agreement dated January 1, 1996. This agreement is structured such, that as future profits emerge on this block of business, these profits are held by the reinsurance company, and ultimately applied to pay interest on and to redeem the Senior Notes. Profits in excess of the amount required to retire the Senior Notes are to be returned to ALIC. As of December 31, 1996, $1,500,000 of the profits on this block of business were released to ALIC in the form of the aforementioned Senior Notes. This release resulted in a balance of $15,000,000 of Senior Notes outstanding as of December 31, 1996. The fair value of these Senior Notes as of December 31, 1996 was $8,100,000.
During 1996, 1995 and 1994, ACCEL paid interest on notes of $403,000, $1,125,000 and $974,000, respectively.
With first year premium written of $13,800,000 and gross earned premium of $8,400,000, Commercial Auto has become a primary product line for the Company. This program is marketed by a general agent located in Melbourne, Florida-Transportation Insurance Specialists (TIS). At year end 1996, the premium receivable, net of commission, due from TIS was $5,200,000.
The Company determined that deposit accounting is the appropriate method of accounting for this agreement since it is not reasonably possible for the reinsurer to realize a significant loss from the transaction. The consolidated financial statements have been prepared on this basis.
On January 1, 1996 the Company terminated its quota share reinsurance agreement and elected to recapture the liabilities subject to the treaty. The liabilities recaptured thereunder were then available for cession under the treaty described below. The unearned premium reserves and claim liabilities recaptured were $29,753,000 and $8,424,000, respectively.
Prior to December 31, 1995, a security fund had been maintained, primarily comprised of fixed maturities, for the benefit of the reinsurer. Pursuant to the termination of the agreement effective January 1, 1996, as discussed above, certain investments were liquidated from the security fund on December 29, 1995. Proceeds from this liquidation, along with other funds, were transferred on December 29, 1995 to the reinsurer who is party to the agreement dated January 1, 1996. These amounts are included in "Reinsurance Premium Deposits" on the accompanying consolidated balance sheets as of December 31, 1996 and 1995.
Written premiums included in the accompanying consolidated statements of operations that have been ceded, or which are subject to cession under all such agreements, amounted to $5,669,000, $7,429,000 and $10,284,000 in 1996, 1995 and 1994, respectively.
1996 1995 1994 -------- -------- -------- Written Earned Written Earned Written Earned -------------------- -------------------- -------------------- (Thousands of dollars) Direct $ 54,779 $ 52,417 $ 49,135 $ 50,265 $ 52,864 $ 59,789 Assumed 3,633 6,259 6,308 6,864 7,640 7,004 Ceded (12,860) (12,719) (12,147) (16,276) (12,495) (19,193) --------- --------- --------- --------- --------- --------- Net premiums $ 45,552 $ 45,957 $ 43,296 $ 40,853 $ 48,009 $ 47,600 ========= ========= ========= ========= ========= =========
1996 1995 1994 --------- --------- --------- (Thousands of dollars) Direct $ 27,602 $ 24,900 $ 31,567 Assumed 4,100 3,973 3,754 Ceded (7,364) (8,755) (10,324) --------- --------- ---------
The Company recorded a valuation allowance of $3,638,000 and $2,484,000 as of December 31, 1994 and January 1, 1994, respectively.
1996 1995 1994 --------- --------- -------- (Thousands of dollars) Liability for insurance claims at beginning of year $ 22,761 $ 23,159 $ 49,919
Policy benefits incurred for events of the current year 23,895 19,602 24,914
Policy benefits incurred for events of prior years 443 516 83 --------- --------- --------
Galaxy unpaid losses and LAE at date of write off (see Note K) - - 14,325
Policy benefits for insured events in prior years 8,896 10,097 10,498 --------- --------- --------
In establishing the liability for insurance claims, management considers facts currently known and the current state of the law and coverage litigation. Liabilities are recognized for known claims (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 claims. Estimates of the liabilities are reviewed and updated continually.
In 1992, the Board of Directors voted to suspend payment of cash dividends on the common stock until the Company returns to a level of profitability that will sustain the payment of cash dividends.
Of the total options granted under the 82 Plan at December 31, 1996, only 18,524 remain exercisable. No additional shares may be granted under the 82 Plan.
On August 28, 1996, the Board of Directors of the Company approved a resolution to offer to all key employees holding options outstanding that were priced in excess of the current market value the opportunity to receive "re-priced" options. Such key employees were permitted to surrender, cancel and terminate any or all outstanding options (whether vested or not) and receive options for an equal number of shares under the 96 Plan at the then current price of $2.50 per share. The re-priced or "replacement" options would be newly granted options and become exercisable in accordance with the vesting provisions of the 96 Plan. A total of 161,371 shares were surrendered by key employees as part of the re-pricing opportunity and 4,500 shares were not surrendered. Including the shares surrendered as a part of the re-pricing opportunity, options were granted for a total of 420,371 shares to key employees and outside directors under the 96 Plan.
Options exercised - - - Average exercise price - - -
Options granted - 9,000 8,000 Average option price per share - $ 2.236 $ 4.500 Options lapsed - - -
Options exercised - - - Average exercised price - - -
The Company applies APB Opinion No. 25 in accounting for these plans and, accordingly, no compensation cost has been recognized for its stock options in the consolidated financial statements. Had the Company determined compensation cost based on the fair value at the grant date for its stock options under FASB No. 123, the Company's net income would have been reduced to the pro forma amounts indicated below:
1996 1995 ---------- ----------- Net income (loss) As reported $ 2,104 $ (1,460) Pro forma 1,980 (1,580)
Pro forma net income reflects only options granted in 1996 and 1995. Therefore, the full impact of calculating compensation cost for stock options under FASB No. 123 is not reflected in the proforma net income amounts presented above because compensation cost is reflected over the options' vesting periods from one to four years and compensation cost for options granted prior to January 1, 1995 is not considered.
The allocations of certain general expenses and investment income within segments are based on a number of assumptions, and the reported operating results would change if different methods were applied. Depreciation and capital expenditures are not considered material.
Information relating to revenue, income (loss) before income taxes and extraordiary item, and identifiable assets by segment are summarized as follows (see Note K regarding 1994 Property/Casualty amounts):
Year Ended December 31, 1996 1995 1994 --------- --------- --------- (Thousands of dollars) Revenue: Life/Health $ 36,382 $ 38,878 $ 37,097 Property/Casualty (Note S) 19,289 11,454 20,185 Other (Note S) 2,149 143 237 --------- --------- --------- Total $ 57,820 $ 50,475 $ 57,519 ========= ========= =========
Income (loss) before income taxes and extraordinary item: Life/Health $ 628 $ 3,055 $ 3,123 Property/Casualty 1,345 (2,236) (6,333) Other (194) (1,920) (1,695) --------- --------- --------- Total $ 1,779 $ (1,101) $ (4,905) ========= ========= =========
During the second quarter of 1991, the Company purchased 11,000 additional common shares of RGL at a cost of $992,000. The additional investment increased the Company's ownership to 31% at June 30, 1991. In July 1991, the Company purchased the remaining 69% of RGL for cash and Subordinated Notes (see Note D) of $2.1 million and $5.8 million, respectively. The purchase price included goodwill of $1.2 million of which the outstanding balance was written off in 1993.
For the three years ended December 31, 1993, RGL recorded losses and Galaxy's underwriting results deteriorated, resulting in the New York Department of Insurance ("New York Department") placing a moratorium on all new business as of February 28, 1994. Due to significant loss development during 1994 on Galaxy's liability lines of business, the Company contracted with an independent actuarial consultant to review the adequacy of Galaxy's loss and loss adjustment expense reserves as of June 30, 1994. The findings of this review indicated the need for additional reserves which resulted in the statutory insolvency of Galaxy at June 30, 1994. Statutory capital and surplus after the reserve strengthening was a negative $2.3 million.
The financial statements of Acceleration Insurance Company, Ltd. ("AICL") were translated into U.S. dollars using the British pound as the functional currency. The balance sheets of AICL were translated into U. S. dollars using exchange rates, as of the date of the consolidated financial statements.
During 1995, the Company redeemed most of its shares of AICL, which resulted in proceeds approximating the Company's original investment in AICL. The transaction was approved by the Department of Trade and Insurance (United Kingdom). On February 7, 1996, the Company received the final proceeds for redemption of its remaining shares, and AICL will exist only for as long as it takes to recover any taxes that may be refunded to it.
On October 7, 1994, the Liquidation Bureau took control of Galaxy pursuant to an order of liquidation of the New York Supreme Court. Prior to the liquidation of Galaxy, ANIC had issued certain certificates of suretyship ("Certificates") with respect to certain Galaxy insurance policies each of which provided that ANIC would assume the responsibilities of Galaxy under the specified policy if Galaxy became insolvent or financially unable to meet its obligations on the underlying policy, but only if certain conditions were met. In particular, the Certificates provided that ANIC's assumption of liability was contingent upon the insured's executing and delivering all agreements, assignments or evidences of subrogation satisfactory to ANIC respecting payments made or liabilities assumed.
In May 1996, the Liquidation Bureau, acting on behalf of the New York Property/Casualty Insurance Security Funds (the "Guaranty Fund"), during a meeting with Company representatives informally advised the Company that on behalf of the Guaranty Fund it intended to seek indemnification or reimbursement from ANIC for claims paid by the Guaranty Fund to Galaxy insureds on policies which may have been covered by the Certificates. The Liquidation Bureau has provided some information in response to the Company's request for accounting data and other information with respect to the Liquidation Bureau's analysis of the Guaranty Fund's right to indemnification; however, the Company is not yet able to quantify the magnitude of the potential claim, if any, for indemnification or reimbursement. The Company has taken the position that the Guaranty Fund has no right to seek indemnification unless Galaxy insureds who hold properly issued Certificates have executed assignments and evidences of subrogation. Even if any Galaxy insured properly made such a claim directly to ANIC, the Company has been advised by counsel that if ANIC paid any such claim, it would have the right, under assignment and subrogation agreements with its insureds, to assert all rights that the insureds could have asserted to recover the loss amounts from any other source, including the Guaranty Fund.
As more fully described in Note D, during 1996 the Company retired all of the outstanding Subordinated Notes held by CIHC.
---- Premiums written $13,247 $15,125 $15,297 $11,774 Premiums earned 9,787 9,833 10,321 10,912 Policy benefits 4,138 3,973 4,820 7,187 Net income (loss) 268 399 165 (2,292)
The first, second and third quarters of 1996 have been restated to be consistent with the year end presentation relating to certain reinsurance treaties. These treaties, which had been accounted for as reinsurance have been presented using deposit accounting in the year end results. The restatement of these quarterly amounts did not change net income or net income per common share as previously reported.
Since July 1981 the Company's executive offices have been located at 475 Metro Place North, Dublin, Ohio. The four-story office building had been owned by ALIC, and consisted of approximately 80,000 square feet of office space.
On March 21, 1996, the building was sold by ALIC to an unrelated party for a price of $3.5 million. The Company realized a pre-tax gain of $170,000 on this sale. The Company will remain in the building and occupy approximately 16,000 square feet of home office space under a five-year lease at an annual rental of approximately $264,000.
Part III -------- ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
Mr. Alexander was named Senior Vice President, Secretary and General Counsel of the Company in 1992 and prior thereto was Vice President, Secretary and General Counsel of the Company for more than five years.
Mr. Merritt was elected Senior Vice President-Claims for the Company on July 11, 1996. For more than five years prior thereto, he had been Senior Vice President-Claims with Houston General Insurance Company, Dallas, Texas.
Mr. Mueller was named Vice President/Treasurer and Controller of the Company in 1996 and prior thereto had been Vice President, Controller of the Company since 1994 and prior to that had been Vice President-General Accounting of the subsidiaries of the Company for more than five years.
In accordance with General Instruction G(3), the information required by this Item 13 is incorporated by reference herein from the material under the heading "Certain Relationships" contained in the Company's definitive proxy statement filed with the Commission relating to the Company's annual meeting of stockholders to be held on May 20, 1997.
PART IV ------- ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K