The Registrant leases its principal executive offices in Chicago, Illinois, which consists of approximately 30,000 square feet of office space. The Company believes its existing property is adequate for its present operations.
- -------------------------- (1) GAAP and statutory basis (SAP) ratios reflect the Company's status as a new company and include start-up and other expenses incurred prior to the commencement of significant operations. SAP ratios reflect the combined results of the Company's insurance subsidiaries and do not include holding company costs. Expense ratios exclude the compensation charge resulting from the Company's Initial Public Offering. (2) Not meaningful. (3) For 1996 and 1995, includes 13,340,000 shares issued in conjunction with the Company's November 28, 1995 initial public offering and also includes 2,250,068 shares, as of the date of such offering, out of a total of 11,000,000 shares that were previously excluded from weighted average shares. Such shares were subject to contingent recall provisions and the conditions required for the removal of recall provisions on the 11,000,000 shares had not been met. The Company's initial public offering removed the recall provisions on 2,250,068 of the shares and resulted in the cancellation of the remaining 8,749,932 common shares. (4) The 13.5% Convertible Preferred Stock was redeemed on December 1, 1995 at a redemption price of $46.0 million.
Net premiums written for 1996 were $70.0 million compared to $33.9 million for 1995, which represents a 106.2% increase. The increase was primarily attributable to a 30.1% increase in Amerin Guaranty's new insurance written to $7.7 billion and growth in insurance in force and related renewal premiums. Management believes that Amerin Guaranty was able to increase revenues due primarily to increased use by existing lenders of the Company's BPMI, the addition of new, large lenders which began doing business with the Company during the second half of 1995 and in 1996, and increased sales of LPMI. The increase in net premiums written was also due to a lesser extent to higher average premiums during 1996 compared to 1995, principally due to the increased coverage requirements imposed by Fannie Mae and Freddie Mac during the first quarter of 1995, which requirements took effect over the course of 1995. Amerin Guaranty's monthly premium plan represented 86.6% and 81.5% of new insurance written for 1996 and 1995, respectively.
Renewal premiums for 1996 increased 148.6% from 1995 to $56.9 million, due primarily to the growth of insurance in force throughout 1995, as well as increased popularity of the monthly premium plan in 1996. With respect to the monthly premium product, the first month's premium is recorded as new business and all subsequent premiums are recorded as renewals. Net premiums written for new business in 1996 increased 18.6% from 1995 to $13.1 million due to a greater volume of new business written in 1996. However, net premiums written for new business declined in the fourth quarter of 1996 as compared to the fourth quarter of 1995 due to the increased percentage of the Company's business written under the monthly premium plan in the fourth quarter of 1996.
Net investment income of $16.9 million for 1996 increased by $9.3 million (or 121.6%) over 1995, due primarily to investment of the proceeds from the Company's initial public offering in November 1995 (the "Initial Public Offering"), as well as Amerin's net operation cash flows over the course of 1996, which together resulted in an increase of 138.4% in the monthly average amount of invested assets. Realized investment gains for 1996 were $.2 million compared to realized investment gains of $.5 million for 1995. This decrease reflected lower sales activity within the portfolio due to the Company's desire to maintain a certain composition of the investment portfolio. Sales of investments in 1996 were made primarily in connection with the continuation of the Company's current investment strategy to increase investment in tax-exempt
securities. As of December 31, 1996 and 1995, the yields to maturity on the investment portfolio were 5.8% and 6.2%, respectively, and the average durations of the investment portfolio were 6.4 years and 3.3 years, respectively, The average duration at December 31, 1995 reflected the investment of the net proceeds of the Initial Public offering in short-term investments pending their investment in tax-exempt securities with longer maturities.
Net premiums written for 1995 were $33.9 million compared to $10.3 million for 1994, which represents a 230.4% increase. The increase was primarily attributable to a 137.1% increase in Amerin Guaranty's new insurance written and growth in insurance in force and related renewal premiums. Management believes that Amerin Guaranty was able to increase revenues due primarily to increased use by existing lenders of the Company's BPMI, which was introduced nationwide in February 1994 at rates which the Company believes are lower than those generally offered by other mortgage insurance companies, the addition of new, large lenders which began doing business with the Company during the second half of 1994 and 1995, and increased sales of LPMI. The increase in new insurance written was further enhanced to a lesser extent by higher average premiums during 1995 compared to 1994, principally due to the increased coverage requirements imposed by Fannie Mae and Freddie Mac. Amerin Guaranty's monthly premium plan represented 81.5% of new insurance written for 1995. Renewal premiums for 1995 increased from 1994 due primarily to the increased popularity of the monthly premium plan.
Net premiums earned increased by $22.4 million to $27.6 million for 1995 from $5.2 million for 1994. This increase was primarily due to the increase in insurance written and in force in 1995 as compared to 1994.
Net investment income of $7.6 million for 1995 increased by $2.8 million (or 58.3%) over 1994. Substantially all of such increase was due to 55.0% growth in the monthly average amount of invested assets. Realized investment gains for 1995 of $0.5 million increased by 12.7% compared to 1994 due to a greater number of sales with higher profits in the latter period. Sales of investments in the latter period were made primarily in connection with the Company's current investment strategy to increase investment in tax-exempt securities. See "--Financial Condition" below. As of December 31, 1995 and 1994, the yields to maturity on the investment portfolio were 6.2% and 6.3%, respectively, and the average durations of the investment portfolio were 3.3 years and 4.6 years, respectively.
Underwriting and other expenses increased by $1.1 million or 19.9% due to the increase in insurance in force and increases in various administrative and occupancy costs relating to growth in the Company's personnel.
The Company recorded a non-recurring charge of $35.7 million in the fourth quarter of 1995 as a result of its Chairman and President being entitled to shares of Common Stock pursuant to the provisions of a management agreement upon consummation of its initial public offering on November 28, 1995. The non-recurring charge was not deductible by the Company for federal income tax purposes because the Chairman and President previously made 83(b) elections in 1992 with respect to such shares.
As a result of the foregoing factors, the Company had a net loss before pay-in-kind dividends on the 13.5% Convertible Preferred Stock of $22.8 million for 1995, compared to net income before such pay-in-kind dividends of $2.0 million for 1994. Net loss applicable to common stockholders (after such pay-in-kind dividends) was $28.1 million for 1995 compared to a net loss applicable to common stockholders of $3.1 million for 1994.
Consolidated loss reserves increased by $11.6 million to $18.7 million at December 31, 1996 from $7.1 million at December 31, 1995, primarily due to the ongoing maturation of the Company's book of business, which is at an early stage of development. See "-- Results of Consolidated Operations -- 1996 Compared to 1995." Consistent with industry practices, the Company does not establish loss reserves for future claims on insured loans which are not currently in default.
Consolidated unearned premiums increased $7.8 million from $12.7 million at December 31, 1995 to $20.5 million at December 31, 1996, reflecting the increase in new insurance written in 1996 versus 1995, offset in part by increased levels of the monthly premium product which does not produce unearned premiums.
Consolidated stockholders' equity increased to $300.6 million at December 31, 1996, from $274.1 million at December 31, 1995, an increase of 9.7%. This increase resulted primarily from the results of 1996 operations and net unrealized investment gains.
additional support in the event that the Company's risk-to-capital ratio and its combined ratio both exceed specified levels and will be taken into account by S&P in measuring the Company's risk-to-capital ratio to the extent required by rapid growth. Premiums payable with respect to any quarterly period may vary to the extent that the Company's combined insurance risk-to-capital ratio exceeds certain specified levels.