The Company, excluding Singer and Van-Am, occupies 40,550 square feet of office space comprising its executive offices at 335 Madison Avenue, New York, New York pursuant to a sublease expiring April 2000. Singer occupies 2,165 square feet of office space at the same address pursuant to a sublease expiring August 1999 and 25,000 square feet of office space at 700 Banyan Trail Road, Boca Raton, Florida pursuant to a lease expiring August 2005. Van-Am occupies 6,300 square feet of office space at 167 East Main Street, Lexington, Kentucky pursuant to a lease expiring December 1999.
Net Premiums Written (in millions) 1997 1996 - ---------------------------------- ---- ---- Municipal Reinsurance $ 34.3 $ 41.2 Non-Municipal Reinsurance 22.2 17.4 Other Insurance Lines 44.0 37.1 ------- ------- $ 100.5 $ 95.7 ======= =======
The Company's other insurance lines include direct bond insurance, credit reinsurance, financial responsibility, excess-SIPC/excess-ICS and other surety lines. Net premiums written from these businesses have grown from $8.6 million (15.6%) in 1991 to $44.0 million (43.8%) in 1997. The Company expects that these other insurance lines will continue to comprise a significant component of its written premiums. In connection with certain of its other insurance lines, the Company underwrites with the anticipation of higher loss levels than those associated with its core municipal and non-municipal reinsurance business. The Company takes these higher loss levels into account in determining appropriate premium rates.
Net Premiums Earned (in millions) 1997 1996 - --------------------------------- ---- ---- Municipal Reinsurance ...................... $37.3 $34.4 Non-Municipal Reinsurance .................. 12.6 13.0 Other Insurance Lines ...................... 35.5 30.0 ----- ----- $85.4 $77.4 ===== =====
Monoline reinsurance earned premiums increased 5.3% as a result of a $3.9 million (10.4%) growth in earned premiums before the effect of refundings. This growth was partially offset by a decrease in refunded earned premiums from $9.9 million in 1996 to $8.6 million in 1997. A refunding eliminates the Company's reinsurance exposure to the refunded obligation and, as a result, the Company recognizes in current earnings the remaining related deferred premium revenue. The growth in premiums earned also reflects the amortization of the deferred premium revenue balance which has grown to $281.3 million at year-end 1997 from $266.2 million at year-end 1996.
Net investment income increased 6.6% to $50.6 million in 1997 from $47.5 million for 1996 reflecting the growth in invested assets in the period offset, in part, by a shift in the portfolio towards tax-exempt securities. After-tax investment income increased 9.4% in 1997 over 1996. The average yields on the Company's investment portfolio, after deducting associated costs, were 6.2% and 6.4% for the years ended December 31, 1997 and 1996, respectively. The average yields on the Company's investment portfolio on an after-tax basis, net of associated costs were 5.1% and 5.0% for the years ended December 31, 1997 and 1996, respectively. In addition, the Company realized $0.7 million and $4.0 million of net capital gains in 1997 and 1996, respectively. Net investment income is presented after deduction of both external investment management fees and internal costs associated with managing the investment portfolio.
The per-share increases were offset, in part, by the higher weighted average outstanding shares in 1997 following the issuance of 503,114 shares by Enhance Financial to acquire its partner's 50% interest in Singer and 299,496 shares in connection with the exercise of employee stock options, partially offset by the repurchase of 177,925 shares.
Gross premiums written in 1996 increased 13.1% to $98.6 million from $87.2 million in 1995. Total premium writings in 1996 benefited from a 19.2% increase in non-municipal reinsurance writings and a 22.8% increase in the Company's other insurance lines.
Net premiums written increased 15.3% to $95.7 million in 1996 from $83.0 million in 1995, consistent with the increase in gross premiums discussed above. Of the Company's net premiums written in 1996, 43.0%, 18.2% and 38.8% were derived from the reinsurance of municipal bonds, the reinsurance of asset-backed debt obligations and the Company's specialty activities, respectively, compared to 47.9%, 16.3% and 35.8% in 1995.
Incurred losses and LAE were $9.2 million in 1996 compared with $9.5 million in 1995. Of these amounts, $7.3 million and $6.1 million were incurred in connection with the Company's credit and surety businesses in 1996 and 1995, respectively. The Company believes that the reserves for losses and LAE, including case and non-specific reserves, are adequate to cover the ultimate net cost of claims. However, the reserves are necessarily based on estimates, and there can be no assurance that the ultimate liability will not exceed or be less than such estimates.
Interest expense of $5.5 million was incurred in 1996 compared to $5.6 million in 1995.
The per-share increases were offset, in part, by the higher weighted average shares in 1996 following the reissuance, in the first quarter of 1996, of 600,000 treasury shares to Swiss Reinsurance Company and the issuance at various times throughout 1996 of 231,275 new shares in connection with the exercise of stock options.
As a holding company, Enhance Financial finances the payment of its operating expenses, principal and interest on its debt obligations, dividends, if any, to its shareholders and the repurchase of its common stock primarily from dividends and other payments from the Insurance Subsidiaries, manages cash flows associated with the Company's diversification activities and draws on its line of credit provided under the Credit Agreement.
As of December 31, 1997, the statutory policyholders' surplus of Enhance Re and Asset Guaranty were $228.3 million and $94.9 million, respectively, compared to the minimum $68.4 million required by each under the Insurance Law and compared to $225.3 million and $86.7 million at December 31, 1996.
In 1995, the Company acquired a 50% joint venture interest in Singer. In 1997, the Company acquired the remaining 50% of Singer in a series of all-stock transactions. The Company issued 503,114 shares of its common stock in connection with the 1997 transactions.
At December 31, 1997, 1996 and 1995, the carrying value of the Company's investment portfolio, total investments less investment in affiliates and other invested assets, was $876 million, $797 million and $749 million, respectively, on which was earned $50.6 million, $47.5 million and $44.2 million in those years, respectively, excluding $0.7 million, $4.0 million and $3.5 million of net realized capital gains in those years, respectively. The increase in investments resulted principally from cash flows from operations generated during the period. As of December 31, 1997, the Company held approximately $50.8 million and $5.7 million in short-term investments and cash and cash equivalents, respectively, to meet liquidity needs.
In 1997, the Company incurred annual debt service on its long- and short-term borrowings of $7.3 million and is anticipated to incur similar debt service expense in 1998.
On March 13, 1998, Enhance Financial filed a shelf registration statement for up to $100 million of debt and/or equity securities. Enhance Financial may issue these securities from time to time depending on market conditions, providing capital flexibility for further growth.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS ENHANCE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES
Consolidated Statements of Income for the Years Ended December 31, 1997, 1996 and 1995 32
Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 1997, 1996 and 1995 33
Deloitte & Touche LLP February 17, 1998 New York, New York
ENHANCE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 1997, 1996 and 1995
The Company, through a consolidated subsidiary, Singer Asset Finance Company, LLC ("Singer", see Note 5) and a partially owned affiliate, Credit-Based Asset Servicing and Securitization LLC ("C-BASS", see Note 5), is also engaged in the origination, purchase, servicing and/or securitization of special assets, including lottery awards, structured settlement payments and sub-performing/non-performing residential mortgages.
In accordance with Statement of Financial Accounting Standards ("SFAS") No. 115 "Accounting for Certain Investments in Debt and Equity Securities," management classifies all securities at the time of purchase as "held to maturity" or "available for sale." Fixed maturity securities held to maturity are those securities which the Company intends and has the ability to hold until maturity and are carried at amortized cost. All other fixed maturity securities are classified as available for sale and carried at fair value. Unrealized gains and losses, net of taxes, on the available for sale portfolio are charged or credited to shareholders' equity.
Other invested assets are trading securities and are carried at fair value, which is determined as the net present value of the future cash flows purchased, discounted at market rates. Mark to market adjustments on these assets are included in other income.
Written Earned Written Earned Written Earned ------- ------ ------- ------ ------- ------ Direct $ 25,477 $13,950 $16,946 $ 9,676 $12,313 $ 6,605 Assumed 82,675 75,665 81,642 70,145 74,846 58,865 Ceded (7,646) (4,160) (2,926) (2,388) (4,171) (2,520) -------- ------- ------- ------- ------- ------- Net premiums $100,506 $85,455 $95,662 $77,433 $82,988 $62,950 ======== ======= ======= ======= ======= =======
The Company, through its subsidiaries, acquires from individuals the right to receive lottery awards and structured settlement payments and securitizes these payment streams. Income is recognized at the time of sale through the securitization process for the difference between the net sales proceeds and the purchase price paid to individuals.
In 1991, the Company implemented a stock option program for key employees. In 1992, the Company implemented a directors' stock option program for the benefit of directors who are not employees of the Company. Under these programs, awards are granted to eligible employees and directors of the Company in the form of Incentive Stock Options, where they qualify under the Internal Revenue Code, or Non-Qualified Stock Options. The Company follows the intrinsic value based method of accounting for stock based compensation as prescribed by APB Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"). In accordance with SFAS No. 123, "Accounting for Stock-Based Compensation", the Company has provided pro forma disclosures of net income and earnings per share as if the fair value based method of accounting had been applied (see Note 12).
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information Footnotes", which became effective for the Company beginning January 1, 1998. SFAS No. 131 establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports issued to shareholders. It also establishes standards for related disclosures about products and services, geographic areas and major customers. Management believes that the presentation of financial information under the new statement will not be materially different than the current presentation.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income", which became effective for the Company beginning January 1, 1998. SFAS No. 130 establishes standards for reporting and display of comprehensive income and its components (revenues, expenses, gains and losses) in a full set of general-purpose financial statements. This Statement requires that all items that are required to be recognized under accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. It does not require a specific format for that financial statement but requires that an enterprise display an amount representing total comprehensive income for the period in that financial statement.
At December 31, 1997, the statutory basis policyholders' surplus of Enhance Re and Asset Guaranty, as reported to insurance regulatory authorities, was $228.3 million and $94.9 million, respectively. Statutory net income of Enhance Re and Asset Guaranty was $40.7 million and $11.7 million, respectively, for the year ended December 31, 1997. At December 31, 1996, the statutory basis policyholders' surplus of Enhance Re and Asset Guaranty, as reported to insurance regulatory authorities, was $225.3 million and $86.7 million, respectively. Statutory net income of Enhance Re and Asset Guaranty was $46.5 million and $8.8 million, respectively, for the year ended December 31, 1996. Statutory net income of Enhance Re and Asset Guaranty was $39.0 million and $10.5 million, respectively, for the year ended December 31, 1995.
Municipal obligations $ 415,131 $ 23,917 $ 6 $ 439,042 Mortgage-backed securities 71,361 2,375 - 73,736 Corporate securities 44,836 2,077 2 46,911 Foreign securities 33,282 2,663 516 35,429 U.S. Government obligations 12,778 183 2 12,959 --------- -------- -------- -------- Total available for sale $ 577,388 $ 31,215 $ 526 $608,077 ========= ======== ======== ========
Gross Gross Gross In thousands Amortized Unrealized Unrealized Fair 1996 Cost Gains Losses Value --------- --------- --------- --------- HELD TO MATURITY Private placements $ 108,064 $ - $ - $ 108,064 Municipal obligations 98,513 8,930 - 107,443 Corporate securities 8,039 372 - 8,411 U.S.Government obligations 3,076 94 40 3,130 --------- --------- --------- --------- Total held to maturity $ 217,692 $ 9,396 $ 40 $ 227,048 ========= ========= ========= =========
Municipal obligations $ 347,575 $ 10,038 $ 1,087 $ 356,526 Mortgage-backed securities 77,413 844 71 78,186 Corporate securities 46,197 1,100 146 47,151 Foreign securities 46,108 2,158 36 48,230 U.S. Government obligations 9,680 120 9 9,791 --------- --------- --------- --------- Total available for sale $ 526,973 $ 14,260 $ 1,349 $ 539,884 ========= ========= ========= =========
The amortized cost and estimated fair value of fixed maturities at December 31, 1997 by contractual maturity are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
In thousands Amortized Fair Cost Value ---------- ---------- Fixed maturities, held to maturity Due in one year or less $ 18,782 $ 18,808 Due after one year through five years 80,789 83,129 Due after five years through ten years 79,053 83,486 Due after ten years 31,812 34,340 ---------- ---------- $ 210,436 $ 219,763 ========== ========== Fixed maturities, available for sale Due in one year or less 7,914 7,895 Due after one year through five years 25,915 26,688 Due after five years through ten years 159,287 167,607 Due after ten years 384,272 405,887 ---------- ---------- $ 577,388 $ 608,077 ========== ==========
Proceeds from sales of available for sale investments in fixed maturities during 1997, 1996 and 1995 were approximately $407 million, $640 million and $529 million, respectively. Gross gains of $4.8 million and gross losses of $4.2 million were realized on those sales in 1997. Gross gains of $7.7 million and gross losses of $3.7 million were realized on those sales in 1996. Gross gains of $10.1 million and gross losses of $6.6 million were realized on those sales in 1995.
The Company owns 360,000 shares of EIC Corporation Ltd. ("EIC"), an insurance holding company which, through its wholly owned insurance subsidiary licensed in Bermuda, insures foreign trade receivables. The Company's investment represented an equity interest of approximately 41% at the date of acquisition and approximately 36.5% at December 31, 1997. The Company accounts for its investment in EIC in accordance with the equity method of accounting.
In November 1997, the Company purchased a 25% interest of Seguradores Brasilieras de Fiancas S.A. ("SBF") at book value. SBF is a Brazilian-based surety insurance company. SBF is a joint venture among the Company, Swiss Re and Banco Pactual S.A., through which the Company anticipates developing and marketing innovative credit-based insurance products throughout Latin America.
Total assets and total liabilities at December 31, 1997 and total net income for the year then ended, of the Company's unconsolidated subsidiaries and affiliates accounted for by the equity method of accounting, were $293.4 million $194.7 million and $17.1 million, respectively.
The Company files a consolidated federal income tax return with its includable subsidiaries. Subject to the provisions of a tax sharing agreement, income tax allocation is based upon separate return calculations.
In thousands YEARS ENDED DECEMBER 31, 1997 1996 1995 ------- ------- -------
A reconciliation from the tax provision calculated at the federal statutory rate of 35% to the actual tax is as follows:
In thousands Years Ended December 31, 1997 1996 1995 ------- ------- -------
Tax provision at statutory rate $ 32,884 $ 26,736 $ 22,344 Tax exempt interest and dividends (7,878) (6,492) (5,816) Other, net 144 442 15 ------- ------- ------- Actual tax $ 25,150 $ 20,686 $ 16,543 ======== ======== ========
The components of the net deferred income tax liability as of December 31, 1997 and 1996 are as follows:
Contingency reserves $ 43,027 $ 36,920 Deferred policy acquisition costs 33,547 30,564 Deferred premium revenue 10,446 7,841 Unrealized capital gains 10,490 4,522 Capitalized expenditures $ 1,183 Assignment sales income 8,438 Tax and loss bonds 24,797 $ 19,565 Alternative minimum tax credit carryforward 6,334 4,900 Losses and LAE reserves 5,509 4,575 Deferred income 1,883 2,137 Other 5,816 4,254 5,472 3,204 --------- --------- --------- --------- $ 45,522 $ 110,202 $ 36,649 $ 83,051 ========= ========= ========= =========
The debentures were issued at par and bear interest at 6.75% payable in March and September each year. The debentures are non-callable obligations of Enhance Financial secured by shares of common stock of Enhance Re.
Enhance Financial maintains a credit facility through a credit agreement (the "Credit Agreement") with major commercial banks providing for borrowing by Enhance Financial of up to $75 million to be used for general corporate purposes. Advances under the Credit Agreement bear interest at variable LIBOR-based rates. The average interest rate paid on such advances in 1997 was 6.15%.
During 1997, Enhance Financial issued 503,114 shares of common stock in connections with its acquisition of the remaining 50% ownership interest in Singer (see Note 5).
DEFERRED PREMIUM REVENUE - The fair value of the Company's deferred premium revenue is based on the estimated cost of entering into a cession of the entire portfolio with third-party reinsurers under market conditions. This figure was determined by using the statutory basis unearned premiums adjusted for ceding commission based on current market rates.
LOSS AND LOSS ADJUSTMENT RESERVES - The carrying amount is composed of the present value of the expected cash flows for specifically identified claims combined with a general estimate for non-specific reserves. Therefore, the carrying amount is a reasonable estimate of the fair value of the reserve.
In thousands DECEMBER 31, 1997 DECEMBER 31, 1996 ----------------- ----------------- Estimated Estimated Carrying Fair Carrying Fair Amount Value Amount Value ------ ----- ------ ----- ASSETS: Fixed maturity securities $818,513 $827,840 $757,576 $766,932 Common stock 833 833 878 878 Short-term investments 50,827 50,827 33,247 33,247
LIABILITIES: Deferred premium revenue 281,254 242,708 266,204 227,123 Loss and loss adjustment expense reserve 30,987 30,987 26,258 26,258 Long-term debt 75,000 75,458 75,000 74,933
TYPE OF ISSUE In billions December 31, 1997 1996 ---- ----
General obligation and other tax backed $18.8 $15.8 Non-municipal 13.5 12.2 Utilities 10.3 9.2 Health care 6.8 6.2 Airport/Transportation 6.8 5.9 Housing 1.5 1.5 Other municipal 2.4 2.3 Other insurance businesses 4.3 3.5 ----- ----- Total $64.4 $56.6 ===== =====
The Company manages its exposure to credit risk through a structured underwriting process which includes detailed credit analysis, review of primaries' underwriting guidelines, surveillance policies and procedures, and the use of reinsurance.
The Company maintains a non-contributory defined benefit pension plan for the benefit of all eligible employees. Employer contributions are based upon a fixed percentage of employee salaries determined at the discretion of the Company. Plan assets consist of domestic equity and high quality fixed income securities.
In thousands YEARS ENDED DECEMBER 31, 1997 1996 1995 ---- ------ ------ Service cost-benefits earned during the period $900 $1,298 $1,225 Interest cost on projected benefit obligation 494 485 396 Actual return on plan assets (958) (579) (320) Net amortization and deferral 535 205 55 ---- ------ ------ Net periodic pension cost $971 $1,409 $1,356 ==== ====== ======
At December 31, 1997, the accumulated post-retirement benefit obligation was $592,000 and was not funded. The discount rate used in determining the accumulated post-retirement benefit obligation was 7% and the health care cost trend rate was 13%, graded to 6% over 8 years.
1997 NUMBER OPTION PRICE OPTIONS OF SHARES PER SHARE - ------- --------- ---------
Outstanding at beginning of year 2,553,110$ $14.50 - $36.50 Granted - Employees 610,050 $38.875 - $57.6875 - Directors 45,500 $59.50 Exercised (299,496) $14.50 - $34.00 Expired or canceled (99,650) $16.00 - $38.875 ---------- Outstanding at year-end 2,809,514 $14.50 - $59.50 ---------- Exercisable at year-end - Employees 1,474,525 $14.50 - $38.875 - Directors 125,333 $17.125 - $36.50
1995 NUMBER OPTION PRICE OPTIONS OF SHARES PER SHARE - ------- --------- ---------
Outstanding at beginning of year 1,944,759 $14.50 - $20.25 Granted - Employees 490,350 $17.25 - $23.875 - Directors 30,000 $26.625 Exercised (24,575) $14.50 - $20.25 Expired or canceled (24,813) $16.00 - $20.25 ---------- Outstanding at year-end 2,415,721 $14.50 - $26.625 ---------- Exercisable at year-end - Employees 1,166,213 $14.50 - $20.25 - Directors 114,333 $17.125 - $19.875
The Company applies the provisions of APB Opinion No.25 "Accounting for Stock Issued to Employees" in accounting for its stock option program. Accordingly, no compensation expense has been recognized for options granted under its stock option program and the Company has adopted the disclosure-only provisions of SFAS No.123, "Accounting for Stock-Based Compensation." Had compensation cost for the Company's stock option program been determined based upon the fair value at the grant date for awards under these plans consistent with the methodology prescribed under SFAS No. 123, the Company's net income and earnings per share would have been reduced to the pro forma amounts indicated below:
Dividend yield 0.8% to 1.1% 1.1% to 1.5% 1.4% to 2.0% Volatility 18.7% to 30.3% 20.5% to 30.3% 26.5% to 31.1% Risk-free interest rate 5.8% to 6.7% 6.2% to 6.8% 5.6% to 7.2 % Assumed annual forfeiture rate 3.0% 3.0% 3.0% Expected life 10 years 10 years 10 years
1998 $ 2,595 1999 2,572 2000 2,366 2001 877 2002 442 Thereafter 1,540 -------- $ 10,392 ======== Rent expense was $1,699,000, $1,139,000 and $1,236,000 for the years ended December 31, 1997, 1996 and 1995, respectively, net of sublease income.
The following are the condensed balance sheets of Enhance Financial as of December 31, 1997 and 1996 and its condensed statements of income and cash flows for the years ended December 31, 1997, 1996 and 1995.
CONDENSED STATEMENTS OF INCOME In thousands Years Ended December 31 1997 1996 1995 --------- --------- ---------
Total revenues $ 510 $ 1,312 $ 272 Total expenses 14,652 12,343 11,321 --------- --------- --------- (14,142) (11,031) (11,049) Equity in income of affiliates 77,500 61,727 55,873 --------- --------- --------- Income before income taxes 63,358 50,696 44,824 Income tax benefit 5,448 5,008 2,473 --------- --------- --------- Net income $ 68,806 $ 55,704 $ 47,297 ========= ========= =========
Cash Flows from Operating Activities: Net income $ 68,806 $ 55,704 $ 47,297 Adjustments to reconcile net income to net cash from operating activities Equity in income of affiliates (77,500) (61,727) (55,873) Other 29,799 (22,188) (3,577) -------- -------- -------- Net cash used in operating activities 21,105 (28,211) (12,153) -------- -------- -------- Cash Flows from Investing Activities: Investment in affiliates net of dividends received (7,186) (3,423) 14,328 Purchase of investments - - (2,456) Sale of investments (2,396) 750 1,498 Sales of short-term investments, net (4,648) (5,529) 837 -------- -------- -------- Net cash provided by (used in) investing activities (14,230) (8,202) 14,207 -------- -------- -------- Cash Flows from Financing Activities: Capital stock 7,341 4,843 401 Short-term debt 1,000 27,500 12,000 Dividends paid (8,195) (7,198) (6,223) Principal payment - senior notes - (3,400) (1,400) Reissuance of treasury stock - 14,485 Purchase of treasury stock (7,021) (38) (6,732)
-------- -------- -------- Net cash provided by (used in) financing activities (6,875) 36,192 (1,954) -------- -------- -------- Net increase (decrease) in cash - (221) 100 Cash, beginning of year - 221 121 -------- -------- -------- Cash, end of year $ - $ - $ 221 ======== ======== ========
- In 1997 four primary insurers accounted for 17%, 16%, 9% and 7% of gross premiums written.
- In 1995 four primary insurers accounted for 22%, 18%, 8% and 8% of gross premiums written.
1997 1996 1995 ------- ------- ------- Balance at January 1, $28,081 $30,799 $29,337 Less reinsurance recoverables 1,823 1,853 2,620 ------- ------- ------- Net balance at January 1, 26,258 28,946 26,717 ------- ------- -------
Net balance at December 31, 30,987 26,258 28,946 Plus reinsurance recoverables 2,688 1,823 1,853 ------- ------- -------
The liability for losses and LAE increased by $6.0 million in 1995 principally as a result of changes in estimates of ultimate loss on certain real estate-backed transactions in the Company's discontinued commercial real estate portfolio. The terms "current year" and "prior years" in the foregoing table refer to the year in which case reserves were established.
The Company has two reportable segments: insurance and non-insurance businesses. The insurance segment provides credit-related insurance coverage to meet the needs of customers in a wide variety of domestic and international markets. The Company's largest insurance business is the provision of reinsurance to the monoline primary financial guaranty insurers for both municipal bonds and non-municipal obligations. The Company also provides trade credit reinsurance, financial responsibility bonds, excess-SIPC insurance and direct financial guaranty insurance. The non-insurance businesses segment deals primarily with credit-based servicing and securitization of assets in underserved markets, in particular, the origination, purchase, servicing and/or securitization of special assets, including lottery awards, structured settlement payments and sub-performing/non-performing residential mortgages.
The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The Company evaluates performance based on profit or loss from operating earnings, which it defines as net income excluding capital and foreign exchange gains and losses, net of taxes. The company also evaluates performance based on operating earnings after allocation of corporate overhead expenses.
Total revenues for reportable segments $ 119,118 Total interest revenue for reportable segments 50,618 Realized gains 657 --------- Total consolidated revenue $ 170,393 =========
Total income for reportable segments $ 68,403 Capital and foreign exchange gains (losses), net of tax 403 --------- Net income $ 68,806 =========
The non-insurance reportable segment information in 1996 and 1995 consisted of equity in net income (loss) of affiliates of $(402,000) and $(393,000) and investment in affiliates of $19,205,000 and $3,857,000, respectively. All other revenues and assets for those years were attributable to the company's insurance segment.