Year Ended December 31, ($ in thousands) 1996 1995 1994 1993 1992 Operating Data: ----- ----- ----- ----- ----- Revenues: Net premiums earned $3,571 $5,533 $5,221 $121,015 $131,799 Net investment income 1,648 3,101 3,313 7,165 12,188 Realized gains (losses) on investments (12,673) (743) (598) (5,471) 5,888 ----- ----- ----- ------- ------- Total revenues (7,454) 7,891 7,936 122,709 149,875 Operating expenses: Losses and loss adjustment expenses 8,249 5,402 4,019 148,437 107,583 Losses-government pools - - - 897 2,864 Policy acquisition expenses 8 1,863 2,068 35,378 24,799 Other operating expenses 1,519 1,769 1,360 14,771 14,706 ------ ------ ------ -------- ------- Total operating expenses 9,776 9,034 7,447 199,483 149,952 ------ ------ ----- ------- ------- Operating income (loss) (17,230) (1,143) 489 (76,774) (77) Equity in loss of non- consolidated subsidiary - - (7,309) - - Equity in earnings (loss) of investee - - (103) 632 413 ------ ------ ------ -------- ------ Income (loss) before income taxes, minority interest and extraordinary items (17,230)(1,143) (6,923) (76,142) 336 Income tax expense(benefit) (133) (282) 168 962 (919) ---- ----- ------- ------- ----- Income (loss) before minority interest and other items (17,097) (861) (7,091) (77,104) 1,255 Minority interest (3,366) 219 - - - Extraordinary gain - 38,387 - - - Change in accounting principle - - - - (233) ------ ------ ------ -------- ----- Net income (loss) $(13,731) $37,745 $(7,091) $(77,104) $ 1,022 ===== ===== ===== ===== =====
Year Ended December 31, 1996 1995 1994 1993 1992 (Amounts in thousands, except per share data)
Total investments $16,341 $16,935 $27,994 $121,036 $181,818 Total assets 29,701 46,502 67,041 257,315 305,018 Reserves for losses and loss adjustment expenses (1) 26,441 30,974 47,165 200,845 160,857 Total stockholders' equity (deficiency) (2,800) 145 (56,252) (19,251) 58,908
(1) Reserves for loss and loss adjustment expenses have been restated for the year ended December 31, 1992 to reflect the gross reporting provisions of Statement of Financial Accounting Standard No. 113 "Accounting and Reporting for Reinsurance of Short-Duration and Long-Duration Contracts".
Global Insurance Company (Global) resumed writing business on a modest scale beginning in the fourth quarter of 1996.
For 1996, the Company recorded a net loss of $13,731,000. For 1996, realized losses on investments totaled $12,673,000 and underwriting losses totaled $6,205,000. These were partially offset by investment income and the minority interest share of the losses. For 1995, the Company recorded net income of $37,745,000 including the extraordinary gain related to UCIC of $38,387,000. Net loss from ongoing operations was $642,000. The Company's results for 1996 and 1995 continued to be adversely impacted by adverse development related to URIC's pooling agreement with UCIC, partially offset by Company's ability to commute several reinsurance agreements at favorable terms. For 1994, the Company lost $7,091,000 as LIG recorded a loss related to UCIC of $7,307,000 for the first six months of 1994. In addition to the loss related to UCIC's own operations since UCIC owns 21.4% of URIC, LIG does not consolidate the full amount of income or loss earned by URIC. For 1994, this amounted to $2,000 in URIC earnings not consolidated by LIG. Excluding UCIC for 1994, the Company would have earned $216,000.
Net Investment Income: Net investment income was $1,648,000 for 1996, $3,101,000 for 1995 and $3,313,000 for 1994. The decrease for 1996 compared to 1995 was due to the loss of interest from the Alpha Trust due to default and a valuation reserve established for rent due from an affiliate as a result of its bankruptcy filing and the lower level of invested assets of the Company. The decrease for 1995 compared with 1994 was due to the lower level of invested assets as yields were higher.
Realized Gains (Losses) on Investments: Realized losses for 1996 totaled $12,673,000 and consisted of gains of $739,000 on the sale of Mechanical Technology, Inc. (MTI) common stock to LGI offset by the charge off to operations of the unpaid balance of the Alpha Trust ($13,093,000) and by valuation allowances established against amounts due from affiliates as a result of the Chapter 11 bankruptcy filing of LGI and certain subsidiaries. Since Receivable from Alpha Trust was carried as a contra equity account in stockholders' equity the impact on total stockholders' equity of this charge off was $0. The Realized losses for 1995 totaled $946,000 and were related to the loss on the disposition of notes of Aquatic Development Corporation and losses on fixed investments. Realized gains totaled $203,000. Realized losses totaled $598,000 for the year 1994 with approximately $503,000 due to the write down of an equity investment in Aquatic Development Corporation.
Losses and Loss Adjustment Expenses: Loss and LAE totaled $8,249,000 for 1996 compared with $5,402,000 for 1995 and $4,019,000 for 1994. The increase in 1996 compared with 1995 was attributable primarily to higher adverse develop- ment of losses related to the pooling agreement with UCIC . The increase for 1995 vs 1994 was attributable to the adverse impact of URIC's pooling agreement with UCIC partially offset by favorable results related to the commutation of several reinsurance agreements and the reduced business volume at Senate. In addition, for 1994 the Company incurred losses of approximately $1,600,000 related to the Northridge, California earthquake for which it had no counterpart in 1995.
Other Operating Expenses: The Company's other operating expenses were approximately $1,519,000, $1,769,000 and $1,360,000 for the years ended Decemb- er 31, 1996, 1995 and 1994, respectively. Other operating expenses for 1996 and 1995 reflected increased costs of litigation relative to URIC and the TDI as well as costs associated with complying with other regulatory agencies as well as additional costs associated with positioning the Company to be able to move forward in 1996 compared with 1994.
Income Taxes: For 1996, the Company recorded an income tax benefit of $133,000 reflecting primarily a truing up of prior years income tax receivables and payables. For 1995, the Company recorded a tax benefit of $282,000 representing an amount recoverable against prior expense by URIC partially offset by a provision for state income taxes of Senate. For 1994, the Company recorded a tax expense of approximately $168,000 which consisted of state income taxes due. The statutory Federal rate was 34% for 1996, 1995 and 1994.
During 1994 the Company implemented SFAS No. 115 - "Accounting for Certain Investment in Debt and Equity Securities." This requires that fixed investments be classified into categories for financial statement presentation: Fixed Maturities Held to Maturity and Fixed Maturities Available for Sale. Fixed Maturities Held to Maturity are carried at amortized cost. Securities to be held for indefinite periods of time and not intended to be held to maturity are classified as available for sale. Securities available for sale include securities that Management intends to use as part of its asset/liability management strategy and that may be sold in response to changes in interest rates, prepayment risk and other similar economic factors, as well as to fund catastrophic losses and other unexpected cash needs. Fixed Maturities Available for Sale are carried at fair value after 1993. After 1994 the Company considered all fixed investments to be available for sale.
Operating activities used cash and cash equivalents of approximately $6,349,000, $8,233,000 and $18,221,000 in 1996, 1995 and 1994, respectively. The decrease in operating cash flow for the three years reflects the reduction in premiums written and the change in income from underwriting operations and the reduction in investment income. In addition, in January, 1994, UCIC and URIC loaned $13,000,000 and $14,000,000, respectively, to Alpha Trust. These loans consisted of term notes with differing maturities and repayment schedules with the initial principal repayment commencing April 1, 1996 and ending on January 1, 2001. Interest is at the prime rate plus 2%. Interest is payable quarterly beginning April 1, 1994. Alpha Trust loaned $27,000,000 to Lawrence Group, which owns approximately 93% of the Company. This represented a use of cash by URIC of $14,000,000. Principal and interest payments due after July 1, 1996 are in default and LGI has filed for bankruptcy under Chapter 11. On April 4, 1996, Senate purchased real estate from Barbara Lawrence (a former owner and director). This utilized $2,600,000 of cash and short term invest- ments. This property was also subject to a blanket mortgage (approximately $2.9 million at December 31, 1996) of the previous owner being held by a financial institution The previous owner filed for protection under the federal bankruptcy laws and it is uncertain as to what impact this may have on LIG.
A significant portion of the parent company's internal sources of funds historically consisted of dividends from its subsidiaries. Since the insurance subsidiaries are subject to regulatory restrictions on the amount of dividends that may be paid, their earnings are not necessarily available to the Company on a current basis. The restrictions are generally based on specific levels of statutory surplus and investment income, as determined under statutory insurance accounting practices. Based upon their restrictions as of December 31, 1996, the insurance subsidiaries will not be able to pay any dividends to the Company during 1997 without prior approval of regulatory authorities. Dividend payments from the Company's subsidiaries have been suspended since the fourth quarter of 1993 due to statutory limitations. Dividends from the Company to its shareholders have also been suspended pending future dividends from the subsidiaries.
Periods of economic recession and inflation can have varying effects on members of the insurance industry. Due to the current nature of the Company's operations it is not anticipated that fluctuations in the economy would have a significant impact on the Company. The underwriting policy of each subsidiary is geared to obtaining an adequate return for the risk it is underwriting. For example, policies exclude environmental and pollution coverages, due to their uncertainty.
There were no new accounting pronouncements that would upon implementation have a significant impact on the Company.