Standard Life leases approximately 13,500 square feet of office space in New York, New York as its corporate headquarters.
Madison Life leases approximately 11,000 square feet of office space in Middleton, Wisconsin as its corporate headquarters.
INCOME DATA: Total revenues..............$ 89,344 $ 71,427 $ 61,504 $ 65,444 $ 67,304 Net realized and unrealized gains (losses)............. 190 - (1,921) 835 3,271 Income applicable to common shares from continuing operations before cumulative effect of accounting changes...... 6,710 6,172 2,396 4,041 3,010
PER SHARE DATA: Cash dividends declared per common share...............$ .05 $ .04 $ .04 $ .04 $ .04
Income per common share from continuing operations before cumulative effect of accounting changes.........$ .90 $ .81 $ .31 $ .50 $ .34
The Selected Financial Data should be read in conjunction with the accompanying Consolidated Financial Statements and Notes thereto.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -------------------------------------------------
1996 COMPARED TO 1995 - --------------------- The Company's operating income from continuing operations increased $2.0 million, or 42%, to $6.8 million in 1996 from $4.8 million in 1995. The Company had net realized and unrealized gains of $.2 million in 1996. Excluding net realized and unrealized gains, the Company had operating income from continuing operations of $6.6 million in 1996 as compared to $4.8 million for 1995. Net income applicable to common shares was $7.8 million or $1.04 per share for the year ended December 31, 1996 as compared to $8.2 million or $1.08 per share for the year ended December 31, 1995. Income tax expense increased to $.1 million from a benefit of $1.4 million in 1995; reference is made to Note 15 of Notes to Consolidated Financial Statements for a reconciliation of the effective tax rate.
Insurance benefits, claims and reserves increased $12.5 million, or 33%, reflecting an increase of $4.7 million at Madison Life and $7.8 million at Standard Life. Madison Life's increase resulted from the following: a $.8 million increase in ordinary life and individual accident and health claims and reserves primarily due to the acquisition of the pre-need block of business; a $.5 million increase in long-term disability claims; a $.6 million increase in group term life claims; a $.3 million increase in claims and reserves in other life and health lines of business; a $1.7 increase in interest credited to universal life and annuity products primarily as a result of the acquisition of the pre-need block of business and the interest sensitive whole life block of business; and a $.8 million increase in the credit line of business due to new accounts. The change at Standard Life is comprised of the following increases: $4.9 million in stop- loss claims incurred as a result of the increased retention and the increased premiums in this line of business; additional claims and reserves of $1.1 million relating to the POS product; $1.2 million in claims and reserves from the HMO reinsurance product; $.6 million relating to the assumed block of group accident and health line of business; and $.9 million in DBL claims due to increased volume. The foregoing increases were offset by a $.9 million decrease in claims and reserves due to the continuing runoff of the closed blocks of life, annuity and individual and group accident and health lines of business.
Amortization of deferred acquisition costs and general and administrative expenses for the Insurance Group increased $3.3 million. Madison Life's expenses increased $.6 million primarily due to the acquisition of new business. Standard Life's expenses increased $2.7 million as a result of: a $.5 million increase in commissions from the growth in business; and a $2.2 million increase in general expenses due to administrative fees associated with the higher retention of the stop-loss business, an increase in salary and consulting expenses, general expenses attributable to the TPA, and expenses attributable to new product development.
Corporate - --------- Operating losses for the year ended December 31, 1996 increased by $.2 million from 1995. Operating losses in 1995 include realized gains of $.4 million. Excluding net realized and unrealized gains, operating losses decreased to $3.2 million in 1996 from losses of $3.4 million in 1995. Investment income increased $.1 million, equity income increased $.1 million and other income increased $.1 million from 1995. In connection with the pro-rata distribution of Zimmerman's common stock in 1996, the Company received a special cash dividend of $18.5 million, of which $10.0 million was used to repay all of the Company's
Insurance Group - --------------- The Insurance Group had operating income of $7.8 million for the year ended December 31, 1995 versus $4.7 million for the year ended December 31, 1994. Operating income includes net realized and unrealized losses of $.4 million for the year ended December 31, 1995 versus $2.0 million of losses for the year ended December 31, 1994. The Company makes decisions to sell securities based on cash flow needs, investment opportunities, and economic and market conditions, thus creating fluctuations in gains from one year to the next. Operating income excluding net securities gains and losses was $8.2 million for 1995 as compared to $6.7 million for 1994.
Other income increased $2.2 million as a result of the following: an increase of $.4 million in stop-loss fees; a $.4 million reduction in lotto annuitant expenses and a $.3 million increase in reinsurance recoveries at Standard Life and a charge against other income of $1.1 million made in 1994 for a stop-loss treaty at Madison Life.
Corporate - --------- Net operating expenses remained constant for the year ended December 31, 1995 as compared to 1994 levels. Investment income increased $.1 million and realized gains increased $.3 million. Equity income decreased $.1 million and other income declined $.2 million reflecting a sale of real estate in 1994. Interest expense
increased $.1 million due to higher interest rates on the debt of a corporate subsidiary, and general and administrative expenses remained constant.
LIQUIDITY --------- Insurance Group - --------------- The Insurance Group normally provides cash flow from operations, from the receipt of scheduled principal payments on its portfolio of fixed income securities and from earnings on short-term investments. Such cash flow is used partially to finance liabilities for insurance policy benefits. These liabilities represent long-term obligations which are calculated using certain assumed interest rates.
The nature and quality of insurance company investments must comply with all applicable statutes and regulations which have been promulgated primarily for the protection of policyholders. Of the aggregate carrying value of the Company's investment assets, approximately 87% was invested in investment grade fixed income securities, resale agreements, policy loans and cash and cash equivalents at December 31, 1996. Also at such date, approximately 95% of the Company's fixed maturities were investment grade. These investments carry less risk and, therefore, lower interest rates than other types of fixed maturity investments. At December 31, 1996, approximately 5.0% of the carrying value of fixed maturities was invested in diversified non-investment grade fixed income securities (investments in such securities have different risks than investment grade securities, including greater risk of loss upon default, and thinner trading markets). Less than 1.25% of the Company's total investments were in real estate, non- performing fixed maturities and mortgage loans.
Total corporate liquidity (cash, cash equivalents, resale agreements and marketable securities) amounted to $14.1 million at December 31, 1996. At the present time, the Company is not in need of any additional long-term financing.
Some of the statements included within Management's Discussion and Analysis may be considered to be forward looking statements (as that term is defined in the Private Securities Litigation Reform Act of 1995), and which are subject to certain risks and uncertainties. Among those factors which could cause the actual results to differ materially from those suggested by such statements are the following: catastrophic losses in the Company's insurance lines or a material aggregation of losses; changes in federal or state law affecting the Company's insurance products; availability of adequate retrocessional insurance coverage at appropriate prices; stock and bond market volatility;
As a result of the $10.0 million guarantee of Zimmerman's subordinated debt, the credit to stockholders' equity of $7.9 million, or $1.06 per share, that would have been recorded upon consummation of the distribution of Zimmerman has been deferred until such time as the subordinated debt is repaid or the guarantee is eliminated.