(1) Generally accepted accounting principles (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.
(4) The 13.5% Convertible Preferred Stock was redeemed on December 1, 1995 at a redemption price of $46.0 million.
Total revenues for 1997 were $112.1 million, an increase of 41.2% over total revenues of $79.4 million for 1996. The growth in revenues was due primarily to the increases in net premiums earned as discussed below. New insurance written in 1997 was $7.8 billion, compared to $7.7 billion in 1996. Amerin's primary insurance in force was $20.4 billion as compared with $14.8 billion as of December 31, 1996, which represents a 38% increase.
As a result of the foregoing factors, the Company has net income of $40.8 million for 1997 or $1.54 per share on a diluted basis, compared to net income of $28.2 million for 1996 or $1.07 per share on a diluted basis.
Total revenues for 1996 were $79.4 million, an increase of 122.6% over total revenues of $35.7 million for 1995. The growth in revenues was due primarily to the increases in net premiums earned and investment income in 1996 as compared to 1995, as discussed below.
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
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.
As a result of the foregoing factors, the company had net income of $28.2 million for 1996, or $1.07 per share on a diluted basis, compared to a net loss before pay-in-kind dividends on its previously outstanding 13.5% Convertible Preferred Stock of $22.8 million for 1995. The 1995 net loss was due to a non-recurring non-deductible 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 the Initial Public Offering. The net loss applicable to common shareholders (after pay-in-kind dividends) was $28.1 million, or $2.32 per share on a diluted basis for 1995. The 13.5% Convertible Preferred Stock was redeemed in connection with the Initial Public Offering.
The Company's consolidated total investments were $377.7 million at December 31, 1997, compared with $328.8 million at December 31, 1996. The Company generated consolidated cash flows from operating activities of $54.6 million during 1997, compared to $43.3 million generated during 1996. All of the Company's $374.3 million of fixed maturity securities at December 31, 1997 are rated "investment grade," which is defined by the Company as a security having a National Association of Insurance Commissioners ("NAIC") rating of 1 or 2 or an S&P rating ranging from "AAA" to "BBB-."
The Company generated positive cash flows from operations of approximately $54.6 million, $43.3 million and $22.2 million, respectively, in 1997, 1996 and 1995, as shown on the Consolidated Statements of Cash Flows. Positive cash flows are invested pending future payments of claims and other expenses. Should Amerin Guaranty experience cash flow shortfalls due to significantly higher than anticipated claims, or for other reasons, the Company anticipates funding such shortfalls through sales of short-term investments and, if required, other investment portfolio securities.
Amerin Guaranty is the principal insurance subsidiary of the Company. Amerin Guaranty's risk-to-capital ratio was 16.1:1 at December 31, 1997, compared to
13.3:1 at December 31, 1996. This increase was due to the growth in Amerin Guaranty's risk in force during 1997.
To provide against the possibility that rapid growth of the Company's business may generate levels of risk in force that could not be supported solely by internally-generated capital, the Company entered into an excess loss agreement with a major reinsurer effective January 1, 1996, and cancelable by the Company for a fee beginning in 2000. The claims-paying ability of the reinsurer is rated AA by S&P. This agreement provides 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.
The Company's comprehensive Year 2000 initiative is being managed by a team of internal staff and outside consultants. The team's activities are designed to ensure that there is no adverse effect on the Company's core business operations and that transactions with customers are fully supported. The Company is well under way with these efforts, which are scheduled to be completed in early 1999. The cost of the Year 2000 initiatives is not expected to be material to the Company's results of operations or financial position.