The Registrant's general business equipment has been fully amortized. During the year, the Registrant received $400 a month from Central for use of the equipment.
The Company's consolidated loss for 1994 was $125,831 compared to losses of $79,465 in 1993 and $103,151 in 1992. A significant part of the changes occurring between each of the years was due to fluctuations in death claims and realized investment gains along with declining premium and investment income. Premium income in 1994 decreased by $16,050 compared to decreases of $3,156 in 1993 and $4,788 in 1992. The premium decline in 1993 was reduced by an unusual number of Modified Whole Life policyholders electing to pay a one time re-entry fee and continue their policies another ten years. Policy lapses and no new sales were the cause of decreasing premium income. The Company's policy lapse ratios were 4.9% in 1994, a significant improvement from 18.4% in 1993, and 17.3% in 1992.
The Company, directly and through its life subsidiary, continued to investigate options for raising additional capital and surplus. Options available, as a result of changing regulatory requirements, have become more restricted by the cost of studies, legal fees, actuarial services and audit certifications required to satisfy various regulators. Among options which have been investigated were the redomestication of the life subsidiary, the sale of premium paying policies to reduce exposure to death claims, surplus debentures and sale or merger of the Company or its life subsidiary. A sale of stock by the Company or its life subsidiary was also considered. However, the Company comes under the Securities and Exchange Commission (SEC) rules, which makes it very costly to sell a small block of stock; nor would the Company's history be conducive to selling additional stock. Toward the end of 1994, the previously described definitive written agreement was included in a Form A filing with the Illinois Insurance Department regarding a change of control of a life insurance company. On March 10, 1995, the Illinois Insurance Department indicated the companies could proceed to secure approval from other regulatory agencies and stockholders.
The National Association of Insurance Commissioners established new minimum capital requirements in the form of Risk Based Capital. Risk-based capital factors the type of business written by a company, the quality of its assets, and various other factors into account, to develop a minimum level of capital called "authorized control level risk-based capital" and compares this level to an adjusted statutory capital that includes capital and surplus as reported under Statutory Accounting Principles, plus certain investment reserves. Should the ratio of adjusted statutory capital to control level risk-based capital fall below 200%, a series of actions by insurance regulators begins. At December 31, 1994, the Company's life subsidiary's ratio was 8,346.7%. This unusual ratio was a result of a high percentage of investments in U.S. Government securities and a low ratio of liabilities to capital and surplus.
We have audited the consolidated financial statements of Insurance Investors & Holding Co. and subsidiaries. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedules as listed in the accompanying index. These consolidated financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedules based on our audits.
(b) Deferred Policy Acquisition Costs Policy acquisition costs such as commissions (net of reinsurance), premium taxes, and certain other underwriting and agency expenses which vary with and are directly related to the production of business have been deferred. Such deferred policy acquisition costs are being amortized as premium revenue is recognized. The method followed in computing deferred policy acquisition costs limits the amount of such deferred costs to their estimated realizable value, which gives effect to the premium to be earned, related investment income, losses and loss settlement expenses, and certain other costs expected to be incurred as the premium is earned.
The cumulative effect of the change in accounting for income taxes was $-0- and has therefore not been separately stated in the 1993 consolidated Statement of Operations.
(g) Accounting Pronouncements In May 1993, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" (SFAS 115). SFAS 115, requires the classification of debt and equity securities in one of three categories: trading, held-to-maturity, or available-for-sale, based on established criteria.
(b) Adjustments reflecting the revaluation of stocks at each statement date on the basis described in paragraph (a) above, are carried to the consolidated statements of stockholders equity as unrealized appreciation (depreciation) on investments.
(c) The fair values of U.S. Treasury securities, bonds and stocks represent quoted market values from published sources.
The amortized cost and estimated market value of debt securities at December 31, 1994 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.
Proceeds from sales of fixed maturity investments were $304,438 in 1993. Gross gains and losses realized on those sales were $25,131 and $781 for 1993. There were no sales of fixed maturities in 1994.
(d) At December 31, 1994 and 1993, the market value of investments on deposit with government authorities in excess of the legal requirements were $1,245,250 and $1,287,524, respectively.
Mortality rates assumed in the computation of most policy reserves are based on the 1955-60 Select and Ultimate Mortality Tables.
Notes payable at December 31, 1994 and 1993 are as follows:
The holders of each class of common stock are entitled to one vote for each share held, with the right of cumulative voting for directors. In the event of liquidation, Class A common stockholders shall first be paid $2 a share; next, Class B common stockholders shall be paid $.10 a share; thereafter, any remaining distribution would be on a share-for-share basis.
The payment of cash dividends by the Company is principally dependent upon the amount of its insurance subsidiary s statutory surplus available for dividend distribution.
The following reconciles net earnings (loss) and retained earnings (deficit) determined in accordance with statutory accounting practices prescribed or permitted by the Insurance Department of the State of Illinois with such amounts determined in conformity with generally accepted accounting principles:
As discussed in note 1, the Company adopted Statement 109 as of January 1, 1993. The cumulative effect of this change in accounting for income taxes was $-0- as of January 1, 1993 and therefore is not reported separately in the consolidated statement of operations for the year ended December 31, 1993. Prior years financial statements have not been restated to apply the provisions of Statement 109.
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at December 31, 1994 and 1993 are presented below:
The change in the valuation allowance for deferred taxes for the year ended December 31, 1994 and 1993 was an increase of $33,349 and $15,150, respectively.
In 1994, 1993, and 1992, the Company provided for policyholder dividends of $13,996, $15,135 and $18,422, respectively.
Certain of the life policies written by the Company are "participating policies." Dividends on participating policies generally are payable in the second and subsequent years on the basis of 90% of the earnings applicable to the sale of such policies. During 1994 and prior years, based on the allocations of income and expenses to the various lines of business, the participating policies have produced losses. Consequently, the accompanying consolidated financial statements reflect no provision for additional dividends.
The Company operates primarily through its subsidiaries, Central Investors Life Insurance Company of Illinois and C I Agency, Inc. The life insurance is primarily personal lines sold by agents under contract by C I Agency, Inc. Separate financial statements are not shown in this report for Central Investors Life Insurance Company of Illinois and C I Agency, Inc. since their financial position and results of operations are indicative of the consolidated financial position and results of operations. The following table presents certain information concerning Central Investors Life Insurance Company of Illinois, (in 000's):
The Company normally prepares consolidated financial statements with its subsidiaries. The Condensed Financial Information of the Registrant (parent only) has been prepared to conform with the requirements of the Securities and Exchange Commission. This information should be read in conjunction with the consolidated financial statements and notes contained elsewhere herein.
The investment in common stock of subsidiaries is reflected at cost, adjusted for equity in operations.
No Federal income tax expense was incurred in 1994, 1993 and 1992 due to operating losses.
Prior to January 1, 1993, in accordance with Accounting Principles Board Opinion No. 11 (APB 11), amounts provided for income tax expense by the Company were based on income reported for financial statement purposes rather than amounts currently payable under tax laws. Deferred taxes, which arose from timing differences between the period in which certain income and expenses were recognized for financial accounting purposes and the period in which they affected taxable income, were included in the amounts provided for income taxes.