any limitation imposed on the Company's ability to control the impact of rising health care costs, especially prescription drugs, and rising medical service utilization rates through product and benefit design, underwriting criteria, premium rate increases, utilization management and negotiation of favorable provider contracts;
developments in health care reform and other regulatory issues, including the Health Insurance Portability and Accountability Act of 1996 ("HIPPA") and increased privacy regulation, and changes in laws and regulations in key states where the Company operates;
the Company's ability to meet minimum regulatory capital requirements for its Insurance Subsidiaries;
Overview. The Company's loss before income taxes declined by $10.8 million in 2001 to ($2.1) million as compared to 2000, after increasing to ($12.9) million in 2000 from income before income taxes of $4.0 million in 1999. Insurance operating results for both 2001 and 2000 were adversely impacted by losses from the GPPO comprehensive major medical product, the principal major medical product marketed by FLICA and NFL from 1998 through June 2000. Losses attributable to the GPPO product were approximately ($16.7) million for 2001 and ($25.7) million for 2000. As discussed more fully below, the $9.0 million reduction in GPPO product losses in 2001 as compared to 2000 is principally attributable to active premium rate increase management and discontinuance of production. Additional reductions in losses from the GPPO product and continued sales of new major medical products introduced in July 2000 that meet pricing targets are key to the Company achieving profitability in 2002.
Premiums. The Insurance Subsidiaries' premium revenue is derived principally from the following medical expense reimbursement products: comprehensive major medical, hospital/surgical major medical, supplemental specified disease and Medicare supplement. Comprehensive major medical products are generally designed to reimburse insureds for eligible expenses incurred for hospital confinement, surgical expenses, physician services, outpatient services and the cost of medicines. Hospital surgical major medical products are similar to comprehensive major medical products except that benefits are generally limited to hospital/surgical services and deductibles and coinsurance provisions are generally higher. Supplemental specified disease products include indemnity policies for hospital confinement and convalescent care for treatment of specified diseases and "event specific" policies, which provide fixed benefits or lump sum payments upon diagnoses of certain types of internal cancer or other catastrophic diseases. Prior to 1998, the Insurance Subsidiaries also underwrote Medicare supplement products and continue to receive renewal premiums from such policies.
Pro Forma Ascent Ascent -------------------------- ------------ 2001 2000 1999 ----------- ----------- ------------ Major medical: First-year $ 28,310 $ 28,082 $ 15,863 Renewal 49,792 37,632 39,891 ----------- ----------- ------------ 78,102 65,714 55,754 ----------- ----------- ------------
Supplemental specified disease: First-year 1,077 1,394 1,352 Renewal 23,553 26,287 27,917 ----------- ----------- ------------ 24,630 27,681 29,269 ----------- ----------- ------------
Consolidated Premium Revenue $ 125,206 $ 119,908 $ 116,319 =========== =========== ============
Benefits and Claims. Benefits and claims are comprised of (1) claims paid, (2) changes in claim reserves for claims incurred (whether or not reported), and (3) changes in future policy benefit reserves (see Financial Condition - "Claims Reserves" and "Future Policy Benefit Reserves"). The 9.8 percentage point increase in the ratio of consolidated benefits and claims to consolidated premiums from 1999 to 2000 and subsequent 10.4 percentage point decrease from 2000 to 2001 were principally attributable to the GPPO product. As noted above, GPPO premiums increased significantly in 2000 as compared to 1999 and the claims and benefit ratio for 2000 was approximately 120%. In 2001, GPPO premiums declined slightly, and the claims and benefit ratio dropped by approximately 26 percentage points to 94% due to the implementation of premium rate increases. The Company expects to further reduce the GPPO claims and benefit ratio during 2002 through the implementation of additional premium rate increases.
Cash and cash equivalents $ 2,337 $ 2,658 ---------- ---------- Fixed Maturities (at market value): U.S. Government and related agencies 10,823 10,462 State, county and municipal 2,226 1,982 Finance 20,307 23,445 Public utilities 7,452 6,787 Mortgage-backed 10,731 13,302 All other corporate bonds 38,678 44,612 ---------- ---------- Total Fixed Maturities 90,217 100,590 ---------- ---------- Equity Securities (at market value) 1,569 1,335 Other Invested Assets: Mortgage loans on real estate - 56 Policy loans 314 342 Short-term investments and certificates of deposit 21,801 7,254 ---------- ---------- Total Other Invested Assets 22,115 7,652 ---------- ---------- Total Cash and Invested Assets $ 116,238 $ 112,235 ========== ==========
The following table summarizes consolidated investment results (excluding unrealized gains or losses) for the indicated year: Pro Forma Ascent Ascent -------------------- --------- 2001 2000 1999 --------- --------- ---------
Net investment income (1) $ 6,869 $ 7,805 $ 8,016 Net realized (loss) gain on investments 392 (454) (167) Average gross annual yield on fixed maturities 7.0% 7.2% 7.2%
Agent Receivables. In the ordinary course of business, the Company advances commissions on policies written by its general agencies and their agents. Net agent receivables were $7.4 million and $8.7 million at December 31, 2001 and 2000, respectively. The Company is reimbursed for these advances from the commissions earned over the respective policy's life. In the event that policies lapse prior to the time the Company has been fully reimbursed, the general agency or the individual agents, as the case may be, are responsible for reimbursing the Company for the outstanding balance of the commission advance. The Company routinely establishes a reserve for uncollectible agent's balances based upon historical experience and projected commission earnings. As of December 31, 2001 and 2000, the Company's allowance for uncollectible commission advances was $4.0 million and $3.7 million, respectively.
Deferred Policy Acquisition Costs. Policy acquisition costs consisting of commissions and other policy issue costs, which vary with and are primarily related to the production of new business, are deferred and amortized over periods not to exceed the estimated premium-paying periods of the related policies. Projected future levels of premium revenue are estimated using assumptions as to interest, mortality, morbidity and withdrawals consistent with those used in calculating liabilities for future policy benefits. Deferred policy acquisition costs totaled $25.6 million and $24.7 million at December 31, 2001 and 2000, respectively.
A premium deficiency exists if the present value of future net cash flows plus future policy benefit and claims reserves at the calculation date is negative or less than net deferred policy acquisition costs. The calculation of future cash flows includes assumptions as to future rate increases and persistency. The Company routinely evaluates the recoverability of deferred acquisition costs in accordance with GAAP. As a result of losses from the GPPO product, the Company determined that a premium deficiency of $1.5 million existed at December 31, 2000 related to medical expense reimbursement products issued subsequent to the fresh start date of March 31, 1999. Accordingly, deferred policy acquisition costs were reduced by $1.5 million at December 31, 2000. At December 31, 2001, there was no premium deficiency related to deferred acquisition costs.
Claims Reserves. Claim reserves are established by the Company for benefit payments which have already been incurred by the policyholder but which have not been paid by the Company. Claim reserves totaled $37.2 million at December 31, 2001 as compared to $42.8 million at December 31, 2000. The process of estimating claim reserves involves the active participation of experienced actuarial consultants with input from the underwriting, claims, and finance departments. The inherent uncertainty in estimating claim reserves is increased when significant changes occur. Changes impacting the Company include: (1) changes in economic conditions; (2) changes in state or federal laws and regulations, particularly insurance reform measures; (3) writings of significant blocks of new business and (4) significant changes in claims payment patterns as a result of the implementation of a new claims administration system in May 2000. Because claim reserves are estimates, management monitors reserve adequacy over time, evaluating new information as it becomes available and adjusting claim reserves as necessary. Such adjustments are reflected in current operations.
Management considers many factors when setting reserves including: (1) historical trends; (2) current legal interpretations of coverage and liability; (3) loss payments and pending levels of unpaid claims; and (4) product mix. Based on these considerations, management believes that adequate provision has been made for the Company's claim reserves. Actual claims paid may deviate, perhaps substantially, from such reserves.
The Company's policy benefit reserve requirements are also interrelated with product pricing and profitability. The Company must price its products at a level sufficient to fund its policyholder benefits and still remain profitable. Because the Company's claim and policyholder benefits represent the single largest category of its operating expenses, inaccuracies in the assumptions used to estimate the amount of such benefits can result in the Company failing to price its products appropriately and to generate sufficient premiums to fund the payment thereof. The sharp increase in claim loss ratios experienced by the Company during 2000 was indicative of inadequate pricing in the GPPO product, the principal major medical product marketed from 1998 through June 2000.
General. The primary sources of cash for the Company's consolidated operations are premiums and fees from insurance policies, sales and maturity of invested assets and investment income while the primary uses of cash are payments of insurance policy benefits, claims and commissions, and general operating expenses. Net cash used in operations totaled $6.6 million, $4.9 million and $2.6 million for the years ended December 31, 2001, 2000 and 1999, respectively. The increase in cash used by operations since 1999 is primarily due to an increase in the cash basis ratio of benefits and claims to premiums resulting from a decrease in the average time expended to pay a claim after the implementation of the Company's new claims administration system in May 2000.
Ascent is a holding company, the principal assets of which consist of the capital stock of its subsidiaries and invested assets. Ascent's principal sources of funds are comprised of dividends from its non-insurance subsidiaries. The Insurance Subsidiaries are precluded from paying dividends without prior approval of the Texas Insurance Commissioner as the Insurance Subsidiaries' earned surplus is negative due to statutory losses incurred in recent years (see "Business - Regulations" at Item 1). Ascent's principal uses of cash are for capital contributions to maintain minimum statutory capital and surplus requirements for the Insurance Subsidiaries and general and administrative expenses. Ascent funded capital contributions to the Insurance Subsidiaries totaling approximately $19.3 million, $8.2 million, and $5.9 million during 2001, 2000 and 1999, respectively, as a result of combined statutory losses incurred by the Insurance Subsidiaries for those years of $12.7 million, $17.0 million and $6.5 million, respectively. As of December 31, 2001, Ascent had approximately $1.2 million in unrestricted cash and invested assets. In February 2002, Ascent funded contributions totaling $1.8 million to two of its insurance subsidiaries.
The statutory losses incurred during recent years resulted from (1) significant losses for the GPPO product (see "Operating Results") and (2) costs associated with increased new business production which must be expensed under statutory accounting (for GAAP, such costs are deferred and amortized as related premiums are recorded). Adverse claims experience for the GPPO product in excess of management's current estimates or adverse claims experience for other insurance products would require Ascent to make capital contributions to the Insurance Subsidiaries in excess of those currently projected for 2002. Additional financing would be required by Ascent in order to make any such "excess" contributions. As a result, adverse claims experience could have a material adverse effect on the Insurance Subsidiaries' ability to meet minimum statutory capital and surplus requirements and maintain new business production at current levels and therefore, have a material adverse impact on Ascent's liquidity and capital resources and results of operations.
Bank Financing. The majority of commission advances to NCM's agents are financed through Ascent Funding, Inc. ("AFI"), an indirect wholly owned subsidiary of Ascent. AFI has entered into a Credit Agreement (the "Credit Agreement") with LaSalle Bank, NA ("LaSalle") which currently provides AFI with a $7.5 million revolving loan facility, the proceeds of which are used to purchase agent advance receivables from NCM and other affiliates. In connection with this commission advancing program approximately $4.4 million was outstanding under the Credit Agreement at December 31, 2001.
In July 1999, Ascent Management, Inc. ("AMI") received a $3.3 million term loan facility with LaSalle, proceeds of which were used to fund system replacement costs. Advances under the term loan facility are secured by substantially all of AMI's assets and the Guaranty Agreement. Under the terms of the loan, principal is payable in 60 equal monthly installments beginning January 31, 2000. At December 31, 2001, approximately $2.2 million was outstanding under the term loan facility.
As discussed in Note 1 to the consolidated financial statements, Westbridge Capital Corp. filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code with the United States Bankruptcy Court for the District of Delaware on September 16, 1998. The Bankruptcy Court confirmed the Plan of Reorganization on December 17, 1998, and, after the satisfaction of a number of conditions, the Plan of Reorganization became effective on March 24, 1999 and the Company emerged from bankruptcy. In connection with its emergence from Chapter 11, Westbridge Capital Corp. changed its corporate name to Ascent Assurance, Inc. and adopted fresh start accounting.
Net investment income 2,562 Fee and service income 4,263 Net realized gain on investments 41 ---------------- Total Revenue 36,814 ----------------
Benefits, claims and expenses: Benefits and claims 21,799 Increase in deferred acquisition costs (862) Commissions 6,688 General and administrative expenses 7,229 Taxes, licenses and fees 1,059 Interest expense on notes payable 119 Interest expense on retired/cancelled debt 507 ---------------- Total Expenses 36,539
WESTBRIDGE CAPITAL CORP. (now ASCENT ASSURANCE, INC.) CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
WESTBRIDGE CAPITAL CORP. (now ASCENT ASSURANCE, INC.) CONSOLIDATED STATEMENT OF CASH FLOWS
The Company's revenues result primarily from premiums and fees from the insurance products sold by its wholly owned subsidiaries National Foundation Life Insurance Company ("NFL"), Freedom Life Insurance Company of America ("FLICA"), National Financial Insurance Company ("NFIC") and American Insurance Company of Texas ("AICT", and together with NFL, NFIC and FLICA, collectively, the "Insurance Subsidiaries") and marketed by NationalCare(R) Marketing, Inc. ("NCM"), also a wholly owned subsidiary. To a lesser extent the Company derives revenue from (i) telemarketing services, (ii) printing services, and (iii) renewal commissions received by the Company for prior year sales of insurance products underwritten by unaffiliated insurance carriers.
Fresh Start Adjustments. In accordance with the American Institute of Certified Public Accountants' Statement of Position 90-7 ("SOP 90-7"), "Financial Reporting by Entities in Reorganization Under the Bankruptcy Code," the Company adopted fresh start reporting effective March 31, 1999 (see Note 14). Fresh start reporting requires the new reporting entity created on the reorganization effective date to determine a reorganization book value. The reorganization book value is allocated to the fair value of assets and liabilities similar to the purchase method of accounting under Accounting Principles Board Opinion No. 16. As a result of the application of fresh start reporting, the financial statements of Ascent issued subsequent to the adoption of fresh start reporting will not be comparable with those of Westbridge prepared before adoption of fresh start accounting, including the historical financial statements of Westbridge in this annual report. With the adoption of fresh start accounting, the Company retained a fiscal accounting year ended on December 31 of each year.
Ascent's reorganization book value was determined with the assistance of its financial advisors. The significant factors used in the determination of reorganization book value were analyses of industry, economic and overall market conditions, historical and projected performance of the Company, and certain financial analyses, including discounted future cash flows. In December 2001, deferred policy acquisition costs and policy liabilities and accruals were both increased by $650,000 to reflect corrections of the fresh start balance sheet. These corrections had no impact on Ascent's reorganization book value or stockholders' equity as subsequently reported.
(c) Reflects adjustments to record assets and liabilities at fair market value and to set retained earnings to zero.
The following significant accounting policies are applicable to the financial statements of both Ascent and Westbridge, unless otherwise indicated.
Future Policy Benefits. Liabilities for future policy benefits not yet incurred are computed primarily using the net level premium method including actuarial assumptions as to investment yield, mortality, morbidity, withdrawals, persistency and other assumptions which were appropriate at the time the policies were issued. Assumptions used are based on the Company's experience as adjusted to provide for possible adverse deviation. Generally, these actuarial assumptions are fixed and, absent material adverse benefit experience, are not adjusted. No changes were made to such actuarial assumptions for purposes of fresh start accounting.
Federal Income Taxes. The Company records income taxes based on the asset and liability approach, which requires the recognition of deferred tax liabilities and assets for the expected future tax consequence of temporary differences between the carrying amounts and the tax basis of assets and liabilities. The tax effect of future taxable temporary differences (liabilities) and future deductible temporary differences (assets) are separately calculated and recorded when such differences arise. A valuation allowance, reducing any recognized deferred tax asset, must be recorded if it is determined that it is more likely than not that such deferred tax asset will not be realized. The deferred tax asset at December 31, 2001 and 2000 is fully reserved as discussed at Note 9.
Diluted: Income available to common shareholders $ 208 ============== Weighted average shares outstanding 7,032 ============== Diluted earnings per share $ 0.03 ==============
the company's ability to meet minimum regulatory capital requirements for its Insurance Subsidiaries;
ability of the Company to maintain adequate liquidity for its non-insurance subsidiary operations, including financing by NCM of commission advances to agents;
In June 2001, the FASB issued SFAS No.141, "Business Combinations" (SFAS 141"). This statement supercedes APB Opinion No. 16, "Business Combinations" and FASB Statement No. 38, "Accounting for Preacquisition Contingencies of Purchased Enterprises", and establishes accounting and reporting standards for business combinations. Under the statement, all business combinations in the scope of the statement are to be accounted for using one method, the purchase method. The provisions of the statement apply to all business combinations initiated after June 30, 2001. As the Company has not been a part of any business combination initiated after the effective date, the Company's financial statements are not affected by SFAS 141.
-------------------------- Year Ended December 31, -------------------------- 2001 2000 ----------- ----------- (in thousands) Balance at beginning of period $ (2,324) $ (3,851) Unrealized appreciation, net of tax, on fixed maturities available-for-sale 2,046 1,513 Unrealized appreciation, net of tax , on equity securities and other investments 157 14 ----------- ----------- Balance at end of period $ (121) $ (2,324) =========== ===========
Estimated market values represent the closing sales prices of marketable securities. The amortized cost and estimated market values of investments in fixed maturities are summarized by category as follows:
Proceeds from sales and maturities of investments in fixed maturity securities were approximately $37.9 million and $54.1 million for 2001 and 2000 respectively, $18.2 million for the nine months ended December 31, 1999, and $7.1 million for the three months ended March 31, 1999. Gross gains of $0.7 million and gross losses of $0.3 million were realized on fixed maturity investment sales during 2001. Gross gains of $0.3 million and gross losses of $0.7 million were realized on fixed maturity investment sales during 2000. Gross gains of $0.1 million and gross losses of $0.3 million were realized on fixed maturity investment sales during the nine months ended December 31, 1999. Gross gains of $0.2 million and gross losses of $0.2 million were realized on fixed maturity investment sales during the three months ended March 31, 1999. The basis used in determining the cost of securities sold was the specific identification method.
Included in fixed maturities at December 31, 2001 and 2000, are high-yield, unrated or less than investment grade corporate debt securities comprising approximately 0.4% and 0.9% of fixed maturities at December 31, 2001 and 2000, respectively.
The following table provides a reconciliation of the beginning and ending claim reserve balances, on a gross-of-reinsurance basis, for 2001, 2000 and 1999, to the amounts reported in the Company's balance sheet:
Included in reinsurance recoverables on claim reserves is approximately $0.9 million, $1.5 million, $0.5 million and $0.9 million relating to paid claims as of December 31, 2001, 2000, 1999 and March 31, 1999, respectively.
The Company has authorized 40,000 shares of non-voting preferred stock. At December 31, 2001, 30,635 shares of preferred stock were outstanding, all of which are owned by Special Situations Holdings, Inc. - Westbridge, Ascent's largest common stockholder.
Cumulative annual dividend rate of $102.50 per share payable, at a minimum, annually in arrears by the last day of January in each year by issuance of cash or additional shares of preferred stock.
At December 31, 2001, the Company and its wholly owned subsidiaries have aggregate net operating loss carryforwards, net of bankruptcy related tax attribute reductions, of approximately $52.9 million for regular tax and $53.3 million for alternative minimum tax purposes, which will expire in 2003 through 2016.
Dividends paid by the Insurance Subsidiaries are subject to the regulations of the insurance laws and practices of the Texas Department of Insurance. The Texas Insurance Code allows life and health insurance companies to make dividend payments from surplus profits or earned surplus arising from its business. Earned surplus is defined as unassigned surplus excluding any unrealized gains. Texas life and health insurance companies may generally pay ordinary dividends or make distributions of cash or other property within any twelve month period with a fair market value equal to or less than the greater of 10% of surplus as regards policyholders as of the preceding December 31 or the net gain from operations for the twelve month period ending on the preceding December 31. Dividends exceeding the applicable threshold are considered extraordinary and require the prior approval of the Texas Insurance Commissioner.
In December 1992, the NAIC adopted the Risk-Based Capital for Life and/or Health Insurers Model Act (the "Model Act"). The Model Act provides a tool for insurance regulators to determine the levels of statutory capital and surplus an insurer must maintain in relation to its insurance and investment risks and whether there is a need for possible regulatory attention. The Model Act (or similar legislation or regulation) has been adopted in states where the Insurance Subsidiaries are domiciled. The Model Act provides four levels of regulatory attention, varying with the ratio of the insurance company's total adjusted capital (defined as the total of its statutory capital and surplus, asset valuation reserve and certain other adjustments) to its risk-based capital ("RBC"). If a company's total adjusted capital is less than 100 percent but greater than or equal to 75 percent of its RBC, or if a negative trend (as defined by the NAIC) has occurred and total adjusted capital is less than 125 percent of RBC (the "Company Action Level"), the company must submit a comprehensive plan aimed at improving its capital position to the regulatory authority proposing corrective actions. If a company's total adjusted capital is less than 75 percent but greater than or equal to 50 percent of its RBC (the "Regulatory Action Level"), the regulatory authority will perform a special examination of the company and issue an order specifying the corrective actions that must be followed. If a Company's total adjusted capital is less than 50 percent but greater than or equal to 35 percent of its RBC (the "Authorized Control Level"), the regulatory authority may take any action it deems necessary, including placing the company under regulatory control. If a company's total adjusted capital is less than 35 percent of its RBC (the "Mandatory Control Level"), the regulatory authority must place the company under its control. The NAIC's requirements are effective on a state by state basis if, and when, they are adopted by the regulators in the respective states.
The Texas Department of Insurance adopted the NAIC's Model Act during 2000. NFL's and FLICA's statutory annual statements for the year ended December 31, 2001 filed with the Texas Department of Insurance reflect total adjusted capital in excess of Company Action Level RBC.
The statutory financial statements of the Insurance Subsidiaries are prepared using accounting methods which are prescribed or permitted by the insurance department of the respective companies' state of domicile. Prescribed statutory accounting practices include the NAIC Codification of Statutory Accounting practices as well as state laws, regulations and general administrative rules. Permitted statutory accounting practices encompass all accounting practices not so prescribed.
A reconciliation of capital and surplus net income (loss) as reported on a statutory basis by the Company's Insurance Subsidiaries to the Company's consolidated GAAP stockholders' equity and net income (loss) is as follows:
In September 1986, the Company established a retirement savings plan ("401(k) plan") for its employees. As amended in August 1999, all employees are eligible to participate in the 401(k) plan upon completion of six months of service. The 401(k) plan is qualified under Section 401(a) of the Internal Revenue Code ("IRC") and the trust established to hold the assets of the 401(k) plan is tax-exempt under Section 501 (a) of the IRC. Ascent Assurance, Inc. is the plan administrator, and may amend, terminate or suspend contributions to the plan at any time it may deem advisable. Employees who elect to participate may contribute up to 10% of pre-tax compensation, including commissions, bonuses and overtime. The Company may make discretionary contributions, determined by the Company's Board of Directors, up to 50% of the employees' first 3% of deferred compensation. Certain IRC required limitations may be imposed for participants who are treated as "highly compensated employees" for purposes of the IRC. Participants vest 25% after one year of service, 50% after two years of service, 75% after three years of service and 100% after 4 years of service. Employee contributions are invested in any of ten investment funds at the discretion of the employee. Generally, the Company contributions are in the form of common stock. During the period of July 1998 through October 1999, the Company made cash contributions. The Company's contributions to the 401 (k) plan in 2001, 2000 and 1999 approximated $81,000, $92,000 and $96,000, respectively.
The Company's incentive stock option plans adopted as of July 1, 1982, September 5, 1985 and March 26, 1992, and the Company's restricted stock plan adopted as of April 19, 1996, have been canceled as of the Effective Date. All outstanding grants of stock options or restricted stock have been extinguished as contemplated by the terms of the Plan (see Note 14).
Compensation cost recognized in the income statement for stock-based employee compensation awards was $0.4 million in 2001, and $0.3 million for both 2000 and 1999.
If the fair value of the stock compensation granted had been accounted for under FAS 123, the pro forma net loss would have been ($2.5) million or ($0.84) per basic share and diluted share for 2001 and ($19.1) million or ($3.33) per basic share and diluted share for 2000. For the nine months ended December 31, 1999, the pro forma net income would have been $2.0 million, or ($.05) per basic share and diluted share. For purposes of pro forma disclosure, the estimated fair value of the stock compensation is amortized to expense over the stock's vesting period. The effect on net income of the stock compensation amortization for the year presented above is not likely to be representative of the effects on reported net income for future years.
The following table summarizes information about the stock options outstanding at December 31, 2001:
Weighted Average Weighted Average Number Remaining # Shares Weighted Average Exercise Prices Outstanding Contractual Life Exercisable Exercise Price - ---------------- ----------- ---------------- ----------- ---------------- $0.01 270,900 7.25 135,000 $0.01 $1.49 155,750 9.75 - - $1.63 29,850 8.25 - - $3.00 135,000 .25 135,000 $3.00 $4.39 494,350 7.25 - - ------------ ---------------- ----------- ---------------- 1,085,850 6.74 270,000 $1.51 ============ ================ =========== ================
The Insurance Subsidiaries cede insurance to other insurers and reinsurers on both life and accident and health business. Reinsurance agreements are used to limit maximum losses and provide greater diversity of risk. The Company remains liable to policyholders to the extent the reinsuring companies are unable to meet their treaty obligations. Total premiums ceded to other companies were $2.8 million, $4.0 million and $2.6 million for 2001, 2000 and 1999, respectively. Face amounts of life insurance in force ceded approximated $16.6 million, $12.6 million and $6.5 million at December 31, 2001, 2000 and 1999, respectively.
The Company reinsures its risks under its Medical Expense policies on an excess of loss basis so that its net payments on any one life insured under the policy are limited for any one calendar year to $125,000. Risks under its Medicare Supplement policies are not reinsured. The Company's risks under its Accidental Death policies are one hundred percent (100%) reinsured. Under its life insurance reinsurance agreement, FLICA and NFL retains fifty percent (50%) of the coverage amount of each of its life insurance policies in force up to a maximum of $65,000. NFL reinsures, through an excess of loss reinsurance treaty, a closed block of annually renewable term life insurance policies. NFL's retention limit is $25,000 per year. In accordance with industry practice, the reinsurance arrangements in force with respect to these policies are terminable by either party with respect to claims incurred after the termination and expiration dates.
The Company's future minimum lease payments for non-cancelable operating leases, relating primarily to office facilities and data processing equipment having a remaining term in excess of one year, at December 31, 2001, aggregated $7.4 million. The amounts due by year are as follows: 2002 - $2.2 million; 2003 - $1.8 million; 2004 - $1.1 million; 2005 - $1.0 million; 2006 - $0.4 million; and thereafter - $ 0.9 million. Aggregate rental expense included in the consolidated financial statements for all operating leases approximated $2.0 million, $2.1 million and $2.4 million in 2001, 2000 and 1999, respectively.
On the Effective Date, Westbridge's certificate of incorporation and by-laws were amended and restated in their entirety and pursuant thereto, Westbridge changed its corporate name to "Ascent Assurance, Inc." ("Ascent"). References herein to the "Company" shall mean for all periods on or prior to March 31, 1999, Westbridge and its subsidiaries, and for all periods on or after the close of business on March 31, 1999, Ascent and its subsidiaries.
To holders of general unsecured claims and Convertible Notes as of December 10, 1998 6,077,500 shares, and to management at the Effective Date, 32,500 shares, or in aggregate 94% of the New Common Stock issued on the Effective Date. Holders of general unsecured claims and Convertible Notes received their first distribution of shares in partial satisfaction and discharge of the allowed claims in April 1999. The second distribution was made in September 1999 and the remaining shares of New Common Stock were distributed in November 1999.
To the CSFB Affiliate, in respect of the Senior Notes owned by CSFB as of December 10, 1998, 8,090 shares of New Preferred Stock which, together with the 15,167 additional shares of New Preferred Stock purchased by the CSFB Affiliate as described above, are convertible into 4,765,165 shares of the New Common Stock. As a result of the New Preferred Stock received by the CSFB Affiliate, together with the 3,093,998 shares of New Common Stock received by the CSFB Affiliate in respect of the Convertible Notes owned by CSFB, the CSFB Affiliate beneficially owns approximately 56.6% of the New Common Stock on an as converted basis, assuming the exercise of all New Warrants and issuance of New Common Stock reserved under the 1999 Stock Option Plan as discussed below. The New Preferred Stock has a stated value of $1,000 per share and a cumulative annual dividend rate of $102.50 per share payable no later than January of each year in cash or by the issuance of additional shares of New Preferred Stock. The New Preferred Stock is convertible at any time into 204.8897 shares of New Common Stock at an initial conversion price of $4.88 per share of New Common Stock, subject to customary anti-dilution adjustments.
As of the Effective Date, these Senior Notes were canceled, extinguished and retired. As described above, holders of Allowed 11% Senior Note Claims held by creditors other than CSFB received cash payments totaling $15.2 million.
Old Preferred Stock. On April 12, 1994, the Company issued 20,000 shares of Old Preferred Stock, at a price of $1,000 per share. The Old Preferred Stock was issued in a private placement and was subsequently registered with the Securities and Exchange Commission under a registration statement, which was declared effective in October 1994. The terms of the Old Preferred Stock included a cumulative annual dividend rate of 8.25%, subject to increase to 9.25%, upon non-compliance by the Company with certain restrictions.
Seven thousand sixty-five (7,065) shares of the Old Preferred Stock were converted into shares of Old Common Stock during the year ended December 31, 1998. the converted shares of Old Preferred Stock had an aggregate liquidation preference of $7,065,000 and were converted into 840,071 shares of Old common Stock. Old Preferred Stock was convertible into 1,419,144 shares of Common Stock as of December 31, 1998 at a conversion price of $8.41 per share.
Summarized quarterly financial information for each of the Company's last two years of operations is as follows:
(2) Includes $10.4 million non-cash charge for increase in deferred tax asset valuation allowance (see Note 9).
Total Liabilities, Redeemable Convertible Preferred Stock and Stockholders' Equity $ 50,897 $ 41,531 =========== ===========
WESTBRIDGE CAPITAL CORP. (PARENT COMPANY) (now ASCENT ASSURANCE, INC.) CONDENSED STATEMENT OF INCOME
Loss before income taxes and equity in undistributed net earnings of subsidiaries (68) Provision for income taxes - ---------- (68)
WESTBRIDGE CAPITAL CORP. (PARENT COMPANY) (now ASCENT ASSURANCE, INC.) STATEMENT OF COMPREHENSIVE INCOME
Net income $ 208 Other comprehensive income (loss): Unrealized holding loss arising during period, net of tax (331) Reclassification adjustment of gain on sales of investments included in net income, net of tax (8)
WESTBRIDGE CAPITAL CORP. (now ASCENT ASSURANCE, INC.) (PARENT COMPANY) STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
ASCENT ASSURANCE, INC. (PARENT COMPANY) CONDENSED FINANCIAL INFORMATION OF REGISTRANT STATEMENT OF CASH FLOWS
Cash Flows From Financing Activities: Retirement of senior subordinated debentures (15,167) Issuance of preferred stock 15,167 ------------ Net Cash Provided by Financing Activities - ------------ Increase in Cash During the Period 176 Cash at Beginning of Period 482 ------------ Cash at End of Period $ 658 ============
* Premiums Written - Amounts do not apply to life insurance/other.