The following table sets forth certain information regarding the principal physical properties of SLC and its subsidiaries as of March 1, 1995. SLC also owns a 2,600-acre residential and recreational real estate development in Perry Park, Kentucky, and SLC's subsidiaries own certain real estate located in Chicago, Illinois, which was acquired from Bankers at the time of its sale in November 1992, and an office building with 129,000 square footage, at 2551 Elm Street, Dallas, Texas, where Union Bankers was formerly headquartered; they also hold, for investment purposes, certain real estate, none of which is included in the table below.
The following is an analysis of the results of operations and financial condition of SLC and its consolidated subsidiaries. The consolidated financial statements and related notes and schedules included elsewhere in this Form 10-K should be read in conjunction with this analysis.
SLC's recent operating results are overwhelmingly affected by largely nonrecurring or infrequent items. At December 31, 1994, SLC adopted an accounting change relative to its methodology of assessing the recoverability of excess cost ("goodwill") that had a significant effect on the Company's reported results and its stockholders' equity. In addition, as a result of rising interest rates in 1994 and the application of accounting principles adopted at year-end 1993, the Company reflected significant other than temporary writedowns relative to certain of its CMOs. See "Business-Investments" and Note 5 of Notes to Financial Statements.
Other events during 1994 included 1) the purchase and retirement of SLC's Class B Common Stock which had given its previous holders the ability to elect 75% of the members of SLC's Board of Directors, 2) the termination of significant and complex reinsurance agreements with a former affiliate, and 3) the continued consolidation of operations and reductions in operating expenses. See Note 4 of Notes to Financial Statements. Management's efforts in 1994 to identify potential acquisition targets or merger partners to complement SLC's core businesses, and to sell certain of its nonstrategic subsidiaries, were unsuccessful. As a consequence, the Company's ability to meet its maturing debt obligations as they become due in 1995 and 1996 became more problematic.
The primary sources of liquidity for SLC's insurance subsidiaries include operating cash flows and short-term investments. The net cash provided by operating activities and by policyholder contract deposits of SLC and its subsidiaries, after the payment of policyholder contract withdrawals and benefits, operating expenses, and interest requirements approximated $179.0 million in 1992. In 1994 and 1993, such operating cash flows resulted in net cash requirements totaling approximately $21.0 million and $120.4 million, respectively. Exclusive of withdrawals by holders of GICs as discussed below, cash provided by operating activities during 1994 and 1993 totaled approximately $55.1 million and $208.6 million. SLC believes that its short-term investments are readily marketable and can be sold quickly for cash. Cash and short-term investments of SLC's subsidiaries totaled $212.8 million, or 9% of consolidated investments, at year-end 1994, compared to $295.1 million or 11% at year-end 1993 and $370.0 million or 12% at year-end 1992.
In January 1995, SLC announced the indefinite suspension of dividends on its 1986-A Preferred Stock and steps being contemplated by SLC's Board of Directors to strengthen the holding company's capital structure and reduce
SLC's insurance subsidiaries are subject to various capital adequacy tests that are utilized by regulatory authorities and rating agencies to assist in their evaluation of the subsidiaries' financial strength. See "Business-Regulation" for information regarding risk-based capital levels. Management believes that SLC's insurance subsidiaries are well-capitalized and have sufficient capital to meet their business needs and to provide assurance that they are highly capable of meeting their obligations to policyholders.
The insurance subsidiaries maintain investment portfolios that exceed $2.3 billion in the aggregate. Their investment strategies are designed to maximize credit quality, liquidity and return, while minimizing principal risk. See "Business-Investments" for additional information regarding the Company's investments.
The primary sources of liquidity for SLC have historically included dividends and loans from its insurance subsidiaries and payments of principal and interest on surplus debentures issued by certain insurance subsidiaries. In 1993, the sale of SLC's investment in BLHC provided a substantial amount of liquidity for the parent company.
Exclusive of the effects of investment transactions and the 1994 change in accounting for excess cost, the pretax operating earnings of SLC and its subsidiaries have been insufficient to cover SLC's debt service and preferred dividend requirements over each of the last three years. For the years ended December 31, 1994, 1993 and 1992, such pretax earnings were insufficient to cover fixed charges and preferred dividends by approximately $44.6 million, $103.4 million and $53.4 million, respectively. During the period, SLC covered its fixed charges and dividend requirements primarily from proceeds resulting from the sale of its investment in BLHC and the repayment of surplus debentures in 1993 and 1992.
The following table reflects SLC's cash sources and requirements on a projected basis for 1995 and on an actual basis for 1994.
As indicated in the preceding table, SLC does not currently have sufficient specifically projected cash sources to meet all of its 1995 cash requirements, and as set forth in Note 9 of Notes to Financial Statements SLC is severely limited regarding the amount of dividends that could be paid in 1995 by its insurance subsidiaries in the absence of regulatory approval. Accordingly, SLC is in various stages of negotiating the sale of several of its non-strategic subsidiaries that, at the prices under consideration, could provide in excess of $50 million of capital resources to the holding company. As of March 28, 1995, only one of such sales, that of Integrity National for $9.6 million, was evidenced by a definitive agreement, and this amount is included as a source of cash in the preceding projection. No assurances can be given that the sale of any subsidiary, including Integrity National, will be consummated. Additionally, in early 1995, management initiated a process of contacting various financially capable parties who may be interested in considering the investment of new capital into SLC. No assurances can be given that any investment will be made or, if made, have a beneficial effect on current stockholders of the Company. Lastly, while not currently being pursued, the Company has the additional options of seeking to borrow on a secured basis or to obtain regulatory approval for cash dividends from its insurance subsidiaries. Based on its evaluation of these various options, management believes that the Company has sufficient financial flexibility to make it likely that the Company can meet its debt service requirements through the end of 1995. However, there are no assurances that the Company will be successful in its attempts to obtain sufficient cash to fulfill its 1995 cash requirements, including its debt service requirements. If the Company is unable to obtain sufficient resources to meet its 1995 debt obligations, such failure could result in a default on one or more of such obligations and the holders thereof would be entitled to exercise certain remedies, including accelerating the maturity of the entire indebtedness and commencing legal proceedings to collect the indebtedness. In such event, the Company will examine and consider the range of available alternatives to default and the exercise of creditors' remedies.
SLC's results in 1994, 1993, and 1992 have been affected by numerous items of an infrequent and nonrecurring nature. In 1994, SLC adopted an accounting change relative to the methodology of assessing the recoverability of excess cost (goodwill) related to the 1986 acquisition of Southwestern Life that had a significant effect on the Company's operating results. See Note 7 of Notes to Financial Statements for additional information regarding this accounting change and writedowns. In addition, primarily as a result of rising interest rates, the Company reflected significant other than temporary writedowns relative to its Fund America Investment and the SIST Residual. See "Business-Investments." Writedowns of certain other CMO investments were also taken in 1994 based on the anticipated liquidation of such assets at a loss in early 1995. The Company also reflected a loss in 1994 on the anticipated 1995 sale of its investment in Bankers New York and reflected a gain realized on the redemption of certain of its securities in connection with the termination of a reinsurance arrangement with CFLIC. See Notes 2 and 4 of Notes to Financial Statements. The 1994 operating results were also affected by a provision for litigation expenses and other contingencies.
remainder of the proceeds totaling approximately $124.4 million were invested primarily in lower yielding short-term obligations to meet SLC's liquidity needs. The interest savings on the debt retired and the yields on such short-term investments were insufficient to replace the equity earnings in BLHC.
SLC's major industry segments consist of individual life insurance, individual health insurance, group and other insurance, accumulation products, and corporate (including surplus investment). The following table sets forth the consolidated revenues, expenses, pretax operating earnings and product sales (annualized first year premiums) attributed or allocated to each industry segment. "Pretax operating earnings (loss)" reflected in the table represents SLC's consolidated operating earnings or loss before realized investment gains or losses, corporate interest expense, amortization of excess cost, provision for income taxes, the cumulative effect of accounting changes, and extraordinary gains and losses. See Note 17 of the Notes to Financial Statements and Schedule V of the Financial Statement Schedules for additional information regarding SLC's segment results.
INDIVIDUAL LIFE INSURANCE. Revenues of the individual life insurance segment accounted for approximately 38.6% of consolidated revenues excluding corporate revenues and realized investment gains and losses in 1994, as compared to 37.8% in 1993 and 20% in 1992. The increase in 1993 was directly attributable to the sale of Bankers in 1992. Bankers' revenues had been derived predominantly from sales of individual health insurance products and, as a result of the sale, the relative proportion of SLC's revenues attributable to the individual life insurance segment increased significantly. Most individual life insurance sales over the last three years were of universal and interest-sensitive life insurance products, although several new traditional whole life products were introduced into the marketplace during 1993. Exclusive of sales by Bankers, individual life sales declined from $14.0 million in 1992 to $13.1 million in 1993, but increased to $16.9 million in 1994. Management believes the declines in 1993 were attributable to the downgrade in the claims-paying rating of SLC's most significant life insurance subsidiary, Southwestern Life, and the inability to successfully market several new products introduced during 1991. However, as a result of changes in marketing strategies to target sales in the senior citizen marketplace and the introduction of new products in 1993, sales of individual life insurance products increased significantly in the latter half of 1993 and continued to increase in 1994.
Pretax operating earnings of the individual life insurance segment increased from $42.5 million in 1992 to $45.1 million in 1993, but decreased to $31.2 million in 1994. Included in pretax operating earnings in 1993 was a non-recurring gain on the termination of a reinsurance arrangement between an SLC subsidiary and Bankers totaling $22.6 million. Excluding such gain, pretax operating earnings in 1993 totaled $22.5 million. Bankers derived substantial profits from its individual life insurance business and the sale of Bankers accounts for a significant portion of the decline in pretax operating earnings of this segment in 1993. Declining market interest rates and the reduced yields earned by SLC on its investment portfolio also contributed to the decline in the operating profits of this segment. Over one-half of the Company's life insurance reserves represent reserves on traditional life insurance products having fixed contractual interest rates. Consequently, declining investment yields in 1992 and 1993 resulted in significantly reduced profit margins on the traditional block of business. Remaining life insurance reserves consist primarily of reserves on interest-sensitive products and credited rates on such policies were reduced in both 1992 and 1993 to correspond with the decline in yields on investments. Excluding the effects of the reinsurance recapture in 1993, pretax profitability of the individual life insurance segment improved in 1994, primarily as a result of an improvement in investment yields and an overall reduction in general expense levels. The improvement in 1994 was offset, in part, by higher than anticipated death claims.
INDIVIDUAL HEALTH INSURANCE. Sales in the individual health insurance segment declined significantly in 1994 primarily due to the Company's decision to deemphasize sales of comprehensive health products, while revenues remained relatively level as a result of both premium rate increases on existing business and improved investment yields. Both sales and revenues in the individual health insurance segment declined significantly in 1993 as a result of the sale of Bankers. Individual health premiums earned by Bankers represented approximately 74.8% of total individual health premiums in 1992. The individual health premiums earned in 1994 and 1993 and the remaining premiums earned in 1992 were primarily attributable to Medicare supplement products and comprehensive individual health products issued by Union Bankers, BML and Integrity National.
GROUP INSURANCE. Sales of group life and health insurance have declined from $61.9 million in 1992 to $41.2 million in 1993 to $8.2 million in 1994. Substantially all sales of new group business over this three-year period were made by PALICO. During 1993, the Company determined that a substantial portion of the business which had been written by PALICO in late 1992 and 1993 was unprofitable. Due to significant losses incurred by PALICO in 1993 and uncertainties created by national health care reform efforts, management determined that PALICO would discontinue writing substantial volumes of new business in the latter part of 1993 and for all of 1994. In addition to revenues from group insurance products, PALICO also earned revenues of $12.8 million in 1992, $11.5 million in 1993, and $12.5 million in 1994 from administrative services only ("ASO") contracts and third party administration ("TPA") contracts whereby it processes claims for nonaffiliated groups without assuming underwriting risks.
While sales of new group business declined during 1993 as compared to 1992, earned premiums of this segment (excluding Bankers) increased from $103.8 million in 1992 to $136.5 million in 1993 as a result of new sales made in 1992. Earned premiums declined in 1994 to $93.1 million, primarily as a result of reduced sales in 1993 and 1994. The related ratio of policy benefits to earned premiums of the group segment increased from 62.9% in 1992 to 74.8% in 1993, but declined to 68.6% in 1994. The significant increase in the benefit ratio in 1993 contributed to a pretax operating loss in the group segment of $12.9 million in 1993, as compared to pretax operating earnings of $5.1 million in 1992. The pretax operating loss of the group segment declined to $5.7 million in 1994, reflecting, in part, the improvement in the group benefit ratio in 1994. A portion of the operating losses in 1993 and 1994 were also
ACCUMULATION PRODUCTS. Sales of accumulation products declined significantly in 1994 and 1993 as compared to prior periods as a result of the Company's strategic decision not to pursue growth in its accumulation product segment through the sale of GICs. The decision not to pursue growth in the accumulation business was directly attributable to a downgrade in the claims-paying rating of Constitution Life. New GIC sales have declined from $292.1 million in 1992 to $5.3 million in 1993 and $2.7 million in 1994. Such decline in GIC sales was offset, in part, by increases in new annuity sales, principally SPDAs. New annuity sales totaled $69.3 million in 1994 and $89.9 million in 1993 as compared to $27.2 million in 1992.
The accumulation products segment reflected a pretax operating loss of $13.1 million in 1994, as compared to a loss of $6.7 million in 1993 and a gain of $0.4 million in 1992. The loss in 1994 was attributable in part to an $8.6 million writedown of the present value of future profits of acquired business relative to certain annuity business resulting from higher than anticipated surrender rates and reduced yields on related investments. Substantially all of the remaining pretax operating loss in 1994 and the pretax operating loss in 1993 was attributable to declines in yields earned on invested assets. For most of 1993 and during all of 1994, the Company credited interest on a substantial portion of its GIC liabilities at guaranteed fixed rates which, in many cases, exceeded rates being earned on the related invested assets. At year-end 1994, approximately 90% of the remaining $313.3 million of GIC liabilities bore interest at floating rates based on changes in the Standard and Poor's 500 stock index. Approximately $300.5 million of such GIC liabilities are scheduled to mature and are expected to be withdrawn by year-end 1995. A provision has been reflected in the Company's 1994 results of operations of approximately $3.0 million for investment losses expected to be incurred upon the liquidation of assets needed to fund such GIC withdrawals in 1995.
In 1994, $11.3 million of expenses were allocated to the corporate segment, including provisions for franchise taxes and taxes other than income taxes, litigation reserves and other contingencies. In 1993, $45.6 million of expenses were allocated to the corporate segment, including $23.9 million in writeoffs of capitalized data processing costs and certain home office real estate, a $9.0 million provision for services agreements entered into with SLC's former controlling stockholders, a $9.3 million provision for anticipated costs of litigation and other contingencies, and $4.4 million of expenses associated with the restructuring of SLC's collateralized mortgage note obligation. In 1992, $41.5 million of expenses were allocated to this segment, including an $18.0 million litigation settlement, $12.6 million of costs associated with modifying SLC's data processing servicing arrangements with an unaffiliated vendor, and $10.9 million in costs related to a planned operational consolidation of three of SLC's Texas-based insurance subsidiaries.
derivative CMOs (see "Business-Investments"), the accounts of the Trust, which included the collateralized mortgage note obligation and the related interest expense, are no longer included in SLC's consolidated balance sheet or statement of earnings after July 30, 1993. Exclusive of such interest expense, interest expense in long-term indebtedness decreased $16.5 million in 1993 and $11.9 million in 1994.
In 1994, income tax expense represented less than 1% of consolidated operating earnings before income taxes, or more than 34% less than the expected corporate income tax rate. Several items had a significant impact on the 1994 effective income tax rate. First, a substantial portion of the pretax operating loss was attributable to the accounting for excess cost, which is a nontaxable item. In addition, the valuation allowance for SLC's deferred income tax asset for 1994 was increased over 1993 based on management's assessment that SLC and its nonlife insurance subsidiaries may not be able to fully utilize existing book/tax deductible temporary differences and tax loss carryforwards. Finally, a provision was made in 1994 for the anticipated settlement of the Internal Revenue Service ("IRS") examination of the tax years 1986 through 1989, which includes the utilization of prior existing tax loss carryforwards. See Note 12 of the Notes to Financial Statements for additional discussion of IRS examinations of open tax years.
For the years 1993 and 1992, SLC incurred extraordinary losses, net of tax effects, totaling $1.9 million and $4.3 million, respectively. The extraordinary losses in both periods were related to early extinguishment of debt. See Note 15 of Notes to Financial Statements for an analysis of the components of such losses.
Medical cost inflation has had a significant impact on the individual health and group health lines of business. Benefit costs have continued to increase in recent years in excess of the Consumer Price Index and will likely continue to do so. This impact, however, has been substantially offset by increases in premium rates. Management does not believe that inflation has otherwise had a significant impact on its results of operations over the past three years.
PROPOSED HEALTH CARE REFORM. The current administration has targeted health care reform as a top domestic priority and Congress has considered proposed legislation that, if enacted, could significantly change the manner in which the entire health care industry operates. See "Business-Regulation" for further information.
As discussed in Note 7 to the Financial Statements, the Company changed its method of assessing the recoverability of Excess Cost of Investments in Subsidiaries over Net Assets Acquired in 1994.
As more fully described in Notes 14 and 5 to these consolidated financial statements, effective January 1, 1993 and December 31, 1993, the Company adopted statements of Financial Accounting Standards No. 106, "Employers' Accounting for Post-retirement Benefits Other Than Pensions" and No. 115, "Accounting for Certain Investments in Debt and Equity Securities," respectively.
SOUTHWESTERN LIFE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 1994 and 1993 (In Thousands) ASSETS
SOUTHWESTERN LIFE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY For the Years Ended December 31, 1994, 1993 and 1992 (In Thousands)
The consolidated financial statements include the accounts of the Company and its wholly-owned and majority-owned subsidiaries from date of acquisition through date of divestiture. All significant intercompany accounts and transactions have been eliminated in consolidation. Previously reported amounts for 1993 and 1992 have in some instances been reclassified to conform to the 1994 presentation. See Note 2 for organizational changes.
- Held to maturity securities, representing securities such as private placements which are not readily marketable and which the Company has the ability and positive intent to hold to maturity. Held to maturity securities are carried at amortized cost. The Company may dispose of such securities under certain unforeseen circumstances, such as issuer credit deterioration or regulatory requirements.
Equity securities include investments in common stocks and non-redeemable preferred stocks and are carried at fair value. Policy loans and collateral loans are stated at their current unpaid principal balance, net of unamortized discount and related liabilities for which the Company has the right to offset. Short-term investments include commercial paper, invested cash and other investments purchased with maturities generally less than three months and are carried at amortized cost. The Company considers all short-term investments to be cash equivalents.
Net realized investment gains and losses, including gains and losses on foreign currency transactions and held for sale securities, are included in the determination of net earnings. Unrealized investment gains and losses on available for sale securities and marketable equity securities are charged or credited directly to stockholders' equity. The specific identification method is used to account for the disposition of investments.
Amounts recoverable from reinsurers, including amounts equal to the assets supporting insurance liabilities ceded to reinsurers and amounts due for the reimbursement of related benefit payments, are reflected as receivables due from reinsurers. Amounts due from reinsurers are evaluated as to their collectibility and, if appropriate, reserves for doubtful collectibility are established through a charge to earnings.
The liability for future policy benefits of long duration contracts has been computed by the net level premium method based on estimated future investment yield, mortality, morbidity and withdrawal experience. Reserve interest assumptions are graded and range from 6% to 10%. Mortality, morbidity and withdrawal assumptions reflect the experience of the life insurance subsidiaries modified as necessary to reflect anticipated trends and to include provisions for possible unfavorable deviations. The assumptions vary by plan, year of issue and duration. The future policy benefit reserves include a provision for policyholder dividends based upon dividend scales assumed at the date of purchase of acquired companies or as presently contemplated.
Premium revenue for traditional life insurance products is reported as earned when due. Accident and health premiums are earned over the period for which premiums are paid. Benefits and expenses are associated with earned premiums so as to result in recognition of profits over the premium paying period. This association is accomplished by means of a provision for future policy benefit reserves and the amortization of deferred policy acquisition costs.
The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments:
INVESTMENT SECURITIES: Fair values for fixed maturity securities (including mandatorily redeemable preferred stocks) are based on quoted market prices, where available. For fixed maturity securities not actively traded, fair values are estimated using values obtained from independent pricing services or are estimated based on expected future cash flows using a current market rate applicable to the yield, credit quality, and maturity of the investments. The fair values for equity securities are based on quoted market prices and are recognized in the balance sheet. (See Note 5.)
MORTGAGE AND COLLATERAL LOANS: The fair values for mortgage and collateral loans are estimated using discounted cash flow analyses, based on interest rates currently being offered for similar loans to borrowers with similar credit ratings. Loans with similar characteristics are aggregated for purposes of the calculations. (See Note 5.)
INVESTMENT CONTRACTS: Fair values for the Company's liabilities under investment-type insurance contracts are estimated using discounted cash flow calculations, based on interest rates currently being offered for similar contracts with maturities consistent with those remaining for the contracts being valued. (See Note 8.)
NOTES PAYABLE: The fair value of the Company's subordinated long-term debt is estimated using prices from public trades of the Company's subordinated debt as of December 31, 1994. The fair value of other long-term debt is estimated using discounted cash flow analyses, based on the Company's implicit incremental borrowing rates from the fair value of the Company's long-term debt. (See Note 3.)
Primary earnings per share are computed by dividing earnings, less preferred dividend requirements, by the weighted average number of common shares outstanding. In computing fully diluted earnings per share, the weighted average number of common shares outstanding is adjusted to reflect common stock equivalents resulting from stock options and the assumed conversion of the Company's Series 1986-A Preferred Stock into common shares, and preferred dividend requirements are adjusted to eliminate dividends on the shares assumed to have been converted. The computation of fully diluted earnings per share excludes the assumed conversion of such preferred shares for each period in which the assumed conversion would be antidilutive.
SOUTHWESTERN LIFE CORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS - (Continued)
Immediately prior to the termination of the reinsurance agreements with Consolidated Fidelity Life Insurance Company (CFLIC) on June 30, 1994 (see Note 4), Union Bankers Insurance Company (Union Bankers), a subsidiary of the Company, utilized available cash to purchase all of the outstanding stock of Marquette National Life Insurance Company (Marquette), a subsidiary of CFLIC, for $8,215,000. The purchase price was based on the fair value of Marquette's underlying net assets, consisting primarily of cash and U.S. Treasury obligations, adjusted for the value of Marquette's various state licenses, as determined by an independent actuarial firm. Marquette's results of operations have been included in the Company's results of operations for periods subsequent to June 30, 1994.
and receipt of regulatory approvals. Also, as a condition to consummation of the transaction, Constitution will be required to cede 100% of its insurance contracts to another insurer.
At December 31, 1994, SLC held $22,399,000 principal amount of the Old Notes which, at the Company's option, can be used to partially satisfy its 100,000,000 sinking fund obligation relative to such notes due December 1,
1995. In addition, an SLC subsidiary holds $21,500,000 principal amount of Old Notes. Regulatory approval will be required to transfer these Old Notes to SLC in the form of a dividend. In the above schedule of maturities and sinking fund requirements, it has been assumed that the aggregate $43,899,000 principal amount of the Old Notes held by SLC and its subsidiary will be available for sinking fund purposes and that the sinking fund requirement in 1995 will total $56,101,000. At its option, the Company may alternatively determine to use sinking fund provisions in 1995 to retire up to $100,000,000 principal amount of the Old Notes at their par value.
Due to the dividend restrictions at the subsidiary level as discussed in Note 9, the Company's ability to meet its debt obligations of $59,802,000 in 1995 and $218,306,000 in 1996 is dependent on being able to effect a restructuring or refinancing of certain significant debt obligations or to sell certain assets to generate sufficient cash proceeds to meet such debt obligations or obtain sufficient cash from another source, such as an equity investor or an institutional lender. Such restructuring or recapitalization may require regulatory, creditor or stockholder approvals and would likely result in a substantial dilution of existing stockholders, especially common stockholders, and could possibly result in a change in control of the Company. Based on current conditions and circumstances, management intends and believes SLC has the ability to effect the actions necessary to generate sufficient cash proceeds to meet its debt obligations through December 1995.
On June 30, 1994, the CFLIC reinsurance agreements were terminated, and the business reinsured thereunder was recaptured, effective as of April 1, 1994. Immediately prior to the termination of the CFLIC reinsurance agreements, Union Bankers utilized available cash to purchase all of the outstanding stock of Marquette, a subsidiary of CFLIC, for $8,215,000 (see Note 2). Following completion of the terminations, CFLIC repurchased the shares of its preferred stock held by the Company by transferring to the Company the senior secured loan of the Company with an outstanding principal balance of $30,000,000, all of the outstanding shares of the Company's Series 1984-A Preferred Stock with a stated value of $22,242,000, all of the outstanding shares of the Company's Series 1987-B Preferred Stock with a stated value of $7,000,000, a U.S. Treasury note (par value $1,050,000), and 620,423 shares
of the Company's Common Stock. Immediately following the repurchase of the CFLIC preferred stock, SLC retired the senior secured loan and the SLC preferred stocks. The shares of SLC Common Stock received were placed in treasury and retired.
The amount of the ceding fees paid to CFLIC in connection with the recapture was determined by management of the Company utilizing the methodology developed by an independent actuarial firm, with appropriate adjustments in assumptions to reflect changes in market interest rates and other factors.
funds were returned to the Company and effectively reduced the Company's increase in basis in the CFLIC preferred and its net cash outlay to $15,652,000.
Experience refunds received from CFLIC under the Southwestern Life reinsurance arrangement totaled $4,851,000 and $2,068,000 for the years ended December 31, 1993 and 1992, respectively. An experience refund was not received for the three months ended March 31, 1994 because the business reinsured by Southwestern Life was not profitable that quarter due principally to the sales of certain high yield securities and lower reinvestment yields. The Bankers business reinsured by CFLIC was not profitable in 1992 due primarily to a loss incurred relative to certain reinsurance recoverables and, as a consequence, Bankers was not entitled to an experience refund in 1992.
On February 11, 1994, the Company purchased all of the 100,000 shares of its Class B Common Stock held by CNC for total cash consideration of $500,000. The Class B Common Stock had entitled CNC to elect 75% of the Company's Board of Directors (see Note 10). Concurrently with the purchase of such stock, the Company entered into Independent Contractor and Services Agreements (Services Agreements) with Robert T. Shaw and C. Fred Rice, the controlling shareholders of CNC. The Services Agreements provide for a lump sum payment to Messrs. Shaw and Rice totaling $2 million as of the closing date and additional payments totaling $8,575,000 over a ten-year period. In addition, the Company agreed to provide customary employee benefits to Messrs. Shaw and Rice and their dependents. In the event of the deaths of Messrs. Shaw or Rice, any amounts not previously paid under the Services Agreements will become immediately payable to their estates. In consideration for the Services Agreements, Messrs. Shaw and Rice agreed that they would attempt to identify business opportunities in the insurance industry which may be suitable for the Company and to consult with the Company regarding such other matters as the Company may reasonably request. In addition, Mr. Rice will continue to serve as an executive officer of the Company and, if re-elected, will continue to serve on the Company's Board of Directors. The Services Agreements replaced a management and consulting contract with CNC that provided for annual payments to CNC totaling $2,000,000. In addition, Mr. Shaw was granted an option, exercisable within a six month period, to acquire certain aircraft equipment owned by the Company at its depreciated book value. In cash transactions completed on June 30 and August 5, 1994, an entity controlled by Mr. Shaw purchased one aircraft for $1,144,000 and an unrelated third party to whom Mr. Shaw assigned his option purchased the other aircraft for $4,005,000, respectively. At December 31, 1994, the Company has provided a liability for the present value of amounts payable under the Services Agreements totaling $6,102,000.
At December 31, 1993, the Company held a $2 million promissory note from CNC bearing interest at 10% and payable in December 1995. The note and accrued interest were repaid on February 11, 1994.
Fixed maturities writedowns in 1993 were related to credit deterioration of noninvestment-grade securities. CMO writedowns in 1994 included $86,187,000 of other than temporary writedowns of derivative CMO investments in Fund America Investors Corporations II (Fund America Investment) and the Secured Investors Secured Trust 1993-1 (SIST Residual), $7,248,000 of writedowns on investments expected to be liquidated in 1995, and $4,368,000 of other than temporary writedowns on other CMO investments. CMO writedowns in 1992 resulted primarily from mortgage loan refinancing activity and the resultant effect of prepayments on residual interest and interest-only CMOs. Writedowns of equity securities in 1993 and 1992 primarily relate to non-redeemable preferred stocks. The mortgage loan writedown in 1994 reflects the provision of a reserve for mortgage loan losses. Investment real estate writedowns reflect the general deterioration in real estate markets over the three year period.
In 1993, the Company adopted the provisions of SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities," and has classified its fixed maturities into two categories, including available for sale and held to maturity. SFAS No. 115 also establishes criteria for the recognition of a permanent impairment in the carrying value of debt and equity securities. During 1993, the Company reflected a charge for the cumulative effect of writedowns of certain mortgage-backed securities required under the provisions of SFAS No. 115 totaling $7,573,000. The cumulative charge was reflected net of $2,651,000 in related income tax effects.
The amortized cost of investments in fixed maturities, the cost of equity securities and the estimated values of such investments at December 31, 1994 and 1993 by categories of securities are as follows:
Following are changes in unrealized appreciation (depreciation) on investments (in thousands):
The carrying value of nonaffiliated invested assets for which no investment income was recorded during the twelve months ended December 31, 1994, was as follows (in thousands):
At December 31, 1994 and 1993, the Company held residual interest mortgage-backed securities other than the Fund America Investment and the SIST Residual with carrying values of $7,904,000 and $11,137,000, respectively, and fair values of $4,223,000 and $8,481,000, respectively. The effective annual yield on such investments based on their carrying value approximated 4.5% at December 31, 1994.
Following is an analysis of the Company's equity investments in BLHC and CCP (in thousands):
Included in the limited partnership investments at December 31, 1991, was the Company's 21.4% interest in CCP (Predecessor CCP). On July 21, 1992, Predecessor CCP formed a new insurance holding company, CCP Insurance, Inc. (CCP Insurance) and completed an initial public offering (IPO) of common stock in CCP Insurance. Predecessor CCP was liquidated and the Company received 1,764,439 shares of CCP Insurance common stock in exchange for its 21.4% interest in Predecessor CCP. At the date of exchange, the Company's carrying value in Predecessor CCP totaled $19,509,000, which became the Company's basis in the shares of CCP Insurance common stock. The Company subsequently reflected its investment in CCP Insurance, along with 525,000 shares of CCP Insurance purchased in the IPO, as marketable equity securities. Effective September 29, 1993, CCP Insurance completed an underwritten primary and secondary offering of shares of its common stock. The Company sold all of the 1,764,439 shares of the common stock of CCP Insurance in conjunction with the offering for $47,272,000 and realized investment gains totaling $27,758,000. In addition, during 1994 and 1993, the Company sold 12,000 and 455,375 shares of CCP Insurance common stock respectively in open market transactions and realized gains totaling $140,000 in 1994 and $5,310,000 in 1993. At December 31, 1994, the Company continues to hold 57,625 shares of CCP Insurance common stock with a fair value of approximately $1.2 million.
Financial information of Predecessor CCP and the Company's equity in the earnings of Predecessor CCP is as follows (in thousands):
Following is a summary of the equity in earnings of equity investees and limited partnerships:
In early 1995, the Company's Board of Directors approved a change in SLC's strategy for dealing with its public debt obligations and fixed charges. As publicly announced, the new strategy seeks to restructure SLC's capital in such a way as to appropriately meet the Company's long term goals, and to significantly increase SLC's common equity. Management believes that this process will inevitably involve negotiations with third parties based on the perceived fair values of SLC and its operating subsidiaries. Accordingly, management concluded that the Company's accounting policy with respect to the recoverability of goodwill should be changed to discount projections of future earnings using an economic rate of return that would be customary for evaluating the present value of future profits in connection with current life insurance company transactions. As a result of this accounting change, the goodwill attributable to the acquisition of Southwestern Life was reduced from $288,333,000 to $77,650,000, or a total reduction of $210,683,000. Because such a change in accounting was determined to be inseparable from a change in
The estimated fair value of guaranteed investment contracts approximated their carrying value at December 31, 1994, because it is expected that substantially all of such contracts will be terminated during 1995. The estimated fair value of the liabilities for other investment contracts is approximately equal to their carrying value at December 31, 1994, because interest rates credited to account balances approximate current rates paid on similar investments and are generally not guaranteed beyond one year. Fair values for the Company's insurance liabilities other than those for investment-type insurance contracts are not required to be disclosed. However, the fair values of liabilities under all insurance contracts are taken into consideration in the Company's overall management of interest rate risk, which minimizes exposure to changing interest rates through the matching of investment maturities with amounts due under insurance contracts.
At December 31, 1994, substantially all of consolidated stockholders' equity represented net assets of the Company's insurance subsidiaries that cannot be transferred to the Company in the form of dividends, loans or advances. Generally, the net assets of the Company's insurance subsidiaries available for transfer to the Company are limited to the greater of (except in Kentucky where the applicable test is lesser of) the subsidiaries' net gain from operations during the preceding year or 10% of the subsidiaries' net surplus as of the end of the preceding year as determined in accordance with accounting practices prescribed or permitted by insurance regulatory authorities. Payment of dividends in excess of such amounts would generally require approval by the regulatory authorities. At December 31, 1994, approximately $15 million was available under existing laws for the payment of dividends by insurance subsidiaries to the Company during 1995 without prior approval; however, Modern American has agreed with its domiciliary state that it will not pay any stockholder dividends without obtaining prior regulatory approval. Southwestern Life has agreed in writing with its domiciliary state to give 30 days prior notice before the payment of any stockholder dividends. Further, management has given the Texas Department of Insurance assurances that neither Southwestern Life nor Union Bankers will declare and pay any dividends in 1995 without the prior approval of the Texas Insurance Commissioner.
Both Integrity National and PALICO have acknowledged in writing the request of the Pennsylvania Department of Insurance that prior to paying any dividends in 1995 each company, respectively, will notify in advance and obtain the Pennsylvania Department's approval of such dividends, which approval the Pennsylvania Department has agreed not to unreasonably withhold.
On the basis of reporting as prescribed by insurance regulatory authorities, the combined stockholders' equity of the consolidated insurance subsidiaries, after elimination of amounts attributable to investments in consolidated insurance subsidiaries, amounted to approximately $219,357,000 and $259,856,000 and the combined asset valuation reserve of SLC's insurance subsidiaries amounted to $34,827,000 and $45,023,000 as of December 31, 1994 and 1993, respectively. Combined net income (loss) was as follows:
Gains and losses relative to individual investments are generally reflected for statutory reporting purposes as unrealized investment gains or losses until such time as the specific investments are sold or otherwise disposed of. In addition, statutory investment gains and losses are reported net of related income tax effects. Statutory realized investment losses in 1992 include losses on the disposition of First Executive Corporation common stock totaling $118 million which were reflected prior to 1992 for financial reporting purposes.
The holder of each outstanding share of Series 1986-A Preferred Stock is entitled to cumulative annual dividends of $1.75 and liquidating distributions of up to $25 per share. Such dividends and liquidating distributions are payable in preference to the Common Stock. The Series 1986-A Preferred Stock may be converted, at the option of the holder, at any time into shares of Common Stock at the rate of .7692 shares of Common Stock for each share of Series 1986-A Preferred Stock. The Company may redeem, at its option, any or all shares of the Series 1986-A Preferred Stock at redemption prices declining annually to $25 per share after December 1, 1996 plus accrued and unpaid dividends. The Series 1986-A Preferred Stock is exchangeable, in whole but not in part, at the Company's option on any dividend payment date commencing December 1, 1988 for the Company's 7% Convertible Subordinated Debentures due 2011 at the rate of $25 principal amount of Debentures for each share of Series 1986-A Preferred Stock. The Series 1986-A Preferred Stock is nonvoting, except as required by law and except that if six quarterly dividends are unpaid and past due the holders of the Series 1986-A Preferred Stock may elect two directors to the Company's Board of Directors. On January 27,1995, the Company's Board of Directors authorized the suspension of the payments of dividends on the Series 1986-A Preferred Stock until reinstated by action of the Board. At March 31, 1995, approximately $3.5 million of preferred dividends were in arrears.
Through February 10, 1994, the Common Stock and Class B Common Stock were entitled to vote as separate classes on stockholder actions that directly or indirectly could effect a change in the aggregate number or par value of shares of Class B Common Stock or in the powers, preferences or rights of the holders of Class B Common Stock. The Company's Board of Directors was classified by its Certificate of Incorporation to require, so long as the Class B Common Stock was outstanding, that at least 50% of the Company's directors were to be independent, and that 75% of the directors were to be elected by the Class B Common Stock and the remaining 25% were to be elected by the Common Stock and voting Preferred Stock. The Class B Common Stock had the same rights to dividends and liquidating distributions as the Common Stock. On February 11, 1994, the Company purchased all of the outstanding shares of Class B Common Stock and immediately cancelled and retired such shares (see Note 4).
In connection with the CFLIC transaction on June 30, 1994 (see Note 4), the Company redeemed all of the outstanding shares of the Series 1984-A Preferred Stock and the 1987-B Preferred Stock.
The Company's life insurance subsidiaries have set their retention limit for acceptance of risk on life insurance policies at various levels currently up to $500,000. There are reinsurance agreements with various companies whereby insurance in excess of the respective subsidiaries' retention limits is reinsured. To the extent that reinsuring companies become unable to meet their obligations under these agreements, the subsidiaries remain contingently liable. Insurance in force ceded in 1994 and 1993 under risk sharing arrangements totaled approximately $5.2 billion and $5.7 billion, respectively.
In 1993, the Company adopted the provisions of SFAS No. 113, "Accounting and Reporting for Reinsurance of Short-Duration and Long-Duration Contracts," which changes the accounting and reporting for reinsurance contracts. SFAS No. 113 requires that when a reinsurance contract does not relieve the reinsurer from the legal liability to its policyholders, ceding insurers must report amounts recoverable from reinsurers as assets rather than as a reduction of the related policyholder liabilities. In addition, financial reporting disclosures were amended to require information relative to the volume of premiums ceded to and the benefits paid by reinsurers under related reinsurance arrangements. At December 31, 1994 and 1993, the Company has reflected in its balance sheet an asset for amounts due from reinsurers totaling $236,272,000 and $388,083,000, respectively, and has correspondingly increased its insurance liabilities by the same amounts in each respective year. Following is information relative to premiums ceded to unaffiliated reinsurers and the related benefits incurred by such reinsurers for the year ended December 31, 1994 and 1993 (in thousands):
Amounts due from reinsurers at December 31, 1993, includes $334,633,000 due from ERC relative to certain annuity business which ERC had retroceded to CFLIC. The Company terminated the reinsurance arrangements with CFLIC during 1994 and reduced amounts due from ERC to $188,756,000 at December 31, 1994 (see Note 4).
Certain of the Company's insurance subsidiaries have ceded blocks of insurance under reinsurance treaties to provide funds for financing acquisitions and other purposes. These reinsurance transactions, generally known as "surplus relief reinsurance," represent financing arrangements and, in accordance with GAAP, are not reflected in the
Rental expense for the years ended December 31, 1994, 1993 and 1992 was approximately $8.7 million, $6.6 million and $11.4 million, respectively. At December 31, 1994, the Company and its subsidiaries had long-term leases covering certain of their facilities and equipment. The net minimum rental commitments under noncancellable operating leases with lease terms in excess of one year are $6.1 million, $0.7 million, $0.2 million and $0.1 million for the years ending December 31, 1995, 1996, 1997 and 1998, respectively.
In addition, as a result of a judgement involving a mortgage loan foreclosure, a subsidiary is obligated under a real property lease for payments totaling $120,000 annually through November 2082.
The Company and its subsidiaries have been under examination by the Internal Revenue Service (IRS) for the tax years 1983 through 1992. The IRS completed its examination for the years 1983 through 1985 and issued preliminary Notices of Deficiencies totaling approximately $17.5 million, before interest. The Company protested such assessed deficiencies and subsequently reached a final agreement with the IRS under which the Company and certain of its subsidiaries paid approximately $4.0 million of additional taxes and interest.
In 1994, the IRS issued a preliminary Notice of Deficiency in the amount of $127.7 million to the Company's insurance subsidiaries for the tax years 1986 through 1989, which included the disallowance of interest expense on the surplus debentures issued by the Company's insurance subsidiaries. The issue involved approximately $444 million of interest deductions claimed by the Company's subsidiaries during the periods under examination and, if disallowed as deductions, would have resulted in substantial additional tax and interest. However, the Company protested this issue and subsequent to year-end 1994, reached a tentative settlement for the tax years 1986 through 1989 which will allow a full deduction for interest expense on surplus debentures. The tentative settlement is subject to final approval by the congressional Joint Committee on Taxation. Management believes that, based upon the tentative settlement and the indemnification received from the seller relative to certain former and presently owned subsidiaries, the ultimate liability for taxes and interest for these years will not exceed amounts recorded in the Company's financial statements.
The IRS has not completed its examination for the years 1990 through 1992 and therefore has not issued preliminary Notices of Deficiencies for those years. Further, based on the current status of the examination of 1990 through 1992, no issues have been brought to the attention of management that would result in a substantial liability for taxes and interest.
From time to time, assessments are levied on the Company's insurance subsidiaries by life and health guaranty associations in states in which they are licensed to do business. Such assessments are made primarily to cover the losses of policyholders of insolvent or rehabilitated insurers. In some states, these assessments can be partially recovered through a reduction in future premium taxes. The Company's insurance subsidiaries paid assessments of $2.7 million, $3.2 million and $2.8 million in the years 1994, 1993 and 1992, respectively. Based on information currently available, the Company's insurance subsidiaries have accrued approximately $1.3 million for future assessments.
Reference is hereby made to Item 3, Legal Proceedings, of this Form 10-K with respect to a discussion of the CASTLE case and the MEYER case.
A reconciliation of the income tax provisions (credits) based on the prevailing corporate tax rate of 35% in 1994 and 1993 and 34% in 1992 to the provisions (credits) reflected in the consolidated financial statements is as follows:
Management has periodically assessed the ability of the Company's insurance subsidiaries to produce taxable income in future periods sufficient to fully utilize their operating book/tax temporary differences and tax loss carryforwards. These assessments have included actuarial projections under alternative scenarios of future profits on the existing insurance in force of the Company's insurance subsidiaries, including provisions for adverse deviation and assumptions regarding new business, adjusted to reflect the Company's anticipated debt service costs. Valuation allowances totaling $41,465,000 and $16,351,000 were provided against the Company's deferred tax assets at December 31, 1994 and 1993, respectively, to reflect the uncertainties of realizing all of the benefits of temporary differences and available tax loss carryforwards.
Included in the deferred income tax asset at December 31, 1994 are tax effects totaling $29,809,000 associated with unrealized investment losses included in stockholders' equity. Substantially all of such unrealized investment losses at December 31, 1994, are attributable to SLC's insurance subsidiaries' available for sale fixed maturities. The Company provided a valuation allowance against the deferred income tax asset related to unrealized investment losses as of the end of each interim period during 1994. At December 31, 1994, management assessed the level of its subsidiaries' cash and short-term investments, the quality and duration of their available for sale fixed maturity portfolios, and the likelihood that its subsidiaries would be required to dispose of a substantial portion of their available for sale fixed maturities and incur net capital losses in order to meet their liquidity needs. These assessments included a review of actuarial cash flow projections under various interest rate scenarios and evaluations of historical data relative to benefits and surrender activity. Management has concluded based on such assessment that it is unlikely that the Company's subsidiaries would be required to incur significant capital losses to meet anticipated liquidity needs over the near term and, accordingly, the valuation allowance provided against the deferred income tax asset arising from unrealized investment losses in 1994 interim periods was eliminated at December 31, 1994.
The Company has not established retirement benefit plans for its employees. However, Bankers had a noncontributory unfunded deferred compensation plan for qualifying members of its career agency force. Net pension costs during 1992 included in other operating expenses included the following components (in thousands):
During 1993, the Company entered into agreements with certain employees providing for severance benefits supplemental to those available to all employees under the Company's welfare benefit plans. The agreements generally provide for a benefit of two times the annual salary of each covered employee upon the voluntary or involuntary termination of their employment for any reason other than gross misconduct, plus an additional benefit of up to one year's salary if, in the aggregate, shares of the Company's Common Stock acquired by such employees under the Company's incentive stock option plans or the stock purchase plan of a predecessor company are disposed of at less than a minimum specified price. For the year ended December 31, 1993, the Company reflected a charge for the total anticipated cost of providing benefits under the agreements totaling $2,820,000.
Effective January 1, 1993, the Company adopted SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." SFAS No. 106 requires that an enterprise accrue, during the years that an employee renders the necessary service, the expected cost of providing postretirement life and health care benefits to an employee and the employee's beneficiaries and covered dependents. The Company's transition obligation as of January 1, 1993, approximated $22,873,000. The Company reflected a charge for the cumulative effect to January 1, 1993, of providing postretirement benefits for its remaining employees totaling $2,746,000. The cumulative charge has been reflected net of $934,000 in related income tax effects. The Company's obligation for accrued postretirement benefits is unfunded. Following is an analysis of the change in the liability for accrued postretirement benefits for the year ended December 31, 1994 (in thousands):
The liability for accrued postretirement benefits includes the following at December 31, 1994 (in thousands):
Southwestern Life and certain former subsidiaries provided certain health care and life insurance benefits for retired employees. Employees meeting certain age and length of service requirements become eligible for these benefits. The cost of providing these benefits and similar benefits for active employees is recognized as expenses as claims are incurred. These costs approximated $2,430,000 for 1992.
The Company's fourth quarter 1994 operating results were affected by the adoption of a change in accounting, numerous significant charges, and significant changes in income tax provisions. At December 31, 1994, the Company adopted a change in accounting for assessing the recoverability of excess cost of investments in subsidiaries over net assets acquired, or "goodwill." Such change in accounting resulted in a reduction in the remaining unamortized balance of excess cost relative to the Company's investment in Southwestern Life totaling $210,683,000, which was reflected as a charge to operating earnings since such adjustment was considered to be inseparable from a change in estimate. In addition, the Company reflected a $6,834,000 writedown through a charge to operating earnings of other excess cost, primarily the excess cost related to the Company's investment in PALICO, based on the determination that it was likely that such excess cost was not recoverable. Because there are no income tax consequences associated with excess cost, the effect on 1994 fourth quarter operating results of the change in accounting and the writedown of excess cost totaled $217,517,000, or $4.60 per common share. See Note 7 for a discussion of the change in accounting policy and the additional writedown taken with respect to excess cost.
Reporting results of insurance operations on a quarterly basis necessitates numerous estimates throughout the year, principally in the calculation of reserves and in the determination of the effective rate for federal income taxes. It is the Company's practice to review its estimates at the end of each quarter and, if necessary, make appropriate refinements, with the resulting effect being reported in current operations. Only at year-end is the Company able to retrospectively assess the precision of its previous quarterly estimates. The Company's fourth quarter results contain the effect of the difference between previous estimates and final year-end results and, therefore, the results of an interim period may not be indicative of the results for the entire year.
Premium income and other considerations includes premium income, mortality and administration charges, surrender charges and amortization of deferred policy initiation fees. Net investment income and other income are allocated to the segments based on rates ranging from 6% to 10% related to reserves generated by each of the four insurance segments. Corporate revenues and operating earnings include gains (losses) on the sales of subsidiaries, equity in earnings (losses) of unconsolidated affiliates and limited partnerships, and the remaining net investment income considered to be income applicable to the investment of capital and surplus funds. Operating expenses are allocated to each segment based on a number of assumptions and estimates and reported segment operating results would change if different methods were applied.
The following reflects assets acquired and liabilities assumed relative to the acquisition of Marquette (see Note 2), consideration given for such acquisition and the net cash flow relative to such acquisition during the year ended December 31, 1994 (in thousands):
Other operating costs and expenses for the three years ended December 31, 1994, are as follows:
In October 1992, the Company entered into a settlement agreement and agreed to pay a $12.6 million settlement fee to Perot Systems, Inc. to modify an existing data processing services arrangement. Under the settlement agreement, Perot Systems agreed to eliminate minimum fee requirements totaling $15.6 million annually through July 1992, to lower its unit transaction charges, and to procure the release of the Company relative to its guarantee of certain equipment lease obligations.
SOUTHWESTERN LIFE CORPORATION CONDENSED FINANCIAL INFORMATION OF REGISTRANT (Continued) STATEMENTS OF CASH FLOWS For the Years Ended December 31, 1994, 1993 and 1992 (In Thousands)
SOUTHWESTERN LIFE CORPORATION CONDENSED FINANCIAL INFORMATION OF REGISTRANT (Continued) NOTES TO CONDENSED FINANCIAL STATEMENTS
The following summary sets forth the scheduled maturities and sinking fund requirements of notes payable during each of the five years following December 31, 1994 (in thousands):
Prior to the sale of Bankers, the parent company acquired certain assets from Bankers at their fair value. The tax attributes related to such assets were likewise transferred to SLC and the income tax consequences which had been reflected for financial purposes have been reflected as a deemed dividend to the parent company.
SOUTHWESTERN LIFE CORPORATION AND SUBSIDIARIES REINSURANCE For the Years Ended December 31, 1994, 1993 and 1992 (Dollars in Thousands)
SOUTHWESTERN LIFE CORPORATION AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS AND RESERVES For the Years Ended December 31, 1994, 1993 and 1992 (In Thousands)