CICA owns its principal office in Austin, Texas, consisting of an 80,000 square foot office building. Approximately 27,000 square feet is occupied by CICA and its affiliates with the remainder of the building being leased or for lease. At December 31, 1996, the occupancy rate of the property was approximately 95%.
CICA also owns 1.10 acres of land with a 13,000 square foot office building which previously served as the Company's executive offices. The property has a book value of $158,000. A triple-net lease was executed during 1995 on the building for a term of three years, with a purchase option at a price of $850,000 during the period.
During 1995, CICA acquired through foreclosure, a 7,500 square foot office property in Wheatridge, Colorado for $116,000. Subsequently, the Company renovated the property, bringing its investments to $230,000. This property has previously been appraised for $475,000. Management had planned to use this building in conjunction with the Company's operations; however, decided to dispose of property and listed it for sale at $490,000 in December 1996.
Through the acquisition of ALFC described above, the Company also owns a 6,324 square foot funeral home in Baker, Louisiana with a total cost of $473,000. This facility is owned and operated by a subsidiary, FHL.
On December 9, 1994, Citizens announced that it had signed definitive written agreements for the acquisition of (i) American Liberty Financial Corporation, a Baton Rouge, Louisiana-based life insurance holding company with $26 million in assets, $8 million of stockholders' equity, revenues of $9 million and $40 million of life insurance in force and (ii) Insurance Investors & Holding Co., a Peoria, Illinois based life insurance holding company with $2.5 million in assets and $1 million of stockholders' equity.
The Insurance Investors agreement, consummated March 12, 1996, provided that, following the acquisition by Citizens, Investors' shareholders will receive one share of Citizens' Class A Common Stock for each eight shares of Investors Common Stock owned. Additionally, Citizens acquired all shares of Central Investors Life Insurance Company, a 95% owned subsidiary of Insurance Investors & Holding, based upon an exchange ratio of one share of Citizens' Class A common stock for each four shares of Central Investors owned. The transaction, which was accounted for as a purchase, involved the issuance of approximately 171,000 shares.
Premium income reached $53,914,361 in 1996, a 16.9% increase over the previous year when premium income totaled $46,125,093. The 1995 amount represented a 5.3% increase over 1994 when premiums amounted to $43,785,361. Premiums for 1996 were boosted by the inclusion of ALLIC. ALLIC contributed $3.8 million of accident and health premium and an additional 4.1 million of life premiums. Additionally, CICA increased new premium sales to $9.7 million during the year from $9.5 million in 1995, which was a decrease from $11.8 million in 1994. In 1994 and 1995, management did not emphasize new business production due to its desire to increase Company capitalization before further expanding its premium writing. Additionally, during 1995, the Company saw significant disruption in the Argentine economy, lowering sales from that region which had been a major contributor to the Company's overall sales in recent years. Management believes the disruption has passed in that market and expects to see improved production from that area in the future although these expectations may not be realized for a variety of reasons including political and governmental disturbances, economic disturbances and other factors beyond the Company's control.. Additionally, only a small portion of the premium revenues of ALLIC are included in the 1995 results as described above.
Death benefits increased to $3,667,159 in 1996, compared to $2,923,339 in 1995. In 1994, such benefits were $2,533,569. ALLIC claims amount to $1,313,390 of the 1996 results. A large portion of the 1995 increase ($290,945) is attributable to the acquisition of ALLIC in September. The remaining increase in 1995 is due to the growth in the Company's in force business. During 1994, the claims incurred on the Servicemen's Group Life Insurance ("Segli") program returned to levels seen prior to 1993, declining by approximately $500,000. Additionally, during 1994 claims on the Company's in force business remained static with those incurred in 1993, despite the increasing block of business in force. The Company has historically adhered to a strict underwriting policy which requires complete medical examinations on all applicants who are foreign residents, except children, regardless of age or face amount of the policy applied for. For 1996 and future years, management initiated a change to more selective medical examinations in conjunction with dry spot blood tests and extensive medical questions on the application in order to lower the cost of new business without sacrificing necessary information for the underwriter. Additionally, X-rays and electrocardiograms are required depending on age and face
amount of the policy. On all policies of $150,000 or more, inspection reports are required which detail the background resources and lifestyle of the applicant. The Company has developed numerous contacts throughout Latin America with which its underwriters can validate information contained in the application, medical or inspection report. The relatively high death claims experienced on the ALLIC block of business are expected due to the nature of the business (burial insurance) and the higher ages associated with such business.
Underwriting, acquisition and insurance expenses increased to $9,500,973 in 1996 from $7,102,401 in 1995 and $5,079,538 in 1994. The 1996 expenses include approximately $3.2 associated with ALLIC. Due to the consolidation of ALLIC's operations with CICA, management believes significant reductions can be achieved through economies of scale. In order to convert a majority of CICA's marketing overhead from fixed to variable, management began discussions in early 1997 with an independent international marketing company to serve as managing agent for the Company's international marketing activities. This firm would receive an overriding commission on all new business sold internationally in exchange for the absorption of all marketing management and promotion activities. By taking such actions, management believes approximately $900,000 of fixed overhead can be converted to a variable expense in 1997 and thereafter.
expenditures and the factors described earlier regarding the discontinued marketing operations. The 1995 expense increase reflects the growth experienced by the Company in recent years, particularly in the marketing area. As a result of a change in late 1993 in the management of marketing efforts, the Company absorbs a greater portion of the expense in exchange for paying lower first year commissions. The growth in expense in 1994 is primarily related to the increased home office marketing costs.
which business is typically transacted overseas. Because of the success of the offering in the limited time period, a second offering was initiated in May 1995. The second offering, to the Company's international policyholders, expires in October 31, 1997. It currently prices the shares at $7.50 and requires a three-year holding period. As of December 31, 1996, approximately 135,350 shares had been purchased through the second Reg. S offering, resulting in a net increase to capital of $1,084,000.
Policy loans comprise 14.3% of invested assets at December 31, 1996 compared to 14.5% at December 31, 1995. These loans, which are secured by the underlying policy values, have yields ranging from 5% to 10% percent and maturities that are related to the maturity or termination of the applicable policies. Management believes that the Company maintains more than adequate liquidity despite the uncertain maturities of these loans.
CICA had outstanding at December 31, 1996, a $466,000 surplus debenture payable to Citizens. For statutory accounting purposes, this debenture is a component of surplus, while for GAAP it is eliminated in consolidation. Citizens has recognized a liability for its related obligation to a bank in a like amount.
be measured based on the present value of expected future cash flows discounted at the loan's effective interest rate or at the loan's observable market price or the fair value of the collateral if the loan is collateral dependent. Statement 114 is effective for years beginning after December 15, 1994 Implementation did not have a material impact on the Company's financial statements. In March 1995, the FASB issued Statement 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of." Statement 121 established accounting standards for the recognition and measurement of impairment on long-lived assets, certain identifiable intangibles, and goodwill related to those assets to be held and used and for long-lived assets and certain intangibles to be disposed of. This statement does not apply to long-lived assets such as deferred policy acquisition costs and deferred tax assets. Statement 121 is effective for fiscal years beginning after December 15, 1995. The Statement did not have a material impact on the Company's financial statements.
Premiums and discounts are amortized or accreted over the life of the related security as an adjustment to yield using the effective interest method. Dividend and interest income are recognized when earned. Realized gains and losses for securities classified as available-for-sale and held-to-maturity are included in earnings and are derived using the specific identification method for determining the cost of securities sold. The Company adopted Statement 115 at January 1, 1994.