Subsidiaries of AFG own several buildings in downtown Cincinnati. AFG and its affiliates occupy about 70% of the aggregate 660,000 square feet of commercial and office space.
(a) Net earnings available to common shares for 1997 is calculated after deducting a premium over stated value on redemption of a subsidiary's preferred stock of $153.3 million. The number of shares used for periods prior to April 1995, is the 28.3 million shares issued in exchange for AFC shares in the Mergers.
(b) Prior to the Mergers, AFC's common stock was privately held by members of the Lindner family. In 1995, American Premier declared and paid cash dividends per share of $.25 prior to the Mergers; it also declared cash dividends of $.91 in 1994. AFG declared two quarterly $.25 per share dividends subsequent to the Mergers in 1995.
AFG was formed through the combination of AFC and American Premier in merger transactions completed in April 1995 (the "Mergers").
Ratios Following the Mergers, AFC and American Premier retired or replaced with lower cost financing over $1 billion in debt and preferred stock reducing AFG's interest expense and preferred dividend requirements by over $110 million annually. AFG's debt to total capital ratio at the parent holding company level improved from nearly 60% at the date of the Mergers to approximately 18% at December 31, 1998.
The National Association of Insurance Commissioners' model law for risk based capital ("RBC") applies to both life and property and casualty companies. RBC formulas determine the amount of capital that an insurance company needs to ensure that it has an acceptable expectation of not becoming financially impaired. At December 31, 1998, the capital ratios of all AFG insurance companies substantially exceeded the RBC requirements (the lowest capital ratio of any AFG subsidiary was 2.1 times its authorized control level RBC; weighted average of all AFG subsidiaries was 5.0 times).
Management believes these parent holding companies have sufficient resources to meet their liquidity requirements through operations in the short-term and long-term future. If funds generated from operations, including dividends and tax payments from subsidiaries, are insufficient to meet fixed charges in any period, these companies would be required to generate cash through borrowings, sales of securities or other assets, or similar transactions.
In December 1997, the parent holding companies entered into a reciprocal Master Credit Agreement under which these companies make funds available to each other for general corporate purposes.
In 1996 and 1997, wholly-owned trust subsidiaries of AFC Holding and AAG sold preferred securities for cash proceeds totaling $100 million and $225 million, respectively. Proceeds were used to retire outstanding debt and preferred stock of subsidiaries and for general corporate purposes, including a capital contribution to a subsidiary.
For statutory accounting purposes, equity securities are generally carried at market value. At December 31, 1998, AFG's insurance companies owned publicly traded equity securities with a market value of $1.4 billion, including equity securities of AFG affiliates (including subsidiaries) of $1.0 billion. Since significant amounts of these are concentrated in a relatively small number of companies, decreases in the market prices could adversely affect the insurance group's capital, potentially impacting the amount of dividends available or necessitating a capital contribution. Conversely, increases in the market prices could have a favorable impact on the group's dividend-paying capability.
To address the Year 2000 issue, AFG's operations have been divided into separate systems groups. During 1998, these groups were in the process of either (i) modifying their software programs or (ii) replacing programs with new software that is Year 2000 compliant. A majority of the groups have met AFG's goal of having program modifications and new software installations substantially completed by the end of 1998, with testing continuing in and through 1999. About 40% of the groups is being "closely watched" because there is some degree of risk that critical dates in the project schedule may be missed with a potential for some disruption of normal business operations. AFG's goal is to have program modifications and new installations for these groups completed during mid-1999. One group, which has significantly missed internal project deadlines, now has been reorganized and staffing levels were increased. This group is expected to be completed during the third quarter of 1999.
AFG's operations could also be affected by the inability of third parties such as agents and vendors to become Year 2000 compliant. While assessments of independent agents and evaluations of third party vendors are progressing slowly, efforts are being intensified to complete these assessments in the second quarter of 1999. In addition, AFG's property and casualty insurance subsidiaries are reviewing the potential impact of the Year 2000 issue on insureds as part of their underwriting process. They are also reviewing policy forms, issuing clarifying endorsements where appropriate and examining coverage issues for Year 2000 exposures. While it is possible that Year 2000 claims may emerge in future periods, it is not possible to estimate any such amounts.
Weighted Average Principal Interest Cash Flows Rate 1999 $ 849.8 7.87% 2000 942.7 8.01 2001 954.2 8.08 2002 1,086.3 7.76 2003 1,415.3 7.33 Thereafter 4,784.1 7.59
At December 31, 1998, the fair value of fixed-rate debt and variable-rate debt was approximately $490.6 million and $113.7 million, respectively.
Investments Approximately 70% of AFG's consolidated assets are invested in marketable securities. A diverse portfolio of primarily publicly traded bonds and notes accounts for nearly 95% of these securities. AFG attempts to optimize investment income while building the value of its portfolio, placing emphasis upon long-term performance. AFG's goal is to maximize return on an ongoing basis rather than focusing on short-term performance.
Investments in MBSs represented approximately one-fourth of AFG's fixed maturities at December 31, 1998. AFG invests primarily in MBSs which have a reduced risk of prepayment. In addition, the majority of MBSs held by AFG were purchased at a discount. Management believes that the structure and discounted nature of the MBSs will mitigate the effect of prepayments on earnings over the anticipated life of the MBS portfolio. Approximately 90% of AFG's MBSs are rated "AAA" with substantially all being of investment grade quality. The market in which these securities trade is highly liquid. Aside from interest rate risk, AFG does not believe a material risk (relative to earnings or liquidity) is inherent in holding such investments.
General Pretax earnings before extraordinary items were $205 million in 1998, $320 million in 1997 and $353 million in 1996.
Results for 1996 include $203 million in pretax gains primarily on the sales of Citicasters and Buckeye, reduced by a charge of $80 million resulting from a decision to strengthen insurance A&E reserves.
Excluding the special $214 million A&E charge in the fourth quarter of 1998, underwriting results of AFG's insurance operations outperformed the industry average for the thirteenth consecutive year. AFG's insurance operations have been able to exceed the industry's results by focusing on growth opportunities in the more profitable areas of the specialty and nonstandard auto businesses.
Combined Ratios (GAAP) Personal 97.3% 98.5% 103.9% Specialty 105.0 100.0 88.4 Aggregate (including A&E and other lines) 110.7% 101.4% 102.9%
Special A&E Charge Operating results for 1998 and 1996 were adversely impacted by increases in A&E reserves (exposures for which AFG may be liable under general liability policies written years ago) and higher catastrophe losses. A standard insurance measure used in testing the reasonableness of A&E reserves has been the "survival ratio" (reserves divided by average annual paid losses for the preceding three years). Due in part to the greater uncertainties inherent in estimating A&E claims, management has evaluated its survival ratio in relation to those published for the industry. Based primarily on industry survival ratios published in mid-1996, AFG increased A&E reserves of its discontinued insurance lines by $120 million in 1996 by recording a third quarter, noncash pretax charge of $80 million and reallocating $40 million, or approximately 2%, of its Specialty group reserves (approximately $2.1 billion at December 31, 1996).
Under the agreement covering the sale of its Commercial lines division in 1998, AFG retained liabilities for certain A&E exposures. Prompted by this retention and as part of the continuing process of monitoring reserves, AFG began a thorough study of its A&E exposures. Based on this study and observations of industry trends in this regard, AFG decided that the survival ratio may not be the best basis for measuring ultimate A&E exposures. AFG's study was reviewed by independent actuaries who used state of the art actuarial techniques that have wide acceptance in the industry. The methods used involved sampling and statistical modeling incorporating external data bases that supplement the internal information. AFG recorded a fourth quarter charge of $214 million increasing A&E reserves at December 31, 1998, to approximately $866 million (before deducting reinsurance recoverables of $241 million), an amount which, in the opinion of management, makes a reasonable provision for AFG's ultimate liability for A&E claims.
Personal The Personal group's net written premiums decreased $65.9 million (5%) during 1998 due primarily to stronger price competition in the personal automobile market. The combined ratio improved in 1998 due to both lower loss experience and a 6% reduction in underwriting expenses.
Specialty The Specialty group's net written premiums decreased $156 million (11%) during 1998 due primarily to the impact of a reinsurance agreement whereby approximately 30% of AFG's California workers' compensation premiums were ceded and the sale of the Commercial lines division. Excluding these operations, the net written premiums of the other specialty businesses were essentially the same as a year ago. Underwriting results worsened from the comparable period in 1997 due to losses from the midwestern storms in the second quarter of 1998 compared to milder weather conditions during 1997 and unusually good results in 1997 in certain other lines.
1997 compared to 1996 Investment income increased $22.5 million (3%) from 1996 due primarily to an increase in the average amount of investments held partially offset by decreasing market interest rates.
Chiquita's results for 1997 were adversely affected by a stronger dollar in relation to major European currencies (mitigated in part by the company's foreign currency hedging program) and by increased banana production costs resulting primarily from widespread flooding in 1996. These factors more than offset the benefit of higher local currency banana pricing in Europe during the second half of the year.
1997 compared to 1996 Other income decreased $14.9 million (11%) in 1997 compared to 1996 due primarily to the absence of revenues from a noninsurance subsidiary which was sold in the first quarter of 1997.
Annuity Benefits For GAAP financial reporting purposes, annuity receipts are accounted for as interest-bearing deposits ("annuity benefits accumulated") rather than as revenues. Under these contracts, policyholders' funds are credited with interest on a tax-deferred basis until withdrawn by the policyholder. Annuity benefits reflect amounts accrued on annuity policyholders' funds accumulated. The rate at which AAG credits interest on most of its annuity policyholders' funds is subject to change based on management's judgment of market conditions. As a result, management has been able to react to changes in market interest rates and maintain a desired interest rate spread. While AAG believes the recent interest rate and stock market environment over the last several years has contributed to an increase in annuitizations and surrenders, the company's persistency rate remains approximately 88%. However, a continuation of the current interest rate environment could adversely affect this rate.
Minority Interest Expense Minority interest expense for 1996 includes $6.5 million related to the sale of Citicasters shares held by AFEI. Dividends paid by subsidiaries on their preferred securities have varied as the securities were issued and retired over the past three years.
Recent Accounting Standards The following accounting standards have been implemented by AFG in 1997 or 1998 or will be implemented in 1999 or 2000. The implementation of these standards is discussed under various subheadings of Note A to the Financial Statements (segment information is discussed in Note C); effects of each are shown in the relevant Notes. Implementation of Statement of Position ("SOP") 98-5 in the first quarter of 1999 and Statement of Financial Account Standard ("SFAS") No. 133 in the first quarter of 2000 is not expected to have a significant effect on AFG.
Consolidated Statement of Changes in Shareholders' Equity Years ended December 31, 1998, 1997 and 1996
We have audited the accompanying consolidated balance sheet of American Financial Group, Inc. and subsidiaries as of December 31, 1998 and 1997, and the related consolidated statements of earnings, changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 1998. Our audits also included the financial statement schedules listed in the Index at Item 14(a). These financial statements and schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits.
AMERICAN FINANCIAL GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (Dollars In Thousands)
December 31, 1998 1997 Assets: Cash and short-term investments $ 296,721 $ 257,117 Investments: Fixed maturities: Available for sale - at market (amortized cost - $9,921,344 and $7,225,736) 10,324,344 7,532,836 Held to maturity - at amortized cost (market - $3,419,000) - 3,328,082 Other stocks - principally at market (cost - $207,345 and $153,322) 430,345 446,222 Investment in investee corporation 192,138 200,714 Policy loans 220,496 240,955 Real estate and other investments 271,915 283,979 Total investments 11,439,238 12,032,788
Shareholders' Equity: Common Stock, no par value - 200,000,000 shares authorized - 60,928,322 and 61,048,904 shares outstanding 60,928 61,049 Capital surplus 770,721 775,689 Retained earnings 527,028 477,071 Net unrealized gain on marketable securities, net of deferred income taxes 357,500 348,900 Total shareholders' equity 1,716,177 1,662,709
Investments Debt securities are classified as "held to maturity" and reported at amortized cost if AFG has the positive intent and ability to hold them to maturity. Debt and equity securities are classified as "available for sale" and reported at fair value with unrealized gains and losses reported as a separate component of shareholders' equity if the securities are not classified as held to maturity or bought and held principally for selling in the near term. At December 31, 1998, AFG reclassified "held to maturity" securities with an amortized cost of $2.6 billion to "available for sale" to give management greater flexibility to react to changing market conditions. This reclassification resulted in an increase of $98.8 million in the carrying value of fixed maturity investments and (after effects of income taxes, minority interest, and adjustments related to deferred policy acquisition costs) an increase of $49.6 million in shareholders'equity. The transfer had no effect on net earnings.
Insurance As discussed under "Reinsurance" below, unpaid losses and loss adjustment expenses and unearned premiums have not been reduced for reinsurance recoverable.
Assets Held In and Liabilities Related to Separate Accounts Separate account assets and related liabilities represent variable annuity deposits and, in 1997, include deposits maintained by several banks under a tax-deferred annuity program previously offered by American Annuity Group, Inc.'s ("AAG's") Funeral Services division, which was sold in 1998 (see Note B).
Income Taxes AFC files consolidated federal income tax returns which include all 80%-owned U.S. subsidiaries, except for certain life insurance subsidiaries and their subsidiaries. Because holders of AFC Preferred Stock hold in excess of 20% of AFC's voting rights, AFG (parent) and its direct subsidiary, AFC Holding Company ("AFC Holding" or "AFCH") own less than 80% of AFC, and therefore, file separate returns.
Stock-Based Compensation As permitted under Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation," AFG accounts for stock options and other stock-based compensation plans using the intrinsic value based method prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees."
Benefit Plans AFG provides retirement benefits to qualified employees of participating companies through contributory and noncontributory defined contribution plans contained in AFG's Retirement and Savings Plan. Under the retirement portion of the plan, company contributions (approximately 6% of covered compensation in 1998) are invested primarily in securities of AFG and affiliates. Under the savings portion of the plan, AFG matches a specific portion of employee contributions. Contributions to benefit plans are charged against earnings in the year for which they are declared.
Start-up Costs Certain costs associated with introducing new products and distribution channels are deferred by AAG and are amortized on a straight-line basis over 5 years. Statement of Position ("SOP") 98-5, "Reporting on the Costs of Start-Up Activities," was issued during the second quarter of 1998 and is effective for fiscal years beginning after December 15, 1998. The SOP requires that (i) costs of start-up activities be expensed as incurred and (ii) unamortized balances of previously deferred costs be expensed no later than the first quarter of 1999 and reported as the cumulative effect of a change in accounting principle. AAG had approximately $7 million in capitalized start-up costs at December 31, 1998.
Earnings Per Share In 1997, AFG implemented SFAS No. 128, "Earnings Per Share." This standard requires the presentation of basic and diluted earnings per share. Basic earnings per share is calculated using the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share include the effect of the assumed exercise of dilutive common stock options. Per share amounts for prior periods were restated.
Peritus experienced difficulties in 1998, wrote off substantial amounts of its assets, and reported significant losses throughout the year. As a result, AFG recognized a pretax realized loss of $26.9 million and reduced its carrying value of Peritus shares to a nominal value at December 31, 1998.
American Financial Enterprises, Inc. ("AFEI") In December 1997, AFG and AFEI engaged in a merger transaction whereby the shares of AFEI not held by AFG were acquired by AFG for approximately $23 million in cash and approximately 2.1 million shares of its common stock.
Citicasters In 1996, AFG sold its investment in Citicasters to Jacor Communications for approximately $220 million in cash plus warrants to purchase Jacor common stock. AFG realized a pretax gain of approximately $169 million, before minority interest of $6.5 million, on the sale.
C. Segments of Operations Following the sale of substantially all of its Commercial lines division, AFG's property and casualty group is engaged primarily in private passenger automobile and specialty insurance businesses. The Personal group consists of the nonstandard auto group along with the preferred/standard private passenger auto and other personal insurance business, formerly included in the Commercial and Personal lines. The Specialty group now includes a highly diversified group of specialty business units (formerly, Specialty lines) plus the commercial business previously included in the Commercial and Personal lines. AFG's annuity and life business markets primarily retirement products as well as life and supplemental health insurance. AFG's businesses operate throughout the United States. In addition, AFG has owned significant portions of the voting equity securities of certain companies (investee corporation - see Note E).
$ 4,050,034 $ 4,020,723 $ 4,115,397 Operating Profit (Loss) Property and casualty insurance: Underwriting: Personal $ 34,029 $ 21,235 ($ 55,989) Specialty (67,131) (324) 155,405 Other lines (d) (256,360) (62,470) (180,125) (289,462) (41,559) (80,709) Investment and other income 514,736 318,613 392,250 225,274 277,054 311,541 Annuities and life 128,074 93,794 77,119 Other (e) (135,396) (45,674) (18,461) 217,952 325,174 370,199 Equity in net losses of investees (13,198) (5,564) (16,955)
Included in "Other stocks" at December 31, 1998 and 1997, are $243 million and $313 million, respectively, of securities of Provident Financial Group, Inc. which exceeded 10% of Shareholders' Equity.
Fixed Equity Tax Maturities Securities Effects Total Realized (*) $ 25,841 ($ 19,566) ($ 2,196) $ 4,079 Change in Unrealized 4,982 (69,900) 22,721 (42,197)
(*) Includes $6.8 million in realized gains on fixed maturities transferred to Ohio Casualty in connection with sale of the Commercial lines division (see Note B).
Current Assets $ 840 $ 783 Noncurrent Assets 1,669 1,618 Current Liabilities 531 483 Noncurrent Liabilities 1,184 1,138 Shareholders' Equity 794 780
Net Sales $2,720 $2,434 $2,435 Operating Income 79 100 84 Loss Before Extraordinary Items (18) - (28) Extraordinary Loss from Debt Refinancings - - (23) Net Loss (18) - (51) Net Loss Attributable to Common Shares (36) (17) (63)
1998 1997 Holding Companies: AFG 7-1/8% Senior Debentures due December 2007 $100,000 $100,000 AFC notes payable under bank line 80,000 45,000 AFC 9-3/4% Debentures due April 2004, less discount of $618 and $737 (imputed rate - 9.8%) 78,560 79,792 American Premier Underwriters, Inc. ("APU") 9-3/4% Subordinated Notes due August 1999, including premium of $487 and $1,224 (imputed rate - 8.8%) 89,467 92,127 APU 10-5/8% Subordinated Notes due April 2000, including premium of $883 and $1,559 (imputed rate - 8.8%) 41,518 43,889 APU 10-7/8% Subordinated Notes due May 2011, including premium of $1,471 and $1,584 (imputed rate - 9.6%) 17,473 17,586 Other 8,518 8,267
Subsidiaries: AAG 6-7/8% Senior Notes due June 2008 $100,000 $ - AAG notes payable under bank line 27,000 107,000 AAG 11-1/8% Senior Subordinated Notes - 24,080 Notes payable secured by real estate 37,602 49,525 Other 12,294 13,479
Cash interest payments of $49 million, $50 million and $75 million were made on long-term debt in 1998, 1997 and 1996, respectively.
Preferred Securities Wholly-owned subsidiary trusts of AFCH and AAG have issued $325 million of preferred securities and, in turn, purchased $325 million of newly-authorized AFCH and AAG subordinated debt issues which provide interest and principal payments to fund the respective trusts' obligations. The preferred securities are mandatorily redeemable upon maturity or redemption of the subordinated debt.
I. Shareholders' Equity At December 31, 1998, there were 60,928,322 shares of AFG Common Stock outstanding, including 1,367,472 shares held by American Premier for distribution to certain creditors and other claimants pursuant to a plan of reorganization relating to American Premier's predecessor.
AFG is authorized to issue 12.5 million shares of Voting Preferred Stock and 12.5 million shares of Nonvoting Preferred Stock, each without par value. In 1996, 212,698 shares of convertible preferred stock were converted into 446,799 shares of AFG Common Stock. Prior to conversion, the preferred stock had a carrying value of $9.4 million and was included in Capital Surplus at $469,000 (net of $8.9 million in related notes receivable).
Unrealized Gain on Marketable Securities The change in net unrealized gain on marketable securities included the following (in millions):
J. Income Taxes The following is a reconciliation of income taxes at the statutory rate of 35% and income taxes as shown in the Statement of Earnings (in thousands): 1998 1997 1996 Earnings before income taxes and extraordinary items $204,754 $319,610 $353,244 Extraordinary items before income taxes (1,265) (11,287) (35,670)
Income taxes at statutory rate $ 71,221 $107,912 $111,151 Effect of: Minority interest 9,438 10,058 15,112 Losses utilized (6,572) (3,164) (43,302) Amortization of intangibles 4,482 3,362 3,065 Dividends received deduction (2,189) (2,002) (7,450) Other 2,709 (93) 5,698 Total provision 79,089 116,073 84,274
L. Commitments and Contingencies Loss accruals (included in other liabilities) have been recorded for various environmental and occupational injury and disease claims and other contingencies arising out of the railroad operations disposed of by American Premier's predecessor, Penn Central Transportation Company ("PCTC"), prior to its bankruptcy reorganization in 1978. Under purchase accounting in connection with the Mergers, any such excess liability will be charged to earnings in AFG's financial statements.
American Premier's liability for occupational injury and disease claims of $48.1 million at December 31, 1998, includes pending and expected claims by former employees of PCTC for injury or disease allegedly caused by exposure to excessive noise, asbestos or other substances in the workplace. Anticipated recoveries of $29.5 million on these liabilities are included in other assets. Recorded amounts are based on the accumulation of estimates of reported and unreported claims and related expenses and estimates of probable recoveries from insurance carriers.
AFG has accrued approximately $10.6 million at December 31, 1998, for environmental costs and certain other matters associated with the sales of former operations.
M. Quarterly Operating Results (Unaudited) The operations of certain of AFG's business segments are seasonal in nature. While insurance premiums are recognized on a relatively level basis, claim losses related to adverse weather (snow, hail, hurricanes, tornadoes, etc.) may be seasonal. Historically, Chiquita's operations are significantly stronger in the first and second quarters than in the third and fourth quarters. Quarterly results necessarily rely heavily on estimates. These estimates and certain other factors, such as the nature of investees' operations and discretionary sales of assets, cause the quarterly results not to be necessarily indicative of results for longer periods of time. The following are quarterly results of consolidated operations for the two years ended December 31, 1998 (in millions, except per share amounts).
AFG has realized substantial gains on sales of subsidiaries and investees in recent years. See Note B for a more detailed description of these and other transactions. Sales of subsidiaries also includes pretax charges of $10.5 million and $5.0 million in the third and fourth quarters of 1998, respectively, and $17.0 million in the fourth quarter of 1997 relating to operations expected to be disposed of. Realized gains on sales of securities, affiliates and other investments amounted to (in millions):
N. Insurance Securities owned by insurance subsidiaries having a carrying value of approximately $900 million at December 31, 1998, were on deposit as required by regulatory authorities.
Add back reinsurance recoverables, net of allowance in 1998 1,468 736 720
Statutory Information AFG's insurance subsidiaries are required to file financial statements with state insurance regulatory authorities prepared on an accounting basis prescribed or permitted by such authorities (statutory basis). Net earnings and policyholders' surplus on a statutory basis for the insurance subsidiaries were as follows (in millions): Policyholders' Net Earnings Surplus 1998 1997 1996 1998 1997
Reinsurance In the normal course of business, AFG's insurance subsidiaries assume and cede reinsurance with other insurance companies. The following table shows (in millions) (i) amounts deducted from property and casualty premiums in connection with reinsurance ceded, (ii) amounts included in income for reinsurance assumed and (iii) reinsurance recoveries deducted from losses and loss adjustment expenses.
O. Additional Information Total rental expense for various leases of office space, data processing equipment and railroad rolling stock was $41 million, $36 million and $34 million for 1998, 1997 and 1996, respectively. Sublease rental income related to these leases totaled $5.4 million in 1998, $5.4 million in 1997 and $6.1 million in 1996.
Revenues $ 4,056 $ 4,021 $4,115 Income before Extraordinary Items 133 199 262 Extraordinary Item - Loss on Prepayment of Debt (1) (7) (29) Net Income 132 192 233
(*) AFC Holding is the predecessor of AFG; data for 1996 represents that of AFG.
Fair Value of Financial Instruments The following table presents (in millions) the carrying value and estimated fair value of AFG's financial instruments at December 31. 1998 1997 Carrying Fair Carrying Fair Value Value Value Value Assets: Fixed maturities $10,324 $10,324 $10,861 $10,952 Other stocks 430 430 446 446 Investment in investee corporation 192 229 201 391
Restrictions on Transfer of Funds and Assets of Subsidiaries Payments of dividends, loans and advances by AFG's subsidiaries are subject to various state laws, federal regulations and debt covenants which limit the amount of dividends, loans and advances that can be paid. Under applicable restrictions, the maximum amount of dividends available to AFG in 1999 from its insurance subsidiaries without seeking regulatory clearance is approximately $281 million. Total "restrictions" on intercompany transfers from AFG's subsidiaries cannot be quantified due to the discretionary nature of the restrictions.
Benefit Plans AFG expensed approximately $22 million in 1998, $21 million in 1997 and $17 million in 1996 for contributions to its retirement and employee savings plans.
P. Subsequent Event (Unaudited) In January 1999, AFG agreed to acquire Worldwide Insurance Company (formerly Providian Auto and Home Insurance Company) from AEGON Insurance Group for approximately $160 million. Worldwide is a provider of direct response private passenger automobile insurance and generated net written premiums in 1998 of approximately $121 million. Completion of the transaction is expected to occur in the first half of 1999.
2. Financial Statement Schedules: A. Selected Quarterly Financial Data is included in Note M to the Consolidated Financial Statements.
December 31, 1998 1997 Assets: Cash and short-term investments $ 6,777 $ 25,890 Receivables from affiliates 270,500 352,766 Investment in subsidiaries 1,612,674 1,473,261 Other assets 44,502 41,690
Costs and Expenses: Interest charges on borrowed money 18,748 9,702 1,805 Other operating and general expenses 8,600 7,824 4,948 27,348 17,526 6,753
Earnings before income taxes and extraordinary items 204,754 319,610 353,244 Provision for income taxes 79,584 120,127 91,277
AMERICAN FINANCIAL GROUP, INC. - PARENT ONLY (*) SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT - CONTINUED (In Thousands)
Year Ended December 31, 1998 1997 1996 Operating Activities: Net earnings $124,400 $192,250 $233,300 Adjustments: Equity in earnings of subsidiaries (127,547) (180,581) (230,019) Change in balances with affiliates 76,116 54,620 (91,453) Increase (decrease) in payables (2,612) 881 (958) Dividends from subsidiaries 282 281 - Other (2,882) 2,275 1,311 67,757 69,726 (87,819)
Cash and short-term investments at beginning of period 25,890 43,465 96,207
Cash and short-term investments at end of period $ 6,777 $ 25,890 $ 43,465
s/FRED J. RUNK Senior Vice President and March 29, 1999 Fred J. Runk Treasurer (principal financial and accounting officer)