The selected consolidated financial data presented below should be read in conjunction with the consolidated financial statements of the Company, the related notes thereto and the auditors' report thereon and "Management's Discussion and Analysis of Financial Condition and Results of Operations". The selected consolidated financial data presented below for, and at the end of, each of the years from December 31, 1992 through 1995 are derived from the consolidated financial statements of the Company, which have been audited and reported upon by KPMG Peat Marwick LLP, independent certified public accountants. The selected consolidated financial data presented below for, and at the end of December 31, 1996, have been audited and reported upon by Ernst & Young LLP, independent certified public accountants. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Results of Operations".
Income Statement Data: Gross premium and policyholder fees $10,588 $24,885 $40,652 $46,145 $55,287 Reinsurance premium assumed	 671 616 13,564 8,866 10,522 Reinsurance premium ceded	 (1,515) (3,975) (13,564) (18,200) (25,664) ------- ------- ------- ------- ------- Net premium and other policyholder fees	 9,744 21,526 40,324 36,811 40,145 Net investment income	 5,997 7,974 9,239 8,945 9,850 Realized gains (losses)	 (193) 676 42 674 240 Fee income	 1,554 2,466 4,126 3,137 2,872 Other income	 -- 801 219 244 280 Total revenues	 17,102 33,443 53,950 49,811 53,387 Total benefits, claims and other deductions	 16,709 31,818 51,712 47,161 53,014 Net income after taxes and before extraordinary credit 145 1,553 2,228 2,642 104 Net income after taxes and extraordinary credit(1)	 393 1,553 2,228 2,642 104 Net income (loss) applicable to common shareholders(2)	 (94) 1,024 3,173 2,642 104 Net income (loss) per share of Common Stock after taxes and extraordinary credit	 (0.02) 0.14 0.37 0.25 0.01
December 31, ----------------------------------------------- 1992 1993 1994 1995(3) 1996 (In thousands, except for per share data) Balance Sheet Data: Total investments	 $77,551 $123,038 $125,487 $135,603 $144,681 Total assets	 95,616 153,687 164,862 182,994 242,237 Policyholder account balances	 64,780 105,091 108,777 118,609 134,539 Series A Preferred Stock	 6,034 6,564 -- -- -- Series B Preferred Stock	 -- -- 4,000 4,000 4,000 Stockholders' equity	 13,902 16,377 15,321 24,114 22,079 Stockholders' equity per share of Common Stock(4) 1.71 1.87 1.83 2.89 2.53
(3)	See "Management's Discussion and Analysis of Financial Condition and Results of OperationsCEffects of Accounting Pronouncements" for a discussion of the impact of changes in accounting principles.
The Company is an insurance holding company representing the strategic combination of two life insurance companies, American Progressive and American Pioneer, and WorldNet, an international managed care company. These companies were assembled in 1991-1993, with the Insurance Subsidiaries each being acquired at prices approximately equal to or below their adjusted statutory book value. Management is now focused on growth, both internal, through aggressive marketing and product development programs directed at specialty life and accident and health insurance products, and by seeking further acquisitions of insurance companies or blocks of business. It also has embarked on a program to rationalize operations through consolidation of administrative and processing facilities.
The Insurance Subsidiaries had revenues of approximately $43.9 million, $40.5 million and $44.5 million for the years ended December 31, 1994, 1995 and 1996, respectively, representing 91%, 93% and 95%, of the Company's total revenues for each period, respectively. Although American Progressive, domiciled in New York, primarily sells its products in New York and the northeastern United States and American Pioneer, domiciled in Florida, primarily sells its products in Florida and the southeastern United States, one or both of the Insurance Subsidiaries is licensed in 45 states and in the District of Columbia. American Pioneer and American Progressive have been rated "B+" and "B" by A.M. Best, respectively. A.M. Best's ratings are based upon factors relevant to policyholders, agents, insurance brokers and intermediaries and are not directed to the protection of shareholders in the rated company. See "BusinessCRatings".
The results of operations for the year ended December 31, 1995 and 1996 include the operations of American Progressive, American Pioneer and WorldNet.
Revenues. Total revenues increased approximately $3,576,000 from total revenues of approximately $49,811,000 for the year ended December 31, 1995 to approximately $53,387,000 for the year ended December 31, 1996. Net premiums and policyholder fees earned increased approximately $3,334,000. Supplemental health insurance premiums at American Progressive increased approximately $1,258,000 (primarily Medicare supplement, hospital indemnity and home health care) and its life premiums grew approximately $30,000, while American Pioneer's life premiums grew approximately $374,000 and its group dental premiums grew approximately $919,000. The increase in these life and supplemental health premiums of $2,581,000 was offset by the decrease of approximately $547,000 in American Pioneer's major hospital and major medical premiums and the decrease in American Progressive's premiums from its other accident and health products that are no longer being actively marketed by the Company (approximately $754,000). The Company had an increase in premiums from the NAIU pool of $1,798,000 and the NYS DBL business of $256,000. Realized gains on investments decreased approximately $434,000 to approximately $240,000, compared to a gain of approximately $674,000 for the prior year. Net investment income increased approximately $905,000 from
Fee income for the year ended December 31, 1996 reflects the fees earned by WorldNet for managed care, travel assistance, claims administration and communication services and the $450,000 deposit received by American Progressive in connection with the sale of the New York DBL business. WorldNet's fee income decreased by $716,000 which reduction primarily results from the Company's termination of its service agreement with Liberty Mutual in February, 1996. For the year ended December 31, 1996, the Company amortized approximately $280,000 of deferred revenue compared to $244,000 amortized in the same period in 1995.
Commissions decreased $265,000 to $5,076,000 for the year ended December 31, 1996. The increase in gross commissions of $4,967,000 was due to the increase in gross premiums noted above, offset by a corresponding increase in reinsurance allowances of $5,231,000. Other operating costs and expenses decreased approximately $175,000. Expenses incurred by the insurance subsidiaries during 1996 exceeded the 1995 amount by approximately $1,405,000. New business expenses and premium taxes increased approximately $166,000, the expenses incurred on the administration of the acquired First National business amounted to $550,000, while the expense incurred by the NAIU accident pool decreased $397,000. The general overhead expenses of the insurance companies increased approximately $1,086,000 which increase directly relates to the increase in business being administered by the Company. These administrative general expense increases are partially recovered from the increase in this reinsurance allowances noted above. The remaining decrease of $1,580,000 results from a decrease of continuing operation expenses incurred by WorldNet (approximately $1,292,000) and a decrease in the Parent Company expenses ($288,000). Amortization of the present value of future profits was approximately $205,000 for 1995, which amount fully amortized the asset.
Net Income. For the year ended December 31, 1995, the Company earned net income of approximately $2,642,000 resulting in an earnings per share applicable to common shareholders of $0.25. For the year ended December 31, 1994, the Company earned net income of approximately $2,228,000 before its dividend requirement on the Series A Preferred Stock, which dividend amounted to approximately $576,000, resulting in an earnings per share of $0.20. On
December 30, 1994, the Company redeemed the Series A Preferred Stock at a discount of approximately $1,522,000 ($0.17 per share), which discount increased the 1994 net income applicable to common shareholders to approximately $3,173,000, or $0.37 per share.
Revenues. Total revenues decreased approximately $4,138,000 from total revenues of approximately $53,950,000 for the year ended December 31, 1994 to approximately $49,812,000 for the year ended December 31, 1995. Total premiums and policyholder fees earned decreased approximately $3,514,000. Supplemental health insurance premiums at American Progressive increased approximately $1,842,000 (primarily in NYS DBL, Medicare supplement and hospital indemnity) and its life premiums grew approximately $340,000, while American Pioneer's life premiums grew approximately $656,000 and its group dental premiums grew approximately $892,000. The increase in these life and supplemental health premiums of $3,730,000 was offset by the decrease of approximately $4,757,000 in American Pioneer's major hospital and major medical premiums and the decrease in American Progressive's premiums from its participation in NAIU accident pool (approximately $1,531,000) and other accident and health products that are no longer being actively marketed by the Company (approximately $956,000). Realized gains on investments increased approximately $632,000 to approximately $674,000, compared to a gain of approximately $42,000 for the prior year, and are primarily attributed to increasing interest rates throughout 1995. As a result of realizing these investment gains, net investment income decreased approximately $293,000.
The Company requires cash to pay the operating expenses necessary to support its status as an insurance holding company (which under applicable Insurance Department regulations must bear its own expenses) and to meet the cost involved in being a publicly-owned company and will require cash to meet Universal's obligations under the Unstacking Agreement and the debentures to be issued thereunder. The $3 million of cash required to fund the initial segment of the Unstacking Agreement is expected to be provided by the sale of at least $4 million of Series C Preferred Stock, the completion of which is awaiting approval of the transaction by the Florida Insurance Department.
The NAIC has adopted risk based capital ("RBC") rules which became effective December 31, 1993 and have been adopted by both New York and Florida. See "RegulationCRisk-Based Capital Requirements" The new RBC rules provide for various actions when the ratio of a company's total adjusted surplus to its RBC falls below 200%. At December 31, 1996, American Progressive and American Pioneer had RBC ratios of approximately 261% and 795% of the Authorized Control Level, respectively. Consummation of the Unstacking Agreement is expected to increase American Progressive's RBC ratio.
In February, 1996, the service agreement between WorldNet and Ontario Blue Cross ("OBC"), which had been entered into in 1994 in connection with WorldNet's purchase of certain assets from subsidiaries of OBC was terminated. The termination of the service agreement was the result of the acquisition of OBC by Liberty Mutual Insurance Company ("Liberty Health") in 1995. Simultaneously with the termination of the service agreement, Liberty Mutual agreed to cancel certain promissory notes executed on April 1, 1994 as part payment for the acquired assets, which had a balance of $370,000 at December 31, 1996. At the same time, the Company wrote off the corresponding assets, including the value of the $170,000. The resulting net income from this transaction was approximately $200,000.
*	Debt securities that the Company has the positive intent and the ability to hold to maturity would be classified as "held to maturity" and reported at amortized cost.