The Company owns approximately 424,000 square feet of space in four contiguous executive office properties in Princeton, New Jersey, on land owned by Princeton University and subject to long-term ground leases. The Company also owns properties for its foreign subsidiaries and representative offices totaling 18,545 square feet in Mexico City, Cairo, Santiago, Bogota, and Buenos Aires.
(4) Represents statutory data for the applicable period. Ratio of net premiums written to surplus represents statutory net premiums written for the period over statutory policyholders' surplus at the end of such period. Statutory loss and LAE ratio represents the sum of statutory losses and LAE as a percentage of statutory net premiums earned. Statutory underwriting expense ratio represents statutory underwriting expenses as a percentage of statutory net premiums written. Statutory combined ratio represents the sum of the statutory loss and LAE ratio and the statutory underwriting expense ratio. See "Management's Discussion and Analysis of the Company's Results of Operations and Financial Condition."
expansion of existing accounts. International net premiums written, which are included in the treaty and facultative amounts stated above, were $442.6 million, or 23.3% of total net premiums written for the year ended December 31, 1996, compared to $380.5 million, or 23.4% of total net premiums written in 1995. The Company believes the increase in international premium writings can be attributed to its continued success in implementing its direct whole account marketing approach, as well as increasing opportunities in Latin America and Australia.
The Company incurred an after-tax expense of $13.1 million for the year ended December 31, 1996, compared to $4.4 million in 1995, representing the Company's minority interest in the earnings of American Re Capital, a single-purpose, wholly owned subsidiary trust. The expense was due to the distributions paid by American Re Capital on the QUIPS, which were issued August 30, 1995. See "Financial Condition."
YEAR ENDED DECEMBER 31, 1995, COMPARED WITH YEAR ENDED DECEMBER 31, 1994
The Company's net premiums written increased 4.9% to $1,629.5 million for the year ended December 31, 1995, from $1,553.3 million in 1994. Total treaty net premiums written increased 2.3% to $1,128.2 million for the year ended December 31, 1995, from $1,103.1 million in 1994, with increases in DICO' s and International Operations' treaty net premiums written, partially offset by a decline in ARMI's treaty net premiums written. Facultative net premiums written increased 11.4% to $501.3 million for the year ended December 31, 1995, from $450.2 million in 1994, primarily due to expansion of existing accounts. International net premiums written, which are included in the treaty and facultative amounts stated above, were $380.5 million, or 23.4% of total net premiums written for the year ended December 31, 1995, compared to $309.3 million, or 19.9% of total net premiums written in 1994. The Company believes the increase in international premium writings can be attributed to its continued success in implementing its direct whole account marketing approach, as well as increasing opportunities in the European market.
Underwriting expenses, consisting of commission expense plus operating expenses, increased 3.0% to $452.4 million for the year ended December 31, 1995, from $439.3 million in 1994. Commission expense increased slightly to $322.4 million for the year ended December 31, 1995, from $321.5 million in 1994. Operating expenses increased 10.4% to $130.0 million for the year ended December 31, 1995, from $117.8 million in 1994, primarily due to increased overhead expenses, in addition to $4.0 million of expenses associated with an on-going information systems and processes re-engineering effort the Company commenced in mid-1995.
The Company's interest expense increased by 1.2% to $60.7 million for the year ended December 31, 1995, from $60.0 million in 1994. This increase was due to interest rate swap expense of $2.4 million for the year ended December 31, 1995, compared to interest rate swap recoveries of $3.1 million in 1994. The change in the impact of the interest rate swap was partially offset by a 39.4% decrease, or $5.0 million, in bank credit-related interest expense, due to the lower level of senior bank debt outstanding in 1995, and the subsequent retirement of the Company' s revolving bank credit facility with proceeds received from the sale of the QUIPS. See "Financial Condition."
The Company realized net capital gains of $4.7 million for the year ended December 31, 1995, compared to net capital losses of $0.2 million in 1994. This change was primarily due to net capital gains of $4.3 million realized on bond sales for the year ended December 31, 1995, compared to net capital losses realized of $0.3 million on bond sales in 1994.
Other income increased by 36.7% to $39.1 million for the year ended December 31, 1995, from $28.6 million in 1994. The increase in the 1995 period was primarily attributable to an increase in fee subsidiary revenue. Other expenses increased to $103.4 million for the year ended December 31, 1995, from $47.5 million in 1994. The increase in the 1995 period was primarily due to a $9.6 million increase in subsidiary expenses, and a $34.5 million increase in the provision for the allowance for uncollectible reinsurance related to the charge for loss reserve strengthening in 1995.
The Company incurred a loss before income taxes, distributions on preferred securities of subsidiary trust, and extraordinary loss of $159.5 million for the year ended December 31, 1995, compared to income of $120.7 million in 1994. Federal and foreign income tax benefits were $76.6 million for the year ended December 31, 1995, compared to tax expense of $23.2 million in 1994.
In 1995, the Company recognized an extraordinary, non-cash after-tax loss of $0.3 million, representing the write-off of capitalized financing fees from the revolving bank credit agreement after the obligation was paid in full. There was no comparable charge for the Company in 1994.
Munich American Reinsurance had total statutory admitted assets of $1,567.8 million and policyholders' surplus of $361.0 million at December 31, 1996. Munich American Reinsurance had $451.6 million of
net written premiums for the year ended December 31, 1996. The United States branch of Munich Re had total statutory admitted assets of $1,505.1 million and policyholders' surplus of $625.4 million as of December 31, 1996. The United States branch of Munich Re had $266.1 million of net written premiums for the year ended December 31, 1996.
Total consolidated liabilities increased by 6.9% to $7,196.6 million at December 31, 1996, from $6,729.8 million at December 31, 1995. This increase was primarily due to increases in loss and loss adjustment expense reserves of $101.6 million and unearned premium reserves of $148.8 million.
Offer"). The Exchange Offer was completed on March 14, 1997 with 100% of the holders of the $500 million aggregate principal amount of the Notes accepting the Exchange Offer.
The QUIPS accrue and pay distributions quarterly at a rate of 8.5% per annum of the stated liquidation value of $25 per preferred security. The Company has, through a guarantee agreement, a trust agreement, the Junior Subordinated Debentures and an expense agreement, taken together, fully and unconditionally guaranteed, on a subordinated basis, the Trust' s obligation under the preferred securities to the extent that funds are available therefor, as more fully set forth in such agreements.
On December 29, 1995, the Company borrowed $75.0 million from Bank of America, N.A., in anticipation and as part of a new, unsecured revolving bank credit facility established on January 29, 1996, which allows the Company to borrow an aggregate amount up to $150 million at a floating rate of interest. The Company contributed proceeds of the borrowing, along with an additional $25 million of corporate funds, to the capital and surplus of American Re-Insurance. At December 31, 1996, $75.0 million remains outstanding under the revolving bank credit facility.
The Company's insurance/reinsurance subsidiaries' statutory surplus increased to $1,272.4 million at December 31, 1996, from $1,109.6 million at December 31, 1995. Dividends of $70.0 million and $97.5 million were paid to the Company in 1996 and 1995, respectively. American Re's operating leverage, measured by its premiums-to-surplus ratio, was 1.50 to 1 and 1.45 to 1 at year-end 1996 and 1995, respectively.
The Company is an insurance holding company whose only material investment is in the capital stock of American Re-Insurance. The Company is dependent on dividends and tax allocation payments, primarily from American Re-Insurance, to meet its short- and long-term liquidity requirements, including its debt service obligations. Currently it is Munich Re's intention to further strengthen the capital position of the Company by allowing net income to be retained; therefore, at this time, no further cash dividends on the Company' s common stock are anticipated.
Total cash proceeds in 1996 from sales of investments were $1,203.5 million compared to $1,011.3 million in 1995 and $570.2 million in 1994. Much of the activity in 1996 was due to an increase in the modified duration of the portfolio to 4.65 years at December 31, 1996, from 4.32 years at December 31, 1995, in addition to an overall redeployment out of tax-advantaged securities. Much of the activity in 1995 occurred due to a repositioning of the Company' s foreign currency-denominated investments into longer duration securities, in addition to an overall redeployment out of tax-advantaged securities. Much of the activity in 1994 occurred due to a repositioning of the bond portfolio into tax-exempt securities. Cash and cash equivalents were $324.9 million, $294.2 million, and $280.5 million, at December 31, 1996, 1995, and 1994, respectively. Cash and short-term investments are maintained for liquidity purposes and represented 7.5%, 7.4%, and 8.5%, respectively, of total financial statement investments and cash on such dates.