The Company underwrites life insurance and annuity products through FNWL. Revenues attributable to traditional life insurance products, such as whole life or term life contracts, are classified as premiums as they become due. Future benefits are associated with such premiums (through increases in liabilities for future policy benefits), and prior period capitalized costs are amortized (through amortization of DAC) so that profits are generally recognized over the same period as revenue income. Revenues attributable to universal life products consist of policy charges for the cost of insurance, policy administration charges, surrender charges, and investment income on assets allocated to support policyholder account balances on deposit. Revenues for deferred annuity products consist of surrender charges and investment income on assets allocated to support policyholder account balances. Expenses on universal life and annuity policies include interest credited to policyholders on policy balances as well as benefit claims incurred in excess of policy account balances.
Amortization of AIF Contracts and Goodwill. The purchase accounting entries related to the acquisition of the Company by B.A.T in December 1988 include goodwill (capitalized at $2.4 billion) and the value of the AIF contracts of the P&C Group (capitalized at $1.7 billion). The amortization of these two items, which is being taken on a straight-line basis over forty years, reduced pretax income by approximately $102.8 million for both 1997 and 1996.
Net Investment Income. Net investment income increased from $112.8 million in 1996 to $144.2 million in 1997, an increase of $31.4 million, or 27.8%. This increase was primarily due to a larger invested asset base as a result of the common stock received as part of a $374.9 million dividend from FNWL to Farmers Group, Inc. in December 1996 and the reinvestment of cash generated by the sale of OSL and IGL.
Dividends on Preferred Securities of Subsidiary Trusts. Dividends expense related to the $500.0 million of Cumulative Quarterly Income Preferred Securities ("QUIPS") issued in 1995 was $42.1 million in both 1996 and 1997.
Premiums. Premiums increased $15.0 million, or 11.0%, between years. This increase was due to growth in renewal and first year business. The increase in renewal premiums was attributable to a 12.2% growth in traditional life insurance in-force due in part to an increase in average policy size resulting from sales of the Premier Whole Life ("PWL") product. The higher first year premiums were due primarily to growth in sales of the PWL product.
Investment Income. Net investment income increased $17.9 million in 1997, or 6.9%, over 1996 due largely to higher bond interest income resulting primarily from an increase in bond investments.
Total Operating Expenses. Total operating expenses increased from $399.9 million in 1996 to $427.0 million in 1997, an increase of $27.1 million, or 6.8%.
Policyholders' Benefits. Policyholders' benefits expense increased from $260.3 million in 1996 to $274.5 million in 1997, an increase of $14.2 million, or 5.5%. Policy benefits, which consist primarily of death and surrender benefits on life products, increased $1.5 million over 1996 due to an increase in death claims resulting from an increase in insurance-in-force. Increase in liability for future benefits expense increased from $11.4 million in 1996 to $15.7 million in 1997. This increase was primarily attributable to lower terminations on older whole life business carrying higher future benefit provisions and the effect of PWL sales in 1997 and 1996. Interest credited to policyholders, which represents the amount credited under universal life-type contracts and deferred annuities for policyholder funds on deposit, increased from $138.0 million in 1996 to $146.4 million in 1997, or 6.1%, reflecting a 4.2% growth in universal life-type insurance in-force and a 3.5% increase in annuity funds on deposit.
consulting fees. Also contributing to the increase in expense was a $0.1 million increase in costs associated with the Year 2000 Project.
Consolidated net income of the Company increased from $507.9 million in 1996 to $593.5 million in 1997, an increase of $85.6 million, or 16.9%.
Operating Revenues. Operating revenues increased from $1,183.1 million in 1995 to $1,245.4 million in 1996, an increase of $62.3 million, or 5.3%. This growth reflects higher gross premiums earned by the P&C Group, which increased from $9,003.8 million in 1995 to $9,458.2 million in 1996 due primarily to higher average premium levels across all major lines of business and an increase in the number of policies-in-force between years. Partially offsetting these increases is a 0.45% reduction in the Farmers Preferred Auto Management fee rate, effective November 1, 1996. This resulted in a $4.1 million reduction in management fees in 1996 from what such fees would have been using the 1995 rates.
Amortization of AIF Contracts and Goodwill. Amortization expense was $102.8 million in both 1996 and 1995. These assets are being amortized on a straight-line basis over forty years.
Net Investment Income. Net investment income increased from $78.0 million in 1995 to $112.8 million in 1996, an increase of $34.8 million, or 44.6%. This increase was primarily due to higher yield rates and a larger invested asset base in 1996.
Net Realized Gains. Net realized gains increased from $1.5 million in 1995 to $5.1 million in 1996, an increase of $3.6 million, due mainly to gains realized on sales of bonds and investment real estate. 	 Dividends on Preferred Securities of Subsidiary Trusts. As a result of the $500.0 million of QUIPS issued in September and October 1995, dividend expense increased from $10.4 million in 1995 to $42.1 million in 1996.
Provision for Income Taxes. Provision for income taxes increased from $224.3 million in 1995 to $275.2 million in 1996, an increase of $50.9 million, or 22.7%. This increase was due in part to $22.5 million of taxes that resulted from the $374.9 million dividend paid to FGI by FNWL in December 1996. The remaining increase was attributable to an increase in pretax income between years.
On April 15, 1997, OSL and IGL were sold to Great Southern Life Insurance Company, a subsidiary of Americo Life, Inc.. OSL and IGL contributed $17.2 million to net income in 1996 and $11.6 million in 1995. The following commentary addresses the results of the Company's remaining life insurance subsidiary, FNWL.
Premiums. Premiums increased $12.2 million, or 9.8%, over 1995. This increase was due to growth in renewal and first year business. The increase in renewal premiums was attributable to an 11.9% growth in traditional life insurance in-force resulting from improved persistency and an increase in average policy size. The higher first year premiums were due primarily to growth in PWL and Mortgage Protection Plan products.
Investment income. Net investment income increased $17.3 million in 1996, or 7.2%, over 1995 due largely to higher bond interest income resulting from a higher invested asset base.
Total Operating Expenses. Total operating expenses increased from $369.9 million in 1995 to $399.9 million in 1996, an increase of $30.0 million, or 8.1%.
Policyholders' Benefits. Policyholders' benefits expense increased from $241.4 million in 1995 to $260.3 million in 1996, an increase of $18.9 million, or 7.8%. Policy benefits increased $4.9 million over 1995 primarily due to an increase in death claims resulting from higher average
insurance-in-force. Increase in liability for future benefits expense increased from $10.5 million in 1995 to $11.4 million in 1996, or 8.6%. This increase was primarily due to increases in PWL and other traditional product premiums and to lower terminations in 1996. Interest credited to policyholders increased from $124.9 million in 1995 to $138.0 million in 1996, or 10.5%, reflecting an 8.5% growth in universal life-type insurance in-force and a 7.3% increase in annuity funds on deposit.
Amortization of DAC and Value of Life Business Acquired. Amortization expense increased from $50.5 million in 1995 to $60.4 million in 1996, or 19.6%, reflecting the continued growth in universal life-type business and lower traditional terminations in 1996.
General and Administrative Expenses. General and administrative expenses increased from $60.3 million in 1995 to $60.9 million in 1996, or 1.0%, due to higher salaries and benefits expense.
Consolidated net income of the Company increased from $470.7 million in 1995 to $507.9 million in 1996, an increase of $37.2 million, or 7.9%.
General. The principal uses of funds by the Company are (i) operating expenses, (ii) dividends to the shareholders of the Company's QUIPS, (iii) capital expenditures and (iv) dividends to its stockholder. In 1997, dividends paid on the QUIPS totaled $42.1 million, capital expenditures totaled $66.2 million and cash dividends paid to the stockholder totaled $337.2 million.
Net cash used in financing activities decreased $570.3 million in 1996 to $286.5 million in 1997, an increase in cash of $283.8 million, or 49.8%. This increase in cash was primarily due to the repayment of $200.0 million of 8.25% Notes Payable in July 1996 and the fact that cash dividends paid to B.A.T decreased $127.7 million, from $464.9 million in 1996 to $337.2 million in 1997.
Life Insurance Subsidiary. The principal uses of funds by FNWL are (i) policy benefits and claims, (ii) loans to policyholders, (iii) capital expenditures, (iv) operating expenses, and (v) stockholder's dividends. The principal sources of funds available to FNWL are premiums and amounts earned from the investment of premiums and deposits. These sources of funds have historically satisfied the liquidity needs of FNWL.
We have audited the consolidated balance sheets of Farmers Group, Inc. and subsidiaries (the "Company") as of December 31, 1997 and 1996, and the related consolidated statements of income, stockholder's equity, and cash flows for each of the three years in the period ended December 31, 1997. Our audits also included the financial statement schedules listed in the Index at Item 14. These financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits.
The consolidated financial statements have been prepared in accordance with generally accepted accounting principles ("GAAP"). All material inter-company transactions have been eliminated. Certain amounts applicable to prior years have been reclassified to conform with the 1997 presentation. The consolidated financial statements include Farmers Group, Inc. ("FGI") and its subsidiaries (together, the "Company"). On April 15, 1997, FGI sold two of its life insurance subsidiaries, The Ohio State Life Insurance Company ("OSL") and Investors Guaranty Life Insurance Company ("IGL"), to Great Southern Life Insurance Company, a subsidiary of Americo Life, Inc.. As a result, the 1997 balance sheet information includes FGI and its remaining life insurance subsidiary, Farmers New World Life Insurance Company ("FNWL"), whereas the 1996 information includes FGI as well as FNWL, OSL, and IGL (the "Life Insurance Subsidiaries"). 	 In December 1988, BATUS Inc. ("BATUS"), a subsidiary of B.A.T Industries p.l.c. ("B.A.T"), acquired 100% ownership of the Company for $5,212,619,000 in cash, including related expenses, through its wholly owned subsidiary BATUS Financial Services. Immediately thereafter, BATUS Financial Services was merged into Farmers Group, Inc.. The acquisition was accounted for as a purchase and, accordingly, the acquired assets and liabilities were recorded in the Company's consolidated balance sheets based on their estimated fair values at December 31, 1988. In January 1990, ownership of the Company was transferred to South Western Nominees Limited, a subsidiary of B.A.T.
The Company is attorney-in-fact ("AIF") for three inter-insurance exchanges: Farmers Insurance Exchange, Fire Insurance Exchange and Truck Insurance Exchange (collectively the "Exchanges"), which operate in the property and casualty insurance industry. As attorney-in-fact, FGI, or its subsidiaries, as applicable, manages the affairs of the Exchanges, their respective subsidiaries and Farmers Texas County Mutual Insurance Company (collectively the "P&C Group") and receives compensation based on a percentage of earned premiums. The management services generate a substantial portion of the Company's revenue and profits, and as a result, the Company's ongoing financial performance depends on the volume of business written by, and the efficiency and financial strength of, the P&C Group. A portion of the purchase price ($1,709,043,000) associated with the acquisition was assigned to these AIF contract relationships. The value so assigned is being amortized on a straight-line basis over forty years.
Prior to April 15, 1997 the Company's life insurance operations were conducted by its three wholly owned subsidiaries. A portion of the purchase price ($662,778,000) was assigned to the "Value of Life Business Acquired", which represented an actuarial determination of the expected profits from the business in force at the date of acquisition. The amount so assigned is being amortized over its actuarially determined useful life with the unamortized amount included in "Deferred Policy Acquisition Costs and Value of Life Business Acquired" in the accompanying consolidated balance sheets.
In February 1997, the FASB released SFAS No. 129, "Disclosure of Information about Capital Structure". This Statement, effective for financial statements issued for periods ending after December 15, 1997, establishes standards for disclosing information about an entity's capital structure. This Statement eliminates the exemption of nonpublic entities from certain disclosure requirements of Accounting Principles Board Opinion No. 15, "Earnings Per Share", as provided by SFAS No. 21, "Suspension of the Reporting of Earnings per Share and Segment Information by Nonpublic Enterprises". The adoption of this Statement did not have a significant impact on the Company's consolidated financial statements.
In June 1997, the FASB released SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information". This Statement, effective for financial statements of public enterprises issued for periods beginning after December 15, 1997, establishes standards for reporting information about operating segments in annual financial statements and requires the reporting of selected information about operating segments in interim financial reports issued to shareholders. It also establishes standards for related disclosures about products and services, geographic areas, and major customers. This Statement supersedes SFAS No. 14, "Financial Reporting for Segments of a Business Enterprise" and amends SFAS No. 94, "Consolidation of All Majority-Owned Subsidiaries". The Company does not expect the adoption of this Statement to have a significant impact on its consolidated financial statements.
The preparation of the Company's financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
business), are deferred and amortized proportionately over the estimated period during which the related premiums will be recognized as income, based on the same assumptions that are used for computing the liabilities for future policy benefits. Liabilities for future policy benefits are computed principally by means of a net level premium method reflecting estimated future investment yields, mortality, morbidity and withdrawals. Interest rate assumptions range from 2.25% to 9.25%, depending on the year of policy issue. Mortality is calculated principally on select and ultimate tables in common usage in the industry, modified for the Life Insurance Subsidiaries' experience, and withdrawals are estimated based primarily on the Life Insurance Subsidiaries' experience.
Revenues associated with universal life products consist of policy charges for the cost of insurance, policy administration fees, surrender charges and investment income on assets allocated to support policyholder account balances. Revenues for deferred annuity products consist of surrender charges and investment income on assets allocated to support policyholder account balances. Expenses include interest credited to policyholder account balances and benefit claims incurred in excess of policyholder account balances. Liabilities for future policy benefits on universal life and deferred annuity products are determined under the retrospective deposit method. DAC is amortized in relation to the present value of expected gross profit margins on the policies, after giving recognition to differences between actual and expected gross profit margins to date. DAC and Value of Life Business Acquired also includes amounts associated with the unrealized gains and losses recorded as a component of stockholder's equity in accordance with the application of SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities". Accordingly, DAC and Value of Life Business Acquired is increased or decreased for the impact on estimated future gross profits as if net unrealized gains or losses on securities had been realized at the balance sheet date. Net unrealized gains or losses on securities within stockholder's equity also reflects this impact. These entries decreased the DAC and Value of Life Business Acquired asset by $43,447,000 and $27,927,000 as of December 31, 1997 and 1996, respectively.
The Company, as attorney-in-fact for the Exchanges, has made surplus contributions to the Exchanges from time to time. In return, the Company has received the following certificates of contribution totaling $684,380,000 as of December 31, 1997:
A $100,000,000 certificate of contribution, issued on December 20, 1996, bearing interest at 8.95% annually.
A $135,000,000 certificate of contribution, issued on September 30, 1996, bearing interest at 8.95% annually.
A $165,000,000 certificate of contribution, issued on June 27, 1996, bearing interest at 8.95% annually.
Miscellaneous other certificates of contribution totaling $34,380,000 which bear interest at various rates.
The Company has two profit sharing plans providing for cash payments to all eligible employees. The two plans, Cash Profit Sharing (consisting of Cash and Cash Plus) and Deferred Profit Sharing, provide for a maximum aggregate expense of 16.25% of the Company's consolidated annual pretax earnings, as adjusted. The Deferred Profit Sharing Plan, limited to 15% of the salary or wage paid or accrued to the eligible employee, provides for an annual payment by the Company to a trust for eventual payment to employees as provided in the Plan. The Cash Profit Sharing Plan provides for annual cash distributions limited to 5% (Cash) and 1.25% (Cash Plus) of the salary or wage paid or accrued to the eligible employee.
Expense under these plans was $52,235,000, $55,772,000, and $55,070,000 in 1997, 1996 and 1995, respectively.
In December 1996, upon approval of the Washington State Department of Insurance, FNWL paid a $374,916,000 dividend to its parent company, Farmers Group, Inc., which consisted primarily of common stock investments. As of December 31, 1997, an aggregate of $122,667,000 was still available for distribution without approval from the State Department of Insurance in Washington, the state in which FNWL is domiciled.
The Company follows the provisions of SFAS No. 115. This Statement addresses the accounting and reporting for investments in equity securities that have readily determinable fair values and for all investments in debt securities. As of December 31, 1997 and 1996, the Company classified all investments in equity and debt securities as available-for-sale under SFAS No. 115. Correspondingly, these investments are reported on the balance sheet at fair value, with unrealized gains and losses, net of tax, excluded from earnings and reported as a component of stockholder's equity. Real estate investments are accounted for on a depreciated cost basis. Real estate acquired in foreclosure and held for sale is carried at the lower of fair value or depreciated cost less a valuation allowance. Short-term instruments are carried at cost. Other investments, which consist primarily of certificates in surplus of the Exchanges, policy loans and the B.A.T Capital Corporation notes, are carried at the unpaid principal balances.
In compliance with a Securities and Exchange Commission ("SEC") staff announcement, the Company has recorded certain entries to the DAC and Value of Life Business Acquired line of the consolidated balance sheet in connection with SFAS No. 115. The SEC requires that companies record entries to those assets and liabilities that would have been adjusted had the unrealized
The sources of investment income on securities owned by the Company (excluding the Life Insurance Subsidiaries) for the years ended December 31 are:
The sources of investment income on securities owned by the Life Insurance Subsidiaries for the years ended December 31 are:
Realized gains and losses on sales, redemptions and writedowns of investments owned by the Company (excluding the Life Insurance Subsidiaries) are determined based on either the cost of the individual securities or the depreciated cost of real estate. Net realized investment gains or losses for the years ended December 31 are:
Realized gains and losses on sales, redemptions and writedowns of investments owned by the Life Insurance Subsidiaries are determined based on either the cost of the individual securities or the depreciated cost of real estate. Net realized investment gains or losses for the years ended December 31 are:
The amortized cost, gross unrealized gains and losses, and estimated market values of investments in debt securities, including bonds and redeemable preferred stocks, owned by the Company (excluding life insurance amounts) are as follows:
The change in the net unrealized gains or losses of the Company (excluding life insurance amounts) for the years ended December 31 is as follows:
The call options are included in other invested assets and are carried at estimated fair value. Unrealized gains and losses resulting from changes in the estimated fair value of the call options are recorded as an adjustment to the interest liability credited to policyholders. In addition, realized gains and losses from maturity or termination of the call options are offset against the interest credited to policyholders during the period incurred. Premiums paid on indexed call options are amortized to net investment income over the term of the contracts. There were no early terminations by annuity participants, or maturities or sales of the S&P 500 call options during 1997.
participation rate. The index options are generally expected to be held for a seven year term, but can be terminated at any time.
Notes receivable-affiliate The fair values are estimated by discounting the future cash flows using the current rates at which similar loans would be made by the Company to borrowers for the same remaining maturities.
Other assets Other assets consist primarily of advances to agents, the fair value of which is determined by discounting the estimated future cash flows using credit quality, the average maturity of related advances, and the current rates at which similar loans would be made to borrowers by the Company.
Other Investments Other investments consist of S&P 500 index call options purchased as hedges against the interest liabilities generated on the equity-indexed annuity products. These call options are carried at an estimated fair value based on stock price, strike price, time to expiration, interest rates, dividends and volatility per the methodology of the Black-Scholes Option Pricing Formula.
Based on current conditions and assumptions as to future events, FNWL expects to amortize the December 31, 1997 balance as follows: approximately 3.2% in 1998 and 1999, 3.4% in 2000, 3.6% in 2001, and 3.9% in 2002. The discount rate used to determine the amortization rate of the Value of Life Business Acquired ranged from 12.5% to 7.5%.
The Company follows the principles of SFAS No. 118 (amending SFAS No. 114), "Accounting by Creditors for Impairment of a Loan". This Statement requires that an impaired loan be measured based on the present value of expected future cash flows discounted at the loan's effective interest rate or, as a practical expedient, at the loan's observable market price or the fair value of the collateral, if the loan is collateral dependent.
The activity in the total allowance for credit losses related to impaired mortgage loans follows:
In 1996 and 1995, the Life Insurance Subsidiaries had a security lending agreement with a financial institution which had the same terms as the agreement in effect as of December 31, 1997. Income earned by the Life Insurance Subsidiaries was $422,000 and $233,000 in 1996 and 1995, respectively. The collateral under these agreements as of December 31, 1996 was $221,216,000.
The Company's policy is to fund the amount determined under the aggregate cost method, provided it does not exceed funding limitations. There has been no change in funding policy from prior years.
Assets of the Regular Plan are held by an independent trustee. Assets held are primarily in fixed maturity and equity investments. The principal liability is for annuity benefit payments of current and future retirees. Assets of the Restoration Plan are considered corporate assets and are held in a grantor trust. In 1996, assets and liabilities of the Regular Plan were recorded by FNWL in Separate Accounts and were not commingled with the general assets and liabilities of that company (see Note V).
Information regarding the Regular Plan's funded status is not developed separately for the Company and the Exchanges. Information regarding the Restoration Plan pertains only to the
Company. The funded status of the Plans for the Company and the Exchanges as of December 1, 1997 and 1996 (the latest date for which information is available) was as follows:
The Company uses the projected unit credit cost actuarial method for attribution of expense for financial reporting purposes. The interest cost and the actuarial present value of benefit obligations were computed using an interest rate of 7.25% in 1997, 1996 and 1995, while the expected return on plan assets was computed using an interest rate of 9.00% in 1997 and 1996 and 9.25% in 1995. The rate of increase in future compensation levels used in determining the actuarial present value of the projected benefit obligation was 5.00% in 1997 and 1996 and 4.50% in 1995.
The Company's postretirement benefits plan is a contributory defined benefit plan for employees who were retired or who were eligible for early retirement as of January 1, 1995, and is a contributory defined dollar plan for all other employees retiring after January 1, 1995. Health benefits are provided for all employees who participated in the Company's and the Exchanges' group medical benefits plan for 15 years prior to retirement at age 55 or later. A life insurance benefit of $5,000 is provided at no cost to retirees who maintained group insurance coverage for 15 years prior to retirement at age 55 or later.
The Company's share of the accrued postretirement benefit cost was approximately $49,404,000 in 1997 and $47,948,000 in 1996. The unrecognized net transition obligation of $19,665,000 in 1997 and $20,976,000 in 1996 represents the remaining transition obligation of the Exchanges.
Rental expense incurred by the Company was $20,322,000, $20,121,000, and $21,944,000 in 1997, 1996 and 1995, respectively.
Investments 823,666,000 Deferred policy acquisition costs and Value of Life Business Acquired 181,196,000 Life insurance policy liabilities (690,426,000)
As a result of the adoption of SFAS No. 115, the Life Insurance Subsidiaries have decreased the DAC asset and increased the Value of Life Business Acquired asset to account for the impact on estimated future gross profits of the net unrealized gains or losses on securities.
As of December 31, 1997, the Company had $407,000,000 in notes receivable related to loans made to B.A.T Capital Corporation, a subsidiary of B.A.T. These notes are fixed rate medium term notes with maturity dates as follows: $137,000,000 in October 1998, $135,000,000 in October 1999 and $135,000,000 in October 2000. Interest on these notes is paid semi-annually at coupon rates of 5.35%, 6.68% and 6.33%, respectively. On October 7, 1997, a four year $135,000,000 note with an interest rate of 5.10% matured and the $135,000,000 note maturing in October 2000 was subsequently issued at an interest rate of 6.33%. Income earned on the notes outstanding during 1997, 1996 and 1995 was $23,620,000, $21,245,000, and $20,697,000, respectively.
As of December 31, 1997 and 1996, the Company had a revolving credit agreement with certain financial institutions and had an aggregate borrowing facility of $500,000,000. The
proceeds of the facility were available to the Company for general corporate purposes, including loans to the Exchanges. As of December 31, 1997 and 1996, facility fees were payable on the aggregate borrowing facility in the amount of 7 and 9 basis points per annum, respectively, and were reimbursable to the Company by the Exchanges. In the case of a draw on the facility, the Company has the option to borrow at annual rates equal to the prime rate, the banks' certificate of deposit rate plus 1%, the federal funds effective rate plus 1/2 of 1% or the London Interbank Offered Rate ("LIBOR") plus certain percentages. As of December 31, 1997 and 1996, the Company did not have any outstanding borrowings under the revolving credit agreement. Facility fees were $399,000, $592,000 and $526,000 for the years ended December 31, 1997, 1996 and 1995, respectively, and were reimbursed by the Exchanges. The revolving credit agreement in effect as of December 31, 1997 expires on July 1, 2002.
As of December 31, 1997, the Company, excluding FNWL, was liable for two mortgages, one with an interest rate of 6.98% maturing in June 1998 and one with an interest rate of 7.24% maturing in June 2004. The amount of principal due within one year is approximately $67,000. As of December 31, 1997, there were no real estate mortgage notes payable by FNWL.
The Company operates primarily in two industries - management of property and casualty insurance companies (principally reciprocal insurance exchanges) and the life insurance industry. Total revenue by industry includes both revenues as reported in the Company's consolidated income statement, and intersegment revenues which are eliminated in consolidation.