The insurance businesses, which are engaged through the Insurance Subsidiaries, include principally the reinsurance of financial guaranties of municipal and asset backed debt obligations issued by monoline financial guaranty insurers. In addition, the Company is engaged in other insurance, reinsurance and non-insurance businesses that utilize the Company's expertise in performing sophisticated analyses of complex, credit-based risks. The Company's other insurance businesses involve the issuance of direct financial guaranties of smaller municipal debt obligations, trade credit reinsurance, financial institutions, credit insurance and financial responsibility bonds. Some of these other insurance businesses are conducted by Van-American Insurance Company ("Van-Am"), a Kentucky domiciled insurer which writes reclamation bonds for the coal mining industry, and surety bonds covering the closure and post-closure obligations of landfill operators. The Company also provides surety and other credit-related insurance products through its 25% ownership of Seguradora Brasileirade Francas S.A.
The Company operates its asset-based businesses primarily through its consolidated subsidiary, Singer Asset Finance Company, L.L.C. ("Singer") and a partially owned affiliate, Credit-Based Asset Servicing and Securitization L.L.C. ("C-BASS"). The Company's asset-based businesses include the origination, purchase, servicing and/or securitization of special assets, including lottery awards, structured settlement payments and sub-performing/non-performing and seller-financed residential mortgages, real estate and subordinated residential mortgage-backed securities.
The Company's revenues consist primarily of (a) premiums earned on insurance and reinsurance contracts, (b) investment income and (c) the sale of securitized lottery prizes and structured settlement payment streams.
Gross premiums written in 1998 increased 20.5% to $130.4 million from $108.2 million in 1997. Total premium writings in 1998 benefited from a 37.1% increase in monoline reinsurance.
Net premiums earned grew 19.6% to $102.3 million in 1998 from $85.5 million in 1997. This growth in premiums earned was in large part attributable to increased earnings from monoline reinsurance. The following table shows net premiums earned by line of business for the periods presented:
Net investment income increased 5.5% to $53.4 million in 1998 from $50.6 million for 1997 reflecting the growth in invested assets in the period offset, in part, by a shift in the portfolio toward tax-exempt securities. After-tax investment income increased 7.6% in 1998 over 1997. The average yields on the Company's investment portfolio, after deducting associated costs, were 6.1% and 6.2% for the years ended December 31, 1998 and 1997, respectively. The average yields on the Company's investment portfolio on an after-tax basis, net of associated costs were 5.1% and 5.1% for the years ended December 31, 1998 and 1997, respectively. In addition, the Company realized $2.4 million and $0.7 million of net capital gains in 1998 and 1997, respectively. Net investment income is presented after deduction of both external investment management fees and internal costs associated with managing the investment portfolio.
Assignment sales for 1998 and 1997 were $45.4 million and $29.2 million, respectively. This revenue results from Singer's operations being consolidated with the Company's, commencing March 21, 1997.
The Company's insurance operating expense ratio for 1998 was 48.6% compared to 50.3% in 1997. Policy acquisition costs, which vary with and are directly related to the generation of new and renewal premiums, totaled $35.0 million and $30.0 million in 1998 and 1997, respectively, representing 34.2% and 35.1% of premiums earned in those respective periods. Other insurance operating expenses increased to $13.7 million in 1998 from $12.2 million in 1997. Non-insurance expenses increased from $25.1 million in 1997 to $39.9 million in 1998 reflecting the continued growth in its Singer operations as well the growth in expenses associated with the Company's diversification activities.
Net income for 1998 increased 19.8% to $82.5 million from $68.8 million in 1997. On a per share basis, basic earnings per share increased 18.3% to $2.20 in 1998 from $1.86 in 1997, while diluted earnings per share increased 18.0% to $2.10 in 1998 from $1.78 in 1997. Basic operating earnings per share increased 19.2% to $2.20 in 1998, while diluted operating earnings per share increased 18.6% to $2.10 in 1998. The Company defines operating earnings as net income, less the effect of net realized capital gains and losses, foreign exchange gains and losses, and certain non-recurring items.
Gross premiums written in 1997 increased 9.7% to $108.2 million from $98.6 million in 1996. Total premium writings in 1997 benefited from a 25.2% increase in gross premiums derived from the Company's other insurance lines.
Net premiums written increased 5.1% to $100.5 million in 1997 from $95.7 million in 1996, as a result of the increase in gross premiums partially offset by an increase in ceded premiums written from $2.9 million in 1996 to $7.6 million in 1997. The following table shows net premiums written by line of business for the periods presented:
Net Premiums Earned (in millions) 1997 1996 - -------------------------------------------- ------- ------- Municipal Reinsurance ...................... $ 37.4 $ 34.4 Non-Municipal Reinsurance .................. 12.6 13.0 Other Insurance Lines ...................... 35.5 30.0 ------- ------- $ 85.5 $ 77.4 ======= =======
Net investment income increased 6.6% to $50.6 million in 1997 from $47.5 million for 1996 reflecting the growth in invested assets in the period offset, in part, by a shift in the portfolio towards tax-exempt securities. After-tax investment income increased 9.4% in 1997 over 1996. The average yields on the Company's investment portfolio, after deducting associated costs, were 6.2% and 6.4% for the years ended December 31, 1997 and 1996, respectively. The average yields on the Company's investment portfolio on an after-tax basis, net of associated
costs were 5.1% and 5.0% for the years ended December 31, 1997 and 1996, respectively. In addition, the Company realized $0.7 million and $4.0 million of net capital gains in 1997 and 1996, respectively. Net investment income is presented after deduction of both external investment management fees and internal costs associated with managing the investment portfolio.
The Company's effective tax rate was 26.8% for 1997 compared to 27.1% in 1996. The lower 1997 rate reflects the Company's strategy of migrating a greater proportion of its investment portfolio to tax-exempt securities in 1997 partially offset by an increase in income taxed at the statutory rate.
Net income for 1997 increased 23.5% to $68.6 million from $55.7 million in 1996. On a per share basis, basic earnings per share increased 18.9% to $1.86 in 1997 from $1.56 in 1996, while diluted earnings per share increased 17.1% to $1.78 in 1997 from $1.52 in 1996. Basic operating earnings per share increased 24.2% to $1.85 in 1997, while diluted operating earnings per share increased 22.1% to $1.77 in 1997.
Liquidity is also provided by the Company's sales of securities in its available-for-sale portfolio as well as payments of principal on investments upon maturity.
Based on the historical cash flow of the Company, the Company's current financial results and the Company's expectation as to the level of the Company's net premiums written during 1999, the Company believes that cash flow provided by operating activities of the Insurance Subsidiaries during 1999 will provide sufficient liquidity for the operations of the Company, as well as funds to Enhance Financial so that Enhance Financial will be able to meet its debt service and other obligations. The ability of Enhance Financial to meet its debt service and other obligations after 1999 will depend upon the cash flow generated by its operating activities and the availability to Enhance Financial of sufficient amounts of funds from those operating activities in the form of dividends or other payments. The cash flow to Enhance Financial after 1999 may be influenced by a variety of factors, including market changes, insurance regulatory changes and changes in general economic conditions. Consequently, although Enhance Financial currently anticipates that it will be able to meet all debt service and other obligations over the long term, no assurance can be given that the available net cash provided by the Company's operating activities will provide sufficient liquidity for Enhance Financial to meet all its long-term liquidity needs.
systems may recognize a date using the two digits "00" as 1900 rather than the year 2000. Those that do not recognize a date correctly could generate erroneous data and/or cause systems to fail.
As part of its firm-wide Year 2000 Project, the Company has established a Year 2000 Task Force consisting of senior management of the Company, led by the Chief Information Officer and General Counsel of Enhance Financial. It has also retained an independent information technology consulting firm and outside legal counsel to provide assistance with Year 2000 compliance and has adequate staff to administer the Project. The progress of the Company's Year 2000 Project is being monitored by the Audit Committee of the board of directors.
The Year 2000 Project covers both computer systems and infrastructure ("IT systems") as well as other systems and equipment which utilize embedded microchips ("non-IT systems"). It also considers the readiness of significant third parties on which the Company depends, such as clients, vendors and service providers. The Year 2000 Project has six phases: Project Development and Resource Mobilization, Assessment, Remediation, Testing, Contingency Planning and Implementation. The status of each phase is as follows. Project Development and Resource Mobilization is substantially complete. Assessment of internal IT systems and non-IT systems has proceeded through inventory and analysis of all systems deemed critical by management. Assessment of exposure to third party risks, by means of evaluation of questionnaires mailed to significant third parties is in progress. As part of its third-party due diligence, the Company is assessing the Year 2000 compliance of all major products and services purchased from vendors and service providers of IT and non-IT components and systems. Remediation and Testing of IT systems and non-IT systems are in progress and a separate IT test environment has been established for selected applications deemed critical by management. Contingency Planning, including disaster recovery planning is in progress and will continue throughout 1999. Implementation of contingency plans will be made as and when needed. Based on the assessment of its major IT systems and non-IT systems, the Company expects that all necessary remediation and testing will be completed to insure that it is substantially Year 2000 compliant in all material respects.
Since 1997, Enhance has invested in a major initiative to replace and upgrade its technology. This ongoing project, addresses, among other matters, many of the Year 2000 issues of the Company's internal IT systems. The Company has expended approximately $2 million on this project, which, accordingly, includes a portion of the cost of Year 2000 compliance. Additional expenditures for Year 2000 compliance, which will be funded through operating cash flow, are expected to total approximately $1.5 million. These cost estimates are based upon currently available information and may change as the Year 2000 Project proceeds. However, the cost of Year 2000 compliance is not expected to affect materially the financial condition of the Company.
Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 1998, 1997 and 1996 42
Consolidated Statements of Cash Flows for the Years Ended December 31, 1998, 1997 and 1996 43
All schedules not included are omitted because they are either not applicable or because the information required therein is included in Notes to Consolidated Financial Statements.
We have audited the accompanying consolidated balance sheets of Enhance Financial Services Group Inc. and Subsidiaries as of December 31, 1998 and 1997 and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Enhance Financial Services Group Inc. and Subsidiaries as of December 31, 1998 and 1997 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998 in conformity with generally accepted accounting principles.
ENHANCE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998 (in thousands except share amounts)
ENHANCE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 1998, 1997 and 1996
The Company's other insurance businesses involve the issuance of direct financial guaranties of smaller municipal debt obligations, trade credit reinsurance, financial responsibility bonds and excess-SIPC/excess-ICS and related type bonds. These other insurance businesses are conducted by the Company's Insurance Subsidiaries, Van-American Companies, Inc. and subsidiaries ("Van-Am", see Note 5), and Enhance Reinsurance (Bermuda) Limited ("EnRe Bermuda"), a Bermuda domiciled insurer.
The effect of reinsurance on losses and loss adjustments expenses for the years ended December 31, 1998, 1997 and 1996 was a decrease of $1,230,000, $335,000 and $678,000, respectively.
The Company acquires from individuals the right to receive lottery awards and structured settlement payments and securitizes these payment streams. Income is recognized at the time of sale through the securitization process for the difference between the net sales proceeds and the purchase price paid to individuals, less commissions.
Deferred policy acquisition costs comprise those expenses that vary with and are primarily related to the production of insurance premiums, including: commissions paid on reinsurance assumed, salaries and related costs of underwriting and marketing personnel, rating agency fees, premium taxes and certain other underwriting expenses, offset by ceding commission income on premiums ceded to reinsurers. Acquisition costs are deferred and amortized over the period in which the related premiums are earned. Deferred policy acquisition costs are reviewed periodically to determine that they do not exceed or be less than recoverable amounts, after considering investment income.
Reserves for losses and LAE are established based on the Company's best estimate of specific and non-specific losses, including expenses associated with settlement of such losses, on its
Following is a reconciliation of weighted average common shares outstanding to weighted average common and common equivalent shares outstanding for the years ended December 31, 1998, 1997 and 1996.
Effective in 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive Income." This pronouncement established new rules for the reporting and display of comprehensive income and its components in a full set of general purpose financial statements. The adoption of this statement had no impact on the Company's financial position or results of operations. SFAS No. 130 requires the Company's unrealized gains and losses and changes in foreign currency translation adjustment to be included in other comprehensive income. Prior years financial statements have been reclassified to conform to these requirements.
In March 1998, the National Association of Insurance Commissioners adopted the Codification of Statutory Accounting Principles (the "Codification"). The Codification is intended to standardize regulatory accounting and reporting for the insurance industry and is proposed to be effective January 1, 2001. However, statutory accounting principles will continue to be established by individual state laws and permitted practices, and it is uncertain when or if, the State of New York will require adoption of the Codification for the preparation of statutory financial statements. The Company has not finalized the quantification of the effects of Codification on its statutory financial statements
of Enhance Re and Asset Guaranty was $40.7 million and $11.7 million, respectively, for the year ended December 31, 1997. Statutory net income of Enhance Re and Asset Guaranty was $46.5 million and $8.8 million, respectively, for the year ended December 31, 1996.
The following is a summary of the Company's investments in fixed maturities at December 31, 1998 and 1997:
The amortized cost and estimated fair value of fixed maturities at December 31, 1998 by contractual maturity are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
The net unrealized appreciation of investments included as a component of other comprehensive income at December 31, 1998 and 1997 is as follows (in thousands):
1998 1997 ---- ---- Difference between market value and amortized cost of available for sale portfolio Fixed maturities $ 36,730 $ 30,689 Equity securities 341 335 -------- -------- 37,071 31,024 Deferred tax expense (14,106) (11,628) -------- -------- Net unrealized appreciation of investments $ 22,965 $ 19,396 ======== ========
In 1997, as part of the recapitalization of Van-Am, the Company contributed $2.0 million to Van-Am. The Company owns a controlling equity interest in the outstanding stock of Van-Am and accounts for its investment on a consolidated basis. Due to intense pricing competition in Van-Am's core business and a poor strategic fit with the Company's other operations, the Company has decided to exit the surety line of business and sell its interest in Van Am, if possible. If the Company is unable to sell its interest in Van Am, the Company plans to run-off its insurance liabilities, which may take ten or more years. An estimated $2.3 million of expenses associated with this action have been recognized in the 1998 fourth quarter.
In 1995, the Company acquired all of the outstanding shares of Litton Loan Servicing, Inc. ("LLSI"), a Houston-based loss mitigation residential mortgage servicer. The purchase price approximated the fair market value of the acquired assets and liabilities at the date of acquisition.
1998 1997 1996 ------ ------ ------ Mortgage-related assets $550.1 $189.6 $ 83.2 Other assets 73.4 40.0 20.0 ------ ------ ------ Total assets 623.5 229.6 103.2 ====== ====== ======
In January 1998, C-BASS entered into a revolving credit facility agreement with a major commercial bank. At March 19, 1999, Enhance Financial had guaranteed $25 million under this facility.
In 1995, the Company acquired, for cash, a 50% joint venture interest in Singer, which originates, securitizes and sells various types of special assets such as lottery awards, structured settlement payments and similar obligations. In 1997, the Company acquired the remaining 50% of Singer in a series of all-stock transactions for an aggregate purchase price valued at $21.3 million. The excess (approximately $20.4 million) of the Company's aggregate cost over the fair value of the net assets of Singer represents goodwill and is being amortized on a straight line basis over 20 years.
In November 1998, the Company acquired through merger all of the outstanding shares of Alegis Group, Inc. ("Alegis"), the parent holding company of a Houston-based servicer and collector of delinquent consumer assets for an aggregate purchase price of approximately $11.7 million which approximated the fair market value of Alegis (see Note 8).
Total assets of the Company's unconsolidated subsidiaries and affiliates accounted for by the equity method of accounting at December 31, 1998 and 1997 were $707.2 million and $293.4 million respectively. Total liabilities at December 31, 1998 and 1997 were $507.3 million and $194.7 million, respectively. Total net income for the years' ended December 31, 1998 and 1997 was $30.5 million, and $17.1 million, respectively.
In thousands Years Ended December 31, 1998 1997 1996 ---- ---- ---- Tax provision at statutory rate $ 39,482 $ 32,884 $ 26,736 Tax exempt interest and dividends (9,796) (7,878) (6,492)
The components of the net deferred income tax liability as of December 31, 1998 and 1997 are as follows:
Other 3,900 1,656 5,816 3,116 -------- -------- --------- --------- $ 48,398 $127,967 $ 45,522 $ 110,202 ======== ======== ========= =========
In thousands December 31, 1998 1997 -------- -------- Debentures, due 2003 $ 75,000 $ 75,000 Short term debt 54,290 43,500 -------- -------- Total $129,290 $118,500 ======== ========
Enhance Financial maintains an unsecured credit facility through a credit agreement (the "Credit Agreement") with major commercial banks providing for borrowing by Enhance Financial of up to $100 million to be used for general corporate purposes. Advances under the Credit Agreement bear interest at variable LIBOR-based rates. The average interest rate paid on such advances in 1998 was 6.09%. The Credit Agreement prohibits the Company from incurring additional indebtedness to the extent the resulting total would exceed 25% of the Company's total capitalization as defined and includes certain convenants, none of which significantly restricts the Company's operating activities or dividend-paying ability. The total outstanding under the Credit Agreement at December 31, 1998 was $53.5 million.
In connection with its repurchase program, Enhance Financial entered into a forward purchase agreement during 1997 regarding 256,394 shares of its common stock at a forward purchase price of $21.25 per share. The agreement settles quarterly on a net basis in shares of Enhance Financial stock or in cash at Enhance Financials' election. To the extent that the market price of Enhance Financial common stock on a settlement date was higher (lower) than the forward purchase price, the net differential was received (paid) by Enhance Financial. During 1998, settlements resulted in Enhance Financial receiving 106,394 shares, which were recorded as treasury shares. The agreement terminated in June 1998 after Enhance Financial repurchased the full amount under the program.
During 1998, Enhance Financial issued 454,473 shares of common stock in connection with its acquisition of Alegis Group Inc. (see Note 5).
Short-Term Investments - Fair values of short-term investments are assumed to equal cost.
Deferred Premium Revenue - The fair value of the Company's deferred premium revenue, net of prepaid reinsurance premium, is based on the estimated cost of entering into a cession of the
The carrying amounts and estimated fair values of these financial instruments are as follows:
Type of Issue In billions December 31, 1998 1997 ------- ------- General obligation and other tax backed $ 21.0 $ 18.8 Non-municipal 15.3 13.5 Utilities 11.2 10.3 Health care 7.1 6.8 Airport/Transportation 7.7 6.8 Housing 1.5 1.5 Other municipal 5.1 2.4 Other insurance businesses 6.8 4.3 ------- ------- Total $ 75.7 $ 64.4 ======= =======
State of Issue In billions December 31, 1998 1997 ------- ------- California $ 8.9 $ 7.7 New York 8.1 6.2 Florida 4.7 4.1 Texas 4.3 3.7 Pennsylvania 3.7 2.9 Illinois 3.3 2.5 Other (each less than 3.3% for 1998 and 2.5% for 1997) 42.7 37.3 ------- ------- Total $ 75.7 $ 64.4 ======= =======
In thousands Years Ended December 31, 1998 1997 1996 ---- ---- ---- Service Cost $ 1,022 $ 900 $ 1,298 Interest Cost 485 494 485 Expected return on plan assets (415) (377) (322) Amortization of transition obligation 2 2 2 Amortization of prior service cost 53 53 53 Recognized net actuarial gain (129) (101) (107) ------- ----- ------- Net periodic benefits cost $ 1,018 $ 971 $ 1,409 ======= ===== =======
The following table sets forth the funding status of the plan and the accrued pension cost recognized in the Company's consolidated balance sheets at December 31, 1998 and 1997:
The net post-retirement benefit cost for 1998, 1997, and 1996 was $140,000, $127,000 and $118,000, respectively, and includes service cost, interest cost and amortization of the transition obligation and prior service cost.
In March 1998, the board of directors adopted the Director Stock Ownership Plan, which as amended, allows each outside director to elect to receive up to 100% of his or her director fees in the form of shares of common stock valued at the closing price of the common stock on the New York Stock Exchange on that date. Each eligible director is entitled to make a new election annually for that coming year's fee.
Option Price Per 1996 Options Number of Shares Share ------------ ---------------- ----- Outstanding at beginning of year 4,831,442 $ 7.25 - $13.31 Granted - Employees 800,220 $13.44 - $17.00 - Directors 52,000 $18.25 Exercised (462,550) $ 7.25 - $10.13 Expired or canceled (114,892) $ 8.00 - $11.94 -------- Outstanding at year-end 5,106,220 $ 7.25 - $18.25 -------- Exercisable at year-end - Employees 2,642,914 $ 7.25 - $11.94 - Directors 286,666 $ 8.26 - $13.31
The Company applies the provisions of APB Opinion No. 25 "Accounting for Stock Issued to Employees" in accounting for its stock option program. Accordingly, no compensation expense has been recognized for options granted under its stock option program, and the Company has adopted the disclosure-only provisions of SFAS No. 123, "Accounting for Stock-Based Compensation." Had compensation cost for the Company's current and past stock option programs been determined based upon the fair value at the grant date for awards under these plans consistent with the methodology prescribed under SFAS No. 123, the Company's net income and earnings per share would have been reduced to the pro forma amounts indicated below:
Diluted earnings per share - as reported $2.10 $1.78 $1.52 - pro forma $2.06 $1.75 $1.50
The Company has committed to lease office space under non-cancelable leases which expire in August 1999, November 1999, April 2000, August 2000, June 2001, August 2001, July 2003 and June 2005. The leases provided for escalations resulting from increased assessments for taxes, utilities and maintenance. Future minimum rental payments on all leases, before any deductions for estimated sublease income, are as follows:
Years Ended December 31, Operating Leases ---------------- 1999 $ 2,825 2000 1,337 2001 449 2002 492 2003 572 Thereafter 936 ----- $ 6,611
In thousands December 31, 1998 1997 ---- ---- ASSETS Cash $ 2,715 $ -- Investments 7,095 12,706 Investment in affiliated companies 784,235 658,609
Equity in income of affiliates 102,459 77,500 61,727 --------- -------- -------- Income before income taxes 85,757 63,358 50,696
In thousands Years Ended December 31, 1998 1997 1996 ---- ---- ---- Cash flows from operating activities: Net income $ 82,457 $ 68,806 $55,704 Adjustments to reconcile net income to net cash from operating activities Equity in income of affiliates (102,459) (77,500) (61,727) Other 55,239 29,799 (22,188) --------- -------- -------- Net cash provided by (used) in operating activities 35,237 21,105 (28,211) --------- -------- --------
The Company derives a substantial portion of its premium writings from a small number of primary insurers. Specifically:
o In 1997 four primary insurers accounted for 17%, 16%, 9% and 7% of gross premiums written.
In thousands Years Ended December 31, 1998 1997 1996 ---- ---- ---- Balance at January 1, $33,675 $28,081 $30,799 Less reinsurance recoverables 2,688 1,823 1,853 ------- ------- ------- Net balance at January 1, 30,987 26,258 28,946 ------- ------- -------
Net paid related to: Current year 352 720 587 Prior years 7,220 4,306 11,285 ------- ------- ------- Net paid 7,572 5,026 11,872 ------- ------- -------
The Company has two reportable segments: insurance and asset-based businesses. The insurance segment provides credit-related insurance coverage to meet the needs of customers in a wide variety of domestic and international markets. The Company's largest insurance business is the provision of reinsurance to the monoline primary financial guaranty insurers for both municipal bonds and non-municipal obligations. The Company also provides trade credit reinsurance, financial responsibility bonds, excess-SIPC insurance and direct financial guaranty insurance. The asset-based businesses segment deals primarily with credit-based servicing and securitization of assets in underserved markets, in particular, the origination, purchase, servicing and securitization of special assets, including lottery awards, structured settlement payments, sub-performing/non-performing and seller-financed residential mortgages and delinquent consumer assets. The Company's reportable segments are strategic business units which are managed separately as each business requires different marketing and sales expertise.
---- In thousands Insurance Asset-Based Totals --------- ----------- ------ Revenues from external customers 80,171 0 80,171 Interest revenue 47,462 0 47,462 Interest expense 5,522 0 5,522 Equity in income of affiliates 274 0 274 Income tax expense 20,686 0 20,686 Operating earnings 53,144 0 53,144 Investments in affiliates 24,181 0 24,181 Deferred policy acquisition cost 87,325 0 87,325 Identifiable assets 983,443 0 983,443
Operating earnings for reportable segments $ 82,521 $ 68,403 $ 53,144 Capital and foreign exchange gains net of tax 1,398 403 2,560 Non-recurring Van-Am expense, net of tax (1,462) -- -- --------- -------- -------- Net income $ 82,457 $ 68,806 $ 55,704 ========= ======== ========