Consolidated net income for the Company was $184 million in 1994 compared to $212 million in 1993 and $97 million in 1992. During 1993, the Company adopted Statement of Financial Accounting Standards Statement No. 106, Employers' Accounting for Postretirement Benefits Other than Pensions, and Statement No. 109, Accounting for Income Taxes. Excluding the effects of implementing those new accounting standards, the Company earned $206 million in 1993.
Revenues: Total revenues for 1994 were $2,046 million compared to $2,035 million in 1993 and $1,933 million in 1992. Excluding realized gains and losses on investments, revenues were $2,063 million in 1994 compared to $1,921 million in 1993 and $1,953 in 1992. Universal life and investment product (primarily group and individual annuities) policy charges increased 27% to $239 million in 1994 from $188 million in 1993 ($148 million in 1992). This growth in revenues is attributable to the increase in universal life and investment product considerations received to $5.5 billion in 1994 from $4.0 billion in 1993 ($3.4 billion in 1992). Management anticipates continued growth in universal life and investment product revenues, although the growth will likely be at a slower pace than the past three years.
Net investment income increased 7.1% to $1,290 million in 1994 from $1,204 million in 1993. Net investment income for 1993 was up 7.5% from $1,120 million in 1992. The increases in both 1994 and 1993 are attributable to the significant growth in invested assets, primarily in annuity and pension products, offset by lower yields on investments which is consistent with the overall decline in market interest rates into the first quarter of 1994.
Other operating costs and expenses increased $23 million (7%) to $352 million in 1994 from $329 million in 1993 ($322 million in 1992). In 1994, the individual annuity lines accounted for nearly $17 million of the increase due to greater sales and administrative expenses in support of the increased volume. In addition, other operating costs for accident and health insurance lines increased $8 million. The 2.3% increase in other operating costs and expenses in 1993 over 1992 is mostly due to continued growth in the individual and group annuity lines of business, partially offset by a reduction in National Casualty Company's expenses as a result of the 100% quota share reinsurance agreement with Nationwide Mutual Insurance Company.
Investment Portfolio: The Company does not invest in lower quality, higher-risk fixed maturity securities. Non-investment grade securities, all of which are the result of down grading since the time of purchase by the Company, were 2.3% of total fixed maturity securities as of December 31, 1994.
Effective January 1, 1994, the Company adopted Statement of Financial Accounting Standards No. 115 - Accounting for Certain Investments in Debt and Equity Securities (SFAS 115). See the Capital Resources section below for a discussion of SFAS 115.
Private placement fixed maturity securities provide certain advantages over public issues and are purchased when possible. As of December 31, 1994, private placement fixed maturity securities were 32% of total fixed maturity securities. While they are less liquid than public issues, private issues generally offer higher yields, better call provisions, greater takeover protection, enhanced protective covenants and the potential of specific collateral.
Collateralized mortgage obligations comprised 29.5% of fixed maturity securities as of December 31, 1994. Substantially all collateralized mortgage obligation holdings are in planned amortization class tranches. The Company does not invest in higher-risk collateralized mortgage obligations such as interest-only, principal-only, inverse floater or support tranches.
The Company's mortgage loan on real estate portfolio consists of first mortgages on existing income-producing properties. Higher-risk loans, such as second mortgages, construction loans, participating or convertible mortgages or land development loans are not made by the Company. Realized losses on mortgage loans on real estate were $20.5 million, $28.2 million and $36.3 million for 1994, 1993 and 1992, respectively. As of December 31, 1994, valuation allowances on mortgage loans on real estate were $47.9 million, or 1.1% of the portfolio, compared to $42.4 million, or 1.1% of the portfolio, as of December 31, 1993. See note 9 to the consolidated financial statements for disclosures of concentrations of risk by geographic area and borrower.
Capital Resources: Total consolidated shareholder's equity increased to $1,908 million as of December 31, 1994 from $1,651 million as of December 31, 1993 ($1,430 million as of December 31, 1992). SFAS 115 resulted in certain debt securities being recorded at fair value with unrealized gains or losses, net of certain adjustments to deferred policy acquisition costs and deferred Federal income taxes, reported as a component of consolidated shareholder's equity. See notes 2(b) and 3 to the consolidated financial statements for more disclosures regarding SFAS 115. Excluding unrealized investment gains and losses, consolidated shareholder's equity increased $384 million (23%) to $2,028 million as of December 31, 1994, from $1,644 million as of December 31, 1993 ($1,340 million as of December 31, 1992). The increases in consolidated shareholder's equity are attributable to the Company's consolidated net income and capital contributions from Nationwide Corporation. During 1994 and 1993, the Company received capital contributions of $200 million and $111 million, respectively, from Nationwide Corporation to support the Company's growth in operations. No significant capital contributions from, or dividend payments to, Nationwide Corporation are anticipated over the next year.
Effective December 31, 1994, the Company purchased all of the outstanding shares of Employers Life Insurance Company of Wausau from Wausau Service Corporation for an amount approximating $165 million, subject to specified adjustments, if any, subsequent to year end. Wausau Service Corporation is a wholly-owned subsidiary of Employers Insurance of Wausau A Mutual Company, which is affiliated with the Company's ultimate parent, Nationwide Mutual Insurance Company. The Company transferred fixed maturity securities and cash with a fair value of $155 million to Wausau Service Corporation, which resulted in a realized loss of $19.2 million of the disposition of the securities. An accrual approximating $10 million is reflected in the consolidated balance sheet. The purchase price approximated both the historical cost basis and fair value of net assets of Employers Life Insurance Company of Wausau.
On March 1, 1995, Nationwide Corporation contributed all of the outstanding shares of Farmland Life Insurance Company to Nationwide Life Insurance Company. Farmland Life Insurance Company's total assets and shareholder's equity approximated $113 million and $41 million, respectively, which is 0.4% and 2.1% of the Company's total assets and shareholder's equity, respectively, as of December 31, 1994.
The changes in ownership of Employers Life Insurance Company of Wausau and Farmland Life Insurance Company were effected to align essentially all life insurance operations of the Nationwide Insurance Enterprise under Nationwide Life Insurance Company.
The Company employs a process to match the maturities of assets and liabilities and to identify cash and investment needs for the respective line of business investment strategies. The matching process includes a provision for more rapid than expected cash outflows. The Company's investment strategy involves the commitment of funds which provide for meeting its responsibilities to policyholders and to provide a return to its shareholder.
The consolidated financial statements of Nationwide Life Insurance Company and subsidiaries are submitted in a separate section of this report which is indexed in Item 14.