The Company's insurance operations lease offices in the following locations: Square Lease Feet Expiration NSA Group: Birmingham, Alabama 68,000 2005 Atlanta, Georgia 81,000 1998 Norcross, Georgia 147,000 2000 Independence, Ohio 43,000 1998
Real Estate The Company's real estate inventory at December 31, 1995 included approximately 8,400 acres of real estate spread throughout 12 states.
Oil and Gas Properties The Company owns certain developed and undeveloped oil and gas properties, located primarily in Oklahoma.
The following table sets forth certain data for the periods indicated (dollars in millions). Year-to-year comparisons are affected by business dispositions, restructuring provisions and other non-recurring items.
Earnings Statement Data (a): Net Written Premiums $1,492 $1,636 $1,379 $1,067 $ 865
Earnings (loss) from: Continuing Operations 67 1 243 51 50 Discontinued Operations - (1) (11) 1 (47) Extraordinary Items (5) - - - - Cumulative Effect of Accounting Change - - - 253 - Net Earnings 62 - 232 305 3
Unpaid Losses and Loss Adjustment Expenses, Unearned Premiums and Policyholder Dividends 1,684 1,674 1,426 1,069 890
Long-term Debt: Parent Company 321 500 516 650 650 Subsidiaries 9 10 10 10 20
Following is a discussion and analysis of the financial statements and other statistical data that management believes will enhance the understanding of the Company's financial condition and results of operations. This discussion should be read in conjunction with the financial statements beginning on page.
In April 1995, the Company became a wholly-owned subsidiary of American Premier Group, Inc., a new corporation formed by the Company for the purpose of acquiring all of the common stock of the Company and American Financial Corporation (the "Mergers"). In June 1995, American Premier Group changed its name to American Financial Group, Inc. ("AFG"). Under terms of the Mergers, (a) the Company merged with a subsidiary of AFG and each share of Company Common Stock then outstanding was converted into one share of AFG Common Stock, and (b) American Financial Corporation ("AFC") merged with another subsidiary of AFG and all shares of AFC common stock were exchanged for 28.3 million shares of AFG Common Stock. As a result of the Mergers, all of the common stock of the Company and AFC is owned by AFG and AFG is the Company's successor as the issuer of publicly held common stock.
Sources of Funds American Premier is organized as a holding company with almost all of its operations being conducted by subsidiaries. The parent corporation, however, has continuing cash needs for administrative expenses, the payment of principal and interest on borrowings and common stock dividends. Thus, the Company relies primarily on dividends and tax payments from its subsidiaries for funds to meet its obligations.
Prior to the Mergers, the Company had substantial cash and short-term investments at the parent company level. Subsequent to the Mergers, the Company repurchased approximately $180 million of its subordinated notes and made loans to AFC under a formal credit agreement. At December 31, 1995, amounts outstanding under the AFC agreement totaled $623.2 million. In addition, the Company entered into a formal credit agreement with AFG. At December 31, 1995, amounts payable to AFG under the AFG agreement totaled $84.0 million.
Uncertainties The Company and its subsidiaries are parties in a number of proceedings relating to former operations. See Note K of Notes to Financial Statements. While the results of all such uncertainties cannot be predicted, based upon its knowledge of the facts, circumstances and applicable laws, management believes that sufficient reserves have been provided.
At December 31, 1995, the Company's mortgage-backed securities ("MBSs"), represented approximately 10% of the Company's bonds and mandatory redeemable preferred stocks. The Company invests primarily in MBSs which are structured to minimize prepayment risk. In addition, the majority of MBSs held by the Company were purchased at discounts to par value. Management believes that the structure and discounted nature of the
Results for 1995 include a $76 million decrease in underwriting results of the Company's insurance operations and an $8 million decrease in portfolio interest and dividend income. These items were partially offset by $45 million of interest income from loans to AFC, $24 million in realized gains on the sales of securities and an $8 million decrease in interest on borrowed money.
Property and Casualty Insurance - Underwriting Underwriting profitability is measured by the combined ratio which is a sum of the ratio of underwriting expenses, losses, and loss adjustment expenses to premiums. When the combined ratio is under 100%, underwriting results are generally considered profitable; when the ratio is over 100%, underwriting results are generally considered unprofitable. The combined ratio does not reflect investment income, other income or federal income taxes.
The Company manages and operates its property and casualty business as two major sectors. The NSA Group is a group of nonstandard automobile insurance companies which underwrite physical damage and liability policies for "nonstandard risks." Nonstandard insureds are those individuals who are unable to obtain insurance through standard market carriers due to factors such as age, record of prior accidents, driving violations, particular occupation or type of vehicle. Republic Indemnity is engaged in the sale of workers' compensation insurance in California and, to a lesser extent, in Arizona. Workers' compensation policies provide coverage for statutory prescribed benefits that employers are required to pay employees who are injured in the course of employment and for an employer's liability for losses suffered by its employees which are not included within the statutory prescribed workers' compensation coverage.
NSA Group The NSA Group attributes its premium growth in recent years primarily to entry into additional states, increased market penetration in its existing states, overall growth in the nonstandard market, premium rate increases and the purchase of Leader National in May 1993. The increase in the combined ratio for 1995 compared with 1994 was due primarily to inadequate rate levels in certain markets and weather-related losses principally from hailstorms in Texas (1.3 points in the combined ratio). These factors were partially offset by a reduction in the underwriting expense ratio due largely to cost control measures.
Underwriting conditions in the private passenger automobile insurance marketplace in 1994 were affected by competitive conditions and the pricing policies of insurers. Also, improving economic conditions contributed to increased driving activity resulting in an increase in the frequency of accidents and severity of claims. These trends caused a deterioration in the NSA Group's underwriting profit margins during 1994. These factors were partially offset by underwriting profit from the NSA Group's entry into certain markets, as well as improved underwriting margins in several markets where the book of business matured and a greater portion of new premium was derived from renewal policies.
Premium rate increases were implemented in several states during 1994 and 1995. Rate increases implemented in various states during 1995 averaged approximately 10% across the NSA Group's entire book of business. The higher rate levels and competitive pressures in the nonstandard automobile insurance industry adversely impacted premium growth during 1995.
1995 compared to 1994 Excluding interest income of $45 million earned in 1995 on amounts due from affiliates, investment income decreased $8 million (5%) due to a decrease in average investments held.
1994 compared to 1993 Excluding interest income of $25 million on the General Cable notes recorded in 1993, investment income increased $26 million (18%) in 1994 due primarily to an increase in average investments held.
Provision for Asset Impairment Provision for asset impairment includes expected losses associated with the intended divestitures of the Company's non-insurance investments.
Other Operating and General Expenses Operating and general expenses included $39.3 million and $98.6 million in 1994 and 1993, respectively, from divested, non-insurance subsidiaries.
Consolidated Statement of Earnings- For the years ended December 31, 1995, 1994 and 1993
Consolidated Statement of Cash Flows- For the years ended December 31, 1995, 1994 and 1993