As discussed in Note A to the financial statements, at the close of business on December 31, 1996, AFG contributed to AFC 81% of the common stock of American Premier. Because AFC and American Premier have been under the common control of AFG since merger transactions completed in April 1995 (the "Mergers"), the acquisition of American Premier has been recorded by AFC at AFG's historical cost in a manner similar to a pooling of interests. Accordingly, the historical consolidated financial statements of AFC for periods subsequent to the Mergers have been restated to include the accounts of American Premier.
Property and Casualty Insurance - Underwriting Following the sale of its Commercial lines division in late 1998, AFC's property and casualty group is engaged primarily in private passenger automobile and specialty insurance businesses. Accordingly, AFC has realigned its property and casualty group into two major business groups: Personal and Specialty.
requires drivers to provide proof of insurance in order to obtain a valid permit contributed to a growth in personal automobile business. Rate increases during 1995 and early 1996, primarily in the nonstandard auto group, contributed to the improvement in the combined ratio in 1997.
Minority Interest Expense Minority interest expense for 1996 includes $6.5 million related to the sale of Citicasters shares held by AFEI.
Recoverables from reinsurers and prepaid reinsurance premiums 1,973,895 998,743 Agents' balances and premiums receivable 618,198 691,005 Deferred acquisition costs 464,047 521,898 Other receivables 318,154 261,454 Assets held in separate accounts 120,049 300,491 Prepaid expenses, deferred charges and other assets 343,554 405,798 Cost in excess of net assets acquired 285,469 299,408
The gross deferred tax asset has been reduced by a valuation allowance based on an analysis of the likelihood of realization. Factors considered in assessing the need for a valuation allowance include: (i) recent tax returns, which show neither a history of large amounts of taxable income nor cumulative losses in recent years, (ii) opportunities to generate taxable income from sales of appreciated assets, and (iii) the likelihood of generating larger amounts of taxable income in the future. The likelihood of realizing this asset will be reviewed periodically; any adjustments required to the valuation allowance will be made in the period in which the developments on which they are based become known. The aggregate valuation allowance decreased by $9.3 million in 1998 due primarily to the utilization of net operating loss carryforwards previously reserved.
In the second quarter of 1998, AFC recorded approximately $41 million of losses due to severe storms in the midwestern part of the country. In the fourth quarter of 1998, AFC increased A&E reserves by recording a non-cash, pretax charge of $214 million. In the fourth quarter of 1997, AFC increased California workers' compensation reserves by approximately $25 million due to increased claims severity related to business written in 1996 and 1997. The fourth quarter of 1997 also includes income of $46.3 million (included in "other income") from the sale of development rights in New York City.
Property and casualty companies $261 $159 $276 $1,840 $1,916 Life insurance companies 41 74 67 365 324
P. Additional Information Total rental expense for various leases of office space, data processing equipment and railroad rolling stock was $41 million, $36 million and $34 million for 1998, 1997 and 1996, respectively. Sublease rental income related to these leases totaled $5.4 million in 1998, $5.4 million in 1997 and $6.1 million in 1996.
AMERICAN FINANCIAL CORPORATION AND SUBSIDIARIES SCHEDULE V - SUPPLEMENTAL INFORMATION CONCERNING PROPERTY-CASUALTY INSURANCE OPERATIONS THREE YEARS ENDED DECEMBER 31, 1998 (IN MILLIONS)