For the years ended December 31, 1998 1997 1996 - -------------------------------------------------------------------------------- Net investment income $ 64.2 $ 36.8 $ 32.3 Realized investment gains 25.4 14.1 12.1 ----------------------------------------------
In the fourth quarter of 1997, HSBIIC settled all of its outstanding contracts that required HSBIIC to pay its counterparty $30.7 million in foregone appreciation on its portfolio. In 1997, the Company's U.S. common stock portfolio experienced a total return of $57 million (which included price appreciation of approximately $54 million) and had a price movement correlation with the S&P 500 Index well in excess of 80 percent.
The following table reflects the estimated effects on the market value of the Company's financial instruments due to an increase in interest rates of 100 basis points, a 10 percent decline in the S&P 500 Index, and a decline of 10 percent in foreign currency exchange rates.
Consolidated Statements of Operations for the years ended December 31, 1998, 1997 and 1996. 46
Consolidated Statements of Financial Position - December 31, 1998 and 1997. 48
Cash and cash equivalents include cash on hand and short-term highly liquid investments with maturities of three months or less. Short-term investments have a maturity of one year or less and are carried at cost, which together with accrued interest thereon, approximates fair value. Fixed maturities include bonds, notes and redeemable preferred stocks. Equity securities include common and non-redeemable preferred stocks. All fixed maturities and equity securities are classified as available for sale. Accordingly, these investments are carried at estimated fair value. Estimated fair values of securities classified as available for sale are based principally upon quoted market prices. Unrealized gains and losses on investments classified as available for sale and foreign exchange gains and losses on certain investments in foreign operations where the U.S. dollar is not the functional currency are included net of income tax in shareholders' equity.
Deferred tax assets and liabilities are generally determined based on the difference between financial statement and tax bases for certain assets and liabilities using tax rates in effect for the year in which the differences are expected to reverse. Deferred tax assets are allowed if future realization is more likely than not. Deferred income taxes are provided for unrealized appreciation/depreciation on fixed maturities and equity securities available for sale, prepaid acquisition costs, loss reserve discounting, unearned premiums, certain employee benefit costs and other items which are the result of temporary differences in the treatment of such items for tax and financial statement purposes (see note 12).
At a special meeting of HSBIIC on June 23, 1997, shareholders voted to approve a proposal which enabled the formation of a new holding company, HSB Group, Inc. Shareholders of HSBIIC's common stock and convertible redeemable preferred stock automatically became holders of HSB Group, Inc. common stock and convertible redeemable preferred stock, respectively, through a share exchange approved by the shareholders. Certificates
A summary of grants follows (1997 and 1996 numbers have been adjusted to reflect the April 1998 stock split - see note 3):
Schedule I HSB Group, Inc. Summary of Investments - Other Than Investments in Related Parties (in millions)
Company obligated mandatorily redeemable capital securities of subsidiary Trust I holding solely junior subordinated deferrable interest debentures of the Company, net of unamortized discount of $1.1 in 1998 and 1997. 108.9 108.9
Company obligated mandatorily redeemable convertible capital securities of subsidiary Trust II holding solely junior subordinated deferrable interest debentures of the Company. 300.0 300.0
** Dividends received from Hartford Steam Boiler Inspection and Insurance Company were $56.1 million and $12.8 million in 1998 and 1997 respectively.