felanders/preprocessed huggingface dataset:
Interest expense on contract holders deposit funds was $2.2 million in each of the years 2000 and 1999, as compared to $2.4 million in 1998. This expense is related to the universal life book of business, which was a relatively level amount during the three-year period.
The operating expenses for 2000 were $11.4 million, as compared to $11.7 million on 1999 and $11.8 million in 1998. The decrease in operating expenses of $365,000 from 1999 to 2000 is due to a reduction of overall operating expenses in 2000 and the reduction of Y2K conversion expenses incurred in 2000 as compared to 1999's expenses. The experience of level expenses from 1998 to 1999 was due to a reduction of overall operating expenses in 1999 offset by the additional costs relating to the Y2K conversion.
MANAGEMENT'S DISCUSSION & ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The results of operations for Allmerica Property & Casualty Companies, Inc. and subsidiaries (the "Company") include the accounts of Allmerica Property & Casualty Companies, Inc. ("Allmerica P&C"), a non-insurance holding company; The Hanover Insurance Company ("Hanover"), a property and casualty insurance company wholly owned by Allmerica P&C; Citizens Corporation, a non-insurance holding company for Citizens Insurance Company of America (collectively, "Citizens"); and certain other insurance and non-insurance subsidiaries. Hanover owns 82.5% of the outstanding common stock of Citizens Corporation.
The Company wishes to caution readers that the following important factors, among others, in some cases have affected and in the future could affect, the Company's actual results and could cause the Company's actual results for 1997 and beyond to differ materially from those expressed in any forward-looking statements made by, or on behalf of, the Company. When used in the MD&A discussion, the words "believes," "anticipated," "expects" and similar expressions are intended to identify forward-looking statements. See "Important Factors Regarding Forward-Looking Statements" filed herewith as Exhibit 99.1 and incorporated herein by reference.
On February 19, 1997, AFC and Allmerica P&C entered into an Agreement and Plan of Merger (the "Merger Agreement") pursuant to which AFC will acquire all of the outstanding Common Stock, $1.00 par
The Company is engaged primarily in the property and casualty insurance business and operates in the United States. Substantially all of the Company's earnings are generated in Michigan at Citizens and the Northeast (Connecticut, Massachusetts, New York, New Jersey, New Hampshire, Rhode Island, Vermont and Maine) at Hanover. The Company's insurance operations are segmented into personal and commercial lines of business, based on common underlying risks and customer types for individual products in those segments. The personal segment includes products such as automobile insurance and homeowners insurance. The commercial segment includes products such as automobile insurance, commercial multiple-peril insurance, and workers' compensation insurance. Investments are available for payments of claims and expenses for all products. Investment income, realized gains and total assets have not been identified to specific segments.
invests a portion of its total assets in short-term investments (approximately 8.14%, 8.74% and 10.32% as of December 31, 1999, 1998 and 1997, respectively). The weighted average duration of the Company's bond portfolio was approximately five and one half years as of December 31, 1999. The Company's fixed maturity investments are all classified as available for sale and include those securities available to be sold in response to, among other things, changes in market interest rates, changes in the security's prepayment risk, the Company's need for liquidity and other similar factors. These investments are carried at estimated market value, and unrealized gains (losses), net of federal income taxes and deferred policy acquisition costs, if any, are charged directly to shareholders' equity, unless a decline in market value is considered to be other than temporary, in which event the Company recognizes a loss. Equity securities include common stocks and non-redeemable preferred stocks and are carried at market, with the related unrealized gains and losses, net of federal income taxes, if any, charged or credited directly to shareholders' equity, unless a decline in market value is considered to be other than temporary, in which event the Company recognizes a loss.
Equity in net loss of unconsolidated affiliate. Equity in net loss of unconsolidated affiliate was $-0- for 2001 from $1.4 million for 2000. In 2000, the Company wrote off its investment in the associated investment. See discussion related to Montlake above.
We have audited the accompanying consolidated balance sheets of PAULA Financial and subsidiaries as of December 31, 2002 and 2001 and the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2002. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
At December 31, 2002 and 2001, excess of cost over net assets acquired was $1,670 and $750, respectively, less accumulated amortization of $80 in both 2002 and 2001. In accordance with SFAS 142, the Company ceased recording goodwill amortization beginning on January 1, 2002.
The following table reflects the weighted average shares of common stock outstanding used in the EPS calculation as well as the EPS - assuming dilution calculation. (In loss periods options are excluded from the calculation of EPS-assuming dilution as the inclusion of such options would have an antidilutive effect.)
Aggregate annual commitments under notes payable to bank are as following as of December 31, 2002 :
Approximate aggregate minimum rental commitments under operating leases at December 31, 2002 are as follows:
Expected future cash flows used in determining the cost of policies purchased are based on actuarially determined projections of future premium collections, mortality, surrenders, benefit payments, operating expenses, changes in insurance liabilities, investment yields on the assets held to back such policy liabilities and other factors. These projections take into account all factors known or expected at the valuation date based on the collective judgment of the management of the Company. Actual experience on purchased business may vary from projections due to differences in renewal premiums collected, investment spread, investment gains (losses), mortality and morbidity costs and other factors. These variances from original projections, whether positive or negative, are included in net income as they occur. To the extent that these variances indicate that future cash flows will differ from those reflected in the scheduled amortization of the cost of policies purchased, current and future amortization is adjusted. Therefore, when the Company sells fixed maturities and recognizes a gain (loss) it also reduces (increases) the future investment spread because the proceeds from the sale of investments are reinvested at a lower (higher) earnings rate and amortization is increased (decreased) to reflect the change in the incidence of cash flows. The discount rate used to determine such value is the current rate of return the Company would require to justify the investment.
The cost of ceded policies containing mortality risks totaled $1.5 million in 1996, and $1.3 million in 1995 and 1994. These costs were deducted from insurance premiums. Reinsurance recoveries netted against insurance policy benefits totaled $1.4 million, $4.5 million and $3.5 million in 1996, 1995 and 1994, respectively.
The following methods and assumptions were used by the Company in determining estimated fair values of financial instruments:
Other invested assets: The estimated fair values are determined using quoted market prices for similar instruments.
Following are unaudited pro forma results of operations of the Company for the year ended December 31, 1994, as if the initial public common stock offering, issuance of Senior Notes and related transactions (described in Note 1) had occurred at the beginning of 1994, as compared with actual results of operations for 1996 and 1995:
CONDENSED FINANCIAL INFORMATION OF REGISTRANT DECEMBER 31, 1996 AND 1995 (DOLLARS IN THOUSANDS)
REINSURANCE FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (DOLLARS IN MILLIONS)
In January 2001 the Company completed the sale of Waterford to a third party for consideration of $23.6 million in cash, net of transaction related expenses.
In April 2001 the Company paid $100.8 million in cash to complete the Debt Tender and to establish the Debt Escrow. Completion of the Debt Tender permitted the Company to effect an amendment to the indenture governing the Notes which facilitated the Acquisition.
In connection with the Acquisition, White Mountains issued the Seller Note to CGNU. The Seller Note has an eighteen-month term and bears interest at a rate equal to 50 basis points over the rate on White Mountains' revolving loan facility described above. The Seller Note may be settled in cash, or at White Mountains' option, with Common Shares valued at $245.00 per share.
In December 2001 OneBeacon invested $180.0 million in Montpelier consisting of 1,800,000 common shares of Montpelier valued at $100 per share and the Company received warrants to acquire an additional 797,088 common shares of Montpelier at $100 per share over the next ten years.
In December 2001 White Mountains acquired the net assets of Folksam which were valued at approximately $66.9 million on the date of purchase. The purchase price including related expenses consisted of approximately $30.9 million in cash, $3.0 million in a note payable to the seller and 86,385 Common Shares (valued at approximately $30.0 million).
In December 2001 Folksamerica issued $7.0 million in short-term debt to a third party.
During 1999 the Company declared and paid quarterly cash dividends totalling $8.8 million.
Cash provided from financing activities of $1,466.3 million during 2001 resulted primarily from activities undertaken to finance the Acquisition, partially offset by cash used in connection with the Debt Tender and the Debt Escrow. Cash used for financing activities of $119.9 million during 2000 resulted primarily from the repayment of Folksamerica's outstanding bank indebtedness. Cash used for financing activities of $164.5 million during 1999 resulted primarily from repurchases of Common Shares.
A discussion of CNA Surety's actual results of operations for the period from September 30, 1997 (date of inception) through December 31, 1997 compared to unaudited pro forma results of operations for the comparative period in 1996 and a discussion of unaudited pro forma results of operations for the years ended December 31, 1997 and 1996 follows. The operating results of CNA Surety for the period from September 30, 1997 (date of inception) through December 31, 1997 are hereinafter referred to as the customarily subscribed to terms "Three Months Ended" or "Fourth Quarter."
Gross written premiums are shown in the table below (dollars in thousands):
For the three months and year ended December 31, 1997, net written premiums increased 23.7%, or $14.2 million, and 9.3%, or $21.9 million, respectively, over the comparable period in 1996. Net written premiums were up primarily due to a 21.3% increase in commercial surety business for the full year of 1997. The increase in commercial net written premiums includes the addition of the aforementioned international surety and credit business as well as relatively strong growth in Western Surety's core small commercial surety business throughout 1997. Net written premiums, exclusive of the international business, increased 6.8% and 5.0% for the three months and year ended December 31, 1997, respectively. The rise in commercial net written premiums was offset by a decrease in contract surety net written premiums as a result of the competitive market conditions that exist in the contract surety market. Net written premiums for contract surety decreased 7.7%, or $2.3 million, for the quarter and were down slightly for the year ended December 31, 1997. The Company also renegotiated its reinsurance agreements with its reinsurers increasing the Company's net retention to $5 million per principal (e.g., the contractor on contract surety bonds) on its commercial surety business. In the fourth quarter of 1997, the Company received $3.8 million in previously ceded
Cash flow at the parent company level is derived principally from dividend and tax sharing payments from its insurance subsidiaries. The principal obligations at the parent company level are to service debt and pay operating expenses. At December 31, 1997, the parent company's invested assets consisted of $7.0 million of short-term investments.
The Company received $116.9 cash from CNAF on October 1, 1997. This payment from CNAF reflects the effects of the reinsurance agreement whereby CCC and CIC ceded all of their net unearned premiums and loss and loss adjustment expense reserves for their surety business to Western Surety as of the Merger Date.
The apartment properties owned by the Partnership recorded a net unrealized loss of approximately $12.3 million for the year ended December 31, 2008, compared with a net unrealized gain of approximately $3.1 million for the prior year. The net unrealized loss for the year ended December 31, 2008 was primarily due to increased investment rates and decreased market rents across the apartment sector that caused each property to decline in value.
FASB Interpretation No. 46, “Consolidation of Variable Interest Entities” (“FIN 46”), was issued in January 2003. In December 2003, FASB issued a revised interpretation of FIN 46 (“FIN 46-R”) that supersedes FIN 46. FIN 46-R defers the effective date for applying the provisions of FIN 46 for those companies currently accounting for their investments in accordance with the AICPA Audit and Accounting Guide, “Audits of Investment Companies” (the “Audit Guide”). The FASB is currently considering modifying FIN 46-R to provide an exception for companies that apply the Audit Guide. The Partnership is awaiting further guidance from the FASB in order to evaluate the extent in which, if any, its investments may need to be consolidated as a result of this FIN 46-R.
In June 2007, the Accounting Standards Executive Committee issued Statement of Position 07-1, “Clarification of the Scope of the Audit and Accounting Guide Investment Companies and Accounting by Parent Companies and Equity Method Investors for Investments in Investment Companies” (“SOP 07-1”). SOP 07-1 provides guidance for determining whether an entity is within the scope of the Audit Guide. SOP 07-1 was originally determined to be effective for fiscal years beginning on or after December 15, 2007, however, on February 6, 2008, FASB issued a Staff Position indefinitely deferring the effective date.
The Company also addressed issues associated with the exchange of electronic data with external organizations. The Company completed an inventory and assessment of all business partners utilizing electronic interfaces with the Company and processes were put in place to allow the Company to accept data regardless of the format. Contingency plans were completed that allow the Company to continue to send or receive data in the event of failures related to electronic transmissions.
The Variable Annuities segment consists of annuity contracts that provide the customer with access to a wide range of investment options, tax-deferred accumulation of savings, asset protection in the event of an untimely death, and flexible payout options including a lump sum, systematic withdrawal or a stream of payments for life. The Company's variable annuity products consist almost entirely of flexible premium deferred variable annuity contracts.
Although the equity markets have been more volatile in recent years, equity market conditions over each of the past three years have contributed significantly to the growth in variable annuity policy reserves. Variable annuity policy reserves reflect market appreciation of $10.55 billion, $6.80 billion and $5.21 billion in 1999, 1998 and 1997, respectively.
Net investment income 7.57% 8.02% 8.16% Interest credited 5.59 5.95 6.12 ---- ---- ---- 1.98% 2.07% 2.04% ==== ==== ====
Fixed annuity sales during 1999 were $3.47 billion compared to 1998 sales of $2.07 billion. Sales in 1997 were $2.14 billion. Sales in 1999 include $577.2 million of funding agreements issued in conjunction with the Company's medium-term note program. Most of the Company's fixed annuity sales are premiums allocated to the fixed option of variable annuity contracts. Fixed annuity sales for 1999 include $2.49 billion in premiums allocated to the fixed option under a variable annuity contract, compared to $1.68 billion in 1998 and $1.67 billion in 1997. The increase in 1999 was driven by the Company's dollar cost averaging (DCA) program that offers customers a first year bonus interest rate and transfers the account balance systematically to variable options over a six or twelve month period.
A comparison of net income is impacted by the inclusion of realized investment gains (losses), and special items, that occurred in 1998, 1997 and 1996. Operating income in 1998, 1997 and 1996, which is presented on an after tax basis and excludes realized investment gains (losses) and the special items discussed below, was as follows:
For group disability, individual disability, and group life and health business, the costs are amortized in proportion to expected future premiums. For universal life products, the costs are amortized in proportion to estimated gross profits from interest margins, mortality and other elements of performance under the contracts. Amortization may be adjusted periodically to reflect differences between actual experience and original assumptions, with any resulting changes reflected in current operating results. The amounts deferred and amortized were as follows:
Group insurance and individual disability premiums are recognized as income when due. Benefits and expenses are matched with earned premiums to result in recognition of profits over the life of the contracts. This association is accomplished by recording a provision for future policy benefits and unpaid claims and claim expenses and by amortizing deferred policy acquisition costs.
UNUM's fixed maturities are reported at fair value as a result of being classified as available for sale. Accordingly, the related liability for unpaid claims and claims expenses is adjusted to reflect the changes that would have been necessary if the related fixed maturities were sold at their fair value and the proceeds were reinvested at current yields. At December 31, 1998, 1997 and 1996, the net unrealized gain on available for sale fixed maturities was $546.9 million, $417.9 million and $286.0 million, respectively, and the related unpaid claims adjustment was $397.8 million, $237.1 million and $168.7 million, respectively.
Real estate with a depreciated cost of $5.2 million and no bonds or mortgages were non-income producing for the twelve months ended December 31, 1998. Interest lost on these investments was not material in 1998, 1997, or 1996.
UNUM controls the management of the business, including premium collection and claims management, under this agreement. All premiums, less amounts for management expenses and claim payments, are transferred to the trust account on a quarterly basis.
(c)Includes recapture of premiums ceded and an increase in benefits due to an increase in reserves of $4.2 million due to the termination and recapture of a reinsurance agreement with National Mutual Life Insurance Company.
Health premiums for 1998 include $6.0 million of Medicare supplement premiums that were earned from March 12, 1998, the acquisition date of Savers Life, through July 1, 1998, the effective date of the sale of Medicare supplement block of business.
During 1997 , interest credited on interest sensitive annuities and other financial products increased $5.2 million or 47% to $16.3 million. The increase is related to the inclusion of interest credited on Shelby Life products of $3.7 million, increases of credited interest on new annuity sales, the increase in the growth of policy reserves from FPDA sales and an increase in the average credited interest rate.
The weighted average credited rate was 5.25%, 5.71% and 5.27 % in 1998, 1997 and 1996 respectively.
During 1997, fees from separate accounts increased due to an increase in the value of assets held in separate accounts of $19.5 million or 15%, to $148.1 million. Net deposits from the sales of unit-linked products by SMI increased $5.1 million or 30%, to $22 million.
SMC instituted a program to repurchase its common stock in order to increase the market value of the stock. At December 31, 1998, Standard Management is authorized to repurchase 1.1 million additional shares of SMC Common Stock under this program.
When we purchased Values Financial Network, Inc. in 2000, part of the purchase price was for goodwill. Before January 1, 2002, we amortized the goodwill on a straight-line basis over 10 years, which was its estimated useful life. Pursuant to Statement of Financial Accounting Standards No. 142 ("SFAS 142"), "Goodwill and Other Intangible Assets," we ceased amortizing goodwill on January 1, 2002 (see Footnote 4 to the financial statements). As required by SFAS 142, we performed a transitional and annual goodwill impairment test during 2002. The impairment test required by the provisions of SFAS 142 required us to forecast the discounted value of future cash flows expected to be derived from Values Financial Network, Inc. During 2002, we revised the business model for Values Financial Network Inc. to focus on corporate and individual producer sales. Current projections support the balance of goodwill. When we perform our 2003 annual goodwill impairment analysis, we may conclude that some amount of goodwill impairment has occurred if revenues do not occur as planned.
During 2002, Legacy Marketing's net income totaled $1.6 million, compared to net income of $2.8 million during 2001. This decrease of $1.2 million is primarily due to decreased revenues, partially offset by decreased expenses and the recognition of investment income in 2002 compared to investment losses in 2001.
Legacy Financial has incurred cumulative losses since its inception in 1995. We have committed to make sufficient contributions to support Legacy Financial's operations through February 2004.
Imagent Online recorded net losses of $660,000 during 2001, compared to net losses of $581,000 during 2000, primarily due to increased equity investment losses from its investment in prospectdigital.
Our success depends largely on the skills, experience and performance of certain key members of our management. In the recent past, we have been successful at attracting and retaining key personnel. We have no agreements with these individuals requiring them to maintain their employment with us. If we lose one or more of these key employees, particularly Lynda L. Regan, Chairman of the Board and Chief Executive Officer, or
We may face increased governmental regulation and legal uncertainties, which could result in diminished financial performance.
In 2000, the Company paid $3.7 million for the purchase of Values Financial Network assets. Among the assets acquired were a website, which incorporates sales lead management, investment screening and asset allocation functionalities, and copyrights related to two books. These assets were recorded at fair value, as determined by an independent appraisal. Payments in excess of the identifiable assets were recorded as goodwill. Results of Values Financial Network's operations have been included in the Consolidated Financial Statements since the date of acquisition.
The Company's revenues have consisted primarily of premiums earned from workers' compensation insurance underwriting, premiums earned from group medical insurance, commission income, net investment income and other income. Premiums earned during a period are the direct premiums earned by PICO on in force policies, net of reinsurance. Commission income is earned from Pan Am's distribution of insurance. Until the fourth quarter of 2001, the commission PICO paid to Pan Am was eliminated in consolidation. Net investment income represents earnings on the Company's investment portfolio, less investment expenses. Service fee income consists primarily of TPA fees. PPBA's sole client is PICO. Until the fourth quarter of 2001, TPA fees paid by PICO to PPBA were eliminated in consolidation.
Losses and LAE incurred. The Company's net loss ratio for calendar year 2000 decreased to 98.2% from an adjusted loss ratio for the 1999 period of 102.3%. The adjusted loss ratio for the 1999 period does not include the impact of low layer reinsurance treaties, which were not in effect in the 2000 period.
During 2000, PICO had $21.2 million in prior year reserve development, principally related to the 1998 accident year. The continued development on the 1998 accident year was largely attributable to extended claim durations for the California book of business. To a lesser extent, the 1999 accident year also had adverse reserve development, principally related to experience in Texas.
In 2001, PAULA Financial liquidated its investment in PACO and surrendered its insurance license to the state of California. In conjunction with the liquidation, PACO paid dividends to PAULA Financial totaling $5.5 million in 2001. The dividends were used by PAULA Financial to make principal and interest payments on its bank debt.
The following is a summary of operations by quarter for the years ended December 31, 2001 and 2000:
PAULA Financial and subsidiaries (collectively, "the Company") is a California-based specialty distributor of commercial insurance products. The Company's agency operations place a full array of commercial insurance products for their customers. In addition, the Company owns a third party administration operation whose sole client is PAULA Insurance Company ("PICO"). Until recently, the Company also underwrote workers' compensation insurance products through its underwriting subsidiary, PICO.
Where necessary, prior years' information has been reclassified to conform to the 2001 presentation.
The following condensed financial statements and selected disclosures present PICO's results on a stand alone basis as of and for the year ended December 31, 2001:
The following amounts have been deducted in PICO's financial statements as a result of reinsurance ceded for the year ended December 31, 2001:
Included in the gross realized loss in 1999 is $1,600 related to the realization of an other than temporary decline in the value of a non-performing investment.
The following table summarizes our results of operations for the years ended December 31, 2014 and 2013:
The loss ratio applicable to the year ended December 31, 2014 (losses and loss adjustment expenses incurred related to net premiums earned) was 66.43 % compared to 46.91 % for the year ended December 31, 2013. The primary factor contributing to our increased loss ratio is the increase in ceded earned premium, discussed previously.
In regard to our investments and cash deposits as of December 31, 2014, we have limited our credit exposure to financial instruments by investing and holding our excess cash in bank demand and time deposits (i.e., CDs), money market accounts which are covered by FDIC insurance, and fixed-maturity securities, classified as available-for-sale. At times, the Company's bank deposits may exceed the FDIC limit. To meet liquidity needs, all bank demand and time deposits mature in no more than eighteen months. We mitigate the credit risk for our fixed-maturity securities by investing in fixed-maturity securities that are generally investment grade and by diversifying our investment portfolio to avoid concentrations in any single issuer or business sector.
 Level 1 - unadjusted quoted prices in active markets for identical assets or liabilities. These inputs are considered to be the most reliable evidence of fair value.
As of December 31, 2014 and 2013, it was determined that no valuation allowance against deferred tax assets was considered necessary.
The Company also purchases reinsurance covering non-weather losses (two occurrences) in excess of a gross loss of $500,000 per occurrence for all coverage lines (a net loss of $50,000). This coverage, which was in force during 2014 and 2013, had been obtained principally to protect the Company in the event of a large fire loss.
As of December 31, 2013, HAIC's total statutory surplus was $8,963,573 (capital stock of $2,500,000 and surplus of $6,463,573).
On February 16, 2015 the Company completed placement of its new 2015 catastrophe reinsurance program with a panel of third party reinsurers, effective April 1, 2015. Coverage was extended to $150 million in excess of $5 million in the new treaty year.
The “Independent Auditors’ Report,” “Management’s Responsibility for Financial Statements,” Consolidated Balance Sheets, Consolidated Statements of Operations, Comprehensive Income, Shareholders’ Equity and Cash Flows, and Notes to Consolidated Financial Statements included on pages 58 through 91 of The St. Paul’s 2002 Annual Report to Shareholders are incorporated herein by reference.
DAC and DSI associated with the variable and universal life policies and the variable and fixed annuity contracts is generally amortized over the expected life of these policies in proportion to total gross profits. Total gross profits include both actual gross profits and estimates of gross profits for future periods. In calculating gross profits, we consider mortality, persistency, and other elements as well as rates of return on investments associated with these contracts and the cost related to our guaranteed minimum death and guaranteed minimum income benefits. For variable annuities, gross profits and amortization rates also include the impacts of the embedded derivatives associated with certain of the living benefit features of our variable annuity contracts and related hedging activities. In calculating amortization expense, we estimate the amounts of gross profits that will be included in our U.S. GAAP results and utilize these estimates to calculate amortization rates and expense amounts. In addition, in calculating gross profits, we include the profits and losses related to contracts issued by the Company that are reported in affiliated legal entities other than the Company as a result of, for example, reinsurance agreements with those affiliated entities. The Company is an indirect subsidiary of Prudential Financial (an SEC registrant) and has extensive transactions and relationships with other subsidiaries of Prudential Financial, including reinsurance agreements, as discussed in Note 12 to the Consolidated Financial Statements. Incorporating all product-related profits and losses in gross profits, including those that are reported in affiliated legal entities, produces a DAC amortization pattern representative of the total economics of the products. For a further discussion of the amortization of DAC and DSI, see “-Results of Operations.”
and equity securities, as well as derivative instruments, embedded derivatives and other investments, see Notes 9 and 10 to the Consolidated Financial Statements.
Reinsurance recoverables increased $199 million from $1,436 million at December 31, 2014 to $1,635 million at December 31, 2015. The increase was primarily driven by the impact of universal and term life business growth which increased ceded reserves and ceded policyholders’ account balances. Also contributing to the increase was the mark-to-market of the reinsurance recoverable related to the reinsured liability for variable annuity living benefits reflecting unfavorable equity market performance in the current year.
Because of the nature of insurance claims, there are uncertainties inherent in the estimates of ultimate losses. The aforementioned reorganization of the claims operation has resulted in new people and processes involved in settling claims. As a result, more recent statistical data reflects different patterns than in the past and give rise to uncertainty as to the pattern of future loss settlements. Litigation on bodily injury liability cases is higher for the past three years relative to prior years while the rate of settlement is slower. The slowing rate of settlement began to stabilize in 2004. These changed patterns give rise to greater uncertainty as to the pattern of future loss settlements on bodily injury liability claims. There are uncertainties regarding future loss cost trends particularly related to medical treatments and automobile repair. Court decisions, regulatory changes and economic conditions can affect the ultimate cost of claims that occurred in the past. Accordingly, the ultimate liability for unpaid losses and loss settlement expenses will likely differ from the amount recorded at December 31, 2004. For every 1% change in the estimate, the effect on pre-tax income would be $11.3 million.
As of December 31, 2004, the Mutual Company owned approximately 56% of our outstanding common stock. The Mutual Company’s stock ownership and ability, by reason of such ownership, to elect our board of directors, provides it with significant influence over potential change of control transactions.
In December 2004, the Financial Accounting Standards Board issued SFAS No. 123(R), “Share-Based Payment,” which is a revision of SFAS No. 123, “Accounting for Stock-Based Compensation.” SFAS 123(R) requires that the compensation cost relating to share-based payment transactions be recognized in financial statements. The compensation cost will be measured based on the fair value of the equity or liability instruments issued. The Statement is effective as of the beginning of the first interim or annual period beginning after June 15, 2005. The impact of adopting SFAS No. 123(R) on net income and earnings per share is not currently expected to be materially different from the pro forma amounts disclosed above which includes all share-based payment transactions through December 31, 2004. The impact that any future share-based payment transactions will have on our financial position or results of operations is not yet known.
The fair value of the notes was $95,022,000 and $94,706,000 at December 31, 2004 and 2003, respectively, based on quoted market prices for the same or similar debt. The carrying value of the remaining debt approximates fair value.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Harleysville Group Inc. and Subsidiaries as of December 31, 2004 and 2003, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2004, in conformity with U.S. generally accepted accounting principles.
policy surrender. All revenue is reported net of reinsurance ceded. Insurance premium revenue was lower in 2003 compared to 2002 due to lower sales of traditional products, additional premiums ceded and a decline in closed block in force business. Product charge revenue was higher in 2003 compared to 2002 due to the growth in the equity-indexed life block of business and fluctuations in reinsurance premiums. Insurance premium revenue increased in 2002 as compared to 2001 primarily due to the acquisition of ILICO. Product charge revenue decreased in 2002 as compared to 2001 primarily due to a new reinsurance arrangement on universal life products.
During 2003, we initiated and executed a restructuring plan to merge one of our subsidiaries, IL Annuity, into its parent, ILIC. The merger was effective June 30, 2003, and total restructuring costs associated with this plan amounted to $2.5 million pre-tax, which primarily consisted of legal, accounting, and printing costs and the write-off of $2.2 million of insurance licenses.
building, expenses associated with the merger of IL Annuity into ILIC, and systems conversion costs. The restructuring charges expensed in 2002 included pre-tax severance and termination benefits of $9.5 million related to the elimination of approximately 240 positions and other pre-tax costs of $11.7 million primarily related to systems conversion and relocation of employees. The restructuring charges expensed in 2001 included pre-tax severance and termination benefits of $6.8 million related to the elimination of approximately 80 positions and other pre-tax costs of $1.8 million. An accrual for severance and termination benefits not yet paid amounted to $4.0 million at December 31, 2003. Charges for all restructuring activities were completed in 2003.
Our investment philosophy is to employ an integrated asset/liability management approach with separate investment portfolios for specific product lines, such as traditional life, universal life, equity-indexed life, traditional annuities, equity-indexed annuities, variable annuities and funding agreements to generate attractive risk-adjusted returns on capital. Essential to this philosophy is coordinating investments in the investment portfolio with product strategies, focusing on risk-adjusted returns and identifying and evaluating associated business risks.
The following table summarizes the composition of the fixed maturity securities by category as of December 31, 2003 and 2002:
EPS-Before Extraordinary Item $ 5.47 $ 1.20 $ 0.96 $ 0.38 $ 0.94
The discussion entitled "Management Discussion and Analysis of Financial Condition and Results of Operations" in the 1996 Annual Report on pages 5 through 13, included as Exhibit 13 is incorporated herein by reference.
In France, premium income under French Gaap down 7.7% vs. 10.6% fall in the market
The contribution of Personal Risk business to net insurance revenue is now on a par with that of the Savings business Two drivers 88% of Net Insurance Revenue Generated by Mathematical Reserves
Estimated new business value: €342m, i.e. €2.3/share 20% fall in new business value to €342m, or €2.3/share, stemming from: an 11% decline in APE volume a 1.5-point fall in the APE ratio to 12.4%
Loss on disposition of $68 million in 2014 and $687 million in 2013 includes $79 million and $698 million of losses relating to the LBL sale, respectively. Gain on disposition of $18 million in 2012 related to the amortization of the deferred gain from the disposition through reinsurance of substantially all of our variable annuity business in 2006, and the sale of Surety Life Insurance Company, which was not used for new business, in third quarter 2012.
The energy, banking, basic industry and consumer goods sectors had the highest concentration of gross unrealized losses in our corporate fixed income securities portfolio as of December 31, 2014. In general, the gross unrealized losses are related to increasing risk-free interest rates or widening credit spreads since the time of initial purchase.
Spread duration is calculated similarly to interest rate duration. As of December 31, 2014, the spread duration of assets was 5.80, compared to 5.36 as of December 31, 2013. Based upon the information and assumptions we use in this spread duration calculation, and spreads in effect as of December 31, 2014, we estimate that a 100 basis point immediate, parallel increase in spreads across all asset classes, industry sectors and credit ratings (“spread shock”) would decrease the net fair value of the assets by $1.90 billion compared to $2.41 billion as of December 31, 2013. Reflected in the duration calculation are the effects of our
Non-cash modifications of certain mortgage loans, fixed income securities, limited partnership interests and other investments, as well as mergers completed with equity securities, totaled $102 million, $306 million and $231 million in 2014, 2013 and 2012, respectively.
The scheduled maturities for fixed income securities are as follows as of December 31, 2014:
The average balance of impaired loans was $26 million, $86 million and $202 million during 2014, 2013 and 2012, respectively.
ABS, RMBS and CMBS: Valued based on non-binding broker quotes received from brokers who are familiar with the investments and where the inputs have not been corroborated to be market observable.
Commitments to extend mortgage loans are agreements to lend to a borrower provided there is no violation of any condition established in the contract. The Company enters into these agreements to commit to future loan fundings at a predetermined interest rate. Commitments generally have fixed expiration dates or other termination clauses. The fair value of commitments to extend mortgage loans, which are secured by the underlying properties, is $1 million as of December 31, 2014, and is valued based on estimates of fees charged by other institutions to make similar commitments to similar borrowers.
In 2006, the Company disposed of substantially all of its variable annuity business through reinsurance agreements with The Prudential Insurance Company of America, a subsidiary of Prudential Financial, Inc. (collectively “Prudential”).
The aggregate liability balance related to all guarantees was not material as of December 31, 2014.
Executive protection results were profitable in each of the past three years on business worldwide due to favorable development of prior year loss reserves, particularly in the directors and officers and fiduciary liability components. However, we have been seeing a narrowing of profit margins over the three most recent accident years from the levels we experienced before that. As a result, we have begun a rate initiative and we are analyzing our book of business. We are focusing in particular on our employment practices liability business, which has been unprofitable.
During 2000, we experienced overall favorable development of $230 million on loss reserves established as of the previous year-end. This compares with favorable development of $206 million in 1999 and $218 million in 1998. Such redundancies were reflected in operating results in these respective years. Each of the past three years benefited from favorable claim experience for certain liability classes, offset in part by losses incurred relating to asbestos and toxic waste claims.
Investment income after taxes increased 6% in 2000 compared with 1999 and 9% in 1999 compared with 1998. The growth was due in part to an increase in invested assets, which reflected strong cash flow from operations over the period. Growth in both years was also due in part to the inclusion of Executive Risk investment income since the date of acquisition. Excluding the effect of the acquisition of Executive Risk, growth was about 3% in 2000 and 5% in 1999. The effective tax rate on our investment income was 16.4% in 2000 compared with 15.7% in 1999 and 15.3% in 1998. The effective tax rate fluctuates each year as a result of changes in the percentage of our portfolio invested in tax-exempt bonds.
The unrealized market appreciation before tax of those fixed maturities carried at amortized cost was $69 million, $59 million and $138 million at December 31, 2000, 1999 and 1998, respectively. Such unrealized appreciation was not reflected in the consolidated financial statements.
FOREIGN CURRENCY DENOMINATED FIXED MATURITIES EXPECTED CASH FLOWS OF PRINCIPAL AMOUNTS
As more fully described in Note 3 to the consolidated financial statements, the Company has restated its liquidation-basis financial statements for periods prior to December 31, 2002 to conform to the current presentation using generally accepted accounting principles applicable to going-concern entities.
Insurance laws required Consumers Life to deposit certain amounts with various state insurance departments in order to maintain its licenses. The approximate carrying amount of such deposits at December 31, 2001 was $1,421,000.
On June 19, 2002, the Company completed the sale of Consumers Life to Black Diamond Insurance Group, Inc., a Delaware corporation. The Delaware Insurance Department approved this transaction on June 5, 2002. The purchaser paid the Company $1,548,846 in cash and assumed a $132,120 liability in connection with its acquisition of the Consumers Life stock. The cash proceeds were based on the following:
Gross Gross Estimated Amortized unrealized unrealized fair cost gains losses value - ---------------------------------------------------------------------- U.S. Treasury Notes $ 874,867 $ 54,702 $ 0 $ 929,569 ======================================================================
In October 2000, the Company settled a dispute with the purchaser of its credit insurance business. The purchaser claimed that the Company owed it approximately $1,400,000 for investment earnings on the assets which were transferred to the purchaser. In October 1999, the purchaser began withholding from the Company the fee revenue payments which were contractually due to the Company from the sale of the credit insurance accounts to partially offset the amounts the purchaser believed were due from the Company. At September 30, 2000, fee revenues totaling $421,000 had been withheld by the purchaser. Pursuant to the terms of the settlement agreement, the purchaser paid the Company $250,000 in settlement of all prior amounts withheld and in lieu of any future fee revenue payments.
The difference between the fair value of the preferred stock at the date of issue and the mandatory redemption value is being recorded through periodic accretions with an offsetting charge to the deficit. Such accretions totaled $84,448, $18,654 and $20,089 in 2002, 2001 and 2000, respectively.
Basic income (loss) per common share has been computed based upon the weighted average number of common shares outstanding. Diluted per share information is equivalent to basic per share information because the Company has no potential common shares which are dilutive for any period presented in the accompanying financial statements.