Credit insurance revenues for 1997, 1996 and 1995 were $80.6 million, $85.6 million and $83.6 million, respectively. Credit premiums and premium equivalents amounted to $173.8 million, $171.2 million and $138.1 million for the years ended December 31, 1997, 1996 and 1995, respectively. The increases in credit insurance revenues in 1996 and premium and premium equivalents in 1997 and 1996 are a result of geographic expansion, increased sales of reinsured business, which generally provides less risk to the Company at an acceptable profit and additional fee income generated from administering the run-off of credit life and health insurance for another insurance company, effective June 1996. The decrease in credit insurance revenues from 1996 to 1997 was due to a reduction in sales of retained insured business. The recent acquisition of ERJ Insurance Group, Inc. (ERJ) has enabled AHL and ERJ to significantly broaden offerings of credit life insurance, supplemental products and training services.
increase in 1997 compared to 1996 and 1995 is due to recent acquisitions having higher expense levels than the Company and additional expenses associated with new production and technology. Excluding the acquisitions, the 1997 expense ratio was 5.1%.
The Company is a holding company; and its liquidity is largely dependent on the ability of its subsidiaries, primarily AHL, to pay dividends and on external financing. In addition, the Company charges its subsidiaries a management fee to cover its basic operating expenses.
In the fourth quarter of 1997, the Board of Directors of American Heritage Life Investment Corporation authorized management to repurchase from time to time up to 500,000 shares (equivalent of 1,000,000 shares after the two-for-one stock split) of the Company's common stock. At December 31, 1997, 73,800 shares (147,600 shares after the two-for-one stock split) had been acquired and funded by borrowings of $2.7 million.
Factors that may cause the Company's actual results to differ materially from those contemplated or projected, forecast, estimated or budgeted in such forward-looking statements include among others, the following possibilities: (i) heightened competition, including the intensification of price competition, the entry of new competitors, and the introduction of new products by new and existing competitors; (ii) adverse state and federal legislation or regulation, including decreases in rates, limitations on premium levels, increases in minimum capital and reserve requirements, benefit mandates, limitations on the ability to manage care and utilization, and tax treatment of insurance products; (iii) fluctuations in interest rates causing a reduction of investment income or increase in interest expense and in the market value of interest rate sensitive investments; (iv) failure to obtain new customers, retain existing customers or reductions in policies in force by existing customers; (v) higher service, administrative, or general expense due to the need for additional advertising, marketing, administrative or management information systems expenditures; (vi) loss or retirement of key executives; (vii) termination of provider contracts or renegotiation at less cost-effective rates or terms of payment; (ix) changes in the Company's liquidity due to changes in asset and liability matching; (x) restrictions on insurance underwriting based on genetic testing and other criteria; (xi) adverse changes in the ratings obtained by independent rating agencies; (xii) failure to maintain adequate reinsurance; (xiii) possible claims relating to sales practices for insurance products and claim denials and (xiv) adverse trends in mortality and morbidity.
weighted average interest rates credited to the policyholders' account balances were 5.46% and 5.37%, respectively; and the related interest credited to the policyholders' account balances was $52.3 million and $36.9 million. The surrender charge provisions for interest-sensitive policies vary depending upon the type of policy. For universal life-type policies, the surrender charges generally range over a period of 5-20 years at varying rates depending upon the plan of insurance. For annuities, the surrender charges generally range over a period of 7-10 years with charges varying from 1% to 10% of the accumulated fund value over the surrender charge period.
Stockholders' equity included the following unrealized investment gains (losses) (in thousands) at December 31:
Compensation cost determined pursuant to Financial Accounting Standard No. 123 "Accounting for Stock-Based Compensation" would not have had a material effect on the Company's net earnings and earnings per share for 1997 and 1996.
The following table summarizes information about fixed stock options outstanding at December 31, 1997:
Insurance revenues, total income, and pre-tax operating earnings, reconciled to net earnings, for the three years ended December 31, 1997 for each industry segment, Ordinary, Group and Credit, were as follows:
The payment of dividends to AHLIC by AHL is subject to the regulation of the State of Florida Department of Insurance. A dividend may be made without prior Florida Insurance Commissioner's approval if the dividend is equal to or less than the greater of: (a) 10% of AHL's surplus as to policyholders derived from realized net operating profits on its business and net realized capital gains; or (b) AHL's entire net operating profits and realized net capital gains derived during the immediately preceding calendar year, if AHL will have surplus as to policyholders equal to or exceeding 115% of the minimum required statutory surplus as to policyholders after the dividend is paid. As a result of such restrictions, the maximum dividend which could be paid to AHLIC by its insurance subsidiaries during 1998 without prior approval is $25.1 million.
(a)Includes both life and accident and health premiums and commission and expense allowances on reinsurance ceded.