REINSURANCE OPERATIONS In 1994, Reinsurance Operations had unfavorable claims experience in certain reinsurance pools and decreased fee income for D&H due to increased competition and contract terminations. Fee income and operating expenses increased in the Related Businesses segment in 1993 due to the full year inclusion of D&H, which was acquired in third quarter 1992.
The reduced invested asset base under management for GICs, DAs and 401(k) plans resulted in lower revenues from investment income and reduced amounts of interest credited. Management expects continued decreases in the amounts of investment income and interest credited as the related GIC, DA and 401(k) contracts mature or terminate. Management expects future earnings in the Other Operations segment to decline, reflecting the run-off nature of these closed blocks of businesses.
In September 1993, UNUM announced the resumption of a program to repurchase its common stock pursuant to an existing Board of Directors' resolution. On February 11, 1994, UNUM's Board of Directors voted to expand UNUM's authorization to repurchase an additional 5.0 million shares, bringing the total number of shares authorized for repurchase to 44.0 million shares. Since the resumption of the stock repurchase program, UNUM has acquired 7.6 million shares through December 31, 1994, in the open market at an aggregate cost of $375.8 million that was primarily funded through additional borrowings. This share repurchase contributed to the decrease in the number of shares outstanding at December 31, 1994, to 72.4 million, from 76.0 million at December 31, 1993. Prior to the resumption of this repurchase program, UNUM had not acquired any shares in the open market since 1990. At December 31, 1994, approximately 2.7 million outstanding shares remained authorized for repurchase.
Commercial Life Insurance Company had its Best's financial strength rating upgraded to "A" (Excellent) in July 1994.
- Fixed maturities held to maturity (certain bonds and redeemable preferred stocks) - principally at amortized cost, less an allowance for probable losses. - Fixed maturities available for sale (certain bonds and redeemable preferred stocks) - commencing January 1, 1994, at fair value. Prior to January 1, 1994, at lower of aggregate amortized cost less an allowance for probable losses, or fair value. See Note 3 "Investments" for a discussion of the adoption of Financial Accounting Standard No. 115. - Equity securities available for sale (common stocks and non-redeemable preferred stocks) - at fair value. - Mortgage loans - at amortized cost less an allowance for probable losses. - Real estate - at cost less accumulated depreciation. - Policy loans - at unpaid principal balance. - Other long-term investments - at cost plus UNUM's equity in undistributed net earnings since acquisition. - Short-term investments - at cost.
For retirement and universal life products, premium and other policy fee revenue consists of charges for the cost of insurance, policy administration, and surrenders assessed during the period. Charges related to services to be performed in the future are deferred until earned. The amounts received in excess of premium and fees are recorded as deposits and included in other policyholder funds in the Consolidated Balance Sheets. Benefits and expenses include benefit claims in excess of related account balances, interest credited at various rates and amortization of deferred policy acquisition costs.
The provision for income taxes includes amounts currently payable and deferred income taxes, which result from differences between financial reporting and tax bases of assets and liabilities, and are measured using enacted tax rates and laws. Deferred U.S. income taxes have not been provided on accumulated earnings of UNUM's foreign subsidiaries. These earnings would become subject to U.S. tax if remitted to UNUM Corporation.
Net income for the year ended December 31, 1993, included a $9.6 million charge, or $0.12 per share, for expenses incurred to effect the merger.
UNUM has several retirement savings and profit sharing plans for substantially all full-time and part-time employees who work 1,000 hours a year and have been employed for at least one year. Dependent upon which plan the employee participates in, eligible employees may contribute primarily up to 10% of their annual salary, and UNUM matches a portion of each employee's contribution up to 6% of the employee's bi-weekly compensation. Participants may become 100% vested immediately upon becoming eligible to participate, or incrementally over a five year period. In 1994, 1993 and 1992, expense for these plans amounted to $8.4 million, $8.3 million and $6.5 million, respectively.
Notes payable consisted of the following at December 31, 1994, and 1993: