Forward-looking statements relate to future operations, strategies, financial results, or other developments and are not based on historical information. In particular, statements containing words such as "expect," "anticipate," "believe," "goal," "objective," or similar words generally qualify as forward-looking statements. The Company undertakes no obligation to update such forward-looking statements.
Amortization of deferred policy acquisition costs increased 12.9% to $6 million from $5.3 million because of ALLIED Life's increase in profitability. Other insurance operating expenses increased 5.8% to $5.8 million from $5.5 million, a result of overall growth.
At year-end 1996, all of the Company's CMOs were investment-grade securities. They had a carrying value of $92.1 million and a fair value of $92.4 million; 86.8% of these investments were in PAC and sequential-pay bonds. All of the Company's CMO investments have an active secondary market; therefore, their effect on liquidity is not expected to differ from the effect of other fixed maturity investments.
The Company has a line of credit agreement with the Federal Home Loan Bank that provides additional liquidity. The agreement makes $25 million available through March 13, 1997. Interest is payable at the current rate upon issuance. From time to time, the Company has borrowed funds from its affiliates on an arms-length basis. At December 31, 1996, the Company had an outstanding borrowing of $20.5 million under the line of credit agreement. During 1996, the Company entered into a note-payable agreement with ALLIED Mutual, an affiliate. The outstanding borrowing at December 31, 1996 was approximately $1.6 million.
The Company's financial statements for the years ended December 31, 1996, 1995, and 1994 have been audited by KPMG Peat Marwick LLP, independent certified public accountants. The audits were made in accordance with generally accepted auditing standards and included a consideration of the system of internal accounting controls to the extent necessary to express an independent opinion on the financial statements.
Investments in any one entity or its affiliates (other than U.S. Treasury securities and obligations of U.S. government corporations and agencies) exceeding 10% of the Company's consolidated stockholders' equity as of December 31, 1996 consisted of fixed maturity securities issued by Hydro Quebec at a carrying value of $11,189,000.
The fair values of certain fixed maturity investments, equity securities, cash settle put swaptions, interest rate floors, and call options are based on quoted market prices for those or similar investments. For unquoted securities, the reported value is estimated by the Company on the basis of financial and other information. Fair values of short-term investments approximate their carrying values due to their short maturity. Fair values of the Company's liabilities for annuity and universal life policyholder account balances are estimated using the cash surrender value of the contracts. Due to the variable interest rate and short-term nature of the note payable, the carrying value of the note payable approximates fair value. The fair value approximates carrying value for other financial instruments primarily due to their short-term nature.