Amortization of goodwill increased to $9.1 million in 1995 from $2.2 million in the 1994 periods. The 1995 amount includes an entire year of amortization and 1994 includes amortization for three months. Goodwill prior to the Acquisition was insignificant.
The Company's investment strategy is to: (i) maintain a diversified predominantly investment grade fixed income portfolio; (ii) provide adequate liquidity to meet the cash flow requirements of policyholder and other obligations; and (iii) maximize current income and total investment return through active investment management. Consistent with this strategy, investments in fixed maturity securities, mortgage loans, policy loans and short-term debt investments collectively comprised 98 percent of the Company's investment portfolio at December 31, 1996. The remainder of the invested assets was in equity securities and other investments.
Proceeds from the sales of investments (principally fixed maturities) were $1.5 billion and $1.1 billion for the three months ended December 31, 1996, and the nine months ended September 30, 1996, respectively, and such sales resulted in net investment gains of $11.9 million and $9.9 million for the same respective periods. Proceeds from the sales of investments (principally fixed maturities) were $2.8 billion for the year ended December 31, 1995. Such sales resulted in net investment gains of $156.4 million. Proceeds from the sales of investments (principally fixed maturities) were $.5 billion for the three months ended December 31, 1994.
o The compatibility with other company activities that may favorably affect future cash flows.
In assessing the realization of deferred income tax assets, management considers whether it is more likely than not that the deferred income tax assets will be realized. The ultimate realization of deferred income tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences become deductible. If future taxable income does not occur as expected, deferred income tax assets may need to be written off.
ALH and American Life and Casualty (the "plaintiffs") have filed suit in the United States Court of Federal Claims (the "Court of Federal Claims") against the United States of America for breach of certain contractual agreements which were made by certain former government regulatory agencies to induce the plaintiffs to capitalize their former savings bank subsidiary (the "Savings Bank") in connection with the acquisition of four failed thrift institutions in March 1988 and the subsequent seizure of the Savings Bank by the Office of Thrift Supervision in July 1990 (the "Savings Bank Litigation"). In the Savings Bank Litigation, the plaintiffs claim that the defendant breached its contractual agreements with respect to regulatory capital and contends that this breach, which resulted in the disallowance of $21 million of capital which the defendant contractually promised would be perpetual for regulatory accounting purposes, and such subsequent seizure, constitutes a taking of the plaintiffs' property without just compensation and due process of law, in violation of the Fifth Amendment of the United States Constitution.
The Company's subsidiaries are involved in various pending or threatened legal proceedings arising from the conduct of their businesses. These proceedings in some instances include claims for punitive damages and similar types of relief in unspecified or substantial amounts, in addition to amounts for alleged contractual liability or claims for equitable relief. In management's opinion, after consultation with counsel and review of available facts, these proceedings will ultimately be resolved without materially affecting the Company's financial condition or results of operations.
Based on current conditions and assumptions as to future events on all policies in force, the Company expects to amortize approximately 9 percent of the cost of policies purchased balance in 1997, 10 percent in 1998, 10 percent in 1999, 10 percent in 2000 and 9 percent in 2001. The discount rate used to determine the amortization of the cost of policies purchased was approximately 6 percent.