Net income including income or loss from discontinued operations for the year ended December 31, 1997 increased to $70.1 million from $56.5 million for the same period of the prior year. On a per share basis, basic and diluted net income including income or loss from discontinued operations increased to $2.21 and $2.16, respectively, for the year ended December 31, 1997 from $1.81 and $1.77, respectively, for the same period of 1996, or 22.1% and 22.0%, respectively.
In June 1997, Capital Reinsurance invested approximately $10.9 million for a minority ownership interest in CGA. CGA was formed to provide financial guaranty insurance ("Policies") of structured securities, including commercial real estate and asset backed transactions. CGA's initial capitalization consisted of $150.5 million of paid-in capital and $60 million of committed capital. The Corporation's investment consists of an aggregate of $10.0 million in B Preferred Stock and Common Stock of CGA and $1.0 million in A Preferred Stock. In connection with its investment in the B Preferred Stock, Capital Reinsurance has a commitment to invest an additional $7.5 million (the
Interest rate risk is the price sensitivity of a fixed income security to changes in interest rates. Management views these potential changes in price within the overall context of asset and liability management. Wherever possible, the duration of asset and liability portfolios are matched. However, the duration of most of the asset portfolio is managed according to the level of expected return and volatility deemed tolerable by management. The duration of the liability portfolio does not lend itself to active duration management due to the low frequency, high severity losses in a majority of the Corporation's reinsured businesses. Other factors are considered in determining the duration of the asset portfolio, which the Corporation believes mitigates the overall effect of interest risk for the Corporation.
February 22, 1999 except for Note 7, as to which the date is March 10, 1999
The accompanying consolidated financial statements include the accounts and operations of the Corporation and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated.
Deferred Acquisition Costs: Acquisition costs include only those expenses that relate to, and vary with, premium production, including commissions, brokerage and costs of underwriting and marketing personnel. Acquisition costs are deferred and amortized over the period in which the related premiums are earned. Ceding commission income on premiums ceded to other reinsurers reduces acquisition costs. Anticipated losses, loss adjustment expenses and the remaining costs of servicing the reinsured issues are considered in determining the recoverability of acquisition costs.
Financial Guaranty: At December 31, 1998, the Corporation's reinsured financial guaranty portfolio included the reinsured portfolios of Capital Reinsurance, Capital Credit and KRE, net of eliminations and was broadly diversified by bond type, geographic location and maturity schedule, with no single risk representing more than 1.72% of the Corporation's net par in force. The Corporation limits its exposure to losses from reinsured financial guarantees by underwriting primarily investment grade obligations and retroceding a portion of its risks to other insurance companies.
Income from fixed maturity securities $ 61,678 $ 51,187 $ 46,207 Income from short-term investments 4,699 6,834 6,351 -------------------------------- Total investment income 66,377 58,139 52,558 Less investment expenses (1,523) (1,523) (1,000) -------------------------------- Net investment income $ 64,854 $ 56,498 $ 51,558 ================================
For marketing purposes, the Corporation aggregates its reinsurance lines of business into two divisions, Financial Guaranty and Financial Risks. The municipal and non-municipal lines including credit default swaps, are combined to represent Financial Guaranty while the Financial Risks division includes mortgage, credit, title and financial solutions.
For the years ended December 31, 1998, 1997 and 1996, ceded earned premiums were $13.7 million, $17.8 million and $14.7 million, respectively. Ceded losses for the same periods were $4.8 million, $6.6 million and $6.5 million, respectively.
Capital Title is subject to the New York Insurance Law laws and regulations governing title insurers. Accordingly, dividends may only be declared and distributed out of earned surplus as defined under New York Insurance Law and only if such dividends do not reduce the company's surplus to less than 50% of its outstanding capital shares, i.e., the value of its outstanding common equity. Additionally, no dividend may be declared or distributed in an amount which, together with all dividends declared or distributed by the company during the preceding twelve months, exceeds 10% of the company's outstanding capital shares, unless, after deducting such dividends, it has a surplus at least equal to 50% of its statutory reinsurance reserve or a surplus at least equal to $250,000, whichever is greater. As of December 31, 1998, Capital Title's maximum amount payable as a dividend during 1998 is approximately $3.6 million.
At December 31, 1998, future minimum rental payments under the terms of the Corporation's noncancellable operating leases for office space are $1.2 million for the year 1999, $1.4 million for each of the years 2000, 2001, 2002, and 2003, and $8.0 million in the aggregate thereafter. These future minimum rental payments total $14.8 million. These payments are subject to escalations in building operating costs and real estate taxes. Total rent expense amounted to approximately $1.0 million in 1998 and 1997 and $0.9 million in 1996.