10-K
1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C.
20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1994 Commission File No. 0-9649
INDEPENDENT INSURANCE GROUP, INC.
----------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
FLORIDA 59-2027555
----------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
One Independent Drive, Jacksonville, Florida 32276
-----------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code 904-358-5151
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class On Which Registered
NONE
-----------------------------------------------------------------------
Securities registered pursuant to Section 12(g) of the Act:
Nonvoting Common Stock, $1.00 Par Value
-----------------------------------------------------------------------
(Title of class)
Registrant has filed all reports required to be filed by Sections 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the Registrant was required to file such reports) and
has been subject to the filing requirements for the past 90 days. YES X NO
Disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not
contained herein, and will not be contained, to the best of Registrant's
knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K.
YES X NO
The aggregate market value of 2,050,909 shares of voting stock held by
nonaffiliates of the Registrant at February 8, 1995 was $29,225,453 and is
based on the closing price of the nonvoting stock on that same date. The
voting stock is closely held and there is no public market.
The number of shares outstanding of each of the issuer's classes of common
stock, as of the date indicated:
Class Outstanding at February 8, 1995
------- -------------------------------
Voting Common Stock, $1.00 Par Value 5,720,104
Nonvoting Common Stock, $1.00 Par Value 7,444,396
Documents Incorporated by Reference
-----------------------------------
Portions of the Annual Report to Shareholders for the year ended December 31,
1994 are incorporated into Part I and Part II of Form 10-K.
PART I
Item 1. Description of Business
Incorporated by reference, Annual Report to Shareholders for the year ended
December 31, 1994, pages 19,30,31,59 and 60.
Insurance Regulation. Like other insurance companies, the Registrant's
subsidiaries are subject to regulation and supervision by the Florida Insurance
Department, as well as other insurance departments of each jurisdiction in
which they are licensed to do business. These supervisory agencies have broad
administrative powers relating to the granting and revocation of licenses to
transact business, the licensing of agents, the approval of policy forms,
reserve requirements and the form and content of required financial statements.
As to its investments, each of the Registrant's insurance subsidiaries must
meet the standards and tests established by National Association of Insurance
Commissioners(NAIC)and, in particular, the investment laws and regulations of
the Florida Insurance Department. The insurance companies are also subject to
laws in most states that require solvent insurance companies to pay guaranty
fund assessments to protect the interests of policyholders of insolvent
insurance companies.
In December, 1991, the NAIC adopted two new reserve requirements (the Asset
Valuation Reserve or "AVR" and the Interest Maintenance Reserve or "IMR") to
replace the former Mandatory Securities Valuation Reserve or "MSVR." These
reserves are generally required by state insurance regulatory authorities to be
established as a liability on a life insurer's statutory financial statements
beginning with the 1992 annual statement, but do not affect financial state-
ments of the Registrant prepared in accordance with generally accepted
accounting principles. AVR establishes a statutory reserve for mortgage
loans and investments in real estate, as well as for the types of investments
(i.e., fixed maturities and common and preferred stock) that have been subject
to the MSVR. AVR generally captures all realized and unrealized gains and
losses on such assets, other than those resulting from changes in interest
rates. IMR captures the net gains that are realized upon the sale of fixed
income securities (bonds, preferred stocks, mortgage-backed securities and
mortgage loans) and that result from changes in the overall level of interest
rates, and amortizes these net realized gains into income over the remaining
life of each investment sold, thus limiting the ability of an insurer to
enhance statutory surplus by taking gains on fixed income securities. The
implementation of the IMR and AVR has not had a material impact on the
Registrant's life insurance subsidiary's surplus nor on its ability to pay
dividends to the Registrant. In recent years, the NAIC has approved several
regulatory initiatives designed to decrease the risk of insolvency of
insurance companies in general. These initiatives include the implementation
of a risk-based capital formula for determining adequate levels of capital
and surplus and further restrictions on an insurance company's ability to
pay dividends to its shareholders. Florida has adopted the risk-based capital
requirements and has recently revised its dividend limitation policy.
Under NAIC's risk-based capital (RBC)initiatives, life insurance companies must
calculate and report information under a risk-based capital formula, beginning
with their year-end 1993 statutory financial statements. (Property/Casualty
companies must implement a different risk-based capital formula in their 1994
year-end statutory filings). This RBC information is intended to permit
insurance regulators to identify and require remedial action for inadequately
capitalized insurance companies. The NAIC initiatives provide for four levels
of potential involvement by state regulators for inadequately capitalized
insurance companies, ranging from regulatory control
Item 1. Description of Business (Continued)
of the insurance company to a requirement for the insurance company to submit a
plan to improve its capital. The life insurance subsidiary's adjusted capital
exceeds the authorized control level risk-based capital by approximately $90
million. Holdings in common stock require considerably more risk-based capital
than had similar monies been invested in bonds. However, investment decisions
are driven principally by long-term economic considerations and not altered to
produce more attractive risk-based capital results. The subsidiary believes
that over the long-term, the total return on equities outperforms that on debt
security investments. It sells options against select holdings in the equity
portfolio to generate realized investment gains and further enhance current
yield and total return. Such net gains totaled $3.3 million in 1994. The life
insurance subsidiary's required RBC includes amounts related to the
property/casualty subsidiaries.
Another NAIC Model Act provision limits dividends that may be paid in any
calendar year without regulatory approval to the lesser of (i) 10% of the
insurer's statutory surplus at the prior year-end, or (ii) the statutory net
gain from operations of the insurer (excluding realized capital gains and
losses) for the prior calendar year. The NAIC has determined that it will not
grant accreditation to any state insurance regulatory authority in a state that
has not enacted statutes "substantially similar" to the NAIC Model Act
regulating the payment of dividends by insurers. Under current Florida law,
without prior approval from the Florida Commissioner of Insurance, the maximum
allowable dividend in 1995 is $9.9 million.
In accordance with the rules and practices of the NAIC and in accordance with
state law, every insurance company is examined generally once each three years
by examiners from its state of domicile and from several of the other states
where it is licensed to do business. The most recent examinations for all the
Registrant's insurance subsidiaries were for the year ending December 31, 1992.
Also in accordance with regulations, the insurance subsidiaries statutory
results are annually audited by independent certified public accountants.
Item 2. Properties
Incorporated by reference, Annual Report to Shareholders for the year ended
December 31, 1994, page 19.
Item 3. Legal Proceedings
Incorporated by reference, Annual Report to Shareholders for the year ended
December 31, 1994, pages 57-58. With respect to the Alabama verdict
discussed therein, the Registrant was notified on March 28, 1995 that its
petition to the Alabama Supreme Court to eliminate of further reduce this
verdict has been denied. The Registrant is evaluating other options for
appeal.
Item 4. Submission of Matters to a Vote of Security Holders
No reportable events
PART II
Item 5. Market for the Registrant's Common Stock and Related Security
Holder Matters
Incorporated by reference, Annual Report to Shareholders for the year ended
December 31, 1994, page 20.
The Registrant has been informed that holders of more than 90% of the voting
stock of the Registrant have entered into an Agreement (the "No Transfer
Item 5. Market for the Registrant's Common Stock and Related Security
Holder Matters (Continued)
Agreement") prohibiting the parties thereto from transferring shares of voting
stock held by them except under certain circumstances. The excepted transfers
include: (i) transfers pursuant to an offer which has been approved or
recommended by the Board of Directors of the Registrant, (ii) transfers
pursuant to the written consent of holders of a majority of the shares of
voting stock subject to the No Transfer Agreement and, (iii) transfers to the
Registrant pursuant to the Exchange Agreement referred to in Item 12. The No
Transfer Agreement has an initial term ending on November 10, 1996, renewable
for two additional five-year terms by vote of the holders of a majority of the
voting stock subject thereto prior to the expiration of each successive term.
The restrictions on transfer of voting stock imposed by the No Transfer
Agreement are in addition to, and not in lieu of, restrictions on such
transfers imposed by the Articles of Incorporation of the Registrant.
Item 6. Selected Financial Data
Incorporated by reference, Annual Report to Shareholders for the year ended
December 31, 1994, pages 25-26.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Incorporated by reference, Annual Report to Shareholders for the year ended
December 31, 1994, pages 27-35.
Item 8. Financial Statements and Supplementary Data
The report of independent auditors and the consolidated financial statements
included on pages 37-61 of the Annual Report to Shareholders for the year ended
December 31, 1994 are incorporated by reference.
Item 9. Changes in and Disagreements on Accounting and Financial Disclosure
No reportable events
PART III
Item 10. Directors and Executive Officers of the Registrant
The directors of the Registrant and the year originally elected are:
Wilford C. Lyon, Jr.* 1980 Kendall G. Bryan* 1982
Jacob F. Bryan, IV* 1980 Carter B. Bryan 1984
Boyd E. Lyon, Sr.* 1980 William G. Howard 1993
G. Howard Bryan 1980 George M. Baldwin 1980
Patricia H. Doane 1992 Lucy B. Gooding 1980
Michael C. Lyon 1991
*Executive officer of the Registrant
Item 10. Directors and Executive Officers of the Registrant (Continued)
The annual terms of all directors will expire April 12, 1995. Carter B. Bryan,
age 50, is employed by the Registrant's subsidiary as a territorial manager of
insurance operations. G. Howard Bryan and Patricia H. Doane, ages
80 and 59, respectively, are retired vice presidents of the Registrant's
principal subsidiary and are not otherwise employed. George M. Baldwin and
Lucy B. Gooding, ages 79 and 92, respectively, are not otherwise employed.
Michael C. Lyon and William G. Howard are 44 and 43, and are vice presidents of
the principal subsidiary of the Registrant. See below for information
regarding the positions and offices of directors who are executive officers
of the Registrant and for family relationships between such directors and
officers.
The names, ages and positions of the executive officers of the Registrant as of
February 8, 1995, are listed below. The principal business experience during
the past five years for each person listed has been as an officer of the
Registrant.
Name Age Position and Business Experience
Wilford C. Lyon, Jr. 59 Chairman of the Board of Directors and
Chief Executive Officer - 1984
Jacob F. Bryan, IV 51 President - 1984
Boyd E. Lyon, Sr. 55 Vice President, Treasurer and Chief
Financial Officer - 1984
Kendall G. Bryan 48 Vice President, Secretary and Chief
Operating Officer - 1984
Guy Marvin III 54 Assistant Secretary and General
Counsel - 1980
David A. Skup 42 Vice President and Internal Auditor -
1984
Each officer of the Registrant is elected at the annual meeting of the Board
of Directors and holds office until the next annual meeting (to be held in 1995
on April 12).
Wilford C. Lyon, Jr. and Boyd E. Lyon, Sr. are brothers, and are also cousins
of Michael C. Lyon. Jacob F. Bryan, IV, Kendall G. Bryan and Carter B. Bryan
are brothers, and nephews of G. Howard Bryan. Patricia Howard Doane and
William G. Howard are cousins.
Section 16(a) of the Securities Exchange Act of 1934 requires the Registrant's
directors and executive officers, and persons who own more than 10% of a
registered class of the Registrant's equity securities, to file with the
Securities and Exchange Commission initial reports of ownership and reports of
changes in ownership of Common Stock and other equity securities of the
Registrant. Officers, directors and greater than 10% shareholders are required
by SEC regulation to furnish the Registrant with copies of all Section 16(a)
forms they file.
To the Registrant's knowledge, based solely on review of the copies of reports
furnished to the Registrant and written representations that no other reports
were required, during the year ended December 31, 1994 all Section 16(a) filing
requirements applicable to its officers, directors and greater than 10%
beneficial owners were complied with.
Item 11. Executive Compensation
(a)(b)(2)(i)(ii)(iii) The following table provides information concerning the
annual compensation for the Registrant's Chief Executive Officer (CEO) and the
four most highly compensated executive officers other than the CEO as of
December 31, 1994.
Summary Compensation Table
----------------------------------------------------------------------------
Annual Compensation
-------------------------------
Name and Principal Other Annual
Position Year Salary Bonus Compensation
Wilford C. Lyon, Jr. 1994 369,409 0 0
Chairman of the Board & 1993 345,748 0 0
Chief Executive Officer 1992 364,922 0 0
Jacob F. Bryan IV 1994 315,060 0 0
President 1993 297,151 0 0
Director 1992 309,481 0 0
Boyd E. Lyon, Sr. 1994 254,928 0 0
Vice President 1993 240,977 0 0
Treasurer & Director 1992 249,668 0 0
Kendall G. Bryan 1994 240,348 0 0
Vice President 1993 229,054 0 0
Secretary & Director 1992 244,959 0 0
Guy Marvin, III 1994 173,971 0 0
Assistant Secretary and 1993 162,906 0 0
General Counsel 1992 176,298 0 0
Summary Compensation Table (continued)
-----------------------------------------------------------------------------
Long-Term Compensation
----------------------------------------
Restricted All
Name and Principal Stock Options LTIP Other
Position Year Awards SAR's Payouts Compensation
Wilford C. Lyon, Jr. 1994 0 0 0 27,912
Chairman of the Board & 1993 0 0 0 27,535
Chief Executive Officer 1992 0 0 0 27,134
Jacob F. Bryan IV 1994 0 0 0 19,612
President 1993 0 0 0 19,365
Director 1992 0 0 0 19,137
Boyd E. Lyon, Sr. 1994 0 0 0 30,473
Vice President 1993 0 0 0 29,991
Treasurer & Director 1992 0 0 0 29,541
Kendall G. Bryan 1994 0 0 0 16,019
Vice President 1993 0 0 0 15,872
Secretary & Director 1992 0 0 0 15,754
Guy Marvin, III 1994 0 0 0 9,822
Assistant Secretary and 1993 0 0 0 9,736
General Counsel 1992 0 0 0 9,655
Amounts reported as "All Other Compensation" represent premiums paid by the
Registrant for insurance policies issued in connection with a Deferred Death
Benefit Plan for Key Personnel.
(f)(1)(i) The following table shows estimated annual benefits payable,
determined primarily by final compensation and years of service, pursuant to
the Registrant's defined benefit plan as well as its nonqualified, unfunded
benefit plan. This latter plan provides benefits to eligible executives who
would otherwise be entitled to reduced retirement and other benefits under the
Company's existing plans due to the imposition of the Internal Revenue Code
limitations on contributions, benefits and compensation.
Pension Plan Table
Years of Service
----------------------------------------------
Remuneration 15 20 25 30 35
$125,000 $41,138 $54,850 $ 68,563 $ 82,275 $ 95,988
150,000 49,950 66,600 83,250 99,900 116,550
175,000 58,763 78,350 97,938 117,525 137,113
200,000 67,575 90,100 112,625 135,150 157,675
225,000 76,388 101,850 127,313 152,775 178,238
250,000 85,200 113,600 142,000 170,400 198,800
300,000 102,825 137,100 171,375 205,650 239,925
400,000 138,075 184,100 230,125 176,150 322,175
450,000 155,700 207,600 259,500 311,400 363,300
500,000 173,325 231,100 288,875 346,650 404,425
Item 11. Executive Compensation (Continued)
(ii)(A)The Pension Plan Table uses the average of an individuals highest
consecutive five years of earnings as a basis upon which to calculate benefits.
The compensation covered by the plans includes all amounts reported in the
above Summary Compensation Table under Annual Compensation.
(B)The years of service for the named executive officers are: Wilford C. Lyon,
Jr., 36; Jacob F. Bryan IV, 28; Boyd E. Lyon, Sr., 33; Kendall G. Bryan, 25;
and Guy Marvin, III, 15.
(C)Under the plan, eligible employees are entitled to annual pension benefits
beginning at normal retirement age (65 to 67 depending on participants' year of
birth) equal to the sum of: (1) 1.6% of average earnings of the highest five
years multiplied by number of years of service not to exceed 35 years; and (2)
.75% of average earnings in excess of Social Security wages multiplied by
number of years of service, not to exceed 35 years.
(g)All directors who are not employees of the Registrant or one of its
subsidiaries receive $1,000 for each board meeting that the director attends,
$250 for each telephone meeting the director participates in and $250 for each
committee meeting of the Board that the non-employee director attends.
(j)(2)The Registrant uses the Hay point-factor job evaluation system which
applies to all employees, including the Chief Executive Officer and executive
officers. Each year the CEO selects members of the Board of Directors to
evaluate his performance. During the last fiscal year, these members were
Jacob F. Bryan, IV, William G. Howard and Kendall G. Bryan. Overall increases,
which are tied to performance evaluations and the evaluation system, are
approved by the full Board. The CEO evaluates all other named executive
officers.
Item 12. Security Ownership of Certain Beneficial Owners and Management
(a)The principal holders of voting securities (Voting Common Stock, Par Value
$1.00) of the Registrant as of February 8, 1995 are:
Name and Address of Amount and Nature of Percent
Beneficial Owner Beneficial Ownership of Class
George M. Baldwin 1,033,288(1) 18.1%
2929 Murray Road
Orange Park, Florida
James L. Baldwin 1,033,088(1) 18.1
2753 Haver Hill Ct.
Clearwater, FL
Frederick E. Williams 1,032,888(1) 18.1
109 North Street
Neptune Beach, Florida
and
John G. Grimsley
50 North Laura Street
Jacksonville, FL
Item 12. Security Ownership of Certain Beneficial Owners and Management
(Continued)
Name and Address of Amount and Nature of Percent
Beneficial Owner Beneficial Ownership of Class
Lucy B. Gooding 981,612 17.2
2970 St. Johns Avenue
Jacksonville, Florida
Jacob F. Bryan IV 865,598(2) 15.1
5249 Yacht Club Road
Jacksonville, Florida
Julia Olive Craig Brooke 834,516(2) 14.6
467 Ortega Blvd.
Jacksonville, Florida
G. Howard Bryan 829,612(2) 14.5
1596 Lancaster Terrace
Jacksonville, Florida
Boyd E. Lyon, Sr. 351,022(4) 6.1
129 Middleton Place
Ponte Vedra Beach, Florida
(b)The following table shows as to each class of equity securities of the
Registrant, the number of shares owned beneficially, directly or indirectly, by
each director and named executive officers, and by all directors and officers
of the Registrant as a group as of February 8, 1995. In some instances more
than one beneficial owner is listed for the same securities. Shares held
beneficially by spouses or relatives of such officers and directors may be
included.
Amount and Nature of
Beneficial Ownership and
Title of Class Percent of Class
Name of Common Common
Beneficial Owner Voting Nonvoting Voting Nonvoting
George M. Baldwin 1,033,288(1) 18.1%
Lucy B. Gooding 981,612 1,222,340 17.2 16.4
Jacob F. Bryan IV 865,598(2) 1,075,594(3) 15.1 14.5
G. Howard Bryan 829,612(2) 1,032,396(3) 14.5 13.9
Boyd E. Lyon, Sr. 351,022(4) 6.1
Wilford C. Lyon, Jr. 176,357(5) 3.1
Patricia H. Doane 92,102 620 1.6
Michael C. Lyon 49,531 100 .9
Carter B. Bryan 36,400 32,642 .6 .4
Kendall G. Bryan 34,400 13,877 .6 .2
Item 12. Security Ownership of Certain Beneficial Owners and Management
(Continued)
Amount and Nature of
Beneficial Ownership and
Title of Class Percent of Class
Name of Common Common
Beneficial Owner Voting Nonvoting Voting Nonvoting
William G. Howard 2,474
David A. Skup 462
All directors and
officers as a group 3,526,372 2,371,415 61.7 31.9
(1) Includes 1,032,888 shares held of record by a trust under the will of Grace
D. Coburn, deceased. Frederick E. Williams and John G. Grimsley are trustees.
George M. Baldwin and James L. Baldwin are beneficiaries of the trust.
(2) Includes all the shares of three trusts aggregating 812,412 shares of
voting common stock of which Jacob F. Bryan IV, G. Howard Bryan and Julia
Olive Craig Brooke are beneficiaries and/or trustees.
(3) Includes all the shares of three trusts aggregating 1,006,616 shares of
nonvoting common stock of which Jacob F. Bryan IV, G. Howard Bryan and Julia
Olive Craig Brooke are beneficiaries and/or trustees.
(4) Includes all the shares of three trusts aggregating 113,600 shares of
voting common stock of which Boyd E. Lyon, Sr. is a trustee, and two trusts
aggregating 101,760 shares of voting common stock held by the Registrant's
retirement plans of which Boyd E. Lyon, Sr. is a trustee.
(5) Includes all the shares of three trusts aggregating 113,600 shares of
voting common stock of which Wilford C. Lyon, Jr. is a trustee.
The Registrant has entered into "Exchange Agreements" with holders of more than
90% of the outstanding shares of voting common stock of the Registrant ("Voting
Stock") pursuant to which such holders may, at any time on or prior to December
31, 2006, exchange shares of voting stock for an equal number of shares of
nonvoting common stock of the Registrant without payment of any additional
consideration. All of the principal shareholders, officers and directors
listed above are parties to these agreements.
Item 13. Certain Relationships and Related Transactions
(a)The Registrant's subsidiary, The Independent Life and Accident Insurance
Company ("Independent Life"), employs Carter B. Bryan as a manager of its
general agency insurance operations, and in 1994 compensated Mr. Bryan $40,387
in salaries associated with his position. In addition, Mr. Bryan received
commissions on personal insurance sales and overwrites from the sales of other
agents he manages. Much of these operations involved the sale of Independent
Life's small employer group insurance products, a line of business Independent
Life withdrew from effective June 30, 1994. Independent Marketing Group, Inc.
and Independent Life have worked closely to find replacement coverage for all
terminated policyholders with another insurance carrier.
Item 13. Certain Relationships and Related Transactions (Continued)
(b)The commissions and overwrites described above are paid to Independent
Marketing Group, Inc., an entity owned by Mr. Bryan and his wife, and totaled
$84,202 in 1994. Independent Marketing Group, Inc., markets products of
Independent Life and other insurance companies. Independent Life supplies
office space to Mr. Bryan, which is used both by Mr. Bryan in his employment as
manager of its general agency insurance operations and by Independent Marketing
Group, Inc.
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)(1) Financial Statements
Consolidated Balance Sheets, December 31, 1994 and 1993, incorporated by
reference, Annual Report to Shareholders for the year ended December 31, 1994,
pages 37-38.
Consolidated Statements of Operations for years ended December 31, 1994, 1993
and 1992, incorporated by reference, Annual Report to Shareholders for the year
ended December 31, 1994, page 39.
Consolidated Statements of Cash Flows for years ended December 31, 1994, 1993
and 1992, incorporated by reference, Annual Report to Shareholders for year
ended December 31, 1994, page 40.
Consolidated Statements of Shareholders' Equity for years ended December 31,
1994, 1993 and 1992, incorporated by reference, Annual Report to Shareholders
for the year ended December 31, 1994, page 41.
Notes to Consolidated Financial Statements for the three years ended
December 31, 1994, incorporated by reference, Annual Report to
Shareholders for year ended December 31, 1994, pages 42-60.
(2) Financial Statement Schedules
Consolidated Summary of Investments - Other Than Investments in Affiliates
(Schedule I), incorporated by reference, Annual Report to Shareholders for the
year ended December 31, 1994, page 48.
Condensed Financial Information of the Registrant (Schedule II)
Supplementary Insurance Information (Schedule III)
Reinsurance (Schedule IV)
All other financial statements and schedules are omitted because of the absence
of conditions under which they are required or because the required information
is included elsewhere herein.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(Continued)
(3) Exhibits
(3) Articles of incorporation currently in effect incorporated by reference
as filed as an exhibit with the Registrants 1989 Form 10-K under Item
14(3)(c) and by-laws of the Registrant currently in effect incorporated
by reference as filed December 20, 1990, with report Form 8-K.
(4) Instruments defining rights of security holders incorporated by
reference as filed as an exhibit with the Registrant's Registration
Statement No. 2-69530 on Form S-14 which became effective November 20,
1980,and as included or amended in articles of incorporation.
(10)Material contracts -
(1)Deferred Death Benefit Plan for Key Personnel of the Registrant and its
subsidiaries incorporated by reference as previously filed as an exhibit
with the Registrant's Form 10-K, December 31, 1981.
(2)Medical Reimbursement Plan covering benefits of certain employees of
the Registrant or its affiliates incorporated by reference as previously
filed as an exhibit with the Registrant's Form 10-K, December 31, 1990.
(3)Independent Life Invest Plan - 401(K) incorporated by reference as
previously filed with the Registrant's Form S-8, Registration No. 33-35785.
(5)The Registrant's Exchange Agreement incorporated by reference as previously
filed as an exhibit with the Registrant's Form 10-K, December 31, 1990.
(13)Portions of the Annual Report to Shareholders for the year ended December
31, 1994.
(21)The Registrant's subsidiaries include the following companies and their
wholly owned subsidiaries, all of which are incorporated under the laws of
the state of Florida:
(A)The Independent Life and Accident Insurance Company
(B)Independent Fire Insurance Company
(C)Independent Fire Insurance Company of Florida
(D)Thomas Jefferson Insurance Company
(E)Independent Investment Advisory Services, Inc.
(F)Independent Real Estate Management Corporation
(G)Independent Property & Casualty Insurance Company
(23)Consent of Independent Certified Public Accountants -
(27)Financial Data Schedule filed electronically
(b) There were no reports on Form 8-K filed for the three months ended
December 31, 1994.
(c) The Registrant previously filed exhibits listed above in Item 14
(a)(3)- (3),(4) and (10).
(d) The following pages include the Financial Statement Schedules of the
Registrant required by Regulation S-X which are excluded from the
Annual Report to shareholders.
SCHEDULE II
INDEPENDENT INSURANCE GROUP, INC.
CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT
BALANCE SHEETS
DECEMBER 31, 1994 AND 1993
(000 OMITTED)
ASSETS
1994 1993
Cash $ 69 $ 556
Short-term investments 1,540 2,497
Investment in subsidiaries - continuing
operations 257,233 307,196
Real estate - net 6,471 6,899
Income taxes receivable (payable) 5,906 (9,522)
Other assets 3,347 4,044
----------- -----------
Total $ 274,566 $ 311,670
=========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Notes payable $ 6,000 $ 6,200
Due to (from) subsidiaries
- federal income taxes 1,308 (11,052)
----------- -----------
Total liabilities 7,308 (4,252)
----------- -----------
Shareholders' equity:
Voting common stock 5,725 6,100
Nonvoting common stock 8,981 8,606
Additional paid-in capital 6,378 6,378
Net unrealized gain (loss) on equity
securities held by subsidiaries (31,222) 25,393
Retained earnings 301,947 293,996
Treasury stock - at cost - nonvoting
common stock, 1,542 shares (24,551) (24,551)
----------- ----------
Total shareholders' equity 267,258 315,922
----------- ----------
Total $ 274,566 $ 311,670
=========== ==========
See notes to condensed finanacial statements
SCHEDULE II
INDEPENDENT INSURANCE GROUP, INC.
CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT
STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(000 OMITTED)
1994 1993 1992
Revenues:
Interest income $ 116 $ 352 $ 94
Other income 1,216 1,435 2,185
Realized gains 29 - -
------- ------- ---------
Total 1,361 1,787 2,279
------- ------- ---------
Costs and Expenses:
Interest expense 372 330 1,019
Professional services 166 293 133
Real estate expenses 352 350 381
Taxes, licenses and fees 738 (51) 183
Other expenses 335 422 568
------- ------- --------
Total 1,963 1,344 2,284
------- ------- --------
Income (loss) before income taxes and
equity in income of consolidated
subsidiaries (602) 443 (5)
Provision (credit) for income taxes (210) 123 (1)
------- ------- --------
Income (loss) before equity in income
of consolidated subsidiaries (392) 320 (4)
Equity in income (loss) of consolidated
subsidiaries- continuing operations
(including $7,850, $2,150 and $7,600
of dividends received from subsidiaries) 11,502 (43,885) (16,990)
Equity in income of subsidiaries-
discontinued operations (including $0,
$173 and $600 of dividends received) - 465 1,906
Gain on disposition of discontinued
operations - 6,904 -
Cumulative effect of change in
accounting principles - (66) -
------- -------- ---------
Net income (loss) 11,110 (36,262) (15,088)
Retained Earnings, Beginning of Year 293,996 333,417 360,089
Less: Dividends to shareholders
$.24, $.24 and $.88 per share) 3,159 3,159 11,584
--------- ---------- ----------
Retained earnings, end of year $ 301,947 $ 293,996 $ 333,417
========= ========== ==========
See notes to condensed financial statements
SCHEDULE II
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(000 OMITTED)
1994 1993 1992
Operating Activities:
Net income (loss) $ 11,110 $ (36,262) $ (15,088)
Adjustments to reconcile net income to net
cash provided by operating activities:
Change in -
Liability for income taxes (15,428) (2,545) 20,852
Other assets and other liabilities 789 (4,446) 305
Due to subsidiaries for income taxes 12,360 (3,260) (10,662)
Equity in (income) loss of consolidated
subsidiaries- continuing operations (11,502) 43,885 16,990
Equity in (income) of subsidiaries
discontinued operations - (465) (1,906)
Gain from discontinued operations
(net of taxes) - (6,904) -
Dividends received from consolidated
subsidiaries - continuing operations 7,850 2,150 7,600
Dividends received from subsidiaries -
discontinued operations - 173 600
Realized gains (29) - -
Depreciation of property and equipment 336 378 340
Cumulative effect of change in
accounting principles - 66 -
Net cash provided (used) by ---------- --------- ---------
operating activities 5,486 (7,230) 19,031
---------- --------- ---------
Investing Activities:
Sales, maturities or payments from
short-term investments 986 - -
Purchase of short-term investments - (2,127) (9)
Cash from sale of discontinued operations - 22,573 -
Investment in subsidiary (3,000) (8,500) (2,150)
Net cash provided (used) by ---------- --------- ---------
investing activities (2,014) 11,946 (2,159)
---------- --------- ---------
Financing Activities:
Reductions in mortgage loans payable - - (8,135)
Additions to notes payable 10,000 4,000 13,092
Reductions in notes payable (10,800) (5,200) (10,018)
Dividends to shareholders (3,159) (3,159) (11,584)
---------- --------- ---------
Net cash used by financing activities (3,959) (4,359) (16,645)
---------- --------- ---------
Increase (Decrease) in Cash (487) 357 227
Cash, Beginning of Year 556 199 (28)
---------- --------- --------
Cash, End of Year $ 69 $ 556 $ 199
========== ========= =========
See notes to condensed financial statements.
NOTES TO CONDENSED FINANCIAL STATEMENTS
Note 1:
The accompanying condensed financial statements should be read in conjunction
with the consolidated financial statements and notes thereto of Independent
Insurance Group, Inc. and its wholly owned subsidiaries.
Note 2:
Notes payable at December 31 consists of the following (000 omitted):
1994 1993
6.250% Bank term loan $3,000 $3,800
7.063% 182-day note 1,500 -
7.688% 365-day note 1,500 -
4.000% 180-day note - 3,000
------ ------
$6,000 $6,800
====== ======
The Company also has available another $24,000,000 short-term line of credit
with one bank which can be terminated at any time by the bank. As of December
31, 1994, $1,500,000 of this line of credit was utilized.
Note 3:
In late 1992, a jury returned a verdict in the amount of $6,200,000 in a
policy-related lawsuit against the Registrant's principal subsidiary,
Independent Life. This verdict was appealed to the Alabama Supreme
Court which reduced the verdict to $4,200,000. The Company further
petitioned the Alabama Supreme Court in an attempt to eliminate or
further reduce this verdict. On March 28, 1995 the Registrant was
notified that its petition has been denied. The Company has continued
to conservatively reserve for this verdict in its 1994 financial
statements
SCHEDULE III
INDEPENDENT INSURANCE GROUP, INC. AND SUBSIDIARIES
SUPPLEMENTARY INSURANCE INFORMATION
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(000 OMITTED)
COLUMN A COLUMN B COLUMN C COLUMN D
Policy
Deferred Reserves
Policy Losses, Claims Unearned
Segment Acq. Costs & Loss Expenses Premiums
Year Ended December 31, 1994
Life $161,988 $753,962 $2,194
Property and casualty 3,547 19,472 21,258
Accident and health 29,518 64,567 -
Other - - -
-------- -------- -------
Total $195,053 $838,001 $23,452
======== ======== =======
Year Ended December 31, 1993
Life $159,842 $754,960 $2,457
Property and casualty 3,491 40,478 39,387
Accident and health 33,387 64,524 -
Other - - -
-------- -------- -------
Total $196,720 $859,962 $41,844
======== ======== =======
Year Ended December 31, 1992
Life $157,616 $752,875 $4,236
Property and casualty 16,062 72,129 75,369
Accident and health 33,750 71,994 -
Other - - -
-------- -------- -------
Total $207,428 $896,998 $79,605
======== ======== =======
COLUMN A COLUMN E COLUMN F COLUMN G
Other Policy
Claims and Net
Benefits Premium Investment
Segment Payable Revenue Income*
Year Ended December 31, 1994
Life - $167,385 $59,909
Property and casualty - 45,677 4,222
Accident and health - 58,520 4,547
Other - (160)
-------- -------- -------
Total - $271,582 $68,518
======== ======== =======
Year Ended December 31, 1993
Life - $177,102 $62,063
Property and casualty - 100,136 6,422
Accident and health - 94,441 5,142
Other - 79
-------- -------- -------
Total - $371,679 $73,706
======== ======== =======
Year Ended December 31, 1992
Life - $174,100 $64,108
Property and casualty - 151,482 12,380
Accident and health - 101,426 5,550
Other - 30
-------- -------- -------
Total - $427,008 $82,068
======== ======== =======
COLUMN A COLUMN H COLUMN I COLUMN J
Benefits,
Claims, Amortization
Losses of Deferred
& Policy Other
Settlement Acquisition Operating
Segment Expenses Costs Expenses#
Year Ended December 31, 1994
Life $88,911 $27,134 $110,617
Property and casualty 26,384 7,806 15,517
Accident and health 16,703 9,176 33,816
Other - - 2,927
-------- ------- --------
Total $131,998 $44,116 $162,877
======== ======= ========
Year Ended December 31, 1993
Life $99,385 $24,831 $105,724
Property and casualty 77,282 19,724 53,338
Accident and health 37,161 5,926 49,030
Other - - 2,609
-------- ------- --------
Total $213,828 $50,481 $210,701
======== ======= ========
Year Ended December 31, 1992
Life $102,014 $23,235 $104,027
Property and casualty 150,962 20,944 52,548
Accident and health 45,469 5,864 56,390
Other - - 1,735
-------- ------- --------
Total $298,445 $50,043 $214,700
======== ======= ========
COLUMN A COLUMN K
Premiums
Segment Written
Year Ended December 31, 1994
Life
Property and casualty $37,929
Accident and health 58,520
Other
Total
Year Ended December 31, 1993
Life
Property and casualty $52,764
Accident and health 94,441
Other
Total
Year Ended December 31, 1992
Life
Property and casualty $132,370
Accident and health 101,426
Other
Total
* The allocation of net investment income to life and accident and health is
based on the ratio of mean liabilities (primarily, policy reserves and claims
payable) attributrd to life and to accident and health to total mean
liabilities. Property and casualty net investment income is directly
allocated. Other net investment income is that of noninsurance subsidiaries.
# Expenses not directly identifiable to any line of business are allocated on
bases considered reasonable under the circumstances.
SCHEDULE IV
INDEPENDENT INSURANCE GROUP, INC. AND SUBSIDIARIES
REINSURANCE
FOR THE YEARS ENDED DECEMBER 31, 1994 1993 AND 1992
(OOO OMITTED)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
Assumed Percentage
Ceded to From of Amount
Gross Other Other Net Assumed
Amount Companies Companies Amount to Net
Year Ended December 31, 1994
Life insurance in force* $ 7,320 $ 378 $ 1 $ 6,943 .01%
========= ======== ======= =========
Insurance Premiums:
Life $ 176,289 $ 8,899 $ (5) $ 167,385 -
Property and casualty 77,137 32,360 900 45,677 .20%
Accident and health 65,399 6,878 (1) 58,520 -
--------- -------- ------- ---------
Total $ 318,825 $ 48,137 $ 894 $ 271,582 .33%
========= ======== ======= =========
Year Ended December 31, 1993
Life insurance in force* $ 7,733 $ 237 $ 2 $ 7,498 .03%
========= ======= ======= =========
Insurance Premiums:
Life $ 179,921 $ 2,841 $ 22 $ 177,102 (.01 )%
Property and casualty 182,309 82,945 772 100,136 .77 %
Accident and health 95,533 1,101 9 94,441 (.01)%
--------- -------- ------- ---------
Total $ 457,763 $ 86,887 $ 803 $ 371,679 .22 %
========= ======== ======= =========
Year Ended December 31, 1992
Life insurance in force* $ 7,719 $ 247 $ 4 $ 7,476 .05 %
========== ======== ======= =========
Insurance Premiums:
Life $ 176,418 $ 2,318 $ - $ 174,100 -
Property and casualty 211,994 61,627 1,115 151,482 .74 %
Accident and health 102,187 761 - 101,426 -
---------- -------- ------- ---------
Total $ 490,599 $ 64,706 $ 1,115 $ 427,008 .25 %
========== ======== ======= =========
* In Millions
Exhibit 24
Consent of Independent Auditors
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Independent Insurance Group, Inc. of our report dated March 1, 1995,
included in the 1994 Annual Report to Shareholders of Independent Insurance
Group, Inc.
Our audits also included the financial statement schedules of Independent
Insurance Group, Inc. listed in Item 14(a). These schedules are the
responsibility of the Company's management. Our responsibility is to
express an opinion based on our audits. In our opinion the financial
statement schedules referred to above, when considered in relation to the basic
financial statements taken as a whole, present fairly in all material respects
the information set forth therein.
We also consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 33-35785) pertaining to the Independent Life Invest Plan of our
report dated March 1, 1995, with respect to the consolidated financial
statements incorporated herein by reference and our report included in the
preceding paragraph with respect to the financial statement schedules included
in the Annual Report (Form 10-K) of Independent Insurance Group, Inc.
Ernst & Young LLP
Jacksonville, Florida
March 29, 1995
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
(Registrant) INDEPENDENT INSURANCE GROUP, INC.
BY March 29, 1995
Wilford C. Lyon, Jr., Chairman of the Board and Chief Executive Officer
BY March 29, 1995
Jacob F. Bryan, IV, President and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
BY March 29, 1995
Boyd E. Lyon, Sr., Director, Treasurer (Chief Financial and Accounting
Officer)
BY March 29, 1995
Kendall G. Bryan, Director
BY March 29, 1995
William G. Howard, Director
BY March 29, 1995
Michael C. Lyon, Director
EX-13
2
PAGE 19
Business Profile
Headquartered in Jacksonville, Florida, Independent Insurance Group, Inc. is
a holding company with affiliates which offer life, accident/health, and
property/casualty insurance products. The Company and its predecessor has a
history that traces to 1920.
Representing approximately 91% of Independent Insurance Group's total assets,
The Independent Life and Accident Insurance Company is recognized as a leader
in the Home Service insurance industry. It offers life, accident and health
products to individuals, while property and casualty operations are handled
primarily through the Independent Property & Casualty Insurance Company and
affiliates. The functions provided through nonisurance affiliated subsidiary
companies include investment management and advisory services to the corporate
group.
The insurance coverages offered are typical of those of the industry in
general. Life, accident and health, and property and casualty insurance
products are marketed by the Company through its Home Service career agents.
Life insurance premiums comprised 62% of total premium income for 1994 while
property and casualty, and accident and health contributed 17% and 21%. The
primary marketing area for insurance operations is in the Southeastern United
States with approximately 70% of premium income being derived from the states
of Florida, Georgia, South Carolina and Alabama.
Insurance is a highly competitive industry. The life company and the property
and casualty companies compete with a significant number of other companies,
some of which are larger and have a wider distribution of sales agencies. At
the end of 1993, there were over 2,500 insurance companies qualified in the
United States and Canada and, at that time, the Company was ranked 175th in
total premium income. The Company does not believe that its competitive
position in the industry has changed significantly during 1994.
The Company owns and occupies a 37-story home office building, 37% of which is
leased to outside tenants, located on three acres in Jacksonville, Florida, and
conducts field operations from 131 district offices, 42 of which are Company
owned. Approximately 2,300 agents, 500 sales managers and 1,200 persons in
supervisory, administrative and other positions are employed in both the
district offices and the Company's home office.
PAGE 20
CORPORATE MISSION
Our corporate mission is to conduct Independent's affairs in such a way as to
insure its financial stability and controlled growth while generating
acceptable returns to its shareholders. It is our intent to provide a
variety of insurance products and related services to meet the security needs
of our selected marketplace and to maintain a positive relationship with our
customers. Recognizing our employees as the Company's most valuable resource,
we shall continue to provide them meaningful employment, career opportunities,
competitive benefits and a superior working environment. Independent will
continue to demonstrate the highest level of integrity and fairness to our
customers, employees and community, in every aspect of corporate activity.
DIVIDENDS AND MARKET PRICE OF STOCK
The following table shows the quarterly dividends to shareholders of the
Company's voting and nonvoting common stock and the market range of bid prices
of the nonvoting common stock during the last two years. The nonvoting common
stock is traded in the NASDAQ Stock Market and is part of the NASDAQ National
Market System. The bid prices were obtained from the National Quotation Bureau
Incorporated. The voting common stock is closely held and there is no public
market.
Market Price Range Dividends
1994 High Low Paid
First Quarter $16 3/4 $15 $.06
Second Quarter 16 1/4 14 .06
Third Quarter 14 3/4 13 1/2 .06
Fourth Quarter 13 3/4 9 3/4 .06
1993
First Quarter $18 $15 1/4 $.06
Second Quarter 18 1/4 13 3/4 .06
Third Quarter 17 1/2 13 3/4 .06
Fourth Quarter 17 14 .06
There are no known restrictions on the Company's ability to pay dividends other
than as described in Note 7 of Notes to Consolidated Financial Statements. The
Company also expects to continue paying dividends in the future.
There were approximately 1,200 registered shareholders of the Company's
nonvoting common stock and approximately 100 registered shareholders of the
Company's voting common stock based on the number of record holders as of
December 31, 1994.
PAGE 25
SELECTED FINANCIAL DATA
(000 Omitted Except Per Share Amounts)
1994 1993 1992 1991
Revenue and Earnings
Life premiums (1) $ 167,385 $ 177,102 $ 174,100 $ 175,800
Property and casualty premiums 45,677 100,136 151,482 164,085
Accident and health premiums 58,520 94,441 101,426 103,950
---------- ---------- ---------- ----------
Premium income 271,582 371,679 427,008 443,835
Realized investment
gains (losses) (2) 4,352 14,819 14,431 5,444
Net investment income 68,518 73,706 82,068 88,933
Total revenue 354,741 471,567 533,466 548,697
Costs and expenses (1) (4) 338,991 475,010 563,188 510,753
Income (loss) from
continuing operations 11,110 (860) (16,994) 26,972
Income (loss) from
discontinued operations - 465 1,906 1,670
Gain on disposition of
discontinued operations - 6,904 - -
Income (loss) before
cumulative effect of change
in accounting principles 11,110 6,509 (15,088) 28,642
Cumulative effect of change
in accounting principles - (42,771) - -
Net income (loss)(1)(2)(3)(4) 11,110 (36,262) (15,088) 28,642
Financial Position
Asset $1,363,764 $1,478,005 $1,517,877 $1,450,491
Investments 1,019,547 1,091,767 1,118,446 1,096,097
Accounts and notes receivable 6,145 11,833 12,842 13,727
Short-term notes payable 5,300 3,000 8,000 2,162
Long-term notes payable 2,200 3,800 - 185
Shareholders' equity 267,258 315,922 341,706 367,984
Unrealized gains (losses)
on debt securities - gross (46,735) 38,910 11,224 28,127
Unrealized gains (losses) on
equity securities - gross 11,693 12,246 17,611 17,226
Per Share Data
Income (loss) from continuing
operations $ .84 $ (.07) $ (1.29) $ 2.05
Income (loss) from
discontinued operations - .56 .14 .13
Income (loss) before
cumulative effect of change
in accounting principles .84 (.49) (1.15) 2.18
Cumulative effect of change
in accounting principles - (3.24) - -
Net income (loss)(1)(2)(3)(4) .84 (2.75) (1.15) 2.18
Realized investment gains
(losses), net of tax .21 .73 .75 .25
Book value 20.30 24.00 25.96 27.95
Book value - SFAS No. 115 (3.26) 1.32 - -
Dividends .24 .24 .88 .87
Other Data
Life insurance in force $7,320,622 $7,735,483 $7,723,334 $7,397,418
Average shares outstanding 13,165 13,165 13,165 13,165
Property and casualty
combined ratio 119.6% 168.6% 147.5% 105.9%
(1) Data presented for years prior to 1989 have not been restated as a result
of the adoption of SFAS No. 97 in 1989.
(2) Year 1985 includes unusual realized capital losses of $(12,118) or $(.83)
per share.
(3) Year 1984 includes nonrecurring deferred tax adjustment of $19,218 or
$1.30 per share.
(4) Year 1993 costs and expenses include a restructuring charge of $23,000,
impacting after tax net loss by $(14,950) or $(1.14) per share.
PAGE 26
1990 1989 1988 1987 1986 1985 1984
$ 171,800 $ 164,157 $ 178,584 $ 176,968 $ 167,324 $ 168,280 $ 165,627
159,563 159,265 146,589 110,576 99,057 81,543 71,116
107,648 89,718 89,536 83,790 85,968 96,080 109,603
---------- ---------- ---------- ---------- ---------- ---------- ----------
439,011 413,140 414,709 371,334 352,349 345,903 346,346
480 (1,480) (20) 155 2,750 (12,586) 218
87,302 78,692 72,727 70,758 71,650 68,956 63,539
540,212 499,621 487,876 443,522 427,509 415,665 409,920
498,228 463,044 453,484 402,094 386,379 377,235 363,246
29,658 28,018 26,454 28,902 30,694 15,973 32,072
1,369 1,288 (159) 409 392 (244) 640
- - - - - - -
31,027 29,306 26,295 29,311 31,086 15,729 32,712
- 1,113 - - - - 19,218
31,027 30,419 26,295 29,311 31,086 15,729 51,930
$1,399,383 $1,309,760 $1,223,717 $1,170,816 $1,157,516 $1,109,158 $1,020,514
1,050,323 982,714 923,126 862,553 844,268 812,090 746,950
12,418 19,492 8,812 10,165 14,998 16,846 10,559
7,862 2,162 2,162 2,162 2,162 2,162 -
2,347 6,609 10,870 15,132 22,176 31,338 -
341,646 330,425 302,312 284,958 295,225 267,578 249,875
9,894 11,887 (3,029) 10,776 31,581 (693) (50,796)
3,407 12,730 315 (2,993) 9,564 (1,167) (13,285)
$ 2.24 $ 2.10 $ 1.97 $ 2.02 $ 2.09 $ 1.09 $ 2.18
.10 .10 (.01) .03 .03 (.02) .05
2.34 2.20 1.96 2.05 2.12 1.07 2.23
- - - - - - -
2.34 2.28 1.96 2.05 2.12 1.07 3.53
.02 (.05) - .01 .19 (.85) .01
25.95 24.82 22.71 21.19 20.21 18.20 17.00
- - - - - - -
.83 .79 .76 .75 .71 .69 .66
$7,256,896 $6,700,887 $6,290,166 $6,157,497 $5,966,870 $5,882,599 $5,889,926
13,281 13,316 13,383 14,316 14,678 14,702 14,704
102.9% 109.4% 99.7% 96.8% 102.6% 106.0% 99.7%
PAGE 27
Management's Discussion and Analysis of
Financial Condition and Results of Operation
Liquidity and Capital Resources
The capital resources of Independent Insurance Group, Inc. (the "Company") are
dependent upon the ability of its subsidiaries to pay dividends to the Company
and upon payments received in accordance with income tax consolidation
agreements with its subsidiaries. Restrictions on the Company's subsidiaries
to pay dividends (see Notes 7 and 8 of Notes to Consolidated Financial
Statements) have not affected the ability of the Company to meet its financial
obligations in the past, nor do we expect them to in the future. There are no
significant variations or trends in the Company's capital resources other than
profitability of operations and the 1993 sale of its consumer finance
subsidiary. Proceeds from the sale were primarily used to further capitalize
the Home Service property and casualty subsidiary, Independent Property and
Casualty Insurance Company (IP & C), and to extinguish debt.
Company cash requirements in 1995 for anticipated dividends to shareholders,
debt service, and all other operating expenses are expected to be $5,200,000.
Anticipated dividends from the non-insurance subsidiaries, combined with
parent company investment income and cash on hand, are adequate to meet these
obligations. Management believes that funds generated from operations will be
adequate to enable its companies to meet all anticipated cash requirements.
Although we have adopted a program to repurchase our nonvoting shares when
certain parameters are met, we have not purchased any shares since 1990. Any
purchases in 1995 will depend on the availability of funds and market
conditions.
If the parent company needs additional funding for any reason, it will be
dependent upon external financing or the ability of its life insurance
subsidiary to distribute dividends. Under current Florida laws, the life
insurance subsidiary could dividend approximately $9,900,000 to its parent in
1995. In order to maintain the parent company dividend at its current $.24
per share and to maintain the life subsidiary's statutory capital and surplus
at its current $101,000,000, it will be necessary for the life subsidiary to
statutorily earn approximately $12,000,000 in 1995 and 1996.
The Company's life insurance subsidiary's statutory earnings for the last
three years were:
1994 1993 1992
$6,000,000 $16,300,000 $2,100,000
During 1992, $10,000,000 was invested by our life insurance subsidiary in our
property and casualty companies as a result of Hurricane Andrew. To foster
growth of IP & C, in 1993 the Company contributed $8,500,000 in capital and
$3,000,000 in 1994. Unless regulatory, rating or licensing requirements make
it necessary, management does not anticipate any contributions of capital to
subsidiaries during 1995. Total debt outstanding at December 31, 1994 consists
of a $3,000,000 short-term note and a $3,000,000 term loan. The Company has
committed $1,100,000 for debt service on these loans in 1995. Bank credit
lines for the Company and its subsidiaries at December 31, 1994 were
$24,000,000 of which $1,500,000 was utilized. These lines of credit are used
primarily to assist in cash flow planning, but are available at all times for
any corporate purpose. The Company anticipates that it will continue to
maintain total lines of credit of approximately $20,000,000 into the future.
The Company's cash requirements in 1995 will decline compared to the prior
three years, as reflected in the table presented below.
PAGE 28
Parent Company Cash Requirements
(Exclusive of Income Tax and Expense Allocation)
(000 Omitted)
Projected Actual Actual Actual
1995 1994 1993 1992
Dividends to shareholders $3,200 $3,200 $ 3,200 $11,600
Debt service 1,100 1,300 1,200 5,800
Subsidiary capital contribution - 3,000 8,500 2,150
Other expenses 900 900 750 900
------ ------ ------- -------
Total $5,200 $8,400 $13,650 $20,450
====== ====== ======= =======
Parent Company Funding Sources
(Exclusive of Income Tax and Expense Allocations)
(000 Omitted)
Projected Actual Actual Actual
1995 1994 1993 1992
Cash on hand $1,600 $ 3,100 $ - $ -
Life subsidiary dividends - 6,000 - 4,500
Non-life subsidiary dividends 1,900 1,900 2,300 3,700
After-tax proceeds from sale of
consumer finance subsidiary - - 14,400 -
Investment income 1,200 1,300 1,300 1,400
Other sources 1,000 1,300 1,300 1,100
------ ------- ------- -------
Total $5,700 $13,600 $19,300 $10,700
====== ======= ======= =======
The Company's life insurance subsidiary is able to accumulate funds as a
result of the receipt and investment of premium revenues prior to the
settlement of insurance policy obligations. Investments with varying
maturities are selected to meet these obligations. Long-term investments,
selected primarily to satisfy long-term policy obligations, are generally held
to maturity so interim market fluctuations present no liquidity concerns.
However, in recent years, securities have been sold on a regular basis to
offset accumulated capital gains and losses, to realize a gain that was
expected to erode in the future or to vary the average maturity of our bond
portfolio. During late 1992 and early 1993, our property and casualty
insurance subsidiaries sold approximately $80,000,000 of securities, mostly to
provide cash to pay Hurricane Andrew claims. The property and casualty
subsidiaries will have to sell securities as claims are settled on non-Home
Service policies and, depending on economic conditions at the times of the
sales, may incur capital losses.
PAGE 29
In 1994, the Company's insurance subsidiaries invested primarily in
intermediate-term investments due to the structure of the yield curve and to
assure proper matching of assets and liabilities. Approximately 16% of new
debt securities purchased were in mortgage-backed securities. The remainder
was invested in corporate issues and to a lesser extent in U.S. Treasury
obligations. Holdings of municipal securities were decreased in 1994 due to
changing tax considerations. As of December 31, 1994, more than 94% of the
Company's bond portfolio was rated 1, the highest quality category by the
National Association of Insurance Commissioners (NAIC). The investment grade
securities ratings of AAA through A- as rated by Standard and Poor's
Corporation make up the NAIC 1 rating. Investment grade securities are deemed
to be associated with superior debt paying ability. Investments in high-yield,
high-risk securities (comparable to being rated below BBB- by Standard and
Poor's Corporation) are insignificant.
The mortgage loan portfolio is composed primarily of commercial mortgages
concentrated in small office buildings, office/warehouse buildings, and retail
buildings throughout the Southeastern United States. Mortgage loans in
Florida, our largest state, exceed $60,000,000 or approximately 42% of our
entire portfolio. Reentering the mortgage lending market is expected to be
done in 1995. The table below shows the year-end portfolio, losses, and
delinquency rates since 1991 (000 omitted):
1994 1993 1992 1991
Mortgage loans $144,000 $166,000 $206,000 $252,000
Losses from foreclosures
and write-downs 1,400 2,300 2,100 5,100
Delinquency rate
(over 90 days) 1.53% 2.30% 3.24% 3.29%
Management does not anticipate any material losses on mortgages or real estate
in 1995. SFAS No. 114, "Accounting by Creditors for Impairment of a Loan", is
effective in 1995 and will have no noticeable impact on net income of the
Company. It will entail recording bad debt expense on any impaired loans,
compared with currently recording a realized loss.
The Company's life insurance subsidiary writes covered call options on a
regular basis to reduce cost and market exposure, while increasing current
income on $31,000,000 of common stock and $15,000,000 of common stock indexes.
The Subsidiary does not use these common stock or common stock index options
(derivative investments) to increase or leverage its exposure to the market
and has no significant risks related to derivative investments.
Results of Operations
Net income for 1994 was $11.1 million, or $.84 per share. By comparison, the
consolidated companies reported a net loss of $36.3 million, or $2.75 per
share in 1993. Results for 1993 include unusual losses from restructure
charges and the cumulative effect of change in accounting principles. Also
included in 1993 were gains on the disposition of discontinued operations.
Results in 1994 reflect lower net investment income, which has been common in
the industry. Results in 1994 also reflect the higher cost of litigation in
Alabama. This state has received national attention for its excessive
punitive damage awards that have negatively impacted much of the business
industry which operates there. As a result of exiting all non-Home Service
lines of business over the last two years, decreases are reflected in
revenues, benefits and expenses between comparable periods.
Presented in the four tables below is historical information that depicts our
premium income by major segments and lines of business. Due to the following
reasons, these historical amounts are not comparable and cannot readily assist
in predicting trends. They are valuable, however, in depicting the effect of
these corporate actions:
PAGE 30
During 1992, the insurance subsidiaries entered into reinsurance treaties
on its existing block of non-Home Service auto and credit property
business;
Starting in 1993, the insurance subsidiaries began to wind down all non-
Home Service property and casualty operations. At December 31, 1994, the
wind-down was virtually completed;
At December 31, 1993, the insurance subsidiaries ceased issuing group life
and accident and health business;
Effective January 1, 1994, the insurance subsidiaries 100% reinsured all
new credit life and accident and health business written.
Premium Income Distribution by Segment
1994 1993 1992 1991 1990
Life 61.6% 47.7% 40.8% 39.6% 39.2%
Property and casualty 16.8 26.9 35.5 37.0 36.3
Accident and health 21.6 25.4 23.7 23.4 24.5
Life Premiums Collected
(000 Omitted)
1994 1993 1992 1991 1990
Individual life $170,504 $164,013 $162,631 $160,131 $164,031
Group and Credit life (2,221) 9,715 9,397 4,785 4,018
-------- -------- -------- -------- --------
Total $168,283 $173,728 $172,028 $164,916 $168,049
======== ======== ======== ======== ========
Accident and Health Premiums Collected
(000 Omitted)
1994 1993 1992 1991 1990
Individual accident
and health $55,606 $61,197 $ 61,966 $ 66,720 $ 73,674
Group accident
and health 5,478 26,588 32,655 33,314 30,742
Credit accident
and health (2,485) 6,873 7,315 3,979 3,292
------- ------- -------- -------- --------
Total $58,599 $94,658 $101,936 $104,013 $107,708
======= ======= ======== ======== ========
PAGE 31
Property and Casualty Earned Premiums
(000 Omitted)
1994 1993 1992 1991 1990
Homeowners $ 1,967 $ 25,569 $ 50,654 $ 52,634 $ 51,294
Credit property (280) 6,328 23,836 28,164 32,458
Automobile 1,621 10,385 21,962 29,486 24,243
Home Service 37,584 34,093 29,517 26,471 23,303
Other 4,785 23,761 25,513 27,330 28,265
------- -------- -------- -------- --------
Total $45,677 $100,136 $151,482 $164,085 $159,563
======= ======== ======== ======== ========
The remaining active lines of business are all Home-Service produced.
Presented below is a five-year history of Home Service premiums collected or
written by major segment:
Home Service Cash Basis Premiums
(000 Omitted)
1994 1993 1992 1991 1990
Individual life $169,323 $162,771 $161,250 $158,104 $161,944
Individual accident
and health 55,372 60,942 61,686 66,412 73,336
Property and casualt 41,615 38,245 34,463 27,741 23,904
-------- -------- -------- -------- --------
Total $266,310 $261,958 $257,399 $252,257 $259,184
======== ======== ======== ======== ========
Home Service Premium Distribution by Segment
1994 1993 1992 1991 1990
Individual life 63.6% 62.1% 62.6% 62.6% 62.5%
Individual accident
and health 20.8 23.3 24.0 26.3 28.3
Property and casualty 15.6 14.6 13.4 11.1 9.2
As shown in the above tables, the compound annual growth rate for the total of
all Home Service lines is under 1%. Life premiums have grown slightly;
accident and health premiums are down 24% during the 5-year period, while
property and casualty premiums have increased 74%. The Company has introduced
new accident and health products to the portfolio and expect accident and
health premium income to remain about the same in 1995 as it is in 1994.
Management anticipates life premiums to remain approximately the same.
Property and casualty premiums should increase in excess of 10%, aided by the
introduction of a non-standard auto insurance product in some states in 1994.
The mixture of product lines in the future should not change appreciably from
the past, but accident and health and property and casualty premiums should
increase their shares and life premiums should correspondingly decrease its
market share.
PAGE 32
The following table presents the ratio of incurred benefits and reserve
increases to earned premiums for Home Service lines of business for the period
1990 through 1994:
1994 1993 1992 1991 1990
Life 50.5% 48.6% 52.6% 51.1% 56.2%
Accident and health 25.8 27.5 29.1 27.7 32.4
Property and casualty 51.9 54.4 61.6 55.8 53.2
Total 45.5 44.5 48.0 45.5 44.1
The ratio for the life and accident and health lines of business has trended
modestly downward during the period while the ratio for property and casualty
has remained fairly constant except in 1992 when it increased due to higher
than usual benefits related to Hurricane Andrew. For 1995, management does
not expect these ratios to vary significantly from those reported in 1994.
Presented below is a table depicting the Home Service commission-to-premium
ratio for five years:
1994 1993 1992 1991 1990
Life and health 29.2% 31.5% 30.8% 30.3% 31.0%
Property and casualty 22.4 22.8 27.1 27.5 28.0
Total 28.0 30.2 30.3 30.0 30.7
The decrease in the property and casualty commission ratio is due primarily to
a commission contract change in 1992. The increase in life and health
commissions in 1993, and the subsequent decrease in 1994, was mostly due to a
special sales program near the end of 1993 in which the Company paid out
production commissions for one special sales program more rapidly than the
commission contracts required, and secondarily from several contract changes
made at various times in 1993. Other than variations from production,
management anticipates the commission-to-premium relationships to remain
approximately the same in 1995. During 1994, over 250 subsidized agencies
were consolidated into larger agencies.
Variations in net investment income growth have been caused by wide
fluctuations in interest rates, the reduction in assets from the payment of
catastrophe losses plus the wind-down of our property and casualty lines.
Variations have also been caused by the substantial reduction in our mortgage
loan portfolio where no new mortgage loans have been made since the middle of
1990, except for restructurings on sales of foreclosed properties or on our
field offices. Additionally, as interest rates declined, proceeds from
significant sales of securities and from prepayments on mortgage loans,
mortgage-backed securities and corporate bonds were reinvested at lower rates.
As interest rates increased throughout 1994, our cash flow was lower than in
prior years due to the wind-down and insignificant premium growth in the life
insurance subsidiary. If interest rates remain stable, management expects net
investment income to increase in 1995. Approximately 90% of all gross
investment income is derived from interest bearing investments with an overall
average duration of under eight years. The table below presents a five year
history of net investment income and net realized investment gains (000
omitted):
1994 1993 1992 1991 1990
Net investment income $68,518 $73,706 $82,068 $88,933 $87,302
Net realized gains 4,352 14,418 14,431 5,444 480
------- ------- ------- ------- -------
Total $72,870 $88,124 $96,499 $94,377 $87,782
======= ======= ======= ======= =======
PAGE 33
Total general expenses have declined every year since 1991:
1994 1993 1992 1991
$101,000,000 $115,000,000 $119,000,000 $121,000,000
Salary and employee benefits account for approximately one-half of general
expenses during the entire period. During 1994, more than 150 additional
positions were eliminated in the Home Office due to the property and casualty
wind-down, the exiting of our group and credit insurance lines and a general
reorganization.
In 1994, there were no adoptions of new Statements of Financial Accounting
Standards (SFAS) that impacted net income or shareholders' equity. In 1993,
the Company adopted the provisions of five newly required SFAS.
The Company implemented SFAS No. 109, "Accounting for Income Taxes", during
1993. As permitted, the financial statements prior to 1993 were not restated
with the cumulative impact of the adoption being charged to 1993 earnings.
The charge was approximately $5,300,000, exclusive of the deferred tax benefit
recognized as the result of also adopting SFAS No. 106, "Employers' Accounting
for Postretirement Benefits Other Than Pensions". The deferred tax benefit
recognized for the adoption of SFAS No. 106 was $18,000,000. The change in
the corporate tax rate effective for 1993 had an insignificant net impact on
the 1993 results of operations.
Primarily as a result of Hurricane Andrew in 1992, the Company's property and
casualty subsidiaries sustained significant taxable losses for 1992 as well as
1993. As required by applicable income tax regulations, the 1992 taxable
losses were carried back to earlier profitable years with approximately
$10,000,000 of income tax refunds being received in 1994. Portions of the
remaining 1992 losses as well as the 1993 losses have been utilized in the
1993 and 1994 consolidated income tax return calculations. Management
anticipates that we will be able to fully utilize the remaining $13,000,000 of
taxable net operating loss carryforwards that remain at the end of 1994 in our
consolidated return within the allowable carryforward periods.
At December 31, 1994, the Company has a net deferred tax asset of $20,700,000.
This amount represents net deferred tax assets related to operations of
$18,800,000 and deferred tax assets relating to unrealized investment losses
of $11,600,000. The Company established a valuation allowance of $9,700,000
during 1994 for the unrealized losses on investment securities which are
carried as a component of shareholders' equity and valued at market value.
The valuation allowance was established due to the uncertainty of the
Company's ability to fully utilize the investment losses. The net deferred
tax assets related to operations are expected to be realized against future
taxable income of Independent Life which has historically generated
substantial amounts of taxable income. A continuation of the present level of
reported earnings are sufficient for the realization of the operations-related
net deferred tax assets and, acccordingly, a valuation allowance has not been
established for the operations-related net deferred tax asset.
The Internal Revenue Service has notified the Company of its intention to
commence an examination of the Company's Federal income tax returns for
taxable years 1992 and 1993. They have previously examined our Federal income
tax returns through 1990 with all resulting deficiencies and refunds being
settled. The Company believes that its accruals for income taxes continue to
be adequate and that the result of any examination will not have a materially
adverse effect.
In 1990, the Financial Accounting Standards Board issued SFAS No. 106,
requiring the projected future costs of providing postretirement benefits,
such as health care and life insurance, to be recognized as an expense as
employees render service instead of when the benefits are paid. The Company
adopted SFAS No. 106 in the first quarter 1993. The cumulative pretax effect
of this change was $53,000,000.
PAGE 34
In November 1992, the Financial Accounting Standards Board issued SFAS No.
112, "Employers' Accounting for Postemployment Benefits". This new rule
requires projecting the cost of providing future benefits, principally salary
continuation and disability-related benefits, to former or inactive employees
after employment but prior to retirement. The Company has certain benefits,
primarily health care, that would be subject to the Statement's guidelines,
but the impact on our financial statements has been minimal as the Company had
previously reserved $7,200,000 for such benefits.
In accordance with SFAS No. 115, "Accounting for Certain Investments in Debt
and Equity Securities", which was adopted in 1993, the debt securities
portfolios have been segregated between "available for sale" and "held to
maturity". The "available for sale" category is reported at fair value in
1993 and 1994, with unrealized gains and losses reported as a separate
component of shareholders' equity. The "held to maturity" category comprises
U.S. Treasury and Government securities and private placements and represents
7% of the investment portfolio. If interest rates vary by 1%, the unrealized
gains in the debt securities portfolio would increase or decrease by
approximately $37,000,000. The application of SFAS No. 115 increased the
value of our bond portfolio $28,900,000 at December 31, 1993 and decreased our
portfolio by $48,600,000 at December 31, 1994.
In 1993, the Company changed its method of accounting for retrospectively-
rated reinsurance contracts based upon the Emerging Issues Task Force Issue
93-6. The cumulative pretax effect of adopting the change in the third
quarter of 1993 was a charge of $3,800,000.
The adoption of SFAS No. 106, SFAS No. 109, SFAS No. 112 and SFAS No. 113 did
not affect the Company's liquidity or cash flows.
As a result of recent catastrophe losses incurred, dramatically increased
reinsurance costs and concerns about future profitability of property and
casualty operations, management decided in 1993 to withdraw from all non-Home
Service property and casualty lines of business. Home Service products are
considered to be less vulnerable to cyclical forces and catastrophe exposures
than are other segments of the property and casualty business.
The withdrawal was implemented in 1993 by ceasing to issue new non-Home
Service property and casualty business and not reissuing renewal policies. In
Florida, the Company transferred the residential property lines of business to
the Florida Residential Property and Casualty Joint Underwriting Association
(FRPCJUA). A $23,000,000 pretax restructuring charge was recorded in 1993 to
provide for the costs of withdrawal from the non-Home Service lines. The
restructuring charge is comprised of the following (000 omitted):
Remaining
Initial Costs to Date Restructure
Restructure Charged Against Liability
Liability Liability 12/31/94
Write-down of nonrecoverable
deferred policy acquisition costs $ 7,700 $ 7,700 $ -
Costs incurred related to
transfer of Florida homeowners
business to Joint Underwriting
Assoc. 4,800 4,800 -
Guaranty Association costs 4,100 700 3,400
Increased claims due
to antiselection 3,400 2,500 900
Employee severance program 1,200 1,200 -
Credit insurance termination costs 1,800 1,800 -
------- ------- ------
Total $23,000 $18,700 $4,300
======= ======= ======
PAGE 35
Of the $23,000,000 restructuring liability recorded in 1993, approximately
$8,000,000 involved non cash charges and $15,000,000 represented future cash
expenditures. Future estimated cash expenditures at December 31, 1994 are
$4,300,000 and represent primarily the Florida Insurance Guaranty Association
assessments estimated through 1998. These assessments are all in connection
with Hurricane Andrew. Of the $18,700,000 of costs to date charged against
the liability, $3,000,000 were in 1994 and $15,700,000 were in 1993.
The Company's insurance subsidiaries prepare financial statements in
accordance with accounting practices prescribed by the Florida Insurance
Department. Prescribed statutory accounting practices include a variety of
publications of the NAIC, as well as state laws and regulations. In some
instances, states permit the use of accounting practices that are not
prescribed. The insurance subsidiaries financial statements reflect
prescribed accounting practices only.
A commonly used source to provide additional statutory surplus needs is
reinsurance, and the property and casualty subsidiaries utilized reinsurance
to increase their surplus in 1992 and 1993. All statutory surplus treaties
were eliminated in 1994 except for a small amount on credit insurance.
In prior years, management has diligently attempted to control the growth in
general expenses. In 1993 and 1994, there has been a total reduction of over
300 home office employees. Despite the reduction in expenses, management is
aware that its short and longer term financial well-being is dependent upon
its ability to increase its revenue. Management remains focused on that
primary issue.
PAGE 37
Consolidated Balance Sheets
---------------------------------
December 31
1994 1993
(000 Omitted)
Assets
Investments:
Debt securities-available for sale $ 603,421 $ 676,754
Debt securities-held to maturity 51,048 53,289
Equity securities 156,596 139,491
Mortgage loans 143,677 165,652
Real estate 17,110 17,589
Policy loans 33,967 33,065
Short-term investments 13,728 5,927
Cash 10,533 13,451
Accrued Investment Income 13,521 13,079
Accounts and Notes Receivable 6,145 11,833
Reinsurance Recoverable 26,290 58,405
Property and Equipment, Net:
Land and buildings 39,019 40,798
Furniture and equipment 6,751 8,522
Deferred Policy Acquisition Costs 195,053 196,720
Income Taxes 15,790 9,131
Other Assets 31,115 34,299
---------- ----------
Total $1,363,764 $1,478,005
========== ==========
See Notes to Consolidated Financial Statements.
PAGE 38
December 31
1994 1993
(000 Omitted)
Liabilities and Shareholders' Equity
Policy Reserves:
Life $ 735,668 $ 736,103
Accident and health 51,929 53,329
Policyholders' Funds 103,771 99,849
Claims Payable 50,404 70,530
Unearned Premiums 23,452 41,844
Notes Payable 7,500 6,800
Postretirement and Postemployment Benefits 70,501 67,255
Accrued Expenses and Other Liabilities 53,281 86,373
---------- ----------
Total liabilities 1,096,506 1,162,083
---------- ----------
Shareholders' Equity:
Voting common stock, $1.00 par value -
7,500 shares authorized; 5,725 and 6,100
shares issued 5,725 6,100
Nonvoting common stock, $1.00 par value -
15,000 shares authorized; 8,981 and 8,606
shares issued 8,981 8,606
Additional paid-in capital 6,378 6,378
Net unrealized gain (loss) on debt securities
available for sale and equity securities (31,222) 25,393
Retained earnings 301,947 293,996
Treasury stock:
Nonvoting common stock, 1,542 shares (24,551) (24,551)
---------- ----------
Total shareholders' equity 267,258 315,922
---------- ----------
Total $1,363,764 $1,478,005
========== ==========
PAGE 39
Consolidated Statements of Operations
------------------------------------------
Years Ended December 31
1994 1993 1992
(000 Omitted)
Revenues
Insurance premiums:
Life $167,385 $177,102 $174,100
Property and casualty 45,677 100,136 151,482
Accident and health 58,520 94,441 101,426
Net investment income 68,518 73,706 82,068
Realized investment gains 4,352 14,819 14,431
Other income 10,289 11,363 9,959
------- ------- -------
Total 354,741 471,567 533,466
------- ------- -------
Costs and Expenses:
Policy benefits:
Life 90,663 90,787 91,788
Property and casualty 26,384 77,282 150,962
Accident and health 21,122 37,327 40,091
Policy reserve increase (decrease) (6,171) 8,432 15,604
Amortization of deferred policy
acquisition costs 44,116 50,481 50,043
Deferral of policy acquisition costs (33,218) (50,446) (58,338)
Commissions 67,342 95,431 120,773
General expenses 100,830 114,570 118,893
Taxes, licenses and fees 19,161 24,513 25,169
Other operating expenses 8,762 3,633 8,203
Restructuring charge - 23,000 -
------- ------- -------
Total 338,991 475,010 563,188
------- ------- -------
Income (Loss) from Continuing Operations
Before Income Taxes 15,750 (3,443) (29,722)
------- ------- -------
Provision (Credit) for Income Taxes:
Current 8,094 3,174 (1,379)
Deferred (3,454) (5,757) (11,349)
------- ------- -------
Total 4,640 (2,583) (12,728)
------- ------- -------
Income (Loss) from Continuing Operations 11,110 (860) (16,994)
Income from Discontinued Operations
(Net of Taxes) - 465 1,906
Gain on Disposition of Discontinued
Operations (Net of Taxes) - 6,904 -
Income (Loss) Before Cumulative Effect of
Change in Accounting Principles 11,110 6,509 (15,088)
Cumulative Effect of Change in Accounting
Principles - (42,771) -
------- ------- -------
Net Income (Loss) $ 11,110 $(36,262) $(15,088)
Net Income (Loss) Per Share:
Income (Loss) from continuing operations $.84 $ (.07) $(1.29)
Income and gain from discontinued
operations - .56 .14
----- ------ -----
Income (Loss) before cumulative effect of
change in accounting principles .84 .49 (1.15)
Cumulative effect of change in accounting
principles - (3.24) -
----- ------ ------
Net Income (Loss) $.84 $(2.75) $(1.15)
===== ====== ======
See Notes to Consolidated Financial Statements.
PAGE 40
Consolidated Statements of Cash Flows
-----------------------------------------
Years Ended December 31
1994 1993 1992
(000 Omitted)
Operating Activities:
Net income (loss) $ 11,110 $ (36,262) $ (15,088)
Adjustments to reconcile net income
to net cash provided by operating
activities:
Change in -
Accrued policy reserves and benefits (63,162) (34,234) 38,808
Accounts receivable and unearned
premiums 9,486 (36,144) (10,459)
Other assets and other liabilities 25,301 (8,789) 29,703
Accrued and unearned investment income (445) (512) (1,678)
Liability for income taxes 8,907 (8,675) (21,309)
Amortization of policy
acquisition costs 44,116 50,481 50,043
Deferral of policy acquisition costs (33,218) (50,446) (58,338)
Depreciation of property and equipment 4,533 4,867 5,323
Purchase of property and equipment (982) (958) (1,899)
Restructuring charge - 15,805 -
Gain from discontinued operations
(net of taxes) - (6,904) -
Cumulative effect of change in accounting
principles (net of taxes) - 42,771 -
Realized investment gains (4,352) (14,819) (14,431)
-------- ------- -------
Net cash provided (used) by
operating activities 1,294 (83,819) 675
-------- ------- -------
Investing Activities:
Sales, maturities or payments from
investment and loans 299,972 605,765 934,955
Purchases of investments and
loans granted (305,647) (542,555) (938,794)
Proceeds from sale of
discontinued operations - 22,573 -
--------- -------- --------
Net cash provided (used)
by investing activities (5,675) 85,783 (3,839)
--------- -------- --------
Financing Activities:
Additions to notes payable 11,500 6,900 13,092
Reductions in notes payable (10,800) (8,100) (7,439)
Receipts credited to policyholders'
funds 23,843 25,022 27,110
Return of policyholders' funds (19,921) (17,172) (19,557)
Dividends to shareholders (3,159) (3,159) (11,584)
--------- -------- --------
Net cash provided by
financing activities 1,463 3,491 1,622
--------- -------- --------
Increase (Decrease) in Cash (2,918) 5,455 (1,542)
Cash, Beginning of Year 13,451 7,996 9,538
-------- --------- ---------
Cash, End of Year $ 10,533 $ 13,451 $ 7,996
======== ========= =========
Noncash Investing and Financing
Activities:
Real estate acquired in
satisfaction of debt $ 4,599 $ 4,844 $ 9,993
======== ========= =========
See Notes to Consolidated Financial Statements.
PAGE 41
Consolidated Statements of Shareholders' Equity
---------------------------------------------------
Years ended December 31
1994 1993 1992
(000 Omitted)
Voting Common Stock:
Balance, beginning of year $ 6,100 $ 6,267 $ 6,303
Retired during the year (375) (167) (36)
-------- -------- --------
Balance, end of year 5,725 6,100 6,267
-------- -------- --------
Nonvoting Common Stock:
Balance, beginning of year 8,606 8,439 8,403
Issued during the year 375 167 36
-------- -------- --------
Balance, end of year 8,981 8,606 8,439
-------- -------- --------
Additional Paid in Capital:
Balance, beginning and end of year 6,378 6,378 6,378
-------- -------- --------
Net Unrealized Investment Gains (Losses)
Balance, beginning of year 25,393 11,756 11,362
Net unrealized appreciation
(depreciation) on debt
securities available for sale
and equity securities (72,180) 21,419 422
Deferred income taxes 15,565 (7,782) (28)
-------- ------- ------
Balance, end of year (31,222) 25,393 11,756
-------- ------- ------
Retained Earnings:
Balance, beginning of year 293,996 333,417 360,089
Net income (loss) 11,110 (36,262) (15,088)
Less: Dividends to shareholders
($.24,$.24 and $.88) 3,159 3,159 11,584
-------- ------- -------
Balance, end of year 301,947 293,996 333,417
-------- ------- -------
Treasury Stock-Nonvoting Common at Cost:
Balance, beginning and end of year
(1,542 shares) (24,551) (24,551) (24,551)
-------- ------- --------
Total Shareholders' Equity $267,258 $315,922 $341,706
======== ======== ========
See Notes to Consolidated Financial Statements.
PAGE 42
Notes to Consolidated Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation and Presentation: The accompanying consolidated financial
statements include the accounts, after intercompany eliminations, of
Independent Insurance Group, Inc., and its wholly owned subsidiaries
(principally insurance companies) and have been prepared in conformity
with generally accepted accounting principles.
Revenue and Expense Recognition: Traditional life and accident and health
premiums are reported as earned when due. Benefits, expenses and
investment income on future benefits for traditional products are
associated with earned premiums so as to result in recognition of profits
over the life of the contracts in proportion to premium earned. This
association is accomplished by means of the provision for policy reserves
and the deferral and amortization of policy acquisition costs. For
universal life-type contracts premiums are reported as deposits to
policyholders' account balances, revenue represents amounts assessed
against policyholders, and benefits represent amounts in excess of
account balances returned to policyholders. Property and casualty
premiums are earned ratably over the life of such policies with a
liability for unearned premiums established for the unexpired portion of
the premium applicable to those policies.
Deferred Policy Acquisition Costs: The cost of acquiring business
(principally commissions and other issue expenses recoverable from future
profit margins) which varies with and is primarily related to the
production of new business has been deferred. These deferred policy
acquisition costs are being amortized over the premium paying period of
the related life and accident and health policies in proportion to the
ratio of the annual premium revenue to the total premium revenue
anticipated except for universal life-type products where amortization is
based on estimated gross profits. Such anticipated premium revenue is
estimated using the same assumptions as used for computing policy
reserves. Deferred policy acquisition costs on property and casualty
policies are amortized over the period during which the related premiums
are earned. Included with deferred policy acquisition costs are the
costs assigned to the value of insurance inforce of acquired companies.
The unamortized balance at December 31, 1994 and 1993 of such amounts was
$15,210,000 and $17,105,000. These costs of insurance purchased are
amortized in proportion to projected future profits on the acquired
insurance inforce using discount rates of 8.5% to 10%.
Policy Liabilities and Accruals: Policy reserves are based upon assumed
future investment yields, mortality rates and withdrawal rates giving
effect to possible risk of adverse deviations. The assumed mortality and
withdrawal rates are based upon company experience. Except for
nontraditional plans where the effect of current interest is reflected,
the interest rates assumed are generally: (a) 6 1/2% for the first 3
years graded to 5% for issues of September, 1993 and later, (b) 8% for
the first 3 years graded to 5 1/2% for issues of September, 1988 through
August, 1993, (c) 8% for the first 5 years graded to 4 1/2% for issues of
1985 through August, 1988, (d) 7% for the first 5 years graded to 4 1/4%
for 1980 through 1984 issues, (e) 6% graded to 3 1/2% for 1968 through
1979 issues, (f) 4 1/2% graded to 3 1/2% for 1963 through 1967 issues and
(g) 3 1/2% for issues prior to 1963. The liability for unpaid claims
represents the estimated ultimate cost of all losses incurred through
December 31 of each year. It includes estimates of claims incurred but
not yet reported and is determined using case basis evaluations and
statistical analyses. Related estimated adjustment expenses have been
accrued.
PAGE 43
Income Taxes: Income taxes have been provided using the liability method
in accordance with FASB Statement 109, "Accounting for Income Taxes".
Under that method, deferred tax assets and liabilities are determined
based on the differences between financial reporting and tax bases of
assets and liabilities and are measured using enacted tax rates.
Income Per Share: Net income per share is computed using 13,165,000
weighted average number of shares outstanding during 1994, 1993 and 1992.
Property and Equipment: Property and equipment is carried at cost and
depreciation is provided generally under accelerated methods for items
placed in service after 1984. Improvements on behalf of tenants are
amortized on the straight-line basis over the terms of tenants' leases.
The accumulated depreciation on these assets was $65,505,000 and
$72,382,000 as of December 31, 1994 and 1993.
Investments: In 1993, the Financial Accounting Standards Board (FASB)
issued Statement 115 "Accounting for Certain Investments in Debt and
Equity Securities". Statement 115 required that debt securities are to
be classified as either held to maturity (carried at amortized cost),
available for sale (carried at market with unrealized gains or losses
reported in equity), or trading (carried at market with unrealized gains
or losses reported in net income).
The Company believes that it has the ability and intent to hold to
maturity its debt security investments that are classified as held to
maturity. However, the Company also recognizes that there may be
circumstances where it may be appropriate to sell a security prior to
maturity in response to unforeseen changes in circumstances. Recognizing
the need for the ability to respond to changes in tax position and in
market conditions, the Company has designated a portion of its investment
portfolio as available for sale. As permitted by Statement 115, the
Company adopted the new accounting standard as of December 31, 1993 and
adjusted the carrying value of its debt security investments that are
classified as investments available for sale to market value as of
December 31, 1994 and 1993. The effect of Statement 115 at December 31,
1994 was to decrease the carrying amount of debt securities that are
classified as available for sale investments by $48,500,000, increase
deferred policy acquisition costs by $3,700,000 and decrease
shareholders' equity by $43,000,000 with no effect on income. The effect
of adopting Statement 115 at December 31, 1993 was to increase the
carrying amount of debt security investments that are classified as
available for sale investments by $28,900,000, decrease deferred policy
acquisition costs by $2,250,000 and increase shareholders' equity by
$17,300,000 with no effect on income.
At December 31, 1994 and 1993, the remainder of the Company's portfolio
of debt security investments is classified as held to maturity. Although
the Company has the ability and intent to hold those securities to
maturity, infrequent and unusual conditions could occur under which it
would be appropriate to sell certain of those securities. Those
conditions could include, but are not limited to, unforeseen changes in
asset quality and significant changes in current tax law. The Company
has not classified any of its debt security investments as trading.
Investments are reported in the accompanying balance sheets on the
following basis:
Available for sale securities are reported at current market value.
Changes in market value of available for sale securities, after
applicable deferred income taxes and after adjustment for deferred
policy acquisition costs, are reported as unrealized appreciation or
depreciation directly in shareholders' equity
PAGE 44
and, accordingly, have no effect on net income. The offsets to the
unrealized appreciation or depreciation represent valuation adjustments
that represent the amounts of revised amortization of deferred policy
acquisition costs that would have been required as a charge or credit
to operations had such unrealized amounts been realized.
Held to maturity securities are reported at amortized cost.
Equity security investments, principally common and nonredeemable
preferred stocks, are carried at current market value with changes in
such value reflected as unrealized gains or losses directly in
shareholders' equity, having no effect on net income.
Mortgage loans on real estate are reported at unpaid balances, adjusted
for amortization of premium or discount, less allowance for other than
temporary impairment. The geographic distribution of mortgage loans is
in 13 states primarily in the Southeastern United States, with 42% in
Florida.
Real estate is reported at cost, less allowances for depreciation and
other than temporary impairment.
Policy loans are reported at unpaid balances.
Short-term investments are reported at cost.
The cost of securities sold is based on specific identification and the
resulting realized gains and losses are included in the determination of
net income.
In the normal course of business, the Company is party to financial
instruments, none of which have significant off-balance-sheet risk.
Fair Values of Financial Instruments: The following methods and
assumptions were used by the Company in estimating its fair value
disclosures for financial instruments:
Cash and cash equivalents, short-term investments: The carrying amounts
reported in the Balance Sheet for these instruments approximate fair
values.
Investment securities: Fair values for debt security investments are
based on quoted market prices, where available. For debt security
investments not actively traded, fair values are estimated by discounting
expected future cash flows using a current market rate applicable to the
yield, credit quality, and maturity of the investments. The fair values
for equity securities are based on quoted market prices.
Mortgage loans and policy loans: The fair value for mortgage loans are
estimated using discounted cash flow analyses, using interest rates that
would currently be offered for similar loans to borrowers with similar
credit ratings. The fair values for policy loans are estimated using
discounted cash flow analyses, using interest rates associated with the
carrying value of policy reserves.
Accounts and notes receivable: The carrying amounts of the Company's
receivables approximate fair values.
Short and long-term notes payable: The carrying amounts of the Company's
short-term notes payable approximate fair values. The Company has
$2,200,000 of long-term notes payable at December 31, 1994.
PAGE 45
Policyholders' Funds: The carrying value for policyholders' funds (e.g.
premium and other demand deposit funds) are equal to the amount payable
on demand at the reporting date, which approximates the fair value.
Accounting Changes: In 1994, there were no adoptions of new Statements
of Financial Accounting Standards that impacted net income or
shareholders' equity. In 1993, the Company adopted the provisions of
five newly required Statements of Financial Accounting Standards, the
impact of which follows:
Statement of Financial Accounting Standards No. 106 (SFAS 106),
"Employers' Accounting for Postretirement Benefits Other Than Pensions",
required the Company to accrue the cost of postretirement benefits other
than pensions over the active service periods of employees as opposed to
the "pay-as-you-go method" which recognizes the expense as benefits are
paid. The effect of the adoption of this statement was recorded as a one
time cumulative effect of change in accounting principles and reduced net
income of the Company by approximately $35,000,000 or $2.66 per share
(net of an income tax benefit of $18,000,000) in the first quarter of
1993. See Note 8, Employee Benefit Plans, for further details of SFAS
106.
Statement of Financial Accounting Standards No. 109 (SFAS 109),
"Accounting for Income Taxes", changed the way in which temporary
differences between financial statement and tax return bases are handled
with regard to deferred federal income taxes. The cumulative effect of
adopting SFAS 109 was to decrease net income by $5,300,000 or $.40 per
share in the first quarter of 1993. See Note 7, Income Taxes, for
additional details.
Statement of Financial Accounting Standards No. 112 (SFAS 112),
"Employers' Accounting for Postemployment Benefits", required entities to
use accrual accounting to value the cost of benefits provided to former
or inactive employees who have not yet retired. As the Company had
previously reserved $7,200,000 for these compensated absences, the
Standard was adopted with no impact on profit.
Statement of Financial Accounting Standards No. 113 (SFAS 113),
"Accounting and Reporting for Reinsurance of Short-Duration and Long-
Duration Contracts", affected the reporting of reinsurance transactions.
In accordance with the Statement's provisions, all reinsurance
recoverables and reserve credits for 1994 and 1993 have been shown
separately as an asset as opposed to being netted against policy
liabilities, with no impact on income. In 1993, the Company changed its
method of accounting for retrospectively-rated reinsurance contracts
based upon a consensus reached by the Emerging Issues Task Force of the
Financial Accounting Standards Board. The Company recorded a cumulative
effect of adopting the change of $2,500,000 or $.18 per share (net of an
income tax benefit of $1,300,000) in the third quarter of 1993.
Statement of Financial Accounting Standards No. 115 (SFAS 115),
"Accounting for Certain Investments in Debt and Equity Securities",
generally replaced the long-standing historical cost accounting approach
for debt securities with one based on fair value as it applies to the
Company. SFAS 115 required classifying debt security investments as held
to maturity or available for sale. Investments available for sale are
now recorded at current fair market value rather than cost. The
difference between these two valuation methods decreased shareholders'
equity by $43,000,000 in 1994 and increased shareholders'
PAGE 46
equity $26,700,000 in 1993. Where applicable, these amounts were taxed as
unrealized gains or losses and the net amount decreased book value per
share by $3.26 in 1994 and increased book value per share by $1.32 in
1993. Debt securities held to maturity continue to be reported at cost,
while equity securities continue to be reported at market value.
Proforma amounts for income (loss) from continuing operations and related
earnings per share amounts for 1992 assuming the retroactive application
of the accrual method of accounting for postretirement benefits and the
revised accounting for retrospectively-rated reinsurance contracts
compared to reported income (loss) from continuing operations and related
earnings per share are shown below (000 omitted):
1992
As Reported
Income (loss) from continuing operations $(16,994)
Per share $(1.29)
Proforma
Income (loss) from continuing operations $(21,434)
Per share $(1.63)
Retroactive application of the new standards related to accounting for
income taxes, postemployment benefits and reinsurance would not effect
these proforma amounts.
Reclassifications: Certain amounts in the 1993 and 1992 statements have
been reclassified to conform with 1994 classifications.
2. RESTRUCTURING
The Company began to focus on its core Home Service operations in early
1992, discussing the possible disposition of its non-Home Service lines
of business. As a result of recent catastrophe losses incurred,
dramatically increased reinsurance costs, and pessimism concerning future
profitability of property/casualty operations, in 1993 management decided
to withdraw from all non-Home Service property/casualty lines of
business. Home Service products are considered to be less vulnerable to
cyclical forces and catastrophe exposures than are other segments of the
property/casualty business.
The strategy was implemented in 1993 by terminating the issuance of new
non-Home Service property/casualty business and not reissuing renewal
policies. In Florida, the Company transferred the residential property
lines of business to the Florida Residential Joint Underwriting
Association. A $23,000,000 pretax restructuring charge was recorded in
1993 to provide for the costs of withdrawal from the non-Home Service
lines. In order to accommodate this withdrawal, the property/casualty
operations were organized into two units, one to service the ongoing Home
Service business and the other to service the run-off business.
Employees concerned with the run-off business have been displaced
systematically in accordance with announced schedules developed around
declining workloads. Approximately 250 positions have been eliminated
from the property/casualty operations in the last 18 months. The
withdrawal from all non-Home Service lines has proceeded on schedule in
all states, and is substantially completed. Withdrawal from the
approximately 5 % of remaining business will be completed in 1995.
PAGE 47
The table below (000 omitted) reflects the original restructuring charge.
It also reflects exit costs which have been incurred to date and charged
against the restructure liability, of which $3,000,000 were in 1994 and
$15,700,000 were in 1993.
Remaining
Initial Costs to Date Restructure
Restructure Charged Against Liability
Liability Liability 12/31/94
Write-down of nonrecoverable
deferred policy acquisition costs $ 7,700 $ 7,700 $ -
Costs incurred related to
transfer of Florida homeowners
business to Joint Underwriting
Assoc. 4,800 4,800 -
Guaranty Association costs 4,100 700 3,400
Increased claims due
to antiselection 3,400 2,500 900
Employee severance program 1,200 1,200 -
Credit insurance termination costs 1,800 1,800 -
------- ------- ------
Total $23,000 $18,700 $4,300
======= ======= ======
The revenue and pretax net operating income (loss) from non-Home Service
property/casualty lines of business for the years ended December 31,
1994, 1993 and 1992 follows (000 omitted):
1994 1993 1992
Revenue $11,936 75,628 $135,917
Pretax net operating income (loss) 100 (37,797) (53,330)
3. DISCONTINUED OPERATIONS
In the first quarter of 1993, the Company completed the sale of its
Louisiana-based consumer finance subsidiary, Gulfco Investment Inc.
(Gulfco). The proceeds of $22,573,000 resulted in an after tax gain of
$6,904,000 (net of income taxes of $4,200,000) which is reported in 1993
as "Gain on Disposition of Discontinued Operations" in the Consolidated
Statements of Operations.
During 1993, prior to completion of the divestiture, Gulfco earned net
income of $465,000. The former subsidiary earned net income of
$1,906,000 in 1992. These amounts have been segregated as "Income from
Discontinued Operations" in the Consolidated Statements of Operations.
PAGE 48
4. INVESTMENTS
Presented below (000 omitted) is a summary of investments as of December
31, 1994:
Balance
Gross Gross Sheet
Amortized Unrealized Unrealized Fair Carrying
Cost Gains Losses Value Values
Investment Catagory
Debt securities
available for sale:
Bonds and notes:
United States
Government $ 7,824 $ 40 $ (411) $ 7,453 $ 7,453
States,
municipalities
and political
subdivisions 43,444 37 (3,294) 40,187 40,187
Foreign governments 44,563 - (4,126) 40,437 40,437
Corporate securities 325,070 136 (24,332) 300,874 300,874
Mortgage-backed
securities 224,295 109 (16,467) 207,937 207,937
Redeemable preferred
stocks 6,850 203 (520) 6,533 6,533
---------- ------- -------- -------- --------
Total debt
securities
available
for sale 652,046 525 (49,150) 603,421 603,421
---------- ------- -------- -------- --------
Debt securities held
to maturity:
Bonds and notes:
United States
Government 48,736 3,061 (1,173) 50,624 48,736
States,
municipalities
and political
subdivisions 296 2 - 298 296
Corporate securities 2,016 - - 2,016 2,016
---------- ------- -------- -------- --------
Total debt
securities held
to maturity 51,048 3,063 (1,173) 52,938 51,048
---------- ------- -------- -------- --------
Equity securities:
Common stocks:
Public utilities 3,871 678 (52) 4,497 4,497
Banks, trusts and
insurance companies 28 15 (2) 41 41
Industrial,
miscellaneous
and all other 90,857 12,313 (4,087) 99,083 99,083
Nonredeemable
preferred stocks 44,136 5,978 (3,150) 46,964 46,964
Other 6,011 - - 6,011 6,011
---------- ------- -------- -------- --------
Total equity
securities 144,903 18,984 (7,291) 156,596 156,596
---------- ------- -------- -------- --------
Other investments:
Mortgage loans 143,677 161 (2,791) 141,047 143,677
Real estate 17,110 - - 17,110 17,110
Policy loans 33,967 3,002 - 36,969 33,967
Short-term
investments 13,728 - - 13,728 13,728
---------- ------- --------- ---------- ----------
Total other
investments 208,482 3,163 (2,791) 208,854 208,482
---------- ------- -------- ---------- ----------
Total
investments $1,056,479 $25,735 $(60,405) $1,021,809 $1,019,547
========== ======= ======== ========== ==========
PAGE 49
Presented below (000 omitted) is a summary of investments as of December
31, 1993:
Balance
Gross Gross Sheet
Amortized Unrealized Unrealized Fair Carrying
Cost Gains Losses Value Value
Investment Category
Debt securities
available for sale:
Bonds and notes:
United States
Government 19,831 $ 1,085 $ (59) $ 20,857 $ 20,857
States,
municipalities
and political
subdivisions 75,214 4,089 (142) 79,161 79,161
Foreign governments 43,336 1,327 (8) 44,655 44,655
Corporate securities 267,179 16,030 (882) 282,327 282,327
Mortgage-backed
securitie 232,955 7,333 (143) 240,145 240,145
Redeemable
preferred stocks 9,328 331 (50) 9,609 9,609
---------- ------ ------ ---------- ---------
Total debt
securities
available
for sale 647,843 30,195 (1,284) 676,754 676,754
---------- ------ ------ ---------- ---------
Debt securities held
to maturity:
Bonds and notes:
United States
Government 49,976 9,442 (1) 59,417 49,976
States,
municipalities
and political 301 3 - 304 301
subdivisions
Corporate securities 3,012 555 - 3,567 3,012
--------- ------ ------ --------- ---------
Total debt
securities
held to
maturity 53,289 10,000 (1) 63,288 53,289
--------- ------ ------ --------- ---------
Equity securities:
Common stocks:
Public utilities 3,856 1,043 (94) 4,805 4,805
Banks, trusts and
insurance companies 28 16 (1) 43 43
Industrial,
miscellaneous
and all other 75,677 12,799 (4,633) 83,843 83,843
Nonredeemable
preferred stocks 41,380 3,395 (279) 44,496 44,496
Other 6,304 - - 6,304 6,304
---------- ------- ------- ---------- ----------
Total equity
securities 127,245 17,253 (5,007) 139,491 139,491
---------- ------- ------- ---------- ----------
Other investments:
Mortgage loans 165,652 20,662 - 186,314 165,652
Real estate 17,589 - - 17,589 17,589
Policy loans 33,065 2,940 - 36,005 33,065
Short-term
investments 5,927 - - 5,927 5,927
---------- ------- ------- ---------- ----------
Total other
investments 222,233 23,602 - 245,835 222,233
---------- ------- ------- ---------- ----------
Total
investments $1,050,610 $81,050 $(6,292) $1,125,368 $1,091,767
========== ======= ======= ========== ==========
PAGE 50
The amortized cost and estimated fair value of debt securities at
December 31, 1994, by contractual maturity, are shown below (000
omitted). Expected maturities will differ from contractual maturities
because borrowers may have the right to call or prepay obligations with
or without call or prepayment penalties.
Available for Sale Held to Maturity
Amortized Fair Amortized Fair
Cost Value Cost Value
Contractual Maturity
Due in one year or less $ 95 $ 96 - -
Due after one year
through five years 47,541 45,061 $13,331 $13,329
Due after five years
through ten years 258,048 237,166 20,103 21,083
Due after ten years 122,067 113,161 17,614 18,526
-------- -------- ------ -------
427,751 395,484 51,048 52,938
Mortgage backed
securities 224,295 207,937 - -
-------- -------- ------- -------
Total $652,046 $603,421 $51,048 $52,938
======== ======== ======= =======
Proceeds from the sales of investments in debt securities during 1994
were $107,721,000. Gross gains of $1,393,000 and gross losses of
$187,000 were realized on those sales. Proceeds from sales of
investments in debt securities during 1993 were $262,943,000. Gross
gains of $6,652,000 and gross losses of $112,000 were realized on those
sales. Proceeds from sales of investments in debt securities during 1992
were $305,246,000. Gross gains of $13,731,000 and gross losses of
$947,000 were realized on those sales.
Details of investment income by major categories are presented below (000
omitted) for the years ended December 31:
1994 1993 1992
Short-term investments $ 547 $ 1,012 $ 1,991
Debt securities 50,389 50,765 52,446
Equity securities 5,671 5,650 6,661
Mortgage loans 14,772 18,752 23,381
Other 3,448 3,406 3,679
-------- ------- -------
Gross investment income 74,827 79,585 88,158
Investment expenses 6,309 5,879 6,090
-------- ------- -------
Net investment income $68,518 $73,706 $82,068
======== ======= =======
The Company writes and sells covered call options against existing
holdings of common stocks and stock indexes. This strategy does not
increase the Company's exposure to market risks. The sales proceeds
simply provide a small cushion against the decline in stock value, and
this cushion generally ranges from two to ten percent of that value.
Sales proceeds from options reduce the cost of the stock or, in some
instances are treated as realized investment gains or losses. Because
the selling price of the options is derived from the value of the stock
and the amount of time until the option expires, it is a derivative
investment. Written call options are adjusted to current market value,
with unrealized appreciation or depreciation after applicable deferred
income taxes being reported directly in shareholders' equity. Other
liabilities on the Consolidated Balance Sheets reflect $2,312,000 and
$3,128,000 in 1994 and 1993 for written call options. Pretax realized
investment gains includes $3,346,000 and $1,752,000 in 1994 and 1993
primarily sales proceeds on written call options which expired
unexercised.
Restructured mortgage loans aggregated $17,100,000, $23,800,000 and
$25,300,000 as of December 31, 1994, 1993 and 1992. The expected gross
interest income that would have been recorded had the loans
PAGE 51
been current in accordance with the original loan agreements and the
actual interest income recorded for the years ended December 31 are
as follows (000 omitted):
Mortgage Loans Restructured 1994 1993 1992
Expected gross interest income $1,775 $2,615 $2,795
Actual gross interest income 1,291 1,890 2,189
A summary of investment gains (losses) for the years ended December 31 is
as follows (000 omitted):
Debt Equity Other Tax NetGains(Losses)
Securities Securities Investments Effects On Investments
1994
Realized $ 1,217 $ 173 $ 2,961 $ 1,597 $ 2,754
Unrealized (85,645) (553) (23,230) (15,565) (124,993)
--------- --------- ---------- --------- ----------
Total $(84,428) $ (380) $ (20,269) $(13,968) $(122,239)
========= ========= ========== ========= ==========
1993
Realized $ 6,613 $ 7,432 $ 774 $ 5,187 $ 9,632
Unrealized 27,686 (5,365) (2,818) 7,782 11,721
-------- -------- ---------- -------- ---------
Total $ 34,299 $ 2,067 $ (2,044) $ 12,969 $ 21,353
======== ======== ========== ======== =========
1992
Realized $13,495 $ 3,853 $ (2,917) $ 4,572 $ 9,859
Unrealized (16,902) 422 - 28 (16,508)
-------- -------- ---------- ------- ----------
Total $(3,407) $ 4,275 $ (2,917) $ 4,600 $ (6,649)
========= ======== ========== ======= ==========
5. ACCOUNTS AND NOTES RECEIVABLE
Consolidated accounts and notes receivable are primarily comprised of
amounts due from agents and policyholders attributable to the Company's
insurance subsidiaries. These assets are short-term in nature with no
defined maturities, and the fair values (amounts payable on demand)
approximate the carrying values.
The carrying value and fair values of accounts and notes receivable as of
December 31, are as follows (000 omitted):
1994 1993
Agents' and brokers' receivables $3,511 $ 5,016
Uncollected premiums 2,634 2,694
Miscellaneous receivables - 4,123
------ -------
Total $6,145 $11,833
====== =======
6. NOTES PAYABLE
Notes payable at December 31 are presented in the table below (000
omitted). Due to the short-term nature of these instruments, fair values
approximate the carrying values.
1994 1993
6.250% Bank term loan $3,000 $3,800
7.063% 182-day note 1,500 -
7.688% 365-day note 1,500 -
4.000% 180-day note - 3,000
Variable rate short-term line of credit 1,500 -
------ ------
$7,500 $6,800
====== ======
PAGE 52
The Company also has available $24,000,000 short-term line of credit with
one bank which can be terminated at any time by the bank. As of
December 31, 1994, $1,500,000 of this line of credit was utilized.
The approximate amount of interest paid in 1994, 1993 and 1992 totaled
$886,000, $572,000 and $450,000, respectively.
7. SHAREHOLDERS' EQUITY
The Company's insurance subsidiaries have legal restrictions as to the
transfer of funds to the Company in the form of dividends, loans and
advances. These restrictions, determined in accordance with statutory
reporting practices, generally limit the payment of dividends to amounts
based upon statutory surplus or profits and limit the amount of certain
investments to specified percentages of statutory admitted assets. At
December 31, 1994, approximately $105,500,000 of consolidated statutory
net assets of $116,000,000 cannot be transferred from the insurance
subsidiaries to the Company without regulatory approval.
Net income and shareholders' equity as determined in accordance with
statutory accounting practices for the three years ended December 31 (000
omitted) are as follows:
1994 1993 1992
Net income (loss):
Life insurance subsidiary $ 6,024 $ 16,274 $ 2,106
Property and casualty
insurance subsidiaries 3,834 (15,435) (35,831)
Shareholders' equity:
Life insurance subsidiary 101,050 105,098 101,311
Property and casualty
insurance subsidiaries 45,788 30,556 40,709
The Company has authorization for 20,000,000 shares of preferred stock,
none of which has been issued.
8. INCOME TAXES
Effective January 1, 1993, the Company changed its method of accounting
for income taxes from the deferred method to the liability method
required by SFAS 109, "Accounting for Income Taxes". As permitted under
the new rules, prior years' financial statements have not been restated.
Exclusive of the deferred tax benefit of approximately $18,000,000
attributable to the implementation of SFAS 106, "Employers' Accounting
for Postretirement Benefits Other Than Pensions", the cumulative effect
of adopting SFAS 109 as of January 1, 1993 was to decrease net income by
$5,300,000.
At December 31, 1994, the Company had consolidated net operating loss
carryforwards available of $13,000,000. These losses are attributable to
the property & casualty subsidiaries and originated in 1992 and 1993
primarily as a result of catastrophic losses experienced. Unless
otherwise utilized, $4,600,000 of these losses will expire in 2007 and
$8,400,000 in 2008.
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes. The Company established a valuation allowance of $9,700,000
during 1994 for unrealized losses on investment securities which are
carried as a component of shareholders' equity and valued at market
value. The valuation allowance was established due to the uncertainty of
the Company's ability to fully utilize the losses. There was no change
in the valuation allowance for deferred tax assets during 1993.
PAGE 53
Significant components of the Company's deferred tax liabilities and
assets as of December 31, as calculated in accordance with SFAS 109 are
as follows (000 omitted):
1994 1993
Deferred tax liabilities:
Deferred policy acquisition costs $47,499 $53,939
Unrealized gains - 13,673
Other - 88
------- -------
Total deferred tax liabilities 47,499 67,700
------- -------
Deferred tax assets:
Policy reserves & policyholder funds 34,174 36,149
Accrued expenses & other liabilities:
OPEB obligation 20,673 19,536
Deferred compensation & pension benefits 1,419 1,684
Restructuring liability 1,520 2,565
Other operating income & expense items 929 924
Investment assets - basis adjustments 1,619 1,657
Unrealized losses 11,590 -
Net operating loss carryforward 4,540 6,877
Other 1,444 -
------ ------
Sub-total deferred tax assets 77,908 69,392
Valuation allowance for deferred tax assets (9,698) -
------ ------
Total deferred tax assets 68,210 69,392
------- ------
Net deferred tax assets $20,711 $ 1,692
======= =======
The Company's federal income tax liability (recoverable) at December 31,
is summarized as follows (000 omitted):
1994 1993
Current $ 4,921 $(7,439)
Deferred (20,711) (1,692)
--------- --------
Total net asset $(15,790) $(9,131)
========= ========
Prior to 1984, a portion of a life insurance company's gain from
operations was not taxed currently but was deferred and accumulated in a
memorandum Policyholders' Surplus Account. This accumulation generally
became taxable to the extent that the account exceeded certain prescribed
maximums or when distributed to shareholders. The Tax Reform Act of 1984
eliminated this deferral of income for 1984 and later years. The 1984
legislation also provides that companies will not be taxed on previously
deferred amounts unless they are distributed to shareholders or are
subtracted from the Policyholders' Surplus Account under rules similar to
those provided under prior law. The accumulated balance in this account
at December 31, 1994, was approximately $124,000,000. Deferred income
taxes have not been provided on this Policyholders' Surplus Account
because the balance in the account does not exceed the prescribed maximum
and distributions to shareholders from this account are not presently
contemplated.
PAGE 54
Significant components of the provision for income taxes for the years
ending December 31, attributable to continuing operations are as follows
(000 omitted):
Deferred
Liability Method Method
1994 1993 1992
Current tax expense (benefit) $8,094 $ 3,174 $ (1,380)
Deferred taxes exclusive of net
operating loss carryforward
(benefit) charge and effect
of change in enacted tax rates (5,791) (1,856) (8,089)
Net operating loss (benefit) charge 2,337 (3,618) (3,259)
Effect on deferred taxes of enacted
tax rate change - (283) -
------- -------- ---------
Total income tax expense (benefit)
on income $4,640 $(2,583) $(12,728)
======= ======== =========
Income taxes paid (refunded) by the Company totaled $(4,300,000),
$6,900,000 and $9,200,000 in 1994, 1993 and 1992, respectively.
The reconciliation of income tax expense (benefit) for the years ended
December 31, attributable to continuing operations computed at the U. S.
federal statutory tax rate of 35% in 1994 and 1993, and 34% in 1992, to
income tax expense (benefit) is as follows (000 omitted):
Deferred
Liability Method Method
1994 1993 1992
Income tax (at 35% or 34% of pretax
income or loss) $5,513 $(1,205) $(10,106)
Tax exempt investment income (1,164) (1,491) (1,469)
Non taxable/deductible (income) expenses 390 395 (1,153)
Effect of tax rate change - (283) -
Other items (99) 1 -
------- ------- --------
Provision (credit) for federal income
tax expense (benefit) $4,640 $(2,583) $(12,728)
======= ======= ========
9. EMPLOYEE BENEFIT PLANS
The Company has retirement plans covering all employees and makes annual
contributions in compliance with legal funding requirements. A
noncontributory plan covers salaried employees and benefits are based on
years of service and compensation during the highest five years of
employment. A noncontributory plan covers employees whose incomes are
derived wholly or partially from commissions and benefits are based on
earnings over the lifetime of participation in the plan. Normal
retirement age is 65, 66 or 67, depending on year of birth, but early
retirement with reduced benefits is permissible.
These plans are administered through separate retirement trusts which,
prior to April 1, 1993, purchased annuity contracts issued by the
Company's life insurance subsidiary. The approximate amount of annual
benefits covered by such contracts totaled $7,915,000, $8,256,000 and
$7,791,000 in 1994, 1993 and 1992.
Pension costs for 1994 were increased primarily due to changing the
discount rate from 8.00% to 7.25% in calculating the projected benefit
obligation. This change, together with changes in actuarial assumptions
for withdrawal and mortality rates, increased the projected benefit
obligation as well in 1994.
PAGE 55
These changes also resulted in a decrease in the value of vested
benefits, and an increase in nonvested benefits compared with 1993. In
1995, the projected benefit obligation will be once again calculated
using a discount rate of 8.00%. Pension costs for 1993 were decreased
primarily due to changes made in actuarial assumptions for compensation.
There were no significant changes in 1992.
The following table sets forth the plans' funded status as well as
prepaid pension costs included in other assets in the Company's balance
sheet at December 31, 1994 and 1993 (000 omitted):
1994 1993
Accumulated benefit obligation, including
vested benefits of $(41,599) and $(63,541) $(69,426) $(69,660)
Projected benefit obligation (85,893) $(80,044)
Plan assets at fair value, principally
fixed income obligations and common stocks 76,153 80,491
Plan assets in excess of (less than)
projected benefit obligation (9,740) 447
Unrecognized net transition obligation being
recognized over 15 years 852 1,000
Unrecognized prior service cost 2,385 2,993
Unrecognized net (gain) loss 7,229 (3,607)
-------- --------
Prepaid pension costs $ 726 $ 833
======== ========
Net pension costs include the following components for the years ended
December 31, 1994, 1993 and 1992 (000 omitted):
1994 1993 1992
Service costs - benefits earned
during the period $3,895 $3,348 $ 3,550
Interest cost on projected
benefit obligation 5,543 4,834 4,961
Return on plan assets 2,701 (6,806) (3,900)
Net amortization and deferral (8,435) 1,184 (1,864)
------ ------ -------
Net pension costs $3,704 $2,560 $ 2,747
====== ====== =======
In 1994 and 1993, the projected benefit obligation was calculated using a
7.25% weighted average discount rate. The rate of increase in
compensation levels was graded by age, ranging from 10% to 2% for 1994
and from 9% to 2% for 1993. For 1992, the projected benefit obligation
was calculated using an 8.0% weighted average discount rate and a 7.0%
rate of increase in compensation levels. The expected long-term rate of
return on plan assets was 8.0% for all years.
In 1994, the Company implemented a nonqualified, unfunded benefit program
for senior-positioned executives. The eligible executives would
otherwise be entitled to reduced retirement and other benefits under the
Company's existing plans due to the imposition of the Internal Revenue
Code limitations on contributions, benefits and compensation.
In addition to pension benefits, the Company's subsidiaries provide
certain health care and life insurance benefits to retired employees and
eligible dependents. Substantially all employees become eligible for
these benefits upon reaching retirement age while still employed with the
Company. These benefits, along with similar benefits for active
PAGE 56
employees, are provided under a group insurance contract issued by
the Company's principal subsidiary. The plan is not funded and the cost
is shared between the Company and employees and retirees. In December,
1990, the Financial Accounting Standards Board (FASB), issued Statement
of Financial Accounting Standard Statement No. 106 (SFAS 106) "Employers'
Accounting for Postretirement Benefits Other than Pensions", which
requires that the projected future cost of providing postretirement benefits,
such as health care and life insurance, be recognized as an expense as
employees render service rather than when such benefits are paid.
SFAS 106 allows for two methods of implementation, companies can elect to
record the cumulative effect of the accounting change as a charge to income
in the year the rule is adopted, or alternatively, on a delayed basis as a
part of future annual benefit cost. Effective January 1, 1993, the Company
implemented, on the immediate recognition basis, SFAS 106. The impact of
adoption is the recognition of a $53,000,000 transition obligation ($35,000,000
or $2.66 per share after tax ) as a charge to earnings in the first
quarter of 1993. Components of the net periodic postretirement benefits
cost are detailed below (000 omitted):
1994 1993
Service cost - benefits earned during the period $1,347 $1,197
Interest cost 4,764 4,728
Amortization of losses 47 -
------ ------
Net periodic postretirement benefits cost $6,158 $5,925
====== ======
Prior to adoption of SFAS 106, the cost of postretirement benefits was
recognized on a pay-as-you go basis by expensing the associated net
premiums and was approximately $4,100,000 for 1992 and has not been
restated.
The unfunded accrued postretirement obligation for the approximately
4,000 active employees and 1,500 retirees as of December 31, 1994 which
is included in other liabilities of the accompanying balance sheet, is
detailed in the table below (000 omitted):
1994 1993
Active employees fully eligible for benefits $ 5,228 $ 4,501
Other active employees 16,382 18,100
Current retirees 42,698 44,839
-------- --------
Accumulated postretirement benefit obligation 64,308 67,440
Unrecognized net loss (1,489) (7,425)
------- --------
Accrued postretirement benefit obligation $62,819 $60,015
======= =======
At December 31, 1994 and 1993, the accumulated postretirement benefit
obligation was calculated using a 7.25% weighted average discount rate
and a 4.25% rate of increase in compensation levels. A health care
inflation rate of 11.0% is assumed in 1995. The rate is expected to
decrease over seven years, to an ultimate constant level of 5.5% . This
rate assumption has a significant impact on the health care portion of
benefits. For example, a 1% increase in this rate would have increased
the accumulated postretirement benefits obligation by approximately
$5,140,000 and the 1994 periodic benefits cost by $320,000. In 1995, the
Company expects to use an 8% weighted average discount rate to calculate
the postretirement benefit obligation.
In November, 1992, the FASB issued SFAS 112 "Employers' Accounting for
Postemployment Benefits". The new statement requires that the projected
cost of providing future benefits, principally salary continuation and
disability related benefits, to former or inactive employees after
employment but before retirement, be recognized as an expense currently
instead of when paid, if the obligation is attributable to employees'
services already rendered. The Statement was adopted in 1993 with no
impact on profit, as $7,200,000 had previously been reserved by the
Company for such benefits.
PAGE 57
A deferred death benefit plan is provided for selected Company officers
and directors. The plan provides for specific amounts to be paid over a
period of five years after death and is presently funded through the use
of keyman insurance policies. The net cost to the Company was
approximately $806,000, $792,000 and $809,000 for 1994, 1993 and 1992.
10. REINSURANCE
In accordance with general practice in the insurance industry, the
Company's insurance subsidiaries are engaged in reinsurance transactions
with other companies. At December 31, 1994 life insurance in force of
$377,760,000 has been ceded to other companies. Reinsurance ceded
contracts do not relieve the Company's insurance subsidiaries from their
obligation to policyholders as they remain liable to their policyholders
to the extent that any reinsurer does not meet its obligations for
reinsurance ceded to it under reinsurance contracts. Generally, the
maximum amount of insurance retained on any one life is $300,000 (lower
for higher ages and special classes of risks). The largest net amount
insured on any one risk in the property and casualty subsidiaries is
$100,000. Automatic reinsurance agreements are in force with certain
maximum limits, as well as excess of loss reinsurance agreements
providing coverage against losses on any one catastrophe exceeding
$2,000,000 to a maximum of $15,000,000. Reinsurance recoverable on paid
and unpaid losses of the subsidiaries totaled $8,920,000, $25,176,000 and
$23,682,000 for years 1994, 1993 and 1992. For the same periods, ceded
premiums were $48,137,000, $86,887,000 and $64,705,000, while assumed
premiums totaled $894,000, $803,000 and $1,115,000. For 1994, 1993 and
1992 ceded benefits, losses and expenses totaled $46,995,000, $68,635,000
and $147,138,000, while assumed benefits, losses and expenses totaled
$1,290,000, $601,000 and $688,000.
At December 31, 1993, reinsurance recoverables on paid and unpaid losses
of $19,500,000 and prepaid reinsurance premiums of $13,800,000, were
associated with a single reinsurer.
11. COMMITMENTS AND CONTINGENT LIABILITIES
A substantial portion of the companies' field operations are conducted in
leased premises, some of which require the companies to pay real estate
taxes and other expenses. These leases extend for varying periods of
time up to 20 years (including renewal options). Total property and
equipment rentals paid for the years ending December 31, 1994, 1993 and
1992 were $3,784,000, $3,686,000 and $3,997,000.
The future maximum annual rentals under noncancellable leases are as
follows: 1995, $3,684,000; 1996, $2,671,000; 1997; $1,934,000; 1998,
$1,327,000; 1999, $948,000; 2000-2004, $2,065,000.
At December 31, 1994, there are no outstanding investment commitments.
In late 1992, a jury returned a verdict in the amount of $6,200,000 in a
policy-related lawsuit against the Company's principal subsidiary,
Independent Life. This verdict was appealed to the Alabama Supreme Court
which reduced the verdict to $4,200,000. The Company has further
petitioned the Alabama Supreme Court in an attempt to eliminate or
further reduce this verdict. The petition is pending before that Court.
The Company has continued to conservatively reserve for this verdict in
its 1994 financial statements.
PAGE 58
In addition to that which is provided for in the financial statements,
various litigation, claims and assessments have arisen, or may arise,
against the Company in its activities as an insurer and employer. In
certain of these matters, large and/or indeterminate amounts for punitive
damages and other similar types of relief are sought. In all instances,
the Company vigorously defends its position. While it is not feasible to
predict or determine the ultimate outcome of these matters, it is the
opinion of management that their outcome is not likely to have a material
adverse effect on the Company's financial position or results of
operations.
12. CLAIMS PAYABLE
Activity in the liability for claims payable for life, accident and health
and property and casualty insurance is summarized as follows (000
omitted):
1994 1993 1992
Balance, beginning of year $ 70,530 $104,453 $ 71,289
Less reinsurance recoverables 14,548 16,850 2,997
--------- -------- ---------
Net balance, beginning of year 55,982 87,603 68,292
--------- -------- ---------
Incurred related to:
Current year 118,928 179,871 269,733
Prior years 312 10,846 (671)
--------- -------- --------
Total incurred 119,240 190,717 269,062
--------- -------- --------
Paid related to:
Current year 98,458 149,689 205,262
Prior years 31,158 72,649 44,489
--------- -------- --------
Total paid 129,616 222,338 249,751
--------- -------- --------
Net balance, end of year 45,606 55,982 87,603
Plus reinsurance recoverables 4,798 14,548 16,850
--------- -------- --------
Balance, end of year $ 50,404 $ 70,530 $104,453
========= ======== ========
Primarily as a result of revisions to estimated claims expense related to
Hurricane Andrew which struck Florida in 1992, claims incurred in 1993
related to prior years resulted in an increase in expense of $10,846,000.
With the occurrence of a catastrophe the Company must establish difficult-
to-estimate unpaid claims. In the instance of a hurricane, management
estimates reserves by effecting sophisticated models designed to replicate
that specific occurrence. Management also uses judgements concerning
unique circumstances to modify the model's projections.
PAGE 59
13. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data (000 omitted except per share
amounts) is presented below. In 1994, certain amounts were reclassified
during the quarters, with no impact on net income.
Three Months Ended
March 31 June 30 Sept. 30 Dec.31
1994
Net premiums and other income $73,386 $72,722 $68,155 $67,608
Net investment income 16,262 17,445 17,595 17,216
Realized investment gains 219 2,417 627 1,089
Costs and expenses 90,433 87,316 81,978 79,264
Income from continuing operations 13 3,644 3,331 4,122
Discontinued operations - - - -
Cumulative effect of change in
accounting principles - - - -
Net income 13 3,644 3,331 4,122
Per share:
Income from continuing operations $ - $.28 $.25 $.31
Discontinued operations - - - -
Cumulative effect of change in
accounting principles - - - -
Net income $ - $.28 $.25 $.31
1993
Net premiums and other income $102,726 $ 95,973 $ 95,852 $ 88,491
Net investment income 19,240 18,602 17,869 17,995
Realized investment gains 7,705 3,516 2,515 1,083
Costs and expenses 133,716 118,506 108,231 114,557
Income (loss) from continuing
operations (2,366) 31 5,960 (4,485)
Discontinued operations 7,494 (22) - (103)
Cumulative effect of change in
accounting principles (42,815) 2,061 (2,460) 443
Net income (loss) (37,687) 2,070 3,500 (4,145)
Per share:
Income (loss) from continuing
operations $ (.18) $ - $ .45 $(.34)
Discontinued operations .57 - - (.01)
Cumulative effect of change in
accounting principles (3.25) .15 (.18) .04
Net income (loss) $(2.86) $.15 $ .27 $(.31)
14. SEGMENT INFORMATION
Presented in the table which follows (000 omitted) is the allocation of
consolidated financial information to business segments as determined
under the provisions of Statement of Financial Accounting Standards No.
14.
Life revenue and accident and health revenue include premiums and policy
charges paid by policyholders and an allocation of net investment income.
This allocation is based on the ratio of mean life and accident and
health liabilities, principally policy reserves and claims payable, to
total mean liabilities.
PAGE 60
Expenses not directly identifiable to either the life or accident and
health line of business are allocated on bases considered reasonable
under the circumstances. Income before taxes is total revenue less all
expenses.
Only a small portion of the total assets of the subsidiary writing life
insurance and accident and health insurance can be identified with the
respective lines of business; consequently, most of the assets,
consisting primarily of investments, are allocated on the same basis used
to allocate net investment income.
The Property and Casualty reportable segment is that of subsidiaries
writing property and casualty insurance, while financial information
allocated to Other is that of noninsurance subsidiaries providing
investment management and advisory services to the corporation. The net
assets related to consumer finance operations are reported as
Discontinued Operations.
Property Accident
and and Discontinued
Lif Casualty Health Other Operations Total
1994
Revenue $ 239,385 $ 49,593 $ 62,901 $ 2,862 - $ 354,741
Income (loss)
from continuing
operations
before taxes 8,528 (89) 4,461 2,850 - 15,750
Identifiable
assets 1,139,795 107,798 102,890 13,281 - 1,363,764
Amortization of
deferred policy
acquisition costs 27,134 7,806 9,176 - - 44,116
Depreciation 3,490 12 695 336 - 4,533
Capital expenditures 671 - 48 - - 719
1993
Revenue $ 256,944 $111,374 $ 99,921 $ 3,328 - $ 471,567
Income (loss)
from continuing
operations
before taxes 23,599 (39,016) 8,407 3,567 - (3,443)
Identifiable
assets 1,180,722 156,269 113,450 27,564 - 1,478,005
Amortization of
deferred policy
acquisition costs 24,831 19,724 5,926 - - 50,481
Depreciation 3,597 25 867 378 - 4,867
Capital expenditures 2,804 152 224 - - 3,180
1992
Revenue $ 253,939 $166,906 $107,135 $ 5,486 - $ 533,466
Income (loss)
from continuing
operations
before taxe 24,523 (57,336) (661) 3,752 - (29,722)
Identifiable
assets 1,127,000 251,684 117,105 10,417 $11,671 1,517,877
Amortization of
deferred policy
acquisition cost 23,235 20,944 5,864 - - 50,043
Depreciation 3,848 25 1,112 338 - 5,323
Capital expenditures 3,057 152 259 - - 3,468
PAGE 61
Report of Independent
Certified Public Accountants
Board of Directors and Shareholders
Independent Insurance Group, Inc.
Jacksonville, Florida
We have audited the accompanying consolidated balance sheets of Independent
Insurance Group, Inc. and subsidiaries as of December 31, 1994 and 1993, and
the related consolidated statements of operations, shareholders' equity and
cash flows for each of the three years in the period ended December 31, 1994.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Independent
Insurance Group, Inc. and subsidiaries at December 31, 1994 and 1993, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1994, in conformity with generally
accepted accounting principles.
In 1993, as discussed in Note 1 to the consolidated financial statements, the
Company changed its methods of accounting for income taxes, postretirement
benefits other than pensions, postemployment benefits, reinsurance and certain
investments in debt securities.
Ernst and Young LLP
Jacksonville, Florida
March 1, 1995
EX-27
3
7
12-MOS
DEC-31-1994
DEC-31-1994
603421
51048
52938
156596
143677
17110
1019547
10533
26290
195053
1363764
838001
23452
0
103771
7500
14706
0
0
252552
1363764
271582
68518
4352
10289
131998
44116
162877
15750
4640
11110
0
0
0
11110
.84
.84
55982
118928
312
98458
31158
45606
0
net of reinsurance