<PAGE>1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-Q
(Mark One)
[x] Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended September 30, 1996 or
__________________
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from ____________ to ____________
Commission file number 1-5683
______
USLIFE Corporation
______________________________________________________________________
(Exact name of registrant as specified in its charter)
New York 13-2578598
___________________________________ ___________________
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
125 Maiden Lane, New York, New York 10038
___________________________________ ___________________
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code (212) 709-6000
_______________
NONE
______________________________________________________________________
Former name, former address and former fiscal year, if changed since
last report.
Indicate by checkmark whether the registrant (1) has filed all
reports required to be filed by Section 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 (2) has been subject to such filing requirements for the past 90
days. Yes X No
_______ _______
The number of shares outstanding of the Registrant's Common Stock as
of October 31, 1996 was 34,370,486.
<PAGE>2
USLIFE Corporation
INDEX
Page No.
________
Part I - Financial Information:
Consolidated Balance Sheets -
September 30, 1996 and December 31, 1995............... 3
Summary Statements of Consolidated Net Income -
For the Nine Months and Three Months Ended
September 30, 1996 and 1995............................ 5
Statements of Consolidated Cash Flows -
For the Nine Months Ended September 30, 1996 and 1995.. 6
Notes to Financial Statements.......................... 7
Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 13
Part II - Other Information.............................. 29
Signatures............................................... 30
<PAGE>3
<TABLE>
USLIFE Corporation and Subsidiaries
Consolidated Balance Sheets (Unaudited)
September 30, 1996 and December 31, 1995
(Dollar amounts in thousands except per share data)
<CAPTION>
September 30, 1996 December 31, 1995
__________________ _________________
<S> <C> <C>
Assets
______
Cash:
On hand and in demand accounts............... $ 51,113 $ 63,914
Restricted funds held in escrow, etc. ....... 2,201 1,821
__________ __________
53,314 65,735
__________ __________
Invested assets:
Fixed maturities available for sale, at fair
value (cost, September 30, 1996, $5,700,645;
December 31, 1995, $5,559,322).............. 5,789,315 6,006,864
Equity securities, at fair value (cost,
September 30, 1996, $4,068; December
31, 1995, $4,918)........................... 3,777 4,717
Mortgage loans............................... 262,202 296,045
Policy loans................................. 282,465 282,179
Real estate.................................. 30,143 29,205
Other long term investments.................. 19,984 6,241
Short term investments....................... 122,220 69,560
__________ __________
Total invested assets...................... 6,510,106 6,694,811
__________ __________
Total cash and invested assets............. 6,563,420 6,760,546
__________ __________
Deferred policy acquisition costs.............. 802,198 718,439
Other receivables (net)........................ 365,329 350,593
Property and equipment (net of accumulated
depreciation of $34,090 at September 30,
1996 and $38,695 at December 31, 1995)....... 9,276 10,495
Prepaid expenses, deferred charges and
other assets.............................. 92,002 90,431
__________ __________
Total assets.............................. $7,832,225 $7,930,504
========== ==========
See accompanying notes to financial statements.
</TABLE>
<PAGE>4
<TABLE>
<CAPTION>
September December
30, 1996 31, 1995
__________ __________
<S> <C> <C>
Liabilities and Equity Capital
______________________________
Liabilities:
Future policy benefits................................... $1,709,610 $1,638,427
Policyholder account balances............................ 3,746,409 3,787,546
Supplementary contracts without life contingencies....... 46,570 28,775
Policyholder dividend accumulations...................... 20,420 20,419
Policy and contract claims............................... 181,303 177,739
Other policy and contract liabilities.................... 32,550 32,435
Notes payable............................................ 330,400 222,900
Long term debt........................................... 299,598 349,493
Federal income taxes (current and deferred).............. 21,260 118,956
Accounts payable and accrued liabilities................. 284,417 239,642
__________ __________
Total liabilities................................... 6,672,537 6,616,332
__________ __________
Deferred income.......................................... 5,200 5,918
__________ __________
Equity Capital:
Preferred stock, $4.50 Series A Convertible, $1.00
par value; authorized and outstanding, 4,404
shares (December 31, 1995, 4,480 shares)........... 440 448
Preferred stock, $5.00 Series B Convertible, $1.00
par value; authorized and outstanding, 1,733
shares (December 31, 1995, 1,852 shares)........... 87 93
Preferred stock, undesignated, $1.00 par value;
authorized 10,793,863 shares, issued; none
(December 31, 1995; none).......................... 0 0
Common stock, par value $1.00 per share, authorized
120,000,000 shares, issued: 57,471,215 shares
(December 31, 1995, authorized 60,000,000 shares,
issued 57,468,882 shares........................... 57,471 57,469
Paid-in surplus.......................................... 119,951 117,512
Net unrealized gains on securities....................... 19,130 195,450
Retained earnings........................................ 1,309,391 1,284,306
__________ __________
1,506,470 1,655,278
Less: Treasury stock, at cost - September 30, 1996:
23,109,425 Common shares; December 31, 1995:
22,997,693 Common shares........................ 346,399 339,662
Deferred compensation............................. 5,583 7,362
__________ __________
Total Equity Capital..................................... 1,154,488 1,308,254
__________ __________
Total liabilities and Equity Capital..................... $7,832,225 $7,930,504
========== ==========
Equity Capital per share................................. $33.19 $37.47
====== ======
</TABLE>
<PAGE>5
<TABLE>
USLIFE Corporation and Subsidiaries
Summary Statements of Consolidated Net Income (Unaudited)
For the Nine Months and Three Months Ended September 30, 1996 and 1995
(Amounts in thousands except per share)
<CAPTION>
Nine Months Ended September 30 Three Months Ended September 30
______________________________ _______________________________
1996 1995 1996 1995
______ ______ ______ ______
<S> <C> <C> <C> <C>
REVENUES:
Premiums.................................................. $ 767,465 $ 734,522 $ 255,236 $ 245,301
Other considerations...................................... 168,765 167,616 58,027 53,102
Net investment income..................................... 374,842 364,224 125,589 122,076
Realized gains (losses) on investments.................... (597) 3,711 (27) 3,244
Other income.............................................. 36,598 24,505 12,683 8,835
__________ __________ __________ __________
Total revenues......................................... 1,347,073 1,294,578 451,508 432,558
__________ __________ __________ __________
BENEFITS AND EXPENSES:
Benefits to policyholders and beneficiaries (Note 7)...... 580,840 535,305 187,210 178,877
Commissions, net of deferred expenses..................... 124,519 113,595 40,906 39,468
Other expenses and taxes, net of deferred expenses........ 150,770 138,015 51,325 45,756
Increase in liability for future policy benefits.......... 68,534 79,977 25,265 23,886
Interest credited to policyholder account balances........ 150,826 156,749 50,367 53,469
Amortization of deferred policy acquisition costs (Note 7) 164,823 121,324 44,246 39,598
Interest expense.......................................... 29,544 29,805 9,946 10,174
Dividends to policyholders................................ 2,652 2,473 829 779
__________ __________ __________ __________
Total benefits and expenses............................ 1,272,508 1,177,243 410,094 392,007
__________ __________ __________ __________
Income before Federal income taxes........................... 74,565 117,335 41,414 40,551
Provision for income taxes................................... 25,397 40,235 14,367 13,908
__________ __________ __________ __________
Net income................................................... $ 49,168 $ 77,100 $ 27,047 $ 26,643
========== ========== ========== ==========
Net income per share........................................ $ 1.41 $ 2.22 $ .78 $ .76
========== ========== ========== ==========
Dividends per share:
Common................................................... $ .69999 $ .67333 $ .23333 $ .23333
=========== =========== =========== ===========
Preferred Series A....................................... $ 3.375 $ 3.375 $ 1.125 $ 1.125
=========== =========== =========== ===========
Preferred Series B....................................... $ 3.75 $ 3.75 $ 1.25 $ 1.25
=========== =========== =========== ===========
See accompanying notes to financial statements.
</TABLE>
<PAGE>6
<TABLE>
USLIFE Corporation and Subsidiaries
Statements of Consolidated Cash Flows (Unaudited)
For the Nine Months Ended September 30, 1996 and 1995
(Amounts in Thousands)
<CAPTION>
Nine Months Ended September 30
______________________________
1996 1995
____ ____
<S> <C> <C>
Cash flows from operating activities:
Net income.............................................. $ 49,168 $ 77,100
Adjustments to reconcile net income to net cash
provided by operating activities:
Change in liability for future policy benefits........ 66,410 69,322
Interest credited to policyholder account balances.... 150,826 156,749
Amounts assessed from policyholder account balances... (133,192) (120,688)
Additions to deferred policy acquisition costs........ (171,015) (174,783)
Amortization of deferred policy acquisition costs..... 164,823 121,324
Additions to deferred charges......................... (7,293) (4,661)
Deferred Federal income taxes......................... (7,078) 632
Depreciation and amortization......................... 10,116 9,679
Change in amounts due policyholders................... 24,906 19,939
Change in other liabilities and amounts receivable.... 41,618 (18,088)
Net realized capital losses (gains)................... 597 (3,711)
Change in restricted cash............................. (380) (1,141)
Change in current Federal income tax liability........ 4,324 (6,097)
Other, net............................................ (1,640) (4,490)
___________ ___________
Total adjustments................................ 143,022 43,986
___________ ___________
Net cash provided by operating activities.......... 192,190 121,086
___________ ___________
Cash flows from investing activities:
Change in policy loans.................................. (286) 1,355
Proceeds from investments sold, redeemed or matured:
Fixed maturities.................................... 410,553 362,141
Equity securities................................... 722 14
Mortgage loan principal receipts.................... 38,794 31,158
Real estate......................................... 7,833 9,244
Other long term investments......................... 796 1,660
Expenditures for property and equipment................. (3,118) (2,844)
Cost of investments purchased:
Fixed maturities.................................... (549,405) (664,393)
Mortgage loans...................................... (12,215) (5,706)
Real estate......................................... (595) (683)
Other long term investments......................... (15,207) (7)
Net sales or (purchases) of short term investments.. (52,660) 44,457
Other, net............................................ 444 1,778
___________ ___________
Net cash used in investing activities.............. (174,344) (221,826)
___________ ___________
Cash flows from financing activities:
Increase in notes payable............................. 107,500 49,200
Repayment of long term debt........................... (50,000) --
Dividends to shareholders............................. (24,083) (23,142)
Acquisition of treasury stock......................... (9,322) (5,253)
Change in policyholder account balances............... (59,108) 78,848
Other, net............................................ 4,366 5,994
___________ ___________
Net cash provided (used) by financing activities... (30,647) 105,647
___________ ___________
Net change in cash.................................. (12,801) 4,907
Cash at beginning of year............................. 63,914 51,878
___________ ___________
Cash at end of period................................. $ 51,113 $ 56,785
=========== ===========
See accompanying notes to financial statements.
</TABLE>
<PAGE>7
USLIFE Corporation and Subsidiaries
Notes to Financial Statements
Note 1. Basis of Presentation
The accompanying consolidated financial statements are unaudited
and have been prepared in accordance with generally accepted
accounting principles for interim reporting and in accordance
with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the disclosures
required for annual financial statements. The management of
USLIFE believes that all adjustments (consisting only of normal
recurring accruals and adjustments) necessary to present fairly
the consolidated financial position of USLIFE Corporation and
subsidiaries as of September 30, 1996 and December 31, 1995, the
consolidated results of operations for the nine and three month
periods ended September 30, 1996 and 1995, and consolidated cash
flows for the nine month periods ended September 30, 1996 and
1995, have been included in the accompanying financial
statements. Operating results for the nine month and three month
periods ended September 30, 1996 are not necessarily indicative
of the results that may be expected for the year ending December
31, 1996. These consolidated financial statements and notes to
financial statements should be read in conjunction with the
audited consolidated financial statements and notes to financial
statements included in the Annual Report on Form 10-K of USLIFE
Corporation for the year ended December 31, 1995.
Note 2. New Accounting Principle
Effective as of January 1, 1996, the Company adopted Statement of
Financial Accounting Standards No. 121, entitled "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of." The Statement requires that long-lived assets
such as property and equipment, and certain intangible assets, be
reviewed for impairment when events or changes in circumstances
indicate that the carrying amount may not be recoverable. When
recoverability standards specified in the Statement are not met,
a writedown of the covered assets may be required. The Statement
does not apply to various classes of assets including the
Company's investment securities and deferred policy acquisition
costs, which will continue to be evaluated based on previously
established accounting standards. The adoption of this Statement
did not have a material impact on the Company's reported
financial position or results of operations.
<PAGE>8
Note 3. Investments
The Company's investment management policies include continual
monitoring and evaluation of securities market conditions and
circumstances relating to its investment holdings which may
result in the selection of investments for sale prior to
maturity. Securities may also be sold as part of the Company's
asset/liability management strategy in response to changes in
interest rates, resultant prepayment risk, and similar factors.
Accordingly, the Company's entire fixed maturity portfolio (bonds
and redeemable preferred stocks) is classified as "available for
sale" and is carried in the accompanying consolidated balance
sheets at fair value. The Company's investments in non-
redeemable preferred stocks and common stocks ("equity
securities") are carried at fair value in the accompanying
consolidated balance sheets. Unrealized gains and losses on
available-for-sale securities, other than those relating to a
reduction in value determined to be other than temporary, are
recorded through direct charges or credits to Equity Capital.
Equity Capital at September 30, 1996 and December 31, 1995
includes net unrealized gains and losses on available-for-sale
securities as follows:
<TABLE>
<CAPTION>
September December
30, 1996 31, 1995
_________ __________
(Amounts in Thousands)
<S> <C> <C>
Fixed maturities:
Fair value..................................... $5,789,315 $6,006,864
Adjusted cost.................................. 5,700,645 5,559,322
__________ __________
Unrealized gain................................ 88,670 447,542
__________ __________
Equity securities:
Fair value..................................... 3,777 4,717
Adjusted cost.................................. 4,068 4,918
__________ __________
Unrealized loss................................ (291) (201)
__________ __________
Unrealized gain on securities in
retirement trust............................... 233 --
__________ __________
Total unrealized gain............................ 88,612 447,341
__________ __________
Related adjustments:
Deferred policy acquisition costs.............. (58,359) (135,926)
Policyholder liabilities....................... (821) (10,721)
Deferred federal income tax liability.......... (10,302) (105,244)
__________ __________
(69,482) (251,891)
__________ __________
Net unrealized gain on securities included
in Equity Capital.............................. $ 19,130 $ 195,450
========== ==========
</TABLE>
Short term investments are carried at cost, which approximates
fair value. Real estate is carried at the lower of depreciated
cost or net realizable value. Depreciation is calculated on a
straight line basis with useful lives varying based on the type
of building. Policy loans and mortgages, other than those with a
<PAGE>9
decline in value determined to be other than temporary, are
stated at the aggregate of unpaid principal balances. Other long
term investments, except for certain securities held in a
retirement trust which is included in this category, are stated
at the lower of cost or estimated net realizable value. Fixed
maturities and equity securities included in the aforementioned
retirement trust are classified as "available-for-sale" and
carried at fair value.
At September 30, 1996, consolidated invested assets included $255
million (at fair value; adjusted cost $257 million) of less than
investment grade corporate securities, based on ratings assigned
by recognized rating agencies and insurance regulatory
authorities. Based on fair value, these securities represent 3%
of consolidated total assets at that date. Approximately $4
million of these investments (at adjusted cost which approximates
fair value) are in default at September 30, 1996. Also at
September 30, 1996, the book value of mortgage loans included in
consolidated total assets which were 60 days or more delinquent
or in foreclosure was approximately $4 million, and the book
value of property acquired through foreclosure of mortgage loans
was approximately $25 million.
Note 4. Equity Capital Per Share
Equity Capital per share was determined by dividing total Equity
Capital by the number of common shares and common equivalent
shares outstanding at the end of the period. The number of
common shares and common equivalent shares for this purpose has
been determined on the same basis as that for income per share
(see Note 5 of Notes to Financial Statements), except amounts are
based on the number of shares outstanding at the end of the
period. As of September 30, 1996 and December 31, 1995, the
number of such shares used for this purpose was 34.779 million
and 34.918 million, respectively.
Note 5. Income Per Share
Income per share was computed by dividing the income applicable
to common and common equivalent shares by the weighted average
number of common and common equivalent shares outstanding during
each period. The weighted average number of common and common
equivalent shares was determined by using the average number of
common shares outstanding during each period, net of reacquired
(treasury) shares from the date of acquisition; by converting the
shares of the Series A and Series B Preferred Stock to their
equivalent common shares, and by calculating the number of shares
issuable on exercise of those common stock options with exercise
prices lower than the market price of the common stock, reduced
by the number of shares assumed to have been purchased with the
proceeds from the exercise of the options. Fully diluted income
per share is the same as income per share data indicated. The
<PAGE>10
following table sets forth the computations of net income per
share for the nine and three month periods ended September 30,
1996 and 1995:
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30 September 30
__________________ __________________
1996 1995 1996 1995
____ ____ ____ ____
(Shares and Amounts in Thousands
except Per Share data)
<S> <C> <C> <C> <C>
Net income......................................... $ 49,168 $ 77,100 $ 27,047 $ 26,643
======== ======== ======== ========
Weighted average common shares
outstanding, net of treasury shares.............. 34,369 34,334 34,339 34,407
Add - common share equivalents of:
Preferred Stock - Series A....................... 53 54 53 54
Preferred Stock - Series B....................... 22 23 21 22
Outstanding stock options - treasury stock method 343 354 343 354
______ ______ ______ ______
Total common shares and common equivalent shares... 34,787 34,765 34,756 34,837
====== ====== ====== ======
Net income per share............................... $ 1.41 $ 2.22 $ .78 $ .76
====== ====== ====== ======
</TABLE>
Note 6. Reinsurance
The Company's life insurance subsidiaries reinsure with other
companies portions of the risks they underwrite and assume
portions of risks on policies underwritten by other companies.
The life insurance subsidiaries generally reinsure risks over
$1.5 million as well as selected risks of lesser amounts.
Amounts paid for or recoverable under reinsurance contracts are
included in total assets as reinsurance receivable or recoverable
amounts. The cost of reinsurance related to long-duration
contracts is accounted for over the life of the underlying
reinsured policies using assumptions consistent with those used
to account for the underlying policies. Reinsurance contracts do
not relieve the Company from its obligations to policyholders,
and the Company is contingently liable with respect to insurance
ceded in the event any reinsurer is unable to meet the
obligations which have been assumed. Reinsurance receivable and
recoverable amounts included in "Other receivables" in the
accompanying consolidated balance sheets are as follows:
September December
30, 1996 31, 1995
_________ _________
(Amounts in Thousands)
Reinsurance receivables - paid claims... $ 8,720 $ 8,568
Other reinsurance recoverable amounts... 143,601 138,146
________ ________
$152,321 $146,714
======== ========
<PAGE>11
The effect of reinsurance on premiums, other considerations, and
benefits to policyholders and beneficiaries, is as follows:
<TABLE>
<CAPTION>
Nine Months Three Months
Ended September 30 Ended September 30
___________________________ ___________________________
1996 1995 1996 1995
________ ________ ________ ________
(Amounts in Thousands)
<S> <C> <C> <C> <C>
Premiums, before reinsurance ceded......... $828,590 $791,320 $277,445 $265,044
Premiums ceded............................. 61,125 56,798 22,209 19,743
________ ________ ________ ________
Net premiums............................... $767,465 $734,522 $255,236 $245,301
======== ======== ======== ========
Other considerations, before reinsurance
ceded................................... $182,697 $180,108 $ 62,609 $ 57,679
Other considerations ceded................. 13,932 12,492 4,582 4,577
________ ________ ________ ________
Net other considerations................... $168,765 $167,616 $ 58,027 $ 53,102
======== ======== ======== ========
Benefits to policyholders and beneficiaries,
before reinsurance recoveries............ $620,229 $573,540 $202,371 $193,614
Reinsurance recoveries..................... 39,389 38,235 15,161 14,737
________ ________ ________ ________
Benefits to policyholders and beneficiaries,
net of reinsurance recoveries............ $580,840 $535,305 $187,210 $178,877
======== ======== ======== ========
</TABLE>
Note 7. Charge Relating to Traditional Indemnity Group
Major Medical and Related Products
On January 29, 1996, the Company announced that its subsidiary,
The United States Life Insurance Company, would discontinue new
sales of traditional indemnity major medical products. Further,
it would only offer major medical coverage through managed care
plans in selected markets where it has both a significant
presence and an appropriate managed care network in place, while
continuing to provide full support and service to all existing
indemnity customers regardless of location. Concurrently, the
Company announced that it would carefully monitor persistency
experience of its group insurance lines in order to determine
whether financial statement adjustments would become necessary.
Recoverability of deferred policy acquisition costs depends on
future revenues and gross profits from the business to which it
relates. Evaluation of this asset, as well as the reserve for
policy benefits, requires assumptions as to the amount and timing
of these future revenues and gross profits. The Company's
continuing study disclosed that persistency on this business
deteriorated to a point that a revision in assumptions was
necessary.
USLIFE's financial statements for the nine months ended September
30, 1996 reflect a pre-tax charge of $49.6 million, taken during
the second quarter, to recognize revised assumptions reflecting
<PAGE>12
current experience on its traditional indemnity group major
medical and related products. The charge includes a $37.2
million writedown of deferred policy acquisition costs on this
block of business and a related adjustment of the reserve for
policy benefits amounting to $12.4 million which is included in
"Benefits to policyholders and beneficiaries" in the accompanying
statements of consolidated net income. The charge, on an after-
tax basis, amounts to $32.3 million or 93 cents per share.
Note 8. Refinancing Transaction
In June 1996, the Company redeemed its $50 million issue of 9.15%
Notes due 1999, without penalty. The issue was initially
refinanced utilizing $50 million of short term bank borrowings
under a revolving credit agreement which expires in February
1997.
<PAGE>13
USLIFE Corporation
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Financial Condition
___________________
The liquidity requirements of the Company are met primarily by
cash flows from operations of the life insurance subsidiaries and
accumulated funds at the subsidiary level. These internal sources
of liquidity are complemented by such external sources as
available bank lines of credit and revolving credit agreements
and the ability of the Company to utilize capital markets for
intermediate and long-term financing.
Premium and investment income as well as maturities and sales of
invested assets provide the primary sources of cash available for
liquidity requirements at the life insurance subsidiaries, while
cash is applied by such subsidiaries to payment of policy
benefits and loans, costs of acquiring new business (principally
commissions), and operating expenses, as well as purchases of new
investments. Excluding the impact of changes in accounts payable
and receivable and amounts due policyholders, all of which are
subject to random fluctuations from the timing of securities
transaction settlements, claims payments and similar matters, net
cash provided by operating activities of the life insurance
subsidiaries for the first nine months of 1996 was $158 million.
On a consolidated basis, net cash provided by operating
activities amounted to $192 million for the first nine months of
1996, compared to $121 million for the corresponding period of
1995. As indicated above, these amounts reflect changes in
accounts that are subject to random timing fluctuations.
Excluding the impact of changes in these accounts, net cash
provided by consolidated operating activities amounted to $126
million in the first nine months of 1996 versus $119 million in
the corresponding 1995 period.
Cash flows from operating activities for the first nine months of
1996 included $66 million from the change in liability for future
policy benefits, versus $69 million in the corresponding 1995
period. The decrease reflected various factors including reduced
sales of single premium immediate annuities during the 1996
period, in comparison to the first nine months of 1995. Most of
the reduction of the liability for future policy benefits
resulting from attrition of traditional indemnity group major
medical business during the first nine months of 1996 was offset
by reserve strengthening for the remaining policies in force.
See Note 7 of Notes to Financial Statements for further
information.
<PAGE>14
Interest credited to policyholder account balances amounted to
$151 million in the first nine months of 1996, versus $157
million reported for the corresponding 1995 period. The decrease
resulted primarily from surrenders of single premium deferred
annuities sold in 1991 that reached the end of their surrender
charge period in 1996, together with reductions in credited rates
of interest on the Company's deferred annuities in force. As a
result of these surrenders, which were generally consistent with
expected levels, the portion of policyholder account balances
relating to individual annuities declined $192 million, from
$1.81 billion at September 30, 1995 to $1.62 billion at September
30, 1996. The portion of policyholder account balances relating
to universal life insurance contracts increased approximately
$181 million during that same one year period. The impact of
this increase in the base of universal life insurance in force
was essentially offset by reductions in rates of interest
credited that were implemented during 1995 and continuing into
1996, as discussed under "Results of Operations."
Interest rates credited on universal life and individual deferred
annuity contracts may be adjusted periodically by the Company.
Subject to any applicable surrender charges, the Company's
universal life insurance products and individual deferred
annuities may be surrendered by the holder. A cash surrender
value, based on contractual terms, is also available to the
policyholder upon surrender of many of the Company's traditional
individual life insurance policies under which cash values are
accumulated. Such surrenders are influenced by various factors
including economic conditions, available alternative investment
returns, competition for investment and insurance funds, and
perceived financial strength of the insurer. These contracts are
generally supported by the Company's investment portfolios, which
are primarily comprised of investment grade, publicly traded
corporate bonds.
Substantially all of the Company's interest sensitive life
insurance and annuity contracts provide for imposition of a
surrender charge in the event of policy surrender during a
specified initial period commencing with contract inception,
typically ten to fifteen years for universal life insurance and
five to seven years for individual annuities, with the
significance of this charge generally subject to reduction over
the applicable period or during the later portion thereof.
The Company's investment portfolios are continually monitored to
determine whether the distribution of investment maturities is
considered appropriate for expected levels of policy surrenders.
The Company's fixed maturity investments may be sold prior to
maturity as part of the Company's asset/liability management
strategy and are classified as "available for sale." Adjustments
to the investment maturity distribution, if necessary, may also
be accomplished by actions concerning the investment of incoming
<PAGE>15
funds and/or reinvestment of the proceeds of securities matured
or redeemed.
The Company monitors its surrenders on a monthly basis. Any
material deviation or emerging trend is traced to the product
line and agency of record, and remedial action is taken where
appropriate. If an acceleration of surrenders were experienced,
the cash flow requirements associated with such surrenders could
require the Company to liquidate a portion of the underlying
security investments prior to maturity, at then-prevailing market
prices. The sources of liquidity described earlier would be
applied toward any further cash flow requirements.
For the first nine months of 1996, amortization of deferred
policy acquisition costs amounted to $165 million, reflecting the
impact of a charge relating to traditional indemnity group major
medical products as discussed in Note 7 of Notes to Financial
Statements. Absent the impact of this charge, net additions to
deferred policy acquisition costs amounted to $43 million in the
first nine months of 1996 versus $53 million in the corresponding
1995 period. The decrease reflects various factors including a
lower level of individual life insurance sales during the 1996
period. New annualized premiums from individual life insurance
sales amounted to $92 million for the first nine months of 1996
versus $106 million in the corresponding 1995 period. Federal
income tax payments amounted to $28.2 million in the first nine
months of 1996, versus $44.7 million in the corresponding 1995
period. The reduced level of payments reflected tax losses
arising from disposals of certain non-performing investments
during the 1996 period. Since reserves had been previously
established to recognize the reduction in value of these
investments for financial statement purposes, the disposals had
no material impact on reported results of operations. The
application of amounts deposited in 1995 to satisfy a portion of
1996 tax depository requirements was also a factor in the reduced
level of tax payments.
Net cash used in investing activities amounted to $174 million in
the first nine months of 1996, compared to $222 million in the
corresponding 1995 period. Individual annuity surrenders, which
have a negative impact on net funds available to invest, amounted
to $246 million during the first nine months of 1996 versus $161
million during the corresponding 1995 period. The major portion
of these surrenders related to annuities for which deferred
policy acquisition costs were substantially amortized, or
resulted in the imposition of a surrender charge by the Company
as contractually permitted. Consequently, these surrenders did
not have an adverse impact upon consolidated results of
operations.
As of September 30, 1996, approximately 16% of the Company's
deferred annuity contracts (versus 9% at December 31, 1995),
based on policyholder account balances, were beyond the
contractual period during which a significant charge could be
<PAGE>16
imposed in the event of termination. Based on the Company's
significant 1991 and 1992 sales of individual annuities with five
year surrender charge periods, with gross deposits in each of
those years totalling approximately $500 million, further
increases in the proportion of annuity contracts beyond the
surrender charge period is anticipated during the balance of 1996
and in 1997. The Company's asset / liability management
strategies have contemplated the expected surrender pattern for
these annuities, and based on cash flow testing the Company
believes that its distribution of investments is appropriate for
the cash requirements associated with the expected level of
surrenders.
Disposals of fixed maturity investments included in cash flows
from investing activities for the first nine months of 1996 and
1995 totalled $411 million and $362 million, respectively. These
disposals included, respectively, $94 million and $75 million (at
cost) of securities which were called for redemption by the
respective issuers prior to maturity. Fixed maturity disposals
also reflected sales of certain securities as part of the
Company's asset/liability management strategy with objectives
including maintenance of an appropriate relationship of asset
yields and maturities to current policy liabilities, as well as
maintenance of issuer diversification. The major portion of the
proceeds from fixed maturities sold or redeemed and available for
reinvestment were directed to investment grade fixed maturity
investments. Net purchases of short term investments during the
1996 period, reflecting strategies including temporary investment
of proceeds from securities sold, redeemed or matured pending
disbursement of annuity surrender proceeds, amounted to $53
million. Investing activities for the 1996 period also reflected
the investment of approximately $15 million in a retirement trust
included in "Other long-term investments," funded by proceeds
from the sale of certain securities formerly held in a corporate
portfolio.
Net cash flows used by consolidated financing activities amounted
to $31 million in the first nine months of 1996 versus net cash
provided by financing activities of $106 million in the
corresponding 1995 period, reflecting a variance of approximately
$138 million from policyholder account balance activity included
therein. The primary causes of this variance were a decline in
single premium deferred annuity gross deposits from $85 million
in the first nine months of 1995 to $19 million in the 1996
period, and the impact of increased annuity surrenders in the
1996 period as previously discussed. The decrease in annuity
deposits is attributed to various factors including the negative
impact on sales of lower interest rates offered on these
contracts during the 1996 period versus a year ago.
During the first nine months of 1996, the Company acquired
approximately 318,000 shares of its common stock (including
232,000 shares purchased under a repurchase program at a total
cost of $7 million and the remainder relating to benefit plans).
<PAGE>17
The purchases were financed primarily by selective sales of bonds
in the parent company investment portfolio.
The increase in notes payable for the first nine months of 1996
includes $50 million of short term bank borrowings relating to
the June 1996 refinancing of the Company's $50 million issue of
9.15% notes due 1999 as discussed in Note 8 of Notes to Financial
Statements. The remainder of the 1996 period increase in notes
payable, as well as the $49 million increase for the 1995 period,
related primarily to working capital requirements. Cash
dividends are typically remitted by the life insurance
subsidiaries to the parent company during the fourth quarter.
Historically, a major portion of these dividends has been applied
toward reduction of short term debt incurred for working capital
purposes during the earlier part of the year.
At September 30, 1996, the Company had lines of credit with six
banks amounting to $60 million, all of which was unused.
However, at that date, the Company had outstanding short term
borrowings with five banks, negotiated independently of such
lines to take advantage of more favorable interest rates, in the
aggregate amount of $130 million. The Company's short term
borrowings also include $150 million outstanding under a
revolving credit agreement with The Bank of New York (as agent)
and $50 million outstanding under a revolving credit agreement
with Chemical Bank.
The Bank of New York credit agreement, which was renewed in April
1996, provides for term borrowings in segments of up to six
months with interest indexed to the LIBOR borrowing rate or based
on certain alternative interest rates at the option of the
Company. USLIFE has the option to prepay amounts borrowed under
the credit agreement, in whole or in part, and to reborrow loans
thereunder provided the total amount of outstanding borrowings
does not exceed $150 million. All borrowings under the revolving
credit agreement must mature no later than April 10, 1999. The
Chemical Bank revolving credit agreement expires in February 1997
and provides for borrowings up to $100 million.
The Company's short term borrowings are utilized primarily for
working capital requirements.
Long term debt at September 30, 1996 includes a $150 million non-
callable issue of 6.75% Notes due 1998 and a $150 million non-
callable issue of 6.375% Notes due 2000. The Company has filed a
shelf registration statement which permits the issuance of up to
$150 million principal amount of debt securities subject to
management's discretion as to timing and amount of issues
thereunder.
While it is currently anticipated that the major portion of the
Company's outstanding debt will be repaid using bank borrowings
or the net proceeds of debt and/or equity or combination
securities to be issued at future dates, determination of the
<PAGE>18
timing and amount of such repayments, borrowings and securities
issues will be dependent upon future market conditions, future
cash flows, and other unforeseen circumstances.
Dividends paid on the Company's outstanding stock issues amounted
to $24 million in the first nine months of 1996 versus $23
million in the corresponding 1995 period, reflecting the increase
in common stock quarterly dividends per share from 22 cents to
23.333 cents during the third quarter of 1995. In October 1996,
the Company announced a further increase in the quarterly
dividend on common stock to 24.7 cents per share, commencing with
the dividend payable on December 2, 1996 to shareholders of
record on November 15, 1996.
Results of Operations
_____________________
Nine Months Ended September 30, 1996 compared to
Nine Months Ended September 30, 1995
For the nine months ended September 30, 1996, net income amounted
to $49.2 million versus $77.1 million for the comparable period
of 1995.
Net income for the first nine months of 1996 reflects a $49.6
million pre-tax charge taken during the second quarter,
equivalent to $32.3 million on an after-tax basis, to recognize
revised assumptions reflecting current experience on the
Company's traditional indemnity group major medical and related
products as discussed in Note 7 of Notes to Financial Statements.
The Company's group insurance product lines are discussed further
below.
Net income for the first nine months of 1996 also included net
capital losses with an after-tax impact of $387 thousand, while
net income for the corresponding 1995 period included net capital
gains with an after-tax impact of $2.4 million. The 1995 period
capital gains reflect disposals of several fixed maturity
investments pursuant to tender offers by the respective issuers,
as well as certain redemptions as discussed under "Financial
Condition." Capital gains and losses during the first nine
months of 1996 reflect the disposal of non-performing securities
with adjusted cost of approximately $2 million and real estate
properties acquired through foreclosure with aggregate cost of
approximately $6 million. Capital gains and losses during the
corresponding 1995 period reflect disposals of non-performing
securities with adjusted cost of approximately $26 million, as
well as several real estate properties that were acquired through
foreclosure, with aggregate cost of approximately $23 million.
Reserves had been previously recorded to recognize reduction in
value of these investments.
<PAGE>19
Excluding the charge relating to traditional indemnity group
major medical products, and capital gains and losses as discussed
above, consolidated after-tax income amounted to $81.8 million
for the first nine months of 1996 versus $74.7 million for the
corresponding 1995 period. On a similar basis, after-tax income
of the life insurance subsidiaries other than the aforementioned
items was $114.4 million in the 1996 period compared to $105.5
million in the first nine months of 1995. Also on a similar
basis, after-tax corporate charges (including the operating
results of USLIFE's servicing units) amounted to $32.5 million in
the first nine months of 1996 versus $30.8 million for the
comparable 1995 period.
The variance in corporate charges reflects an increase in the
provision for retirement expense resulting from a change in the
pension plan discount rate from 8.25% in 1995 to 7.00% in 1996.
This rate is determined at the beginning of each year based on
interest rates available on highly-rated fixed income securities
as required by pension accounting standards, and is not
necessarily indicative of the actual rate of return on
investments supporting the Company's retirement obligations.
Before capital gains and losses and the pre-tax charge of $49.6
million discussed above, the life insurance subsidiaries reported
a pre-tax profit of $174.1 million for the first nine months of
1996, versus $160.3 million in the corresponding 1995 period.
This comparison of results for the first nine months benefited
from an increase of $5.1 million in pre-tax profits from the
individual life insurance and annuity product line. Also, apart
from the impact of the charge discussed above, results from
traditional indemnity and related products for the second and
third quarters of 1996 were approximately at a break-even level.
With the curtailment of losses from traditional indemnity
products and actions taken to move from traditional indemnity
major medical products to current generation group insurance
products, pre-tax results of operations from the Employer /
Association Group lines had a favorable impact of $5.5 million on
the latter comparison.
A discussion of the Company's various product lines, excluding
the impact of the previously discussed charge for traditional
indemnity major medical and related business and capital gains
and losses, follows.
Individual life and annuity pre-tax profits, including income
attributable to capital and surplus, amounted to $159.2 million
for the first nine months of 1996 versus $154.1 million for the
corresponding 1995 period. The increase of approximately $5
million or 3% came primarily from greater gains from investment
income, reflecting reductions in rates of interest credited on
interest sensitive policies in force as well as an increased base
of individual life insurance business. Mortality experience was
favorable during the first nine months of 1996 and contributed to
<PAGE>20
the overall pre-tax profit reported for the period, but this
contribution was to a lesser degree than corresponding 1995
period. It should be noted that mortality experience for the
first nine months of 1996 reflected three large accidental death
claims during the third quarter, with an aggregate negative
impact of approximately $4.5 million on individual life insurance
pre-tax profits.
Written premiums from credit life insurance products increased
from $56 million in the first nine months of 1995 to $62 million
in the 1996 period, reflecting increased sales through financial
institutions. Pre-tax profits on credit insurance products are
anticipated to be realized when currently written premiums are
earned in future periods rather than during the period of sale.
A pre-tax profit of $1.0 million was reported for credit life
insurance coverages for the first nine months of 1996, versus
$423 thousand in the corresponding 1995 period. The positive
variance reflected an increased base of earned premiums and more
favorable mortality experience in the 1996 period. It should be
noted that credit life insurance coverages are often sold in
conjunction with credit disability insurance and/or other credit-
related products.
Written premiums on credit disability products increased from $57
million in the first nine months of 1995 to $62 million in the
1996 period. Pre-tax income from credit disability products
amounted to $5.4 million in the 1996 period, versus $5.0 million
in the comparable 1995 period, reflecting an increased base of
earned premiums as well as more favorable claims experience
during the first half of 1996.
The Company's group health insurance lines include
employer/association group health insurance, mortgage disability
insurance, and specialty group health and disability products.
Historically, the majority of the Company's employer /
association group insurance premium revenues were derived from
indemnity major medical coverages, which were often sold together
with group life insurance. A change in market emphasis toward
managed care products resulted both in a reduction of new sales
of the Company's indemnity major medical products and an erosion
of business in force over the past several years. The Company
has taken a number of actions to adapt to the changing market
conditions, including refinement of "ancillary" group products
such as long-term disability and dental insurance, with goals
including an increase in the proportion of group business from
non-major medical lines. Additionally, the Company has
introduced new managed care products in several states (using
provider networks made available through unrelated companies).
As indicated in Note 7 of Notes to Financial Statements, the
Company discontinued new sales of traditional indemnity major
medical products in January 1996 and subsequently recorded a
charge as noted above to recognize revised assumptions on the
<PAGE>21
discontinued business. The "continuing" employer / association
group business consists of long-term disability, accidental death
and dismemberment, dental, standalone life, association group
life and health, and managed care major medical coverages.
Premiums from these "continuing" products constitute more than
75% of total employer / association group premiums for the second
and third quarters of 1996.
The employer / association group health line reported a $217
thousand pre-tax profit for the first nine months of 1996,
comprised of a first quarter pre-tax loss of $1.5 million and a
pre-tax profit of $1.7 million for the second and third quarters
(before the charge discussed above). The latter profit reflects
the contribution of continuing products included in this line.
Pre-tax losses on this line for the first nine months of 1995
were $4.1 million, reflecting experience on the now-discontinued
traditional indemnity products as well as third quarter 1995
expense charges of approximately $900 thousand related to the
closing of a claims office.
Premium revenues on employer / association group health insurance
products amounted to $262 million in the first nine months of
1996 versus $267 million in the corresponding 1995 period.
Although, as anticipated, a high level of terminations from the
discontinued products negatively impacted revenues, overall
revenues approached year-ago levels as a result of an increased
contribution from non-major medical and managed care products.
The other group health and disability coverages reported a pre-
tax profit of $698 thousand for the first nine months of 1996,
versus a loss of $475 thousand for the corresponding 1995 period,
with the favorable variance primarily attributed to improved
results from specialty group health and disability products
marketed through retailers and financial institutions.
Profitability of the Company's group health insurance lines is
dependent upon various factors including the ability of the
Company to match premiums charged to benefit costs and to
maintain underwriting standards so that premium charged is
consistent with risk assumed on an overall basis. Market
acceptance of products currently offered and those being
introduced is also a key factor in the prospective profitability
of these product lines.
The Company's group life insurance lines include
employer/association group life insurance, mortgage life
insurance, and certain specialty coverages.
The employer / association group life line reported a pre-tax
profit of $5.5 million for the first nine months of 1996, versus
$4.3 million in the corresponding 1995 period, reflecting the
increased profit contribution from continuing products included
in this line. Premium revenues for this line were $90 million in
the first nine months of 1996 versus $87 million a year ago.
<PAGE>22
The other group life insurance lines reported a pre-tax profit of
$1.5 million for the first nine months of 1996, versus $816
thousand for the corresponding 1995 period, with the favorable
variance primarily attributed to improved mortality on group
mortgage life insurance coverages.
Total revenues of the life insurance subsidiaries in the first
nine months of 1996 amounted to $1.327 billion, an increase of
$48 million or 4% over the same period of 1995, primarily on
increases of $34 million (or 4%) and $11 million (or 3%) in
premiums and considerations and net investment income,
respectively. Additionally, "other income" of the life insurance
subsidiaries increased from $16 million to $24 million,
reflecting increased volume on certain credit insurance related
products.
The increase in premiums and considerations came primarily from
the individual life insurance and annuity product line and the
credit life and disability lines.
Premiums and other considerations from individual life insurance
and annuity products amounted to $391 million in the first nine
months of 1996, compared to $367 million in the 1995 period, with
the increase from both interest sensitive and traditional
products and reflecting a larger base of in-force life insurance
business. This increase was accompanied by greater written
premiums on credit insurance products, reflecting increased sales
through financial institution sources of business as noted above.
The $11 million increase in net investment income of the life
insurance subsidiaries reflected a larger investment base in the
1996 period. The pre-tax annualized yield was 7.84% in the first
nine months of 1996 versus 7.91% for the corresponding 1995
period. The decline in yield reflects redemptions of securities
by the respective issuers, totalling $115 million (at cost) for
the year 1995 and $94 million during the first nine months of
1996. An intentional shortening of maturities on investments
associated with individual annuity contracts, in anticipation of
annuities nearing the end of their surrender charge period, was
also a factor.
The Company's interest sensitive life insurance and annuity
contracts are subject to periodic adjustment of credited interest
rates which are determined by management based on factors
including available market interest rates and portfolio rates of
return. Recent rate actions are discussed below.
Total benefits and expenses of the life insurance subsidiaries
increased $88 million versus the first nine months of 1995, to
$1.203 billion, reflecting the impact of the $49.6 million charge
relating to traditional indemnity group major medical products as
previously discussed. Excluding this charge, total benefits and
expenses increased $39 million or 3%.
<PAGE>23
Benefits to policyholders and beneficiaries amounted to $581
million in the first nine months of 1996. The $46 million
increase versus the corresponding 1995 period reflects the
inclusion of $12 million in the 1996 amount relating to the
aforementioned charge. The remainder of the increase is
attributed primarily to greater volume of individual life
insurance and credit life and disability insurance products, as
well as the impact of three large individual life insurance
accidental death claims during the third quarter as noted above.
Interest credited to policyholder account balances amounted to
$151 million in the first nine months of 1996, versus $157
million in the corresponding 1995 period. As noted under
"Financial Condition," the decrease reflects surrenders of single
premium deferred annuities that reached the end of their
surrender charge period in 1996 as well as reductions in rates of
interest credited on interest sensitive contracts.
Interest rates credited on the Company's deferred annuity
contracts, exclusive of first year bonuses on certain products,
typically ranged from 4-3/4% to 5-1/2% during the first nine
months of 1995, depending on type of contract and period of
issue. During the year 1995, the Company implemented a series of
rate reductions on newly issued annuities together with credited
rate reductions on renewing contracts. As a result of actions
taken during the fourth quarter of 1995 affecting the major
portion of the Company's deferred annuities in force, credited
rate reductions of 25 to 50 basis points were implemented on
January 1, 1996 for calendar year contracts and are being
implemented on policy anniversary dates during 1996 for other
contracts. Interest rates credited on these contracts during the
first nine months of 1996 typically ranged from 4-1/4% to 5-1/2%.
Interest rates credited on the Company's universal life insurance
contracts typically ranged from 5-3/4% to 7% during the first
nine months of 1995. Reductions in credited interest rates,
generally amounting to 25 basis points, were implemented during
the third quarter of 1995 with respect to the major portion of
the Company's universal life insurance policies in force as well
as certain newly issued policies. Additional rate reductions of
25 to 50 basis points were implemented during the first quarter
of 1996. Following these actions, current credited rates on the
Company's universal life insurance contracts generally range from
5-1/4% to 6-1/2%.
The prospective impact of rate adjustments for interest sensitive
products on reported results will be dependent upon future sales,
surrender levels, and investment portfolio yield.
An increase in future policy benefits of $69 million was recorded
for the first nine months of 1996, versus $80 million for the
corresponding 1995 period. The decrease reflected various
factors including reduced sales of single premium immediate
<PAGE>24
annuities during the 1996 period as discussed under "Financial
Condition."
Amortization of deferred policy acquisition costs was $165
million for the first nine months of 1996, versus $121 million
for the corresponding 1995 period, with the $43 million increase
primarily attributed to inclusion of $37 million in the 1996
amount relating to the aforementioned charge for traditional
indemnity products. The remainder of the increase reflects
factors including the greater volume of individual life insurance
and credit insurance business during the 1996 period.
Aggregate commissions, general expenses, and insurance taxes and
licenses increased from $219 million in the first nine months of
1995 to $235 million in the 1996 period. The $16 million
increase is primarily associated with the 1996 period increase in
credit insurance written premiums and increased volume on
individual life insurance and credit insurance related products.
Third quarter 1996 expenses include approximately $1 million
relating to the relocation of the Company's data processing and
administrative facilities, while costs of approximately $900
thousand were incurred in the third quarter of 1995 related to
the closing of a group claims office as indicated above.
At September 30, 1996, consolidated invested assets included
approximately $255 million (at fair value) of less than
investment grade corporate securities, based on ratings assigned
by recognized rating agencies and insurance regulatory
authorities. These investments represent about 3% of
consolidated total assets at that date. See Note 3 of Notes to
Financial Statements for further information. These securities
generally involve greater risk of loss from borrower default than
investment grade securities because their issuers typically have
higher levels of indebtedness and are more vulnerable to adverse
economic conditions than other issuers. The Company's results of
operations historically have not reflected a material adverse
impact from investments in such securities.
In October 1995, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards No. 123,
entitled "Accounting for Stock-Based Compensation." This
Statement, which must be adopted in 1996, establishes financial
accounting and reporting standards for stock option plans and
other stock-based forms of compensation. Under previously
established accounting standards, stock options such as those
granted by the Company (with option price set equal to market
price at date of grant) do not require income statement charges,
although the outstanding options are considered in earnings per
share calculations. FASB 123 introduces standards for computing
"fair value" of these stock options using a mathematical model,
as well as expense charges over the related service period based
on this calculated value. However, companies can elect to report
the pro-forma impact of these computed charges on net income and
earnings per share in a footnote rather than actually recording
<PAGE>25
the computed income statement charges. USLIFE Corporation
intends to provide footnote disclosure of the pro-forma impact of
the calculated stock option expense charges, commencing with its
year end 1996 financial statements (indicating comparative data
for 1995), rather than record these charges in its income
statement.
Three Months Ended September 30, 1996 compared to
Three Months Ended September 30, 1995
For the three months ended September 30, 1996, net income
amounted to $27.0 million versus $26.6 million for the comparable
period of 1995.
Net income for the third quarter of 1995 included net capital
gains with an after-tax impact of $2.1 million, reflecting
disposals of several fixed maturity investments pursuant to
tender offers by the respective issuers as well as certain
redemptions. Capital gains and losses had no material impact on
reported results of operations for the third quarter of 1996.
Excluding capital gains and losses as discussed above,
consolidated after-tax income amounted to $27.1 million for the
third quarter of 1996 versus $24.5 million for the corresponding
1995 period. On a similar basis, after-tax income of the life
insurance subsidiaries was $37.8 million in the 1996 period
compared to $34.5 million in the third quarter of 1995. Also on
a similar basis, after-tax corporate charges (including the
operating results of USLIFE's servicing units) amounted to $10.7
million in the third quarter of 1996 versus $10.0 million for the
comparable 1995 period.
During the third quarter of 1996, the Company relocated its
Dallas-based data processing and administrative facilities,
within that city. Expense charges of approximately $1 million
associated with this action are included in third quarter 1996
results. Substantially all of these costs were recognized by the
life insurance subsidiaries. Third quarter 1995 results included
charges of about $900 thousand relating to the closing of a group
claims office.
Before capital gains and losses, the life insurance subsidiaries
reported a pre-tax profit of $57.7 million for the third quarter
of 1996, versus $52.4 million in the corresponding 1995 period.
As a consequence of the charge taken during the second quarter
relating to traditional indemnity group major medical and related
products, results from these discontinued products for the third
quarter of 1996 were approximately at a break-even level. With
the curtailment of losses from traditional indemnity products and
actions taken to move from traditional indemnity major medical
products to current generation group insurance products, pre-tax
results of operations from the Employer / Association Group lines
<PAGE>26
had a favorable impact of $3.6 million on the comparison of third
quarter results. The latter comparison also benefited from an
increase of $849 thousand in pre-tax profits from the individual
life insurance and annuity product line.
A discussion of the Company's various product lines, excluding
the impact of capital gains and losses which are previously
discussed, follows.
Individual life and annuity pre-tax profits, including income
attributable to capital and surplus, amounted to $52.0 million
for the third quarter of 1996 versus $51.1 million for the
corresponding 1995 period. The increase of $849 thousand came
primarily from greater gains from investment income, reflecting
reductions in rates of interest credited on interest sensitive
policies in force as well as an increased base of individual life
insurance business. Mortality experience was favorable during
the third quarter of 1996 and contributed to the overall pre-tax
profit reported for the period, but this contribution was to a
lesser degree than same period a year ago. It should be noted
that mortality experience for the third quarter of 1996 reflected
three large accidental death claims with aggregate negative
impact of approximately $4.5 million on individual life insurance
pre-tax profits.
A pre-tax profit of $734 thousand was reported for credit life
insurance coverages for the third quarter of 1996, versus $208
thousand in the corresponding 1995 period, reflecting growth in
the base of earned premiums and more favorable mortality
experience in the 1996 period.
Pre-tax income from credit disability products amounted to $1.7
million in the 1996 period, versus $2.1 million in the comparable
1995 period, as less favorable claims experience in the 1996
period more than offset the impact of growth in the base of
earned premiums.
The Company's group health insurance lines include
employer/association group health insurance, mortgage disability
insurance, and specialty group health and disability products.
The employer / association group health line reported a pre-tax
profit of $844 thousand. This third quarter profit reflects the
contribution of continuing products included in this line. Pre-
tax losses on this line for the third quarter of 1995 were $2.4
million, reflecting experience on the now-discontinued
traditional indemnity products as well as third quarter 1995
expense charges of approximately $900 thousand related to the
closing of a claims office.
Premium revenues on employer / association group health insurance
products were $89 million in the third quarter of 1996 versus $86
million in the corresponding 1995 period. Although, as
anticipated, a high level of terminations from the discontinued
<PAGE>27
products negatively impacted revenues, overall revenues were up
as a result of increased sales of non-major medical and managed
care products.
The other group health and disability coverages reported a pre-
tax profit of $110 thousand for the third quarter of 1996, versus
a loss of $146 thousand for the corresponding 1995 period, with
the favorable variance primarily attributed to improved results
from specialty group health and disability products marketed
through retailers and financial institutions.
The Company's group life insurance lines include
employer/association group life insurance, mortgage life
insurance, and certain specialty coverages.
The employer / association group life line reported a pre-tax
profit of $1.8 million for the third quarter of 1996, versus $1.4
million in the corresponding 1995 period, reflecting the
increased profit contribution from continuing products included
in this line.
The other group life insurance lines reported a pre-tax profit of
$369 thousand for the third quarter of 1996, versus $92 thousand
for the corresponding 1995 period. The favorable variance
reflects the impact on 1995 period results of unfavorable
mortality experience on certain specialty coverages included in
these lines.
Total revenues of the life insurance subsidiaries in the third
quarter of 1996 amounted to $445 million, an increase of $18
million or 4% over the same period of 1995, primarily on
increases of $15 million (or 5%) and $4 million (or 3%) in
premiums and considerations and net investment income,
respectively. Additionally, "other income" of the life insurance
subsidiaries increased approximately $3 million, to $9 million,
reflecting increased volume on certain credit insurance related
products.
The increase in premiums and considerations came primarily from
the individual life insurance and annuity product line and the
employer / association group life and health lines. As discussed
above, revenues on the latter lines increased as a result of
growth in sales of non-major medical and managed care products.
Premiums and other considerations from individual life insurance
and annuity products amounted to $132 million in the third
quarter of 1996, compared to $121 million in the 1995 period,
with the increase from both interest sensitive and traditional
products and reflecting a larger base of in-force life insurance
business.
Net investment income of the life insurance subsidiaries
increased $4 million, as noted above, reflecting a larger
investment base in the 1996 period.
<PAGE>28
Total benefits and expenses of the life insurance subsidiaries
increased $16 million or 4% versus the third quarter of 1995.
Benefits to policyholders and beneficiaries amounted to $187
million in the third quarter of 1996, versus $179 million in the
corresponding 1995 period. The increase reflects the greater
volume of individual life and credit insurance, growth in volume
of continuing products in the employer/ association group lines,
and the impact of several individual life accidental death claims
as noted earlier.
Interest credited to policyholder account balances amounted to
$50 million in the third quarter of 1996, versus $53 million in
the corresponding 1995 period. As previously discussed, the
decrease reflects surrenders of single premium deferred annuities
that reached the end of their surrender charge period in 1996 as
well as reductions in rates of interest credited on interest
sensitive contracts.
An increase in future policy benefits of $25 million was recorded
for the third quarter of 1996, versus $24 million for the
corresponding 1995 period. The increase reflected various
factors including greater premium volume on traditional
individual life insurance products during the 1996 period and the
release of unearned premium reserves during the 1995 period on
several terminating association group life cases.
Amortization of deferred policy acquisition costs was $44 million
for the third quarter of 1996, versus $40 million for the
corresponding 1995 period. The increase reflects factors
including the greater volume of individual life insurance and
credit insurance business during the 1996 period.
Aggregate commissions, general expenses, and insurance taxes and
licenses increased from $75 million in the third quarter of 1995
to $79 million in the 1996 period. The $4 million increase is
primarily associated with increased volume on individual life
insurance and credit insurance related products. As discussed
above, third quarter 1996 expenses include approximately $1
million relating to the relocation of the Company's data
processing and administrative facilities, while costs of
approximately $900 thousand were incurred in the third quarter of
1995 related to the closing of a group claims office.
<PAGE>29
Part II - Other Information
Item 1. Legal Proceedings
_________________
As previously reported in the Company's Annual Report on Form 10-
K for the year ended December 31, 1995, in November 1981, the
Company filed a third amended complaint against Louis Wilcox and
other former officers of USLIFE Savings and Loan Association, a
former subsidiary of the Company, for indemnification, injunctive
relief and accounting (USLIFE Savings and Loan Association v.
Louis Wilcox, et al., Superior Court of the State of California
for the County of Riverside). In April 1984, defendant Louis M.
Wilcox filed a cross complaint against the Company seeking
general damages of $1 million, punitive damages of $10 million
and special damages. In 1986, Wilcox's causes of action for
malicious prosecution and abuse of process were dismissed. On
appeal, the dismissal of the cause of action for malicious
prosecution was reversed while the dismissal of the abuse of
process claim was upheld. Pursuant to the Company's request, the
case was bifurcated for trial. In July 1993, the trial court,
after hearing evidence on the issue, without a jury, decided that
the Company had probable cause to sue Wilcox in 1981. That
ruling was dispositive of the claim for malicious prosecution
and, thus, the Court dismissed Wilcox's only remaining claim
against the Company. A judgment in the Company's favor was
entered in late 1993. Wilcox appealed from this judgment and in
September 1996, the Court of Appeals issued a Tentative Decision,
which the Company has challenged, reversing the trial court's
dismissal of Wilcox's claim. In the event the Company's
challenge is rejected, the Company intends to appeal the decision
of the Court of Appeals.
Item 6. Exhibits and Reports on Form 8-K
________________________________
(a) Exhibits
27 - Financial Data Schedule (electronic filing only)
(b) Reports on Form 8-K
No reports on Form 8-K were filed on behalf of the
Registrant during the quarter ended September 30, 1996.
<PAGE>30
SIGNATURES
Pursuant to the requirements 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.
USLIFE Corporation
__________________________________
(Registrant)
November 7, 1996 By /s/ James M. Schlomann
____________________ __________________________________
Date James M. Schlomann
Executive Vice President - Finance
(Principal Financial Officer and
Duly Authorized Officer)
<PAGE>1
USLIFE Corporation
Form 10-Q for the Quarterly Period Ended September 30, 1996
Exhibit Index
Exhibit Number
Per Item 601 of
Regulation S-K
_______________
27 Financial Data Schedule (electronic filing only)
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS, SUMMARY STATEMENTS OF CONSOLIDATED NET
INCOME, AND NOTES TO FINANCIAL STATEMENTS FOR THE PERIOD ENDED
SEPTEMBER 30, 1996 OF USLIFE CORPORATION AND SUBSIDIARIES FILED ON
FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS AND NOTES TO FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<DEBT-HELD-FOR-SALE> 5,789,315
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 3,777
<MORTGAGE> 262,202
<REAL-ESTATE> 30,143
<TOTAL-INVEST> 6,510,106
<CASH> 53,314
<RECOVER-REINSURE> 8,720 <F1>
<DEFERRED-ACQUISITION> 802,198
<TOTAL-ASSETS> 7,832,225
<POLICY-LOSSES> 5,456,019
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 213,853
<POLICY-HOLDER-FUNDS> 66,990
<NOTES-PAYABLE> 629,998
0
527
<COMMON> 57,471
<OTHER-SE> 1,096,490
<TOTAL-LIABILITY-AND-EQUITY> 7,832,225
767,465
<INVESTMENT-INCOME> 374,842
<INVESTMENT-GAINS> (597)
<OTHER-INCOME> 205,363
<BENEFITS> 800,200 <F2>
<UNDERWRITING-AMORTIZATION> 164,823 <F3>
<UNDERWRITING-OTHER> 304,833
<INCOME-PRETAX> 74,565
<INCOME-TAX> 25,397
<INCOME-CONTINUING> 49,168
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 49,168
<EPS-PRIMARY> 1.41
<EPS-DILUTED> 1.41
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
<FN>
<F1> See Note 6 of Notes to Financial Statements.
<F2> Includes $12.441 million relating to charge
discussed in Note 7 of Notes to Financial
Statements.
<F3> Includes $37.198 million relating to charge
discussed in Note 7 of Notes to Financial
Statements.
</FN>
</TABLE>
