SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1994.
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 1-7369
WASHINGTON NATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 36-2663225
(State or other (I.R.S. Employer
jurisdiction of
incorporation or Identification
organization) No.)
300 Tower Parkway,
Lincolnshire, Illinois 60069
(Address of principal (Zip Code)
executive offices)
Registrant's Telephone Number, Including Area Code: (708) 793-3000
Indicate by check mark 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
Number of shares of Common Stock, $5 par value outstanding as of
August 5, 1994 was 12,148,524.
Page 1 of 28
CONTENTS
Part I. Financial Information Page
Item 1. Financial Statements
Consolidated Balance Sheet - June 30, 1994
and December 31, 1993 3
Consolidated Statement of Operations -
Six and Three Months Ended June 30, 1994 and 1993 4
Consolidated Condensed Statement of Cash Flows -
Six Months Ended June 30, 1994 and 1993 5
Notes to Consolidated Financial Statements - June 30, 1994 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
Part II. Other Information
Item 1. Legal Proceedings 22
Item 4. Submission of Matters to a Vote
of Security Holders 23
Item 6. Exhibits and Reports on Form 8-K 24
Signatures 25
Page 2 of 28
<TABLE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WASHINGTON NATIONAL CORPORATION
CONSOLIDATED BALANCE SHEET
(000s Omitted)
<CAPTION>
June 30,
1994 December 31,
(Unaudited) 1993
<S> <C> <C>
ASSETS
Investments
Fixed maturities -
Available for sale at fair value (amortized cost: $1,715,642) $1,644,818 $ -
Held to maturity at cost (fair value: $117,820; $134,448) 116,814 128,184
Held for sale at cost (fair value: $1,708,677) - 1,632,609
Equity securities (cost: $13,624; $15,903) 13,399 15,860
Mortgage loans on real estate 374,484 391,667
Real estate 35,656 39,086
Policy loans 52,714 52,285
Other long-term 17,687 21,032
Short-term 48,099 75,302
Total Investments 2,303,671 2,356,025
Cash 7,132 10,441
Deferred insurance costs 260,664 256,956
Reinsurance recoverables and prepaid premiums 57,607 56,314
Accrued investment income 32,456 32,386
Property and equipment 24,433 26,198
Insurance premiums in course of collection 15,792 25,159
Goodwill 21,363 21,772
Income taxes recoverable - 1,403
Separate account assets 42,521 44,589
Other 37,731 23,176
Total Assets $2,803,370 $2,854,419
LIABILITIES AND SHAREHOLDERS' EQUITY
Policy Liabilities
Future policy benefits - annuities $1,296,863 $1,250,225
Future policy benefits - life 767,059 800,447
Policy and contract claims 212,190 206,963
Unearned premiums 38,231 34,649
Other 37,995 39,187
Total Policy Liabilities 2,352,338 2,331,471
General expenses and other liabilities 112,348 121,916
Mortgage payable 2,175 2,434
Income taxes (1994 current: $255) 6,400 5,064
Separate account liabilities 42,521 44,589
Total Liabilities 2,515,782 2,505,474
Shareholders' Equity
Convertible Preferred Stock 723 723
Common Stock - $5.00 par value 77,638 77,505
Additional paid-in capital 46,956 46,640
Retained earnings 293,658 284,938
Unrealized losses on investments (70,569) (43)
Unfunded pension loss (2,821) (2,821)
Cost of Common Treasury Stock (57,997) (57,997)
Total Shareholders' Equity 287,588 348,945
Total Liabilities and Shareholders' Equity $2,803,370 $2,854,419
See Notes to Consolidated Financial Statements
Page 3 of 28
</TABLE>
<TABLE>
WASHINGTON NATIONAL CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
(000s Omitted, Except Per Share Data)
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Revenues
Insurance premiums and policy charges $230,437 $218,394 $116,567 $112,435
Net investment income 89,483 90,000 44,546 45,693
Realized investment gains (losses) 334 (705) (132) 282
Other 2,212 3,447 1,069 1,546
Total Revenues 322,466 311,136 162,050 159,956
Benefits and Expenses
Insurance benefits paid or provided 213,917 215,294 105,479 109,799
Insurance and general expenses 68,898 62,403 35,755 32,017
Amortization of deferred insurance costs 17,306 16,140 8,669 8,072
Total Benefits and Expenses 300,121 293,837 149,903 149,888
Income Before Income Taxes and
Change in Accounting Principle 22,345 17,299 12,147 10,068
Income Taxes 6,890 5,759 3,726 3,274
Income Before Cumulative Effect of
Change in Accounting Principle 15,455 11,540 8,421 6,794
Cumulative Effect of Change in Accounting
for Postemployment Benefits - Net
of Related Tax Effects - (1,550) - -
Net Income $ 15,455 $ 9,990 $ 8,421 $ 6,794
Primary Earnings Per Share
Income before cumulative effect $1.25 $1.13 $0.68 $0.66
Cumulative effect of change in
accounting principle - (0.16) - -
Net Income Per Share $1.25 $0.97 $0.68 $0.66
Average Shares and Equivalents Outstanding 12,222 10,066 12,222 10,083
Fully Diluted Earnings Per Share
Income before cumulative effect $1.24 $1.12 $0.67 $0.66
Cumulative effect of change in
accounting principle - (0.15) - -
Net Income Per Share $1.24 $0.97 $0.67 $0.66
Average Shares and Equivalents Outstanding 12,493 10,337 12,493 10,355
Dividends Paid Per Common Share $0.54 $0.54 $0.27 $0.27
See Notes to Consolidated Financial Statements
Page 4 of 28
</TABLE>
<TABLE>
WASHINGTON NATIONAL CORPORATION
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS (Unaudited)
(000s Omitted)
<CAPTION>
Six Months Ended
June 30,
1994 1993
<S> <C> <C>
Net Cash Provided by Operating Activities $27,138 $45,688
Investing Activities
Proceeds from sales
Fixed maturities - available for sale 49,535 -
Fixed maturities - 158,479
Equities, mortgage loans, real estate, and other investments 8,564 12,048
Proceeds from maturities and redemptions
Fixed maturities - available for sale 102,135 -
Fixed maturities - held to maturity 12,091 -
Fixed maturities - 153,639
Equities, mortgage loans, real estate, and other investments 28,487 21,797
Cost of purchases
Fixed maturities - available for sale (227,305) -
Fixed maturities - held to maturity (3,106) -
Fixed maturities - (356,829)
Equities, mortgage loans, real estate, and other investments (13,388) (14,715)
Increase in policy loans (429) (157)
Purchases of property and equipment (764) (2,763)
Net (increase) decrease in short-term investments 27,203 (33,458)
Net Cash Used by Investing Activities (16,977) (61,959)
Financing Activities
Policyholder account deposits 71,016 76,992
Policyholder account withdrawals (77,941) (59,798)
Proceeds from sale of common stock 449 739
Repayment of mortgage and other notes payable (259) (120)
Cash dividends to shareholders (6,735) (5,553)
Repayment of short-term notes payable - (80)
Net Cash Provided (Used) by Financing Activities (13,470) 12,180
Decrease in Cash (3,309) (4,091)
Cash at Beginning of Period 10,441 9,471
Cash at End of Period $ 7,132 $ 5,380
See Notes to Consolidated Financial Statements
Page 5 of 28
</TABLE>
Item 1. Financial Statements (continued)
WASHINGTON NATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
June 30, 1994
A. Basis of Presentation
The accompanying unaudited consolidated financial statements have
been prepared in accordance with generally accepted accounting
principles (GAAP) for interim periods. In the opinion of
management, all adjustments (consisting of normal, recurring
accruals) considered necessary for a fair presentation have been
included. The 1993 financial statements have been restated for the
adoption of Financial Accounting Standards Board (FASB) Statement
112, "Employers' Accounting for Postemployment Benefits," effective
for the first quarter, 1993.
B. Reclassifications
Certain amounts in the 1993 consolidated financial statements have
been reclassified to conform to the 1994 presentation.
C. Adoption of New Accounting Standard
Effective January 1, 1994, the Company adopted Statement of
Financial Accounting Standards Number 115, "Accounting for Certain
Investments in Debt and Equity Securities." This statement requires
the Company to segregate its fixed maturity portfolio into three
separate classifications on the balance sheet: investments held to
maturity, trading securities, and investments available for sale.
Investments held to maturity include only those fixed maturities
that the Company has a positive intent and ability to hold to
maturity. These securities are carried at amortized cost less write-
downs for other-than-temporary impairments. Trading securities
consist of those fixed maturity and equity securities held for
short periods of time and are carried on the balance sheet at fair
value, with any change in value reported as a component of income.
The Company does not have a trading portfolio. Investments
available for sale consist of those securities that do not meet the
criteria of investments held to maturity or trading securities and
are carried on the balance sheet at fair value, with any change in
value recognized as an unrealized gain or loss in shareholders'
equity. If a decrease in value of fixed maturity investments is
other-than-temporary, the loss is recognized immediately as a
realized loss. Prior to adoption, these securities were primarily
classified as held for sale and carried at the lower of amortized
cost less other-than-temporary impairments or market. In addition,
shareholders' equity is reduced by the estimated amortization of
deferred insurance costs that the realization of any unrealized
gains would produce. The unrealized gain or loss and the deferred
insurance costs are tax effected to the extent realizable.
Restatement of prior period financial statements is not permitted.
The adoption of this standard resulted in an increase in
shareholders' equity of $41,644,000 at January 1, 1994 and a
decrease of $70,344,000 at June 30, 1994 detailed in the table
below.
(000s) 1/1/94 6/30/94
Fair value adjustment to available
for sale fixed maturity securities $75,081 $(70,344)
Less: Decrease in deferred policy
acquisition costs 18,630 -
Increase in deferred federal
income taxes 14,807 -
Net unrealized gain (loss) on
securities $41,644 $(70,344)
Page 6 of 28
Item 1. Financial Statements (continued)
WASHINGTON NATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
June 30, 1994
At June 30, 1994, the unrealized loss was primarily due to the
increase in interest rates since adoption. Due to the change, the
effect on deferred policy acquisition costs was reversed and
deferred taxes have not been established on the unrealized loss as
the Company has a capital loss carryforward and does not currently
record a tax benefit for such carryforwards.
The Company foresees that this standard will continue to result in
added volatility to shareholders' equity as the standard does not
permit a corresponding adjustment to the liabilities that these
assets support.
D. Reinsurance
At June 30, 1994, approximately 51 percent of WNC's total
reinsurance was ceded to Combined Life Insurance Company of
America, with approximately 19 percent was ceded to UNUM Life
Insurance Company, and approximately 16 percent was ceded to
American Founders Life Insurance Company. The reinsurance with
Combined Life and American Founders is a result of divestitures of
supplemental health insurance, life insurance and annuity business.
Substantially all of the reinsurance ceded by the Company is to
entities rated "A" or better by A. M. Best, or to entities
required to maintain assets in an independent trust fund whose fair
value is sufficient to discharge the obligations of the reinsurer.
To the extent that any reinsurance company is unable to meet their
obligations under the agreements, WNC's insurance subsidiaries
would remain liable.
Amounts paid or deemed to have been paid for reinsurance contracts
are recorded as reinsurance receivables. 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.
The effect of reinsurance on premiums and policy charges was as
follows (000s omitted):
June 30, June 30,
1994 1993
Direct premiums and policy charges $233,699 $235,133
Reinsurance assumed 28,323 14,677
Reinsurance ceded (31,585) (31,416)
Premiums and Policy Charges $230,437 $218,394
Reinsurance benefits ceded were $11,953,000 and $14,064,000 at
June 30, 1994 and 1993, respectively.
Page 7 of 28
Item 1. Financial Statements (continued)
WASHINGTON NATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
June 30, 1994
E. Standby Purchase Commitments and Financial Guarantees
Standby purchase commitments and financial guarantees written are
conditional commitments issued by WNIC and a subsidiary to
guarantee the performance of an unrelated entity to a third party.
These purchase commitments and guarantees are primarily issued to
support public and private borrowing arrangements, including bond
financing and letters of credit. WNIC and its subsidiary do not
hold collateral for these conditional commitments; however, in the
event of nonperformance by the entity, WNIC and its subsidiary
would be entitled to the underlying collateral, principally
commercial real estate properties. In addition, WNIC and its
subsidiary are entitled to a share in the appreciation of the
collateral underlying the conditional commitments at the time of
sale or refinancing. At June 30, 1994 and December 31, 1993,
standby purchase commitments and guarantees were $24,303,000 and
$24,323,000, respectively. Management is not aware of any material
losses on these conditional commitments. The Company does not
anticipate entering into any such agreements in the future.
During August, 1994, the Company obtained a letter of credit in the
amount of $2,500,000. WNC has four letters of credit available
totaling $3,451,000 with varying terms and conditions. As of August
10, 1994, the entire amount was unused.
Page 8 of 28
<TABLE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following updates and should be read in conjunction with the Management's Discussion and Analysis of
Financial Condition and Results of Operations section of the Company's 1993 Annual Report, copies of which
may be obtained by contacting: Craig Simundza, Vice President, Financial Reporting, Washington National
Corporation, 300 Tower Parkway, Lincolnshire, Illinois 60069 (telephone (708) 793-3053).
Consolidated Results of Operations
Components of Income (Loss) by Segment
(000s omitted)
<CAPTION>
Life
Insurance
& Group Individual Corporate
Annuities Products Health & Other Total
Six Months Ended June 30, 1994
<S> <C> <C> <C> <C> <C>
Revenues
Insurance and other revenues $ 36,740 $100,930 $ 94,918 $ 61 $232,649
Net investment income 76,120 7,285 2,759 3,319 89,483
Realized investment gains - - - 334 334
Total revenues 112,860 108,215 97,677 3,714 322,466
Benefits and Expenses
Insurance benefits 78,878 78,106 56,761 172 213,917
Expenses 9,685 29,652 30,474 (913) 68,898
Amortization of deferred insurance costs 7,860 1,368 8,078 - 17,306
Total benefits and expenses 96,423 109,126 95,313 (741) 300,121
Income (loss) before income taxes $ 16,437 $ (911) $ 2,364 $4,455 22,345
Income taxes 6,890
Net income $ 15,455
Six Months Ended June 30, 1993
<S> <C> <C> <C> <C> <C>
Revenues
Insurance and other revenues $ 34,695 $114,145 $ 71,952 $ 1,049 $221,841
Net investment income 79,348 8,036 2,669 (53) 90,000
Realized investment losses (705) (705)
Total revenues 114,043 122,181 74,621 291 311,136
Benefits and Expenses
Insurance benefits 82,540 88,425 43,616 713 215,294
Expenses 10,112 28,698 21,761 1,832 62,403
Amortization of deferred insurance costs 7,037 1,166 7,937 - 16,140
Total benefits and expenses 99,689 118,289 73,314 2,545 293,837
Income (loss) before income taxes and
change in accounting principle $ 14,354 $ 3,892 $ 1,307 $(2,254) 17,299
Income taxes 5,759
Income before change in accounting
principle 11,540
Change in accounting for postemployment
benefits (net of taxes) (1,550)
Net income $ 9,990
</TABLE> Page 9 of 28
<TABLE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
(Continued)
Consolidated Results of Operations
Components of Income (Loss) by Segment
(000s omitted)
<CAPTION>
Life
Insurance
& Group Individual Corporate
Annuities Products Health & Other Total
Three Months Ended June 30, 1994
<S> <C> <C> <C> <C> <C>
Revenues
Insurance and other revenues $17,821 $53,060 $46,718 $ 37 $117,636
Net investment income 37,936 3,671 1,364 1,575 44,546
Realized investment losses - - - (132) (132)
Total revenues 55,757 56,731 48,082 1,480 162,050
Benefits and Expenses
Insurance benefits paid or provided 38,038 40,558 26,775 108 105,479
Insurance and general expenses 4,980 14,781 15,511 483 35,755
Amortization of deferred insurance costs 4,027 606 4,036 - 8,669
Total benefits and expenses 47,045 55,945 46,322 591 149,903
Income before income taxes $ 8,712 $ 786 $ 1,760 $ 889 12,147
Income taxes 3,726
Net income $ 8,421
Three Months Ended June 30, 1993
<S> <C> <C> <C> <C> <C>
Revenues
Insurance and other revenues $16,884 $55,893 $40,942 $ 262 $113,981
Net investment income 39,667 4,030 1,326 670 45,693
Realized investment gains - - - 282 282
Total revenues 56,551 59,923 42,268 1,214 159,956
Benefits and Expenses
Insurance benefits paid or provided 40,684 43,850 25,190 75 109,799
Insurance and general expenses 4,902 14,510 11,784 821 32,017
Amortization of deferred insurance costs 3,538 510 4,024 - 8,072
Total benefits and expenses 49,124 58,870 40,998 896 149,888
Income before income taxes $ 7,427 $ 1,053 $ 1,270 $ 318 10,068
Income taxes 3,274
Net Income $ 6,794
Page 10 of 28
</TABLE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
<TABLE>
<CAPTION>
Analysis of Net Income
Three Months Ended Six Months Ended
June 30, June 30,
(000s Omitted) 1994 1993 1994 1993
<S> <C> <C> <C> <C>
Pretax operating income (loss) (1)
Life insurance and annuities $ 8,712 $7,427 $16,437 $13,863
Group products 786 1,053 (911) 3,892
Individual health 1,760 1,270 2,364 1,307
Corporate and other 1,021 36 4,121 (1,549)
Total pretax operating income 12,279 9,786 22,011 17,513
Income taxes on operations 4,454 3,274 7,783 5,592
Net operating income 7,825 6,512 14,228 11,921
Other components of net
income (net of taxes)
Realized investment gains
(losses) (2) 596 282 1,227 (705)
Gains from benefit plan
changes (3) - - - 324
Cumulative effect of change in
accounting principle (4) - - - (1,550)
Net income $ 8,421 $6,794 $15,455 $9,990
<FN>
(1) Pretax income (loss) before realized investment gains (losses), cumulative effect of
accounting changes, and gains from benefit plan changes in 1993.
(2) 1994 second quarter includes tax benefit of $728; 1994 six months includes tax
benefit of $893.
(3) Curtailment gain of $491 less tax of $167.
(4) Employers' Accounting for Postemployment Benefits.
</TABLE>
Comparison of Six Months Ended June 30, 1994 to June 30, 1993
Insurance Premiums and Policy Charges. Insurance premiums and
policy charges increased $12.0 million, or 5.5%, from $218.4 million
in 1993 to $230.4 million in 1994. The improvement was primarily due
to an increase in individual health insurance premiums of $23.1
million resulting from two individual health reinsurance
transactions that added $27.9 million of premium revenue, offset in
part by a decline in group products premiums. The group products
premium decline was due primarily to the termination of a large
group life insurance contract with approximately $6 million of
premium revenue and expenses in the first six months of 1993 and to
an adjustment to unpaid premiums in 1994. See "Segment
Information -- Individual Health" and "Segment Information -- Group
Products," below.
Net Investment Income. Net investment income decreased $0.5
million, or 0.6%, to $89.5 million in 1994 from $90.0 million in
1993. The decrease was due primarily to a decline in the Company's
portfolio yield (based on amortized cost) from 7.95% in the first
six months of 1993 to 7.57% in the first six months of 1994. For
the second quarter, net investment income decreased $1.1 million, or
2.5%, to $44.5 million in 1994 from $45.7 million in 1993 primarily
due to a drop in the Company's portfolio yield from 8.02% to 7.52%.
The carrying value of the Company's invested assets remained
essentially unchanged from December 31, 1993. On January 1, 1994,
the Company adopted SFAS 115. See Note C to the financial
statements for further discussion.
Page 11 of 28
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
Realized Investment Gains (Losses). Realized investment gains for
the first six months of 1994 were $0.3 million compared to realized
investment losses of $0.7 million in the first six months of 1993.
In 1994, realized gains on equity securities of $1.1 million were
partially offset by losses of $0.8 million on fixed maturity
investments, mortgage loans on real estate, real estate investments,
and other invested assets. In 1993, realized gains of $5.7 million
on fixed maturity investments and other invested assets were more
than offset by losses of $2.4 million on mortgage loans on real
estate and equity securities and $4.0 million on real estate
investments.
Insurance Benefits Paid or Provided. Insurance benefits paid or
provided decreased $1.4 million, or 0.6%, from $215.3 million in the
first six months of 1993 to $213.9 million in the first six months
of 1994. The decrease was primarily due to a decline in group
products benefits of $10.3 million due primarily to a smaller block
of employee benefits conventional health business in force, the
termination of the large group life insurance contract discussed
above and a decline in life insurance and annuities benefits of $3.7
million resulting primarily from a decrease in interest credited on
interest-sensitive products. Partially offsetting these declines
was higher individual health insurance benefits of $13.1 million
resulting primarily from the reinsurance transactions referred to
above. For the second quarter, benefits paid or provided decreased
$4.3 million, or 3.9%, from $109.8 million in 1993 to $105.5 million
in 1994. The decline was primarily due to a decrease in group
products benefits related to the termination of a large group life
insurance contract.
Insurance and General Expenses. Insurance and general expenses
increased $6.5 million, or 10.4%, from $62.4 million in the first
six months of 1993 to $68.9 million in the first six months of 1994,
primarily due to an increase in expenses related to two individual
health reinsurance transactions. For the second quarter, insurance
and general expenses increased $3.7 million, or 11.7%, from $32.0
million to $35.8 million also primarily due to the reinsurance
transactions. See "Segment Information--Individual Health," below.
Income Before Income Taxes and Change in Accounting Principle.
Income before income taxes and change in accounting principle
increased $5.0 million, or 29.2%, to $22.3 million in the first six
months of 1994 compared to $17.3 million in the first six months of
1993. The increase was due primarily to improved operations in the
Company's life insurance and annuities, individual health, and
corporate and other segments, offset in part by a loss in 1994 in
the group products segment.
Income Taxes. Income taxes increased $1.1 million to $6.9 million
in the first six months of 1994 compared to $5.8 million in the
first six months of 1993, primarily due to improved income from
operations. Included in income taxes for the first six months of
1994 is a tax credit of $0.9 million related to realized investment
losses.
Change in Accounting Principle. In the first quarter of 1993, the
Company recorded a one-time charge of $1.6 million after taxes for
the adoption of a new accounting standard, Employers' Accounting for
Postemployment Benefits. The adoption did not have a material
impact on income before accounting changes.
Net Income. Net income for the first six months of 1994 was $15.5
million compared to $10.0 million in the first six months of 1993.
The improvement in net income resulted from increased earnings from
operations, realized investment gains in 1994 versus realized
investment losses in 1993, and the charge in the first quarter of
1993 relating to the adoption of the new accounting standard
described above.
Page 12 of 28
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
Segment Information
Life Insurance and Annuities. Revenues for the life insurance and
annuities segment for the first six months of 1994 were $112.9
million, compared to $114.0 million in 1993. A decline in
investment income of $3.2 million resulted primarily from a lower
portfolio yield. An increase of $2.0 million in insurance revenues
was primarily due to an increase in life insurance in force combined
with an increase in policy charges at UPI, offset in part by a
decline in insurance revenues at WNIC where no new policies are
being sold.
Pretax income for the life insurance and annuities segment increased
18.6% to $16.4 million in the first six months of 1994 from $13.9
million in the first six months of 1993, primarily due to increased
policy charges and improved interest rate spreads, as the interest
credited on account balances was reduced more than the decrease in
the yield on invested assets.
Generally, in an environment of rising interest rates, the Company
may have difficulty maintaining the current spread between the rates
credited to policyholders and its investment income, resulting in
lower profit margins for this segment. While the Company has been
able to maintain its current spread for the first six months of 1994
as market interest rates have risen, the Company cannot be certain
it will be able to do so in the future. For the first six months of
1994, maintenance of higher than normal interest rate spreads than
the Company's long-term spread expectations increased pretax income
by approximately $2 million.
Group Products. Revenues for the group products segment were $108.2
million in the first six months of 1994 compared to $122.2 million
in the first six months of 1993, a decrease of 11.4%. The decrease
was primarily due to the termination of a large group life insurance
contract in the third quarter of 1993, with approximately $6 million
of premium revenue in the first six months of 1993, and an
adjustment to unpaid premiums of approximately $2.5 million in 1994.
The termination of the large group life insurance contract, which
had approximately $3 billion of life insurance in force, did not
materially affect net income as there was a corresponding decrease
in benefits and expenses.
The pretax loss for the group products segment was $0.9 million in
the first six months of 1994 compared to pretax income of $3.9
million in the first six months of 1993. The loss was primarily due
to an adjustment to unpaid premiums and increased expenses.
Over the last several quarters, operating results for the group
products segment have been favorably affected by a better than
expected benefit ratio primarily due to the Company raising premium
rates at a level higher than medical care inflation. The sales
environment for these products has begun to be more competitive,
with other carriers reducing their pricing assumptions about medical
care inflation in order to obtain additional market share. As a
result, the Company expects an increase in the level of policy
lapses in the segment and an increase in the benefit ratio over the
next 12-24 months. In the fourth quarter of 1993, the Company
announced the combination of its employee benefits and individual
health divisions. Among the expected outcomes of this combination
is expense savings for the individual health and employee benefits
products beginning in 1995.
Individual Health. Revenues for the individual health insurance
segment increased 30.9% to $97.7 million in the first six months of
1994 compared to $74.6 million in the first six months of 1993.
Revenues for this segment increased primarily as a result of two
reinsurance transactions that added an additional $19.8 million of
revenue in 1994. The improvement was also due in part to average
rate increases of 6% in the first six months of 1994 on the direct
portion of the business in force, offset in part by a decline of
3.3% in the number of policies in force in the direct portion of the
business.
Page 13 of 28
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
Pretax income for the individual health insurance segment was $2.4
million for the first six months of 1994 compared to $1.3 million in
the first six months of 1993. The improvement was primarily due to
income from reinsurance.
Effective in the 1993 second quarter, the Company entered into a
reinsurance agreement with The Harvest Life Insurance Company
(Harvest Life) that provides that the Company will reinsure 100% of
a block of major medical business issued by Harvest Life. In 1994,
the Company entered into a reinsurance agreement with National
Casualty Company, a subsidiary of Nationwide Corporation, whereby
the Company will reinsure 50% of a block of individual major medical
health insurance. The block had approximately $60 million of
premium revenue in 1993. Due to the start-up expenses associated
with administering this block of business, the Company expects to
break-even on this transaction in 1994.
The combined effect of these reinsurance transactions was to
increase revenues and benefits and expenses by $28.5 million and
$26.8 million, respectively, in 1994, compared to $8.7 million and
$8.6 million, respectively, in 1993.
In the short term, this segment is expected to be negatively
impacted by adverse market conditions, with many competitors
lowering rates or maintaining rates to attain greater market share.
To date, the Company has priced its products to maintain desired
profit margins and, as a result, has seen a decline in new business
sold. To help offset the decline, the Company has expanded its
distribution network, including utilizing the sales forces of
Harvest Life and National Casualty Company.
Corporate and Other. The corporate and other segment includes
realized investment gains and losses, the operations of non-
insurance lines of business, and corporate expenses. For the first
six months of 1994, income was $4.5 million compared to a loss of
$2.3 million in the first six months of 1993. The improvement was
due to investment income on the Company's surplus funds, the
previously mentioned realized investment gains of $0.3 million in
1994 versus realized investment losses of $0.7 million in 1993, and
expenses in 1993 related to the closing of the Company's former
headquarters.
Comparison of Quarter Ended June 30, 1994 to June 30, 1993
The nature and reasons for any significant variations between the
quarters ended June 30, 1994 and June 30, 1993 are the same as those
discussed above for the respective six-month periods, except where
otherwise noted.
Investment Portfolio
On January 1, 1994, the Company adopted SFAS 115, "Accounting for
Certain Investments in Debt and Equity Securities." As a result,
most of the Company's fixed maturity investments were classified as
"Available for Sale" and are now carried at fair value. The
remaining fixed maturity investments were classified as "Held to
Maturity" and will continue to be carried at amortized cost, less
write-downs for other-than-temporary impairments. See Note C for
further information.
Page 14 of 28
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
At June 30, 1994, the Company had invested assets with a carrying
value of $2.3 billion. The following table sets forth certain
information about the Company's investment portfolio as of that date
(dollars in millions):
Percent
of Total
Carrying Carrying
Value Value
Fixed maturity investments:
United States government obligations $ 55.8 2.4%
Obligations of states and political
subdivisions 97.6 4.3
Public utilities 97.0 4.2
Industrial and miscellaneous 822.3 35.7
Mortgage-backed securities 658.9 28.6
Other 30.0 1.3
Total fixed maturity investments 1,761.6 76.5
Equity securities 13.4 0.6
Other investments:
Mortgage loans on real estate 374.5 16.2
Real estate 35.7 1.5
Policy loans 52.7 2.3
Other long-term 17.7 0.8
Short-term 48.1 2.1
Total invested assets $2,303.7 100.0%
Fixed Maturity Investments
The carrying value of fixed maturity investments at June 30, 1994
was $1.762 billion, or 76.5% of the Company's invested assets. The
Company adopted SFAS 115 on January 1, 1994 and carries most of its
fixed maturity investments at fair value. See Note C to the
financial statements for further information. The amortized cost of
the Company's fixed maturity portfolio increased $72 million to
$1.833 billion at June 30, 1994 from $1.761 billion at December 31,
1993. Due to the increase in market interest rates in the first
half of 1994, the carrying value of the Company's fixed maturity
investments compared to amortized cost declined, resulting in an
unrealized loss on fixed maturity investments of $69.8 million.
The composition of the Company's fixed maturity portfolio at June
30, 1994, based on quality ratings, was as follows (dollars in
millions):
Carrying Value
as a Percent of
Carrying Total Fixed Invested
Value Maturities Assets
AAA/Aaa $ 763.9 43.4% 33.2%
AA/Aa 159.8 9.1 6.9
A 442.9 25.1 19.2
BBB/Baa 301.0 17.1 13.1
BB/Ba and lower 94.0 5.3 4.1
Total Fixed Maturities $1,761.6 100.0% 76.5%
Page 15 of 28
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
The Company's policy for rating fixed maturity investments is to use
the rating on such investments as determined by Standard & Poor's
Company ("S&P") or Moody's Investor Service, Inc. ("Moody's"). If
an investment has a split rating (i.e., different ratings from the
two rating services) the Company categorizes the investment under
the lower rating. For those investments that do not have a rating
from either S&P or Moody's, the Company categorizes those
investments on ratings assigned by the National Association of
Insurance Commissioners (NAIC), whose ratings are as follows: NAIC
Class 1 is considered equivalent to a AAA/Aaa, AA/Aa, or A rating;
NAIC Class 2, BBB/Baa; and NAIC Classes 3-6, BB/Ba and below. Fixed
maturity investments that are not rated by S&P or Moody's (unrated
private placements), but instead rated with comparable NAIC ratings,
comprise 1.4% of AAA-rated investments, 1.6% of AA-rated, 4.2% of A-
rated, 20.5% of BBB-rated, and 38.6% of investments rated BB and
lower at June 30, 1994.
At June 30, 1994, 28.6% of the Company's invested assets were in
mortgage-backed fixed maturity investments, including collateralized
mortgage obligations (CMOs) and mortgage-backed pass-through
securities. Mortgage-backed securities generally are collateralized by
mortgages backed by the Government National Mortgage Association
(GNMA), the Federal National Mortgage Association (FNMA), and the
Federal Home Loan Mortgage Corporation (FHLMC), all of which are
agencies of the U.S. Government. Only GNMA mortgages are backed by the
full faith and credit of the U.S. Government. Agency mortgage-backed
securities are considered to have a AAA credit rating.
In some instances, the Company invests in non-agency mortgage-backed
securities. The Company primarily invests in highly-rated non-agency
CMOs. At June 30, 1994, 82.7% of the Company's non-agency CMOs were
rated AAA. The credit risk associated with non-agency mortgage-backed
securities is generally greater than that of agency mortgage-backed
securities.
The following details the carrying value of the Company's mortgage-
backed securities portfolio at June 30, 1994 (dollars in millions):
Carrying Value
as a Percent of
Mortgage- Total
Carrying Backed Invested
Value Securities Assets
Agency collateralized mortgage obligations:
Planned and target amortization classes $263.5 40.0% 11.5%
Sequential classes 10.2 1.6 0.4
Support classes 12.0 1.8 0.5
Accrual 2.3 0.3 0.1
Total agency collateralized mortgage
obligations 288.0 43.7 12.5
Non-agency collateralized mortgage
obligations:
Planned amortization classes 11.9 1.8 0.5
Sequential classes 12.0 1.8 0.5
Support classes 3.8 0.6 0.2
Total non-agency collateralized mortgage
obligations 27.7 4.2 1.2
Total collateralized mortgage obligations 315.7 47.9 13.7
Non-agency mortgage-backed pass-through
securities 5.2 0.8 0.2
Agency mortgage-backed pass-through
securities 338.0 51.3 14.7
Total mortgage-backed securities $658.9 100.0% 28.6%
Page 16 of 28
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
Certain mortgage-backed securities are subject to significant
prepayment risk. This is due to the fact that in periods of
declining interest rates, mortgages may be repaid more rapidly than
scheduled as individuals refinance higher-rate mortgages to take
advantage of lower rates. As a result, holders of mortgage-backed
securities may receive large prepayments on their investments that
cannot be reinvested at interest rates comparable to the rates on
the prepaid mortgages. Conversely, in periods of rising interest
rates, mortgage prepayments may slow down which would result in
holders of mortgage-backed securities having less funds to reinvest
at higher rates.
Planned amortization class (PAC) and target amortization class (TAC)
tranches, which together comprised 12.0% of the Company's invested
assets at June 30, 1994 are designed to amortize in a manner that
shifts the primary risk of prepayment of the underlying collateral
to investors in other tranches of the CMO. The PAC and TAC
instruments tend to be less sensitive to prepayment risk.
Sequential classes, which comprised 0.9% of the Company's invested
assets at June 30, 1994 may have prepayment characteristics similar
to mortgage-backed pass-through securities. Support classes, which
comprised 0.7% of the Company's invested assets at June 30, 1994,
are the most sensitive to prepayment risk.
Mortgage Loans and Real Estate
In the first quarter of 1994, the Company decided that in order to
provide better matching between the characteristics of its assets
and liabilities it will no longer make new investments in mortgage
loans, except for purchase money loans and expansion of the
Company's properties. The Company will continue to service its
remaining mortgage loans.
The Company had investments in mortgage loans of $374.5 million at
June 30, 1994 compared to $391.7 million at December 31, 1993.
Investments in mortgage loans declined primarily due to prepayments
and amortization of the mortgage loan portfolio. Of the outstanding
loans at June 30, 1994, loans with a carrying value of $5.6 million
(net of allowances of $0.9 million) or 1.7% were delinquent 60 days
or more as to interest or principal.
At June 30, 1994, the Company's insurance subsidiaries had a
delinquent mortgage loan ratio (mortgage loans overdue 60 days or in
foreclosure, before allowances, as compared to the total mortgage
portfolio before allowances) of 1.6% compared to 1.1% at December
31, 1993. The industry average delinquent mortgage loan ratio for
residential and commercial mortgages, as measured by the American
Council of Life Insurance, was 5.1% at March 31, 1994, the latest
available date.
The Company actively manages its non-current investments through
restructuring of mortgages and sales and leasing of foreclosed real
estate in order to achieve the highest current return as well as to
preserve capital. Restructured loans, where modifications of the
terms of the mortgage loan have generally occurred and which are
considered current investments, had a carrying value of $18.3
million at June 30, 1994 compared to $16.9 million at December 31,
1993. At June 30, 1994, the Company's mortgage loan portfolio
included $5.3 million of mortgage loans, before allowances, overdue
at least three months and on which no interest income was being
accrued. The Company does not expect the non-current investments to
have a material adverse effect on its liquidity or ability to hold
its other investments to maturity. This is primarily due to the
relatively small amount of these non-current investments as compared
to total invested assets and to the total amount of high quality,
liquid investments.
Page 17 of 28
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
The Company's mortgage loan portfolio at June 30, 1994 was diverse
with respect to geographic distribution, property type, and
principal repayment schedule dates, as outlined below (dollars in
millions):
Geographic Distribution Property Type
California $ 65.7 17.5% Retail $217.5 58.1%
Indiana 52.5 14.0 Office 45.5 12.2
Illinois 42.0 11.2 Industrial 35.4 9.5
Florida 34.7 9.3 Medical 25.0 6.7
Texas 32.7 8.7 Residential 22.9 6.1
North Carolina 19.9 5.3 Other 28.2 7.4
Wisconsin 14.2 3.8 Total $374.5 100.0%
Michigan 12.8 3.4
All other 100.0 26.8
Total $374.5 100.0%
Scheduled Total
Principal Balloon Principal
Repayments Payments Payments
Mortgage Loans by Year of Maturity:
1994 $ 1.0 $ 16.9 $ 17.9
1995 2.1 14.7 16.8
1996 2.5 33.2 35.7
1997 2.9 18.6 21.5
1998 3.2 4.2 7.4
1999 and thereafter 137.0 138.2 275.2
Total $148.7 $225.8 $374.5
The Company's real estate investments totaled $35.7 million (net of
allowances of $2.6 million) at June 30, 1994 compared to $39.1
million (net of allowances of $8.6 million) at December 31, 1993.
The decline was primarily due to sales of foreclosed real estate
investments. At June 30, 1994, $11.8 million of the real estate
investments were acquired through mortgage loan foreclosure,
compared to $14.6 million at December 31, 1993.
Current and expected conditions in many real estate markets are
depressed, with high vacancy rates and flat or declining rental
rates. Moreover, the availability of financing is currently
restricted as banks, insurance companies, and other lenders have
reduced their exposure to real estate loans. In such an
environment, the number of defaults on mortgage loans would be
expected to remain at higher than historical average levels as
borrowers' cash flows are insufficient to cover expenses.
Additionally, the ability to rent investment real estate at
favorable rates diminishes and properties may become vacant.
Page 18 of 28
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
Equity Securities
At June 30, 1994, $6.3 million, or 0.3% of the Company's invested
assets, consisted of common stocks and common stock mutual funds,
$5.7 million, or 0.2% of invested assets, consisted of fixed
maturity and money-market mutual funds, and $1.4 million, or 0.1% of
invested assets, consisted of nonredeemable preferred stocks.
Nonredeemable preferred stocks, common stocks, and mutual funds are
carried on the Company's balance sheet at fair value. The Company
does not anticipate any significant change in the size of its equity
securities portfolio.
Liquidity and Capital Resources
Cash Flows
During the first six months of 1994, the Company's operating
activities generated cash of $27.1 million compared to $45.7 million
in the first six months of 1993. The decrease in cash provided by
operations in 1994 resulted from a number of items, including a $4
million return of funds held for a terminated group life insurance
contract and a $3 million increase in income taxes.
Investing activities (purchases and sales of investments) used cash
of $17.0 million in the first six months of 1994 compared to $62.0
million in the first six months of 1993, primarily for the purchase
of fixed maturity investments in both periods. The decrease in
purchases was primarily due to the use of cash by financing
activities combined with the increase in cash needed for operating
activities discussed above. Sales of short-term securities
partially funded these purchases.
Financing activities used cash of $13.5 million in the first six
months of 1994 and provided cash of $12.1 million in the first six
months of 1993. The increase in cash used for financing was due
primarily to increased policyholder withdrawals, decreased
policyholder account deposits, and increased dividends in 1994 due
to the additional shares outstanding from the stock offering in the
1993 third quarter.
The fair value of the Company's investment portfolio, primarily
fixed maturity investments, is affected by changing interest rates.
When interest rates rise, the fair value of the Company's fixed
maturity investments declines. In addition, the value of the
Company's policy liabilities decreases. In periods of declining
interest rates, the fair value of the Company's fixed maturity
investments increases, accompanied by an increase in the value of
its policy liabilities. The Company estimates that a one percentage
point change in market interest rates would have an inverse effect
on the fair value of its fixed maturity investments of approximately
6%.
In addition, rising interest rates could result in increased
surrenders of life insurance policies and annuities (as current
policy and contract holders seek higher returns elsewhere) causing
the Company to sell fixed maturity investments below cost. In order
to minimize the need to sell fixed maturity investments below cost,
the Company seeks to maintain sufficient levels of cash and short-
term investments.
The Company held cash and short-term investments of $55.2 million at
June 30, 1994, compared to $85.7 million at December 31, 1993. The
balance of cash and short-term investments plus cash inflow from
premium revenues, investment income, and investment maturities is
considered to be more than sufficient to meet the requirements of
the Company and its subsidiaries.
Page 19 of 28
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
Health Care Reform
Last fall, the Administration delivered to Congress a detailed
proposal for health care reform. The proposal relies heavily on a
federally guaranteed package of health care benefits and medical
services, primarily through an employer-based program for working
Americans. In addition to the Administration's plan, a number of
members of Congress have proposed alternative health care reform
plans. These plans rely, in some instances, more on market-driven
reform than on government mandated reform and several aspects of the
Administration's proposal, such as universal coverage and employer
mandates, are being challenged by these alternative plans.
Currently, four separate health reform bills have been passed by
committees in the House of Representatives and Senate. The
Company's present expectation is that at least one bill will reach
the floor of each house of Congress and a compromise bill may be
passed by both houses. The various proposals could have the
following effects on insurers: (i) partially or fully replace
products sold by insurers; (ii) limit the ability of insurers to
charge higher rates to, or decline to cover, insureds who present
greater risks; (iii) limit the ability of insurers to exclude
coverage for pre-existing conditions; (iv) mandate the types of
insurance benefits to be provided in certain instances; (v) impose
insurance rate regulation or additional taxes on insurance premiums
or benefits; (vi) increase competition by expanding employee choice
of insurance plans and by requiring the employee to bear the full
cost increment for higher priced plans; (vii) establish programs run
by the government that would compete with or replace business
written by the Company.
The Company has monitored and will continue to monitor all aspects
of the developments surrounding this issue and is preparing
strategic responses to its possible outcomes. The Company's health
businesses have begun to diversify into product areas, such as
supplemental insurance products and disability products, that the
Company believes are consistent with its targeted market focus and
may be less affected or unaffected by health care reform. Such
products may not be a component of a mandated benefits package and
may be supplementally purchased by consumers. Health care reform at
the federal and state levels may have a material adverse effect on
the Company's operating results and financial position, but it is
not possible at this time to predict the nature and effects of
health care reform or how soon its measures will be adopted and
implemented.
A.M. Best Ratings
The ability of an insurance company to compete successfully depends,
in part, on its financial strength, operating performance and claims-
paying ability as rated by A.M. Best and other rating agencies. The
Company's insurance subsidiaries are each currently rated "A-
(Excellent)" by A.M. Best, based on their 1993 statutory financial
results and operating performance. Many of the Company's
competitors have A.M. Best ratings of "A-" or lower, and the Company
believes that its A.M. Best ratings are adequate to enable its
insurance subsidiaries to compete successfully.
A.M. Best's 15 categories of ratings for insurance companies
currently range from "A++ (Superior)" to "F (In Liquidation)."
According to A.M. Best, an "A" or "A-" rating is assigned to
companies which, in A.M. Best's opinion, have achieved excellent
overall performance when compared to the standards of the life
insurance industry and generally have demonstrated a strong ability
to meet their obligations to policyholders over a long period of
time. In evaluating a company's statutory financial and operating
performance, A.M. Best reviews the company's statutory
profitability, leverage, and liquidity, as well as the company's
spread of risk, quality, and appropriateness of its reinsurance
program, quality and diversification of assets, the adequacy of its
policy reserves and surplus, capital structure, and the experience
and competency of its management. A.M. Best ratings are based upon
factors of concern to policyholders, agents, and intermediaries and
are not directed toward the protection of investors.
Page 20 of 28
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
A. M. Best uses a variety of qualitative and quantitative measures
in determining a company's rating. One of A.M. Best's quantitative
tests measures insurance companies' surplus adequacy. The test is
structured similarly to the risk based capital test of the National
Association of Insurance Commissioners (NAIC). These tests attempt
to measure statutory capital and surplus needs based on the risks in
a company's mix of products and investment portfolio. The risk
based capital tests evaluate the adequacy of total adjusted
statutory capital and surplus in relation to investment and
insurance risks associated with asset quality, mortality and
morbidity, asset and liability matching, and other business factors.
A.M. Best's new test is designed to serve as a tool to assist in
identifying weakly capitalized companies and is considerably more
conservative than the NAIC's risk based capital test. The Company
expects that both WNIC and UPI will continue to meet A.M. Best's new
surplus adequacy standards for an "A-" rating at year-end 1994.
Page 21 of 28
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
WNC and certain affiliated companies have been named in various
pending legal proceedings considered to be ordinary routine
litigation incidental to the business of such companies. A number of
other legal actions have been filed which demand compensatory and
punitive damages aggregating material dollar amounts. WNC believes
that such suits are substantially without merit and that valid
defenses to them exist. WNC's management and its chief legal officer
are of the opinion that such litigation will not have a material
effect on WNC's results of operations or consolidated financial
position. The amount involved in any proceeding, or group of
proceedings presenting in large degree the same issues, does not
exceed the materiality standard for disclosure contained in
Instruction 2 to Item 103 of Regulation S-K.
Page 22 of 28
PART II. OTHER INFORMATION (CONTINUED)
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
a. The Registrant's Annual Meeting of Stockholders was held on June
16, 1994.
b. Not applicable.
c. Stockholders voted on five nominees for director, four Class A
nominees, each of whom was elected for a three year term and one
Class C nominee, Lee M. Mitchell, who was elected to serve the
remaining two years in the Class C term. The results of the
voting were as follows:
For Withheld
Frederick R. Blume 10,975,571 21,549
Elaine R. Bond 10,975,841 21,279
Stanley P. Hutchison 10,966,898 30,222
Lee M. Mitchell 10,975,776 21,344
Robert W. Patin 10,975,143 21,977
Page 23 of 28
PART II. OTHER INFORMATION (CONTINUED)
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
Exhibit 10.1 - Form of Amendment to Employment Agreements**
between Registrant and each of the following Executive
Officers of Registrant: R. W. Patin, T. Pontarelli, T.
C. Scott, and C. L. Fuhrmann (original Employment
Agreement filed as an exhibit to the Form 10-K for the
year ended December 31, 1992); and, W. G. Brown (original
Employment Agreement filed as an exhibit to the Form 10-Q
for the period ended June 30, 1993).
Exhibit 11 - Computation of Per Share Earnings.
b. Reports on Form 8-K
No reports on Form 8-K have been filed during the quarter ended
June 30, 1994 or through August 10, 1994.
** Management contract or compensatory plans or arrangements.
Page 24 of 28
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.
WASHINGTON NATIONAL CORPORATION
August 12, 1994 /s/ Joan K. Cohen
Joan K. Cohen
Vice President, Controller and Treasurer
(Duly Authorized Officer and Chief
Accounting Officer)
Page 25 of 28
EXHIBIT INDEX
PAGE
Exhibit 10.1 - Form of Amendment to Employment Agreement 27
Exhibit 11 - Computation of Per Share Earnings. 28
Page 26 of 28
EXHIBIT 10.1
AMENDMENT TO EMPLOYMENT AGREEMENT
This Amendment to Employment Agreement (the "Amendment") is
made as of the ___ day of ____, 1994, by and among Washington
National Insurance Company, an Illinois insurance corporation
(the "Company"), Washington National Corporation, a Delaware
corporation ("WNC"), and _______________ (the "Employee"). The
Company, WNC and the Employee agree that this Amendment amends
that certain Employment Agreement, dated as of _________, by and
among the Company, WNC and the Employee (the "Employment
Agreement").
WHEREAS, the Company, WNC and the Employee desire to provide
for the
payment to the Employee of amounts vesting under certain pay-at-
risk plans on the terms and subject to the conditions set forth
below:
NOW, THEREFORE, in consideration of the foregoing and of the
respective covenants and agreements of the parties herein
contained, the parties hereto agree to amend the Employment
Agreement as follows:
1. Section 5. Termination of the Employment Agreement is
amended by the addition of the following subsection 5(b)(vi).
5(b)(vi) The Company shall pay to the Employee within ten
days after the Date of Termination, in a lump sum payment, an
amount equal to the total of all amounts which would otherwise be
payable on a future date to the Employee under the terms of any
long term pay-at-risk or incentive compensation plan but for the
termination of the Employee's employment with the Company. The
Employee's fixed annual salary on the Date of Termination shall
be used to determine amounts payable under this subsection.
2. All terms and conditions not modified by the terms of
this Amendment shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment
effective as of the day and year first above written.
WASHINGTON NATIONAL INSURANCE COMPANY
By:__________________________________
Its:__________________________________
WASHINGTON NATIONAL CORPORATION
By:__________________________________
Its:__________________________________
The Employee:
_____________________________________
Page 27 of 28
<TABLE>
WASHINGTON NATIONAL CORPORATION
EXHIBIT 11 - COMPUTATION OF PER SHARE EARNINGS
Primary and Fully Diluted
(000s Omitted Except Per Share Amounts)
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Primary
Average Shares:
Average common shares outstanding 12,134 9,944 12,140 9,961
Assumed exercise of stock options 88 122 82 122
Total Average Shares 12,222 10,066 12,222 10,083
Net Income Available to Shareholders:
Income before cumulative effect of change
in accounting principle and Preferred Stock
dividend requirement $15,455 $11,540 $ 8,421 $ 6,794
Preferred Stock dividend requirement (181) (181) (90) (90)
Income before cumulative effect of change
in accounting principle 15,274 11,359 8,331 6,704
Cumulative effect of change in accounting
for postemployment benefits - (1,550) - -
Net Income Available to
Common Shareholders $15,274 $ 9,809 $ 8,331 $ 6,704
Primary Earnings Per Share:
Income before cumulative effect $1.25 $1.13 $0.68 $0.66
Cumulative effect of change in accounting
for postemployment benefits - (0.16) - -
Net Income Per Share $1.25 $0.97 $0.68 $0.66
Fully Diluted
Average Shares:
Average common shares outstanding 12,134 9,944 12,140 9,961
Assumed conversion of preferred stock 271 271 271 271
Assumed exercise of stock options 88 122 82 123
Total Average Shares 12,493 10,337 12,493 10,355
Net Income Available to Shareholders:
Income before cumulative effect of change
in accounting principle $15,455 $11,540 $ 8,421 $ 6,794
Cumulative effect of change in accounting
for postemployment benefits - (1,550) - -
Net Income Available to
Common Shareholders $15,455 $ 9,990 $ 8,421 $ 6,794
Fully Diluted Earnings Per Share:
Income before cumulative effect $1.24 $1.12 $0.67 $0.66
Cumulative effect of change in accounting
for postemployment benefits - (0.15) - -
Net Income Per Share $1.24 $0.97 $0.67 $0.66
</TABLE>
Page 28 of 28
