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 June 30, 1995
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 0-8590
Equitable of Iowa Companies
(Exact name of registrant as specified in its charter)
Iowa 42-1083593
(State or other jurisdiction of (IRS employer identification no.)
incorporation or organization)
604 Locust Street, Des Moines, Iowa 50306
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (515) 245-6911
__________________________________________________________________________
Former name, former address and formal fiscal year, if changed since last
report
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 / /
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Section 12, 13 or 15(d)
of the Securities Exchange Act of 1934 subsequent to the distribution
of securities under a plan confirmed by a court. Yes / / No / /
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date: 31,717,386
shares of Common Stock as of July 28, 1995.
FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Person for whom the Financial Information is given: EQUITABLE OF IOWA
COMPANIES AND ITS
SUBSIDIARIES
Consolidated Statements of Income (Unaudited):
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
June 30, 1995 June 30, 1994
_______________ ________________
(Current Year) (Preceding Year)
(Dollars in thousands)
<S> <C> <C>
REVENUES:
Universal life and annuity product
charges $12,110 $10,607
Traditional life insurance premiums 10,923 11,403
Net investment income 158,520 125,398
Realized gains on investments 1,790 7,705
Other income 4,048 4,177
_______________ ________________
187,391 159,290
BENEFITS AND EXPENSES:
Universal life and annuity product benefits:
Interest credited to account balances 96,960 77,040
Benefit claims incurred in excess of
account balances 2,467 1,281
Traditional life insurance benefits:
Death benefits 5,795 6,462
Other benefits 8,339 8,280
Increase (decrease) in future policy benefits:
Life and annuity 949 43
Other contracts (421) (161)
Distributions to participating
policyholders 6,232 6,180
Underwriting, acquisition and insurance expenses:
Commissions 37,862 43,037
General expenses 9,731 10,313
Insurance taxes 2,255 2,388
Policy acquisition costs deferred (46,117) (52,221)
Amortization of deferred policy
acquisition costs 16,795 12,308
_______________ ________________
140,847 114,950
Interest expense 3,752 1,995
Other expenses 1,780 2,295
_______________ ________________
146,379 119,240
_______________ ________________
41,012 40,050
</TABLE>
Consolidated Statements of Income (Unaudited): (CONTINUATION)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
June 30, 1995 June 30, 1994
_______________ ________________
(Current Year) (Preceding Year)
(Dollars in thousands,
except per share data)
<S> <C> <C>
Income taxes:
Current $13,536 $13,067
Deferred 874 1,153
_______________ ________________
14,410 14,220
_______________ ________________
26,602 25,830
Equity income, net of related tax benefit
of $10 in 1995 and $108 in 1994 18 183
_______________ ________________
NET INCOME $26,620 $26,013
=============== ================
NET INCOME PER COMMON SHARE (average
shares used: 1995 - 31,677,568;
1994 - 31,610,708): $0.84 $0.82
=============== ================
CASH DIVIDENDS PAID PER COMMON SHARE $0.135 $0.12
</TABLE>
Consolidated Statements of Income (Unaudited):
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
June 30, 1995 June 30, 1994
_______________ ________________
(Current Year) (Preceding Year)
(Dollars in thousands)
<S> <C> <C>
REVENUES:
Universal life and annuity product
charges $24,620 $21,111
Traditional life insurance premiums 22,218 23,213
Net investment income 306,766 245,299
Realized gains on investments 1,903 13,714
Other income 10,582 8,572
_______________ _______________
366,089 311,909
BENEFITS AND EXPENSES:
Universal life and annuity product benefits:
Interest credited to account balances 190,126 149,877
Benefit claims incurred in excess of
account balances 4,507 2,796
Traditional life insurance benefits:
Death benefits 12,904 13,084
Other benefits 16,472 15,915
Increase (decrease) in future policy benefits:
Life and annuity 3,126 1,178
Other contracts (89) 44
Distributions to participating
policyholders 12,474 12,254
Underwriting, acquisition and insurance expenses:
Commissions 79,661 73,605
General expenses 20,802 19,619
Insurance taxes 5,054 4,633
Policy acquisition costs deferred (97,572) (88,650)
Amortization of deferred policy
acquisition costs 31,266 23,328
_______________ _______________
278,731 227,683
Interest expense 5,773 4,185
Other expenses 3,899 5,125
_______________ _______________
288,403 236,993
_______________ _______________
77,686 74,916
</TABLE>
Consolidated Statements of Income (Unaudited): (CONTINUATION)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
June 30, 1995 June 30, 1994
_______________ ________________
(Current Year) (Preceding Year)
(Dollars in thousands,
except per share data)
<S> <C> <C>
Income taxes:
Current $22,143 $24,026
Deferred 5,142 2,346
_______________ _______________
27,285 26,372
_______________ _______________
50,401 48,544
Equity income, net of related tax benefit
of $7 in 1995 and $56 in 1994 13 71
_______________ _______________
NET INCOME $50,414 $48,615
=============== ===============
NET INCOME PER COMMON SHARE (average
shares used: 1995 - 31,670,536;
1994 - 31,570,348): $1.59 $1.54
=============== ===============
CASH DIVIDENDS PAID PER COMMON SHARE $0.255 $0.225
</TABLE>
Consolidated Balance Sheets (Unaudited):
<TABLE>
<CAPTION>
June 30, 1995 December 31, 1994
_______________ _________________
(Dollars in thousands)
<S> <C> <C>
ASSETS
Investments:
Fixed maturities:
Held for investment, at amortized cost
(market: 1995 - $5,464,150;
1994 - $5,059,090) $5,287,984 $5,393,798
Available for sale, at market
(cost: 1995 - $1,445,245;
1994 - $819,083) 1,505,196 $778,486
Equity securities, at market
(cost: 1995 - $23,349; 1994 - $23,351) 24,781 22,978
Mortgage loans on real estate 825,250 613,208
Real estate, less allowances for
depreciation of $4,532 in 1995
and $4,659 in 1994 14,074 15,668
Policy loans 179,638 176,448
Short-term investments 16,194 50,975
_______________ _________________
TOTAL INVESTMENTS 7,853,117 7,051,561
Cash and cash equivalents 12,302 12,674
Securities and indebtedness of
related parties 11,148 11,034
Accrued investment income 117,630 105,959
Notes and other receivables 50,633 23,173
Deferred policy acquisition costs 640,700 607,626
Property and equipment, less
allowances for depreciation of
$8,103 in 1995 and $6,795 in 1994 7,985 7,843
Current income taxes recoverable 3,438 14,491
Intangible assets 3,722 2,605
Other assets 44,328 43,664
Separate account assets 120,007 84,963
_______________ _________________
TOTAL ASSETS $8,865,010 $7,965,593
=============== =================
</TABLE>
Consolidated Balance Sheets (Unaudited):
<TABLE>
<CAPTION>
June 30, 1995 December 31, 1994
_______________ _________________
(Dollars in thousands)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Policy liabilities and accruals:
Future policy benefits:
Universal life and annuity products $6,872,710 $6,237,107
Traditional life insurance products 780,314 777,100
Unearned revenue reserve 13,929 14,317
Other policy claims and benefits 11,091 7,785
_______________ _________________
7,678,044 7,036,309
Other policyholders' funds:
Supplementary contracts without
life contingencies 12,200 12,224
Advance premiums and other deposits 750 790
Accrued dividends 12,783 12,761
_______________ _________________
25,733 25,775
Deferred income taxes 6,795 1,442
Notes and loans payable:
Commercial paper notes 109,635 90,450
Long-term debt 100,000 --
_______________ _________________
209,635 90,450
Other liabilities 125,669 139,324
Separate account liabilities 120,007 84,963
_______________ _________________
TOTAL LIABILITIES 8,165,883 7,378,263
Stockholders' equity:
Serial preferred stock, without par value,
authorized 2,500,000 shares -- --
Common stock, without par value (stated
value $1.00 per share), authorized 70,000,000
shares, issued and outstanding 31,717,386
shares in 1995 and 31,677,891 in 1994 31,717 31,678
Additional paid-in capital 79,332 78,661
Unrealized appreciation (depreciation) on
fixed maturity securities 40,823 (26,493)
Unrealized appreciation (depreciation) on
marketable equity securities 1,432 (373)
Retained earnings 547,925 505,622
Unearned compensation (deduction) (2,102) (1,765)
_______________ _________________
TOTAL STOCKHOLDERS' EQUITY 699,127 587,330
_______________ _________________
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $8,865,010 $7,965,593
=============== =================
</TABLE>
Consolidated Statement of Cash Flows (Unaudited):
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
June 30, 1995 June 30, 1994
_______________ ________________
(Current Year) (Preceding Year)
(Dollars in thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $50,414 $48,615
Adjustments to reconcile net income to
net cash provided by operations:
Adjustments related to universal life
and annuity products:
Interest credited to account balances 190,126 149,877
Charges for mortality and
administration (25,841) (22,048)
Change in unearned revenues (462) (716)
Increase in traditional life policy
liabilities and accruals 6,638 1,407
Decrease in other policyholders' funds (42) (426)
Increase in accrued investment income (11,671) (8,270)
Policy acquisition costs deferred (97,572) (88,650)
Amortization of deferred policy
acquisition costs 31,266 23,328
Change in other assets, other liabilities,
and accrued income taxes (28,292) 42,730
Provision for depreciation and
amortization (2,357) 1,764
Provision for deferred income taxes 5,167 2,161
Share of (income) losses of related
parties (21) 161
Realized gains on investments (1,903) (13,714)
_______________ ________________
NET CASH PROVIDED BY OPERATING
ACTIVITIES 115,450 136,219
INVESTING ACTIVITIES
Sale, maturity or repayment of investments:
Fixed maturities - held for investment 127,440 189,312
Fixed maturities - available for sale 26,722 155,594
Equity securities 225 --
Mortgage loans on real estate 24,676 20,337
Real estate 1,566 527
Policy loans 12,743 15,589
Short-term investments - net 34,781 48,455
_______________ ________________
228,153 429,814
Acquisition of investments:
Fixed maturities - held for investment (24,897) (947,452)
Fixed maturities - available for sale (642,921) (105,343)
Equity securities (227) --
Mortgage loans on real estate (236,307) (109,952)
Real estate (701) (309)
Policy loans (15,933) (14,573)
_______________ ________________
(920,986) (1,177,629)
</TABLE>
Consolidated Statement of Cash Flows (Unaudited): (CONTINUATION)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
June 30, 1995 June 30, 1994
_______________ ________________
(Current Year) (Preceding Year)
(Dollars in thousands)
<S> <C> <C>
INVESTING ACTIVITIES - continued
Disposal of investments accounted for
by the equity method $11 $2,795
Additions to investments accounted for
by the equity method -- (1)
Repayments of notes receivable 56 1
Issuance of notes receivable -- (1,287)
Sales of property and equipment 122 253
Purchases of property and equipment (1,654) (1,402)
_______________ ________________
NET CASH USED IN INVESTING ACTIVITIES (694,298) (747,456)
FINANCING ACTIVITIES
Issuance of long term debt 100,000 --
Repayment of long term debt -- (50,214)
Issuance of commercial paper - net 19,185 105,000
Receipts from universal life policies
and annuity contracts credited to
policyholder account balances 853,616 793,180
Return of policyholder account balances
on universal life policies and
annuity contracts (382,298) (224,187)
Issuance of stock under employee stock
plans (3,916) 314
Cash dividends paid (8,111) (7,131)
_______________ ________________
NET CASH PROVIDED BY FINANCING
ACTIVITIES 578,476 616,962
_______________ ________________
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (372) 5,725
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 12,674 5,190
_______________ ________________
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $12,302 $10,915
=============== ================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest $2,853 $3,953
Income taxes 7,275 35,458
</TABLE>
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for annual financial statements. In the opinion of management,
all adjustments considered necessary for a fair presentation have been
included. All adjustments were of a normal recurring nature, unless
otherwise noted in Management's Discussion and Analysis and the Notes to
Financial Statements. Operating results for the three months and six
months ended June 30, 1995 are not necessarily indicative of the results
that may be expected for the year ending December 31, 1995. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the company's Annual Report on Form 10-K for the year
ended December 31, 1994.
NOTE 2 -- INVESTMENT OPERATIONS
Fixed maturity securities that the company has the positive intent and
ability to hold to maturity are designated as "held for investment". Held
for investment securities are reported at cost adjusted for amortization of
premiums and discounts. Changes in the market value of these securities,
except for declines that are other than temporary, are not reflected in the
company's financial statements. Fixed maturity securities which may be
sold are designated as "available for sale". Available for sale securities
are reported at market value and unrealized gains and losses on these
securities are included directly in stockholders' equity, after adjustment
for changes in deferred policy acquisition costs, policy reserves and
deferred income taxes. Transfers of securities between categories are
restricted and are recorded at fair value at the time of transfer.
Securities that are determined to have a decline in value that is other
than temporary are written down to fair value which becomes the security's
new cost basis by a charge to realized losses in the company's Statement of
Income. Premiums and discounts are amortized/accrued utilizing the
scientific interest method which results in a constant yield over the
securities' expected life. Amortization/accrual of premiums and discounts
on mortgage-backed securities incorporates a prepayment assumption to
estimate the securities' expected life.
Equity securities (common and nonredeemable preferred stocks) are reported
at market if readily marketable, or at cost if not readily marketable. The
change in unrealized appreciation and depreciation of marketable equity
securities (net of related deferred income taxes, if any) is included
directly in stockholders' equity. Equity securities that are determined to
have a decline in value that is other than temporary are written down to
estimated fair value which becomes the security's new cost basis by a
charge to realized losses in the company's Statement of Income.
Mortgage loans on real estate are reported at cost adjusted for
amortization of premiums and accrual of discounts. If the value of any
mortgage loan is determined to be impaired (i.e. when it is probable that
the company will be unable to collect all amounts due according to the
contractual terms of the loan agreement), the carrying value of the
mortgage loan is reduced to the present value of expected future cash flows
from the loan, discounted at the loan's effective interest rate, or to the
loan's observable market price, or the fair value of the underlying
collateral. The carrying value of impaired loans is reduced by the
establishment of a valuation allowance which is adjusted at each reporting
date for significant changes in the calculated value of the loan. Changes
in this valuation allowance are charged or credited to income.
Real estate, which includes real estate acquired through foreclosure, is
reported at cost less allowances for depreciation. Real estate acquired
through foreclosure, or in-substance foreclosure, is recorded at the lower
of cost (which includes the balance of the mortgage loan, any accrued
interest and any costs incurred to obtain title to the property) or fair
value as determined at or before the foreclosure date. After foreclosure,
foreclosed real estate is carried at the lower of fair value less estimated
sale costs, or cost.
Policy loans are reported at unpaid principal. Short-term investments are
reported at cost adjusted for amortization of premiums and accrual of
discounts (which approximates estimated market value for these securities).
Estimated market values, as reported herein, of publicly traded fixed
maturity securities are as reported by an independent pricing service.
Market values of conventional mortgage-backed securities not actively
traded in a liquid market are estimated using a third party pricing system
which uses a matrix calculation assuming a spread over U.S. Treasury bonds
based upon the expected average lives of the securities. Market values of
private placement bonds are estimated using a matrix that assumes a spread
over U.S. Treasury bonds based upon interest rates and a risk assessment of
the bonds. Market values of redeemable preferred stocks are as reported by
the National Association of Insurance Commissioners ("NAIC"). Market
values of equity securities are based on the latest quoted market prices,
or where not readily marketable, at values which are representative of the
market values of issues of comparable yield and quality. Realized gains
and losses are determined on the basis of specific identification of
investments.
The company analyzes projected cash flows from investments and policy
liabilities under a variety of economic scenarios to determine what portion
of its investment portfolio might need to be sold under these scenarios.
Based upon this analysis and other factors, the company designates a
portion of its fixed maturity securities portfolio as "available for sale".
On June 30, 1995, fixed income securities with an amortized cost of
$1,445,245,000 and an estimated market value of $1,505,196,000 were
designated as available for sale. Unrealized gains on these securities, net
of adjustments to deferred policy acquisition costs increased stockholders'
equity by $40,823,000, or $1.29 per share, at June 30, 1995.
At June 30, 1995 and December 31, 1994, amortized cost, gross unrealized
gains and losses and estimated market values of fixed maturity securities
held for investment are as follows:
<TABLE>
<CAPTION>
HELD FOR INVESTMENT
Gross Gross Estimated
Amortized Unrealized Unrealized Market
June 30, 1995 Cost Gains Losses Value
______________________________________________________________________________
(Dollars in thousands)
<S> <C> <C> <C> <C>
U.S. government and
governmental agencies
and authorities:
Mortgage-backed securities $280,550 $12,108 ($319) $292,339
Other 4,934 362 (14) 5,282
States, municipalities and
political subdivisions 15,398 1,306 -- 16,704
Foreign governments 10,573 2,360 -- 12,933
Public utilities 1,204,067 50,671 (14,394) 1,240,344
Investment grade corporate 1,555,140 125,702 (9,158) 1,671,684
Below investment grade
corporate 177,966 3,980 (2,621) 179,325
Mortgage-backed securities 2,038,717 47,886 (41,467) 2,045,136
Redeemable preferred stocks 639 -- (236) 403
___________ ___________ ___________ ___________
TOTAL HELD FOR
INVESTMENT $5,287,984 $244,375 ($68,209) $5,464,150
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Market
December 31, 1994 Cost Gains Losses Value
______________________________________________________________________________
(Dollars in thousands)
<S> <C> <C> <C> <C>
U.S. government and
governmental agencies
and authorities:
Mortgage-backed securities $288,914 $2,971 ($13,949) $277,936
Other 3,980 66 (104) 3,942
States, municipalities and
political subdivisions 15,557 -- (1,128) 14,429
Foreign governments 10,573 719 -- 11,292
Public utilities 1,231,799 7,148 (99,517) 1,139,430
Investment grade corporate 1,594,095 33,750 (80,108) 1,547,737
Below investment grade
corporate 223,908 477 (19,074) 205,311
Mortgage-backed securities 2,024,281 4,389 (170,091) 1,858,579
Redeemable preferred stocks 691 -- (257) 434
___________ ___________ ___________ ___________
TOTAL HELD FOR
INVESTMENT $5,393,798 $49,520 ($384,228) $5,059,090
=========== =========== =========== ===========
</TABLE>
At June 30, 1995 and December 31, 1994, amortized cost, gross unrealized
gains and losses and estimated market values of fixed maturity securities
designated as available for sale are as follows:
<TABLE>
<CAPTION>
AVAILABLE FOR SALE
Gross Gross Estimated
Amortized Unrealized Unrealized Market
June 30, 1995 Cost Gains Losses Value
______________________________________________________________________________
(Dollars in thousands)
<S> <C> <C> <C> <C>
U.S. government and
governmental agencies
and authorities:
Mortgage-backed securities $16,843 $270 $17,113
Other 55,630 3,198 58,828
Public utilities 98,969 4,929 ($1,561) 102,337
Investment grade corporate 721,084 50,546 (2,003) 769,627
Below investment grade
corporate 333,607 7,459 (12,482) 328,584
Mortgage-backed securities 219,112 9,596 (1) 228,707
___________ ___________ ___________ ___________
TOTAL AVAILABLE FOR SALE $1,445,245 $75,998 ($16,047) $1,505,196
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Market
December 31, 1994 Cost Gains Losses Value
______________________________________________________________________________
(Dollars in thousands)
<S> <C> <C> <C> <C>
U.S. government and
governmental agencies
and authorities:
Mortgage-backed securities $17,817 ($730) $17,087
Other 30,624 (1,178) 29,446
Public utilities 70,184 $704 (7,173) 63,715
Investment grade corporate 365,162 9,288 (19,574) 354,876
Below investment grade
corporate 199,597 589 (23,417) 176,769
Mortgage-backed securities 135,699 1,926 (1,032) 136,593
___________ ___________ ___________ ___________
TOTAL AVAILABLE FOR SALE $819,083 $12,507 ($53,104) $778,486
=========== =========== =========== ===========
</TABLE>
Short-term investments with maturities of 30 days or less have been
excluded from the above schedules, since amortized cost approximates market
value for those securities.
Amortized cost and estimated market value of debt securities at June 30,
1995, by contractual maturity, are shown below. Expected maturities will
differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Estimated
Amortized Market
HELD FOR INVESTMENT Cost Value
____________________________________________________________________________
(Dollars in thousands)
<S> <C> <C>
Due in one year or less $560 $559
Due after one year through five years 56,328 59,168
Due after five years through ten years 551,220 578,136
Due after ten years 2,360,609 2,488,812
_____________ _____________
2,968,717 3,126,675
Mortgage-backed securities 2,319,267 2,337,475
_____________ _____________
TOTAL HELD FOR INVESTMENT $5,287,984 $5,464,150
============= =============
</TABLE>
<TABLE>
<CAPTION>
Estimated
Amortized Market
AVAILABLE FOR SALE Cost Value
____________________________________________________________________________
(Dollars in thousands)
<S> <C> <C>
Due after one year through five years $103,289 $101,903
Due after five years through ten years 635,327 666,431
Due after ten years 470,674 491,042
_____________ _____________
1,209,290 1,259,376
Mortgage-backed securities 235,955 245,820
_____________ _____________
TOTAL AVAILABLE FOR SALE $1,445,245 $1,505,196
============= =============
</TABLE>
Carrying value and estimated market value of mortgage-backed securities,
which comprise 37.8% of the company's investment in fixed maturity
securities as of June 30, 1995, are as follows:
<TABLE>
<CAPTION>
Estimated
Carrying Market
Value Value
_____________________________
(Dollars in thousands)
<S> <C> <C>
Mortgage-backed securities:
Government and agency guaranteed pools:
Very accurately defined maturities $17,309 $18,253
Planned amortization class 79,613 83,500
Targeted amortization class 29,284 29,756
Sequential pay 71,939 73,333
Pass through 99,519 104,610
Private Label CMOs and REMICs:
Very accurately defined maturities 30,426 31,349
Planned amortization class 25,859 26,647
Targeted amortization class 457,240 450,284
Sequential pay 1,682,295 1,692,874
Mezzanines 38,174 38,131
Private placements and subordinate issues 33,429 34,558
_____________ _____________
TOTAL MORTGAGE-BACKED SECURITIES $2,565,087 $2,583,295
============= =============
</TABLE>
During periods of significant interest rate volatility, the mortgages
underlying mortgage-backed securities may prepay more quickly or more
slowly than anticipated. If the principal amount of such mortgages are
prepaid earlier than anticipated during periods of declining interest
rates, investment income may decline due to reinvestment of these funds at
lower current market rates. If principal repayments are slower than
anticipated during periods of rising interest rates, increases in
investment yield may lag behind increases in interest rates because funds
will remain invested at lower historical rates rather than reinvested at
higher current rates. To mitigate this prepayment volatility, the company
invests primarily in intermediate tranche collateralized mortgage
obligations ("CMOs"). CMOs are pools of mortgages that are segregated into
sections, or tranches, which provide sequential retirement of bonds rather
than pro-rata share of principal return in the pass-through structure. The
company does not hold any "interest only" or "principal only" mortgage-
backed securities. Further, the company has not purchased obligations at
significant premiums, thereby limiting exposure to capital loss during
periods of accelerated prepayments. At June 30, 1995, unamortized
premiums on mortgage-backed securities totaled $4,993,000 and unaccrued
discounts on mortgage-backed securities totaled $69,691,000.
An analysis of sales, maturities and principal repayments of the company's
fixed maturities portfolio for the six months ended June 30, 1995 and 1994
is as follows:
<TABLE>
<CAPTION>
Gross Gross Proceeds
Amortized Realized Realized from
Cost Gains Losses Sale
_______________________________________________
<S> <C> <C> <C> <C>
Six months ended June 30, 1995
- ------------------------------
Scheduled principal repayments,
calls and tenders (available
for sale only):
Held for investment $97,300 $3,992 ($160) $101,132
Available for sale 18,996 8 (7) 18,997
Sales:
Held for investment 21,983 4,325 -- 26,308
Available for sale 7,465 260 -- 7,725
___________ ___________ ___________ ___________
TOTAL $145,744 $8,585 ($167) $154,162
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Gross Gross Proceeds
Amortized Realized Realized from
Cost Gains Losses Sale
_______________________________________________
<S> <C> <C> <C> <C>
Six months ended June 30, 1994
- ------------------------------
Scheduled principal repayments,
calls and tenders (available
for sale only):
Held for investment $181,832 $7,480 $ -- $189,312
Available for sale 123,246 4,333 -- 127,579
Sales - available for sale 24,913 3,102 -- 28,015
___________ ___________ ___________ ___________
TOTAL $329,991 $14,915 $ -- $344,906
=========== =========== =========== ===========
</TABLE>
During the second quarter of 1995, the company sold one security with an
amortized cost of $21,983,000 from the held for investment portfolio
generating a realized gain of $4,325,000. This sale was due to a
significant credit deterioration of the issuer's creditworthiness as a
result of a recent announcement of reorganization by the issuer.
During the second quarter of 1995, securities issued by two issuers were
transferred from the held for investment portfolio to the available for
sale portfolio due to significant deterioration in the issuers'
creditworthiness. At the dates of transfer, the amortized cost of the
securities totaled $12,230,000 and unrealized losses of $3,980,000 were
included in stockholders' equity. During the six months ended June 30,
1995, the change in the net unrealized gain or loss on available for sale
securities included in stockholders' equity, net of adjustments, amounted
to $67,316,000 of net appreciation.
During the first quarter of 1995, the company identified one below
investment grade security as having an impairment in value that was other
than temporary. As a result of this determination, the company recognized
a pre-tax loss of $2,103,000 in the first quarter of 1995 to reduce the
carrying value of this security to its estimated fair value of $900,000.
This security was sold in April 1995 at no gain or loss. During the second
quarter of 1995, the company identified an additional below investment
grade security as having an impairment in value that was other than
temporary. As a result of this determination, the company recognized a pre-
tax loss of $3,699,000 to reduce the carrying value of this security to its
estimated fair value of $3,360,000.
At June 30, 1995, the company owned equity securities with a combined book
value of $23,349,000 and an estimated market value of $24,781,000,
resulting in gross unrealized appreciation of $1,607,000 and gross
unrealized depreciation of $175,000.
At June 30, 1995, the company had established a valuation allowance of
$48,000 on one mortgage loan to reduce the carrying value of this
investment to its estimated fair value, less costs to sell. At June 30,
1995, two mortgage loans with a combined carrying value of $884,000 were
delinquent by 90 days or more. The company believes any impairment in
value of these loans to be temporary. In addition, the estimated fair
value of the underlying collateral exceeds the carrying value of the loans.
The company, therefore, expects to recover the carrying value of these
loans and, as a result of that determination, no valuation allowance has
been established.
The carrying value of investments which have been non-income producing for
the twelve months preceding June 30, 1995 totaled $239,000 related to one
real estate property.
No investment in any person or its affiliates (other than bonds issued by
agencies of the United States government) exceeded ten percent of
stockholders' equity at June 30, 1995.
NOTE 3 -- CREDIT ARRANGEMENTS
In February 1995, the company issued $100 million of 8.5% notes, maturing
on February 15, 2005, receiving net proceeds totaling approximately
$98,812,000, after expenses. The company contributed $50 million of the
proceeds to its insurance subsidiaries and applied the remaining net
proceeds to the repayment of outstanding commercial paper notes.
The company maintains a line of credit arrangement with several banks to
support its commercial paper notes payable and to provide short-term
liquidity. On March 30, 1995, the company entered into a new agreement
which provides for a line of credit totaling $225,000,000, expiring on
March 30, 2000.
NOTE 4 -- COMMITMENTS AND CONTINGENCIES
In the normal course of business, the company seeks to limit its exposure
to loss on any single insured and to recover a portion of benefits paid by
ceding reinsurance to other insurance enterprises or reinsurers.
Reinsurance coverages for life insurance vary according to the age and risk
classification of the insured with retention limits ranging up to $500,000
of coverage per individual life. The company does not use surplus relief
reinsurance.
Reinsurance contracts do not relieve the company from its obligations to
its policyholders. To the extent that reinsuring companies are later
unable to meet obligations under reinsurance agreements, the company's life
insurance subsidiaries would be liable for these obligations and could
result in losses to the company. To limit the possibility of such losses
the company evaluates the financial condition of its reinsurers, monitors
concentrations of credit risk arising from factors such as similar
geographic regions, and limits its exposure to any one reinsurer. At June
30, 1995, the company had reinsurance treaties with 18 reinsurers, all of
which are deemed to be long-duration, retroactive contracts, and has
established a receivable totaling $12,395,000 for reserve credits,
reinsurance claims and other receivables from these reinsurers. No
allowance for uncollectible amounts has been established since none of the
receivables are deemed to be uncollectible, and because such receivables,
either individually or in the aggregate, are not material to the company's
operations. The company's liability for future policy benefits and notes
and other receivables has been increased by $10,038,000 at June 30, 1995
for reserve credits on reinsured policies. Insurance premiums and product
charges have been reduced by $3,051,000 in the first six months and
$1,217,000 in the second quarter of 1995 compared to $3,021,000 and
$1,288,000, respectively, in the same periods of 1994, as a result of the
cession agreements. Insurance benefits and expenses have been reduced by
$3,526,000 in the first six months and $2,422,000 in the second quarter of
1995 compared to $1,027,000 and $514,000, respectively, in the same periods
of 1994. The amount of reinsurance assumed is not significant.
The company's insurance subsidiaries are assessed contributions by life and
health guaranty associations in almost all states to indemnify
policyholders of failed companies. In some states, such assessments are
offset by reductions in future premium taxes. The company cannot predict
whether and to what extent legislative initiatives may affect the right to
offset. The amount of these assessments prior to 1991 was not material.
Failures of substantially larger companies since 1990 could result in
future assessments in material amounts. The company has established a
reserve to cover such assessments and regularly reviews information
regarding known failures and revises its estimate of future guaranty fund
assessments accordingly. During the first six months of 1995, the company
accrued and charged to expense an additional $492,000, and at June 30,
1995, the remaining reserve for insurance guaranty fund assessments, net of
expected future premium tax credits, totaled $14,292,000. The company
believes this reserve is sufficient to cover expected future insurance
guaranty fund assessments related to known insolvencies at this time.
At June 30, 1995, outstanding commitments to fund mortgage loans on real
estate totaled $206,332,000. In addition, outstanding commitments to
purchase mortgage-backed securities totaled $28,354,000 at June 30, 1995.
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The purpose of this section is to discuss and analyze the company's
consolidated financial condition, liquidity and capital resources and
results of operations. This analysis should be read in conjunction with
the consolidated financial statements and related notes which appear
elsewhere in this report. The company reports financial results on a
consolidated basis. The consolidated financial statements include the
accounts of the company and its subsidiaries. All of the company's
significant subsidiaries are wholly-owned. The company's primary
subsidiaries are Equitable Life Insurance Company of Iowa ("Equitable
Life") and USG Annuity & Life Company ("USG").
FINANCIAL CONDITION
Investments
The company's total investment portfolio grew $843,006,000, or 12.3%, in
the first six months of 1995 from $6.858 billion to $7.701 billion, as
$815,903,000 of fixed annuity and life insurance premiums were received
during the period. The company manages the growth of its insurance
operations in order to maintain adequate capital ratios and has established
a goal of growing assets at least 20% in 1995.
To support the company's annuities and life insurance products, cash flow
was invested primarily in fixed income investments. At June 30, 1995, the
company's investment portfolio was comprised of the following:
<TABLE>
<CAPTION>
Estimated Yield at
Carrying % of Market % of Amortized
Value Total Value Total Cost
_______________________________________________
<S> <C> <C> <C> <C> <C>
Investment cash and short-term
investments $43,827 0.6% $43,827 0.6% 8.3%
Governments and agency mortgage-
backed securities 387,397 5.0% 403,199 5.1% 8.4%
Conventional mortgage-backed
securities 2,267,424 29.4% 2,273,843 28.7% 8.0%
Investment grade corporate
securities 3,631,810 47.2% 3,784,397 47.8% 8.4%
Below-investment grade corporate
securities 506,550 6.6% 507,908 6.4% 9.4%
Mortgage loans 825,250 10.7% 862,618 10.9% 8.8%
_______________________________________________
Total cash and fixed income
investments 7,662,258 99.5% 7,875,792 99.5% 8.4%
Equity securities 24,781 0.3% 24,781 0.3% 3.9%
Real estate 14,074 0.2% 14,074 0.2% 2.6%
_______________________________________________
Total investments $7,701,113 100.0% $7,914,647 100.0% 8.4%
===============================================
<FN>
Note: Estimated market values of publicly traded securities are as reported
by an independent pricing service. Market values of conventional
mortgage-backed securities not actively traded in a liquid market are
estimated using a third party pricing system, which uses a matrix
calculation assuming a spread over U.S. Treasury bonds based upon the
expected average lives of the securities. Market values of private
placement bonds are estimated using a matrix that assumes a spread
(based on interest rates and a risk assessment of the bonds) over U.S.
Treasury bonds. Estimated market values of redeemable preferred
stocks are as reported by the National Association of Insurance
Commissioners ("NAIC"). Market values of mortgage loans on real
estate are estimated by discounting expected cash flows, using
interest rates currently being offered for similar loans. Market value
of owned real estate is estimated to be equal to, or in excess of,
carrying value based upon appraised values.
</TABLE>
At June 30, 1995, the ratings assigned by Standard & Poor's Corporation
("Standard & Poor's") and Moody's Investors Service ("Moody's") to the
individual securities in the company's fixed maturities portfolio are
summarized as follows:
<TABLE>
<CAPTION>
Carrying % of Estimated % of
Value Total Market Value Total
____________ _______ ____________ _______
(Dollars in thousands)
<S> <C> <C> <C> <C>
RATINGS ASSIGNED BY
STANDARD & POOR'S:
U.S. governments, agencies
& AAA Corporates $2,593,607 38.2% $2,613,271 37.5%
AA+ to AA- 314,737 4.6% 324,455 4.6%
A+ to A- 2,055,449 30.3% 2,154,894 30.9%
BBB+ to BBB- 1,206,671 17.8% 1,251,164 18.0%
BB+ to BB- 457,955 6.7% 458,066 6.6%
B+ to B- 66,336 1.0% 66,316 1.0%
D 3,360 0.0% 3,360 0.0%
Issues not rated by S & P
(by NAIC rating):
Rated 1 (AAA to A-) 21,877 0.3% 22,604 0.3%
Rated 2 (BBB+ to BBB-) 26,423 0.4% 27,463 0.4%
Rated 3 (BB+ to BB-) 44,226 0.7% 45,450 0.7%
Rated 4 (B+ to B-) 1,900 0.0% 1,900 0.0%
Redeemable preferred stock 639 0.0% 403 0.0%
____________ _______ ____________ _______
TOTAL FIXED MATURITIES $6,793,180 100.0% $6,969,346 100.0%
============ ======= ============ =======
</TABLE>
<TABLE>
<CAPTION>
Carrying % of Estimated % of
Value Total Market Value Total
____________ _______ ____________ _______
(Dollars in thousands)
<S> <C> <C> <C> <C>
RATINGS ASSIGNED BY MOODY'S:
U.S. governments, agencies
& Aaa Corporates $2,463,648 36.3% $2,485,464 35.8%
Aa1 to Aa3 367,765 5.4% 371,430 5.3%
A1 to A3 2,309,952 34.0% 2,422,094 34.8%
Baa1 to Baa3 1,010,749 14.9% 1,044,808 15.0%
Ba1 to Ba3 471,555 7.0% 473,648 6.8%
B1 to B3 72,356 1.1% 72,024 1.0%
Ca 3,360 0.0% 3,360 0.0%
Issues not rated by Moody's
(by NAIC rating):
Rated 1 (Aaa to A3) 21,877 0.3% 22,604 0.3%
Rated 2 (Baa1 to Baa3) 26,423 0.4% 27,463 0.4%
Rated 3 (Ba1 to Ba3) 42,956 0.6% 44,148 0.6%
Rated 4 (B1 to B3) 1,900 0.0% 1,900 0.0%
Redeemable preferred stock 639 0.0% 403 0.0%
____________ _______ ____________ _______
TOTAL FIXED MATURITIES $6,793,180 100.0% $6,969,346 100.0%
============ ======= ============ =======
</TABLE>
The company analyzes projected cash flows from investments and policy
liabilities under a variety of economic scenarios to determine what portion
of its investment portfolio might need to be sold under these scenarios.
Based upon this analysis and other factors, the company designates a
portion of its fixed maturity securities portfolio as "available for sale".
On June 30, 1995, fixed income securities with an amortized cost of
$1,445,245,000 and an estimated market value of $1,505,196,000 were
designated as available for sale. Unrealized holding gains on these
securities, net of adjustments to deferred policy acquisition costs,
increased stockholders' equity by $40,823,000, or $1.29 per share, at June
30, 1995.
Net unrealized appreciation of fixed maturity investments of $236,117,000
was comprised of gross appreciation of $320,373,000 and gross depreciation
of $84,256,000.
The percentage of the company's portfolio invested in below investment
grade securities has increased slightly during the first six months of
1995. At June 30, 1995 the carrying value of the company's total
investment in below investment grade securities consisted of investments in
98 issuers totaling $506,550,000, or 6.6% of the company's investment
portfolio compared to 80 issuers totaling $400,677,000, or 5.9%, at
December 31, 1994. The company intends to purchase additional below
investment grade securities but it does not expect the percentage of its
portfolio invested in below investment grade securities to increase
significantly. At June 30, 1995, the yield on the company's below
investment grade portfolio was 9.4% compared to 8.4% for the company's
investment grade corporate bond portfolio. The company estimates that the
market value of its below investment grade portfolio was $507,908,000, or
100.3% of carrying value, at June 30, 1995.
Below investment grade securities have different characteristics than
investment grade corporate debt securities. Risk of loss upon default by
the borrower is significantly greater with respect to below investment
grade securities than with other corporate debt securities. Below
investment grade securities are generally unsecured and are often
subordinated to other creditors of the issuer. Also, issuers of below
investment grade securities usually have higher levels of debt and are more
sensitive to adverse economic conditions, such as recession or increasing
interest rates, than are investment grade issuers. The company attempts to
reduce the overall risk in its below investment grade portfolio, as in all
of its investments, through careful credit analysis, strict investment
policy guidelines, and diversification by company and by industry.
The company analyzes its investment portfolio, including below investment
grade securities, at least quarterly in order to determine if its ability
to realize its carrying value on any investment has been impaired. For
debt and equity securities, if impairment in value is determined to be
other than temporary (i.e. if it is probable that the company will be
unable to collect all amounts due according to the contractual terms of the
security), the cost basis of the impaired security is written down to fair
value, which becomes the security's new cost basis. The amount of the
writedown is included in earnings as a realized loss. Future events may
occur, or additional or updated information may be received, which may
necessitate future write-downs of securities in the company's portfolio.
Significant write-downs in the carrying value of investments could
materially adversely affect the company's net income in future periods.
During the first quarter of 1995, the Company identified one below
investment grade security as having an impairment in value that was other
than temporary. As a result of this determination, the Company recognized
a pre-tax loss of $2,103,000 in the first quarter of 1995 to reduce the
carrying value of this security to its fair value of $900,000. This
security was sold in April 1995 at no gain or loss. During the second
quarter of 1995, the company identified an additional below investment
grade security as having an impairment in value that was other than
temporary. As a result of this determination, the company recognized a pre-
tax loss of $3,699,000 to reduce the carrying value of this security to its
estimated fair value of $3,360,000.
During the first six months of 1995, fixed maturity securities designated
as held for investment with a combined amortized cost value of $97,300,000
were called or repaid by their issuers generating net realized gains
totaling $3,832,000. During the second quarter of 1995, the company sold
one security with an amortized cost of $21,983,000 from the held for
investment portfolio generating a realized gain of $4,325,000. This sale
was due to a significant credit deterioration of the issuer's
creditworthiness as a result of a recent announcement of reorganization by
the issuer. Also during the first six months of 1995, fixed maturity
securities designated as available for sale with a combined amortized cost
value of $26,460,000 were called, repaid or tendered generating net
realized gains totaling $261,000. In total, pre-tax gains from sales,
calls, repayments, tenders and writedowns of fixed maturity investments
amounted to $2,616,000 in the first six months of 1995.
During the second quarter of 1995, securities issued by two issuers were
transferred from the held for investment portfolio to the available for
sale portfolio due to a significant deterioration in the issuers'
creditworthiness. At the dates of transfer, the amortized cost of these
securities totaled $12,230,000 and unrealized losses of $3,980,000 were
included in stockholders' equity.
The company's fixed maturity investment portfolio had a combined amortized
cost yield of 8.4% at June 30, 1995 compared to 8.4% at March 31, 1995 and
December 31, 1994 as current market interest rates are similar to the
company's portfolio rate.
Mortgage loans make up approximately 10.7% of the company's investment
portfolio, as compared to an industry average of 16.7%, based on
information reported in the 1994 ACLI Fact Book. The company resumed
active mortgage lending in 1990 to broaden its investment alternatives, and
continues to increase its investment allocation in this area, due to the
availability of attractive yields and loan to value ratios. As a result of
this increase in lending activity, mortgages outstanding increased to
$825,250,000 from $613,208,000 during the first six months of 1995. The
company expects the carrying value of this asset category to continue to
grow over the next several years. The company's mortgage loan portfolio
includes 344 loans with an average size of $2,399,000. Average seasoning
of the company's mortgage loan portfolio is 6.7 years if weighted by the
number of loans, or 2.1 years if weighted by mortgage loan carrying values.
The company's mortgage loans are typically secured by occupied buildings in
major metropolitan locations and not speculative developments, and are
diversified by type of property and geographic location. At June 30, 1995,
the yield on the company's mortgage loan portfolio was 8.8%.
Distribution of these loans by type of collateral and geographic location
is as follows:
<TABLE>
<CAPTION>
% of
# of Carrying Mortgage
Loans Value Portfolio
_______________________________
(Dollars in thousands)
<S> <C> <C> <C>
Collateral Breakdown
- ------------------------------
Farm 4 $157 0.0%
Multi-family residential 60 204,050 24.7%
Industrial 138 214,561 26.0%
Office buildings 50 138,879 16.9%
Retail 89 254,949 30.9%
Other 3 12,654 1.5%
______ ____________ _________
TOTAL 344 $825,250 100.0%
====== ============ =========
</TABLE>
<TABLE>
<CAPTION>
% of
# of Carrying Mortgage
Loans Value Portfolio
_______________________________
(Dollars in thousands)
<S> <C> <C> <C>
Geographic Breakdown
- ------------------------------
New England 1 $234 0.0%
Middle Atlantic 39 127,572 15.5%
South Atlantic 46 107,409 13.0%
East North Central 81 206,869 25.1%
West North Central 41 116,588 14.1%
East South Central 9 21,062 2.5%
West South Central 16 30,476 3.7%
Mountain 21 49,478 6.0%
Pacific 90 165,562 20.1%
______ ____________ _________
TOTAL 344 $825,250 100.0%
====== ============ =========
</TABLE>
At June 30, 1995, two mortgage loans with a carrying value of $884,000 were
delinquent by 90 days or more. The company believes any impairment in value
of these loans to be temporary. In addition, the estimated fair value of
the underlying collateral exceeds the carrying value of the loans. The
company, therefore, expects to recover the carrying value of these loans
and, as a result of that determination, no valuation allowance has been
established. The company does not expect to incur material losses from its
mortgage loan portfolio since mortgage loans represent less than 11% of the
company's investment portfolio and the company has been able to recover 85%
of the principal amount of problem mortgages that have been resolved in the
last three years.
At June 30, 1995, the company owned real estate totaling $14,074,000,
including properties acquired through foreclosure valued at $10,207,000.
In total, the company has experienced a relatively small number of problems
with its total investment portfolio, with only 0.05% of the company's
investments in default at June 30, 1995. The company estimates its total
investment portfolio, excluding policy loans, had a market value equal to
102.8% of carrying value at June 30, 1995.
Other assets
Accrued investment income increased $11,671,000 primarily due to an
increase in new fixed income investments and in the overall size of the
portfolio. Deferred policy acquisition costs increased $33,074,000 over
year-end 1994 levels as the deferral of current period costs (primarily
commissions) incurred to generate insurance and annuity sales totaled
$97,572,000. Amortization of costs deferred totaled $31,266,000. In
addition, the change in the adjustment to deferred acquisition costs
related to the valuation of fixed maturity securities designated as
available for sale under SFAS No. 115 reduced deferred acquisition costs by
$33,232,000 during the first six months of 1995. At June 30, 1995, the
company had total assets of $8,865,010,000, an increase of 11.3% over total
assets at December 31, 1994.
Liabilities
In conjunction with the volume of insurance and annuity sales, and the
resulting increase in business in force, the company's liability for policy
liabilities and accruals increased $641,735,000, or 9.1%, during the first
six months of 1995 and totaled $7,678,044,000 at June 30, 1995. Reserves
for the company's annuity policies increased $604,095,000, or 10.4%, during
this period and totaled $6,431,059,000 at June 30, 1995. Life insurance
reserves increased $34,721,000, or 2.9%, during the first six months of
1995 and totaled $1,221,965,000 at June 30, 1995.
The company incorporates a number of features in its annuity products
designed to reduce early withdrawal or surrender of the policies and to
partially compensate the company for its costs if policies are withdrawn
early. Surrender charge periods on annuity policies currently range from
five years to the term of the policy, with 99.5% of such policies being
issued with a surrender charge period of seven years or more during the
first six months of 1995. The initial surrender charge on deferred annuity
policies ranges from 5% to 20% of the premium and decreases over the
surrender charge period. The following table summarizes the company's
deferred annuity liabilities and sales at and for the three months ended
June 30, 1995 by surrender charge range category. Notwithstanding policy
features, the withdrawal rates of policyholder funds may be affected to
some degree by changes in interest rates.
<TABLE>
<CAPTION>
Deferred Deferred
Annuity % of Annuity % of
Surrender Charge % Sales Total Liabilities Total
___________________________________________________________________
(Dollars in thousands)
<S> <C> <C> <C> <C>
No surrender charge $482,287 8.0%
1 to 4 percent 848,099 14.0%
5 to 6 percent $3,487 0.5% 759,568 12.5%
7 to 9 percent 579,367 84.5% 2,845,923 46.9%
10 percent and greater 102,421 15.0% 1,127,571 18.6%
_________________________________________
$685,275 100.0% $6,063,448 100.0%
=========================================
</TABLE>
Total consolidated debt increased $119,185,000 during the first six months
of 1995 as the company issued $100 million of 8.5% notes in February 1995.
Commercial paper, issued to offset timing differences in investment related
cash receipts and disbursements and to provide for short-term operating
needs, amounted to $109,635,000 at June 30, 1995. Other liabilities
decreased $13,655,000 from year-end 1994 levels as a result of a decrease
in the liability for securities purchased but not yet paid for, partially
offset by increases in liabilities for outstanding checks and liabilities
for premiums received but not yet applied.
At June 30, 1995, the company had total liabilities of $8,165,883,000
compared to $7,378,263,000 at December 31, 1994, a 10.7% increase.
Equity
At June 30, 1995, stockholders' equity was $699,127,000, or $22.04 per
share, compared to $587,333,000 or $18.54 per common share at year end
1994. Unrealized appreciation of available for sale fixed maturity
securities increased stockholders' equity by $40,823,000, or $1.29 per
share, after adjustments to deferred acquisition costs. The ratio of
consolidated debt to total capital was 23.1% at June 30, 1995, up from
13.3% at year-end 1994 as a result of the increase in long-term borrowings
and commercial paper issued to offset timing differences in investment
related cash receipts and disbursements. Excluding commercial paper issued
to offset timing differences in investment related cash receipts and
disbursements, the ratio of debt to total capital was 18.4% at June 30,
1995. At June 30, 1995, there were 31,717,386 common shares outstanding
compared to 31,677,891 shares at December 31, 1994.
The effects of inflation and changing prices on the company are not
material since insurance assets and liabilities are both primarily monetary
and remain in balance. An effect of inflation, which has been low in
recent years, is a decline in purchasing power when monetary assets exceed
monetary liabilities.
LIQUIDITY AND CAPITAL RESOURCES
The liquidity requirements of the company's subsidiaries are met by cash
flow from insurance and annuity premiums, investment income, and maturities
of fixed maturity investments and mortgage loans. The company primarily
uses funds for the payment of insurance and annuity benefits, operating
expenses and commissions, and the purchase of new investments. No material
capital expenditures are planned.
The company issues short-term debt, including commercial paper notes, for
working capital needs and to provide short-term liquidity. The company
also issues commercial paper to fund short-term advances to the company's
insurance subsidiaries to smooth timing differences between investment
related cash receipts and disbursements. At June 30, 1995 the company had
$109,635,000 in commercial paper notes outstanding, an increase of
$19,185,000 from December 31, 1994. The company's commercial paper is rated
A1 by Standard and Poor's, P2 by Moody's and D1 by Duff & Phelps Credit
Rating Co.
To enhance short term liquidity and back up its outstanding commercial
paper notes, the company maintains a line of credit agreement with several
banks. On March 30, 1995, the company entered into a new agreement which
provides for a line of credit totaling $225,000,000, expiring on March 30,
2000.
Since Equitable of Iowa Companies is a holding company, funds required to
meet its debt service requirements, dividend payments and other expenses
are primarily provided by its subsidiaries. The ability of the company's
insurance subsidiaries to pay dividends and other distributions to the
company is regulated by state law. Iowa law provides that an insurance
company may pay dividends, without prior approval of the Commissioner of
Insurance if, together with all dividends or distributions made during the
preceding twelve month period, the dividends would not exceed the greater
of (a) 10% of the insurer's statutory surplus as of the December 31st next
preceding; or (b) the statutory net gain from operations for the twelve
month period ending as of the next preceding December 31st. In addition,
the law provides that the insurer may only make dividend payments to its
shareholders from its earned surplus (i.e., its surplus as regards
policyholders less paid-in and contributed surplus). Equitable Life could
pay dividends to the company without prior approval of the Iowa
Commissioner of Insurance of approximately $63,906,000 during the remainder
of 1995. The company's insurance subsidiaries have maintained adequate
statutory capital and surplus and have not used surplus relief or financial
reinsurance, which have come under scrutiny by many state insurance
departments.
The NAIC's risk-based capital requirements require insurance companies to
calculate and report information under a risk-based capital formula. These
requirements are intended to allow insurance regulators to identify
inadequately capitalized insurance companies based upon the type and
mixture of risks inherent in the company's operations. The formula
includes components for asset risk, liability risk, interest rate exposure
and other factors. The company's insurance subsidiaries have complied with
the NAIC's risk-based capital reporting requirements. Amounts reported
indicate that the company's insurance subsidiaries have total adjusted
capital (as defined in the requirements) which is well above all required
capital levels.
The terms of the line of credit agreement totaling $225,000,000 require the
company to maintain certain adjusted consolidated tangible net worth
levels. "Adjusted consolidated tangible net worth" is defined as
consolidated stockholders' equity, adjusted to exclude the effects of
Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities", less intangible assets.
These covenants require the company to maintain adjusted consolidated
tangible net worth equal to or in excess of the sum of (i) $490,000,000,
plus (ii) 50% of consolidated net income from January 1, 1995 to the end of
the most recent quarter, plus (iii) net proceeds from the issuance of stock
from January 1, 1995 to the end of the most recent quarter. At June 30,
1995, $139,377,000 of retained earnings were free of restrictions and could
be distributed to the company's public stockholders.
Writing and supporting increased volumes of insurance and annuity business
requires increased amounts of capital and surplus for the company's
insurance operations. Historically, the company has funded growth in its
insurance operations internally through the retention of earnings.
Increased levels of growth in recent years have required capital
contributions in excess of amounts generated by operating activities. In
1993 the company completed a primary stock offering to the public and
contributed $70,000,000 of the proceeds from the offering to its insurance
operations. In February 1995, the company issued $100 million of 8.5%
notes, maturing on February 15, 2005, receiving net proceeds of
$98,812,000, after expenses. The company contributed $50 million of the
proceeds to its insurance subsidiaries and repaid outstanding commercial
paper notes with the remaining balance. Future growth in the company's
insurance operations, internally or through acquisitions, may require
additional capital although the company believes it has sufficient resources
to support growth in operations for the next few years. The company's
primary sources of capital are the retention of earnings and issuance of
common stock or debt.
RESULTS OF OPERATIONS
Sales
Total annuity and life insurance sales, as measured by first year and
single premiums, decreased $102,389,000, or 22.7%, to $349,597,000 in the
second quarter and $1,955,000, or 0.3%, to $755,435,000 in the first six
months of 1995. Annuity sales decreased $105,904,000, or 23.8%, to
$339,233,000 in the second quarter and $10,937,000, or 1.5%, to
$734,541,000 in the first six months of 1995. Total annuity premiums
(including renewal premiums) decreased $85,613,000, or 19.0%, to
$364,451,000 in the second quarter and increased $17,052,000, or 2.3%, to
$771,433,000 in the first six months of 1995. The decrease in annuity
sales during the second quarter and the first six months of 1995 reflects
the impact of the current challenging sales environment wherein higher
short-term interest rates have allowed bank certificates of deposit and
other shorter duration investments to be more competitive than usual, while
declining long-term rates have caused returns on annuity and life products
to be comparatively lower than usual. However, the company believes that
the growth in its agents, its commitment to customer service, the quality
of its investment portfolio, competitive pricing and its overall financial
strength will continue to attract consumers to its annuity products as
consumers seek a secure return on their retirement savings. Insurance
agents are attracted to sell the company's products by several factors,
including the company's diversified product portfolio, competitive
commissions, rapid policy issuance and weekly commission payments. First
year and single life insurance premiums increased $3,515,000, or 51.3% to
$10,364,000 in the second quarter and $8,982,000, or 75.4%, to $20,894,000
in the first six months of 1995 due to increases in sales of the company's
universal life and current interest products. These increased sales are
primarily a result of the company's introduction of life insurance products
through brokerage agents and the company's revision of its career agents'
contract which simplifies compensation schedules and encourages the sale of
life insurance products.
Revenues
Total revenues increased $28,101,000, or 17.6%, to $187,391,000 in the
second quarter and $54,180,000, or 17.4%, to $366,089,000 in the first six
months of 1995. Universal life insurance and annuity product charges
increased $1,503,000, or 14.2%, to $12,110,000 in the second quarter and
$3,509,000, or 16.6%, to $24,620,000 in the first six months of 1995, as
increased withdrawals from the company's annuity products generated higher
surrender charge revenues. In addition to increased withdrawal levels,
withdrawals and surrenders of the company's annuity products which contain
a "market value adjustment" feature generate greater surrender charge
income as interest rates increase and lower surrender charge income as
interest rates decrease. Surrender charge income, which allows the company
to recover a portion of the expenses incurred to generate policy sales, was
offset by greater amortization of deferred policy acquisition costs.
Premiums from traditional life insurance products decreased $480,000, or
4.2%, to $10,923,000 in the second quarter and $995,000, or 4.3%, to
$22,218,000 in the first six months of 1995. These traditional life
insurance product premium decreases are a result of the company's decision
to emphasize the more popular universal life and current interest products.
Net investment income increased $33,122,000, or 26.4%, to $158,520,000 in
the second quarter and $61,467,000, or 25.1%, to $306,766,000 in the first
six months of 1995 due to the increase in invested assets. During the
second quarter and first six months of 1995, the company had realized gains
on the sale of investments of $1,790,000 and $1,903,000, compared to gains
of $7,705,000 and $13,714,000 in the same periods of 1994. The level of
realized gains in the first six months of 1995 was lower than the same
period of 1994 because calls and repayments of fixed maturity securities were
lower as market interest rates were similar to the company's portfolio
rate.
Expenses
Total insurance benefits and expenses increased $25,897,000, or 22.5%, to
$140,847,000 in the second quarter and $51,048,000, or 22.4%, to
$278,731,000 in the first six months of 1995. Interest credited to
universal life and investment product account balances increased
$19,920,000, or 25.9%, to $96,960,000 in the second quarter and
$40,249,000, or 26.9%, to $190,126,000 in the first six months of 1995 as a
result of higher account balances associated with those products.
The company's policy is to change rates credited to inforce policy accounts
as the company's investment portfolio yield changes. Most of the company's
interest sensitive products, including annuities, universal life-type
policies and participating policies, allow for interest rate adjustments at
least annually. The following tables summarize the effective average
annual yield on assets invested to support policy accounts for interest-
sensitive products, the average annual interest rate credited to those
products and the interest rate spread at and for the six months ended June
30, 1994 and 1995.
<TABLE>
<CAPTION>
Six months ended June 30
Yield on Credited Interest
Assets Rate Rate Spread
__________ __________ ____________
<S> <C> <C> <C>
1995 8.6% 5.8% 2.8%
1994 8.6% 5.9% 2.7%
</TABLE>
<TABLE>
<CAPTION>
At June 30
Yield on Credited Interest
Assets Rate Rate Spread
__________ __________ ____________
<S> <C> <C> <C>
1995 8.6% 5.7% 2.9%
1994 8.6% 5.7% 2.9%
</TABLE>
Death benefits on traditional life products and benefit claims incurred in
excess of account balances increased $519,000, or 6.7%, to $8,262,000 in
the second quarter and $1,531,000, or 9.6%, to $17,411,000 in the first six
months of 1995. Other benefits increased $59,000, or 0.7%, to $8,339,000
in the second quarter and $557,000, or 3.5%, to $16,472,000 in the first
six months of 1995. These changes were offset by a corresponding change in
the reserve for future policy benefits and, therefore, had a smaller impact
on net income.
Most of the company's annuity products have surrender charges which are
designed to discourage early withdrawals and to allow the company to
recover a portion of the expenses incurred to generate annuity sales in the
event of early withdrawal. Withdrawal rates have been impacted by several
factors. (1) The company is experiencing an increase in withdrawals as its
annuity liabilities age. (2) Withdrawals tend to increase in periods of
rising interest rates as policyholders seek higher returns on their savings.
(3) A block of annuity policies sold in 1988 and 1989 primarily by
stockbrokers contained a five-year surrender charge and a portion also
contained a five-year interest guarantee. The company planned for, and has
experienced, higher surrenders related to this block of business.
The following table summarizes the annualized annuity withdrawal rates and
the life insurance lapse ratios for the three and the six months ended June
30, 1995 and 1994:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
---------------- ----------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Annuity Withdrawals 8.4% 9.2% 8.8% 7.9%
Excluding five year interest guarantee
and five year surrender charge
business sold in 1988 and 1989 7.5% 6.0% 7.4% 6.0%
Life lapse rates 8.2% 7.6% 8.0% 7.4%
</TABLE>
The withdrawal ratio for the company's annuity products is calculated by
dividing aggregate surrenders and withdrawals by beginning of period
account balances. The company's annualized lapse ratio for life insurance
is measured in terms of face amount and uses A.M. Best's formula.
During the second quarter of 1995, the company reintroduced products
through stockbrokers, but has modified the pricing assumptions to reflect
higher lapse expectations. Prior to this, the company had not actively
solicited fixed annuity sales through stockbrokers since 1989. At June 30,
1995, policies originally issued with a 5 year interest guarantee represent
approximately 1.8% ($108 million) of the company's annuity liabilities.
Commissions decreased $5,175,000, or 12.0%, to $37,862,000 in the second
quarter and increased $6,056,000, or 8.2%, to $79,661,000 in the first six
months of 1995. General expenses decreased $582,000, or 5.7%, to $9,731,000
in the second quarter and increased $1,183,000, or 6.0%, to $20,802,000 in
the first six months of 1995. Insurance taxes also decreased $133,000, or
5.6%, to $2,255,000 in the second quarter and increased $421,000, or 9.1%,
to $5,054,000 in the first six months of 1995. Decreases in commissions
and insurance taxes during the second quarter are directly related to
annuity sales during this period. The increase in commissions during the
first six months of 1995 is due to higher life insurance product sales and
a change in the company's career agent contract which increased the amount
of commissions paid to agents while decreasing the amount of fixed costs
and expenses paid to the agents. General expenses grew slightly in the first
six months as they relate more directly to policyholder base and total assets
than to current period sales. Most costs incurred as the result of new sales
and have been deferred, thus having very little impact on total insurance
expenses.
The amortization of deferred policy acquisition costs increased by
$4,487,000, or 36.5%, in the second quarter and $7,938,000, or 34.0%, in
the first six months of 1995. Amortization of deferred acquisition costs
related to operating earnings increased $5,228,000, or 51.1%, in the second
quarter and $10,905,000, or 57.3%, in the first six months of 1995 due in
part to a 22.6% increase in the deferred policy acquisition cost asset since
June 30, 1994 as costs of generating sales of the company's products are
deferred and amortized in later periods. In addition, the company has
accelerated the amortization of the deferred policy acquisition cost asset
due to higher withdrawals experienced in 1994 and 1995 as well as an
expectation that future lapse rates will be higher than previously assumed.
Surrender charges assessed on certain withdrawals offset some of this
accelerated amortization. Amortization related to realized gains decreased
$741,000, or 35.7%, in the second quarter and $2,967,000, or 69.0%, in the
first six months of 1995 due to the decrease in total realized gains. A
breakdown of the amortization of deferred policy acquisition costs for the
three and six months ended June 30, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
------------------ ------------------
1995 1994 1995 1994
---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C>
Amortization related to:
Operating income $15,459 $10,231 $29,930 $19,025
Realized gains 1,336 2,077 1,336 4,303
-------- -------- -------- --------
$16,795 $12,308 $31,266 $20,328
======== ======== ======== ========
</TABLE>
Income
Operating income (income excluding realized gains and losses, commercial
mortgage and mortgage backed securities prepayment gains and related
amortization of deferred policy acquisition costs, net of related income
taxes) increased $2,630,000, or 11.8%, in the second quarter and
$5,971,000, or 14.1%, in the first six months of 1995. Net income
increased $607,000, or 2.3%, in the second quarter and $1,799,000 or 3.7%,
in the first six months of 1995. A breakdown of income is as follows:
<TABLE>
<CAPTION>
1995 1994
-------------------- --------------------
$ Per Share $ Per Share
--------- --------- --------- ---------
(Dollars in thousands,
except per share data)
<S> <C> <C> <C> <C>
Three months ended June 30:
Operating income $24,985 $0.79 $22,355 $0.70
Realized gains (net of tax)
Gains realized on disposal
of investments 1,164 0.04 5,008 0.16
Commercial mortgage and
mortgage-backed securities
prepayment gains 1,339 0.04 -- --
Realized gains related
amortization of DPAC (868) (0.03) (1,350) (0.04)
--------- --------- --------- ---------
1,635 0.05 3,658 0.12
--------- --------- --------- ---------
Net income $26,620 $0.84 $26,013 $0.82
========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
1995 1994
-------------------- --------------------
$ Per Share $ Per Share
--------- --------- --------- ---------
(Dollars in thousands,
except per share data)
<S> <C> <C> <C> <C>
Six months ended June 30:
Operating income $48,372 $1.53 $42,401 $1.34
Realized gains (net of tax)
Gains realized on disposal
of investments 1,237 0.04 9,011 0.29
Commercial mortgage and
mortgage-backed securities
prepayment gains 1,673 0.05 -- --
Realized gains related (868) (0.03) (2,797) (0.09)
amortization of DPAC --------- --------- --------- ---------
2,042 0.06 6,214 0.20
--------- --------- --------- ---------
Net income $50,414 $1.59 $48,615 $1.54
========= ========= ========= =========
</TABLE>
Average shares outstanding totaled 31,677,568 in the second quarter and
31,670,536 in the first six months of 1995 up from 31,610,708 and
31,570,348 in the same periods of 1994.
Insurance Regulation
Currently, the company's insurance subsidiaries are subject to regulation
and supervision by the states in which they are admitted to transact
business. State insurance laws generally establish supervisory agencies
with broad administrative and supervisory powers related to granting and
revoking licenses to transact business, establishing guaranty fund
associations, licensing agents, market conduct, approving policy forms,
regulating premium rates for some lines of business, establishing reserve
requirements, prescribing the form and content of required financial
statements and reports, determining the reasonableness and adequacy of
statutory capital and surplus and regulating the type and amount of
investments permitted.
The insurance regulatory framework continues to be placed under increased
scrutiny by various states, the federal government and the NAIC. Various
states have considered or enacted legislation which changes, and in many
cases increases, the states' authority to regulate insurance companies.
The NAIC, in conjunction with state regulators, has been reviewing existing
insurance laws and regulations. A committee of the NAIC is developing
proposals to govern insurance company investments and holding company
investments in subsidiaries and affiliates presently anticipated to be
considered for adoption as model laws in 1995. While the specific
provisions of such model laws are not known at this time, and current
proposals are still being debated, the company is monitoring developments
in this area and the effects any change would have on the company. A task
force of the NAIC is currently undertaking a project to codify a
comprehensive set of statutory insurance accounting rules and regulations.
This project is not expected to be completed until at least 1996 and
specific recommendations have not been published. The company is
monitoring and, through an industry trade association, actively
participating in this process, but the potential impact of any changes in
insurance accounting standards is not yet known.
In addition, the NAIC has adopted Guideline XXXIII (formerly known as,
Guideline GGG) effective December 31, 1995 which will require the company
to increase annuity reserves in its statutory financial statements by
approximately $15 to $30 million. The guideline allows this increase to be
phased in over a three year period if approved by the insurance department
in the state of domicile. The guideline would have no effect on financial
statements prepared in accordance with GAAP.
Recent concerns regarding the market conduct in the insurance industry have
resulted in increased scrutiny by insurance regulators and the insurance
industry itself of sales and marketing activities. The company has
conducted a thorough review of its sales and marketing process and has re-
emphasized its compliance efforts.
Legislative and regulatory initiatives under discussion in Congress
regarding changes in the regulation of banks and other financial services
businesses and restructuring of the federal income tax system could, if
adopted and depending on the form they take, have an adverse impact on the
company by altering the competitive environment for its products. The
outcome and timing of any such changes cannot be anticipated at this time,
but the company will continue to monitor developments in order to respond
to any opportunities or increased competition that may occur.
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
Equitable of Iowa Companies, Equitable Life Insurance Company of
Iowa and Equitable American Insurance Company are defendants in a
class action lawsuit brought on May 2, 1995 in the Iowa District
Court for Polk County by a policyholder, Russell A. Kolsrud, claiming
unspecified damages as a result of sales of life insurance policies
with so-called "vanishing premiums" which use cash values to pay
insurance premiums under certain interest rate scenarios. The
complaint alleges the policyholders were misled by optimistic policy
illustrations. The company and its subsidiaries deny the allegations,
including the existence of a legitimate class, and believe that the
allegations are without merit because full and appropriate disclosure
was made as a matter of practice. The company intends to defend the
suit vigorously. The suit is in its early procedural stages. It has
not yet been certified as a class action.
In the ordinary course of business, the company and its subsidiaries
are also engaged in certain other litigation none of which
management believes is material.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The annual meeting of the Company was held on April 27, 1995.
(c)(i) Election of four directors to the Company's Board of
Directors with the following voting results:
Against or Broker
For Withheld Non-Votes
Richard B. Covey 28,744,604 24,254 0
James L. Heskett 28,749,718 24,254 0
Robert E. Lee 28,614,311 24,254 0
(ii) Approval of the Company's Restated and Amended Key Employee
Incentive Plan.
Against or Broker
For Withheld Abstentions Non-Votes
27,745,308 717,925 263,899 0
(iii) Approval of the Company's Restated and Amended 1992 Stock
Incentive Plan.
Against or Broker
For Withheld Abstentions Non-Votes
26,777,396 1,676,855 272,882 0
(iv) Approval of the appointment of Ernst & Young LLP as auditors
for the Company for the year 1995.
Against or Broker
For Withheld Abstentions Non-Votes
27,745,308 717,925 263,899 0
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
4(a) Letter agreement to furnish Commission upon request
copies of other long-term debt instruments
11 Statement re: Computation of per share earnings
21 Subsidiary list
27 Financial Data Schedule (electronic filing only)
(b) No reports on Form 8-K were filed during the quarter ended
June 30, 1995.
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.
DATE: July 31, 1995 EQUITABLE OF IOWA COMPANIES
By /s/ P. E. Larson
______________________________________
Executive Vice President and CFO
(Principal Financial Officer)
By /s/ D. A. Terwilliger
______________________________________
Vice President and Controller
(Principal Accounting Officer)
INDEX
Exhibits to Form 10-Q
Six Months ended June 30, 1995
EQUITABLE OF IOWA COMPANIES
Page Number
3 Articles of Incorporation and By-Laws
(a) Restated Articles of Incorporation as amended through
April 29, 1993, filed as Exhibit 3(a) to Form 10-Q for
the period ended June 30, 1993, is incorporated by
reference --
(b) Amended and restated By-Laws filed as Exhibit 2 to
Form 8-K dated November 11, 1991, is incorporated by
reference --
4 Instruments Defining the Rights of Security Holders, Including
Indentures
(a) Letter Agreement to furnish Commission upon request copies
of other long-term debt instruments --
(b)(i) Rights Agreement filed as Exhibit 1 to Form 8-K dated
April 30, 1992, is incorporated by reference --
(ii) First amendment to Rights Agreement changing Rights Agent
filed as Exhibit 4(b)(ii) to Form 10-Q for the period
ended September 30, 1992, is incorporated by reference --
(iii) Second amendment to Rights Agreement dated April 29, 1993,
adjusting Purchase Price filed as Exhibit 2.2 to Form
8-A/A dated May 13, 1993, is incorporated by reference --
10 Material Contracts
(a) Executive compensation plans and arrangements *
(i) Restated Executive Severance Pay Plan filed as Exhibit
10(a) to Form 10-K for the year ended December 31, 1992,
is incorporated by reference --
(ii) Directors' Deferred Compensation Plan filed as Exhibit
10(b) to Form 10-K for the year ended December 31, 1989,
is incorporated by reference --
(iii) 1982 Stock Incentive Plan filed as Exhibit 10(c) to Form
10-K for the year ended December 31, 1989, is incorporated
by reference --
(iv) Excess Benefit Plan filed as Exhibit 10(d) to Form 10-K
for the year ended December 31, 1989, is incorporated by
reference --
(v) Supplemental Employee Retirement Plan filed as Exhibit
10(e) to Form 10-K for the year ended December 31, 1989,
is incorporated by reference --
(vi) Executive Flexible Perquisite Program filed as Exhibit
10(f) to Form 10-K for the year ended December 31, 1992,
is incorporated by reference --
INDEX
Exhibits to Form 10-Q
Six Months ended June 30, 1995
EQUITABLE OF IOWA COMPANIES
Page Number
(vii) Restated and Amended Key Employee Incentive Plan filed as
Exhibit A of Registrant's Proxy Statement dated March 14,
1995, is incorporated by reference --
(viii) Restated and Amended 1992 Stock Incentive Plan Registration
Statement No. 33-57492 filed as Exhibit B of Registrant's
Proxy Statement dated March 14, 1995, is incorporated by
by reference --
* Management contracts or compensation plans required to
be filed as an Exhibit pursuant to Item 14(c) of Form
10(K).
11 Statement re: Computation of Per Share Earnings --
21 Subsidiaries List --
23 Consent of Experts and Counsel
(a) Consent of independent auditors (not required) --
(b) Consent of counsel (not required) --
27 Financial Data Schedule (electronic filing only) --
99 Additional Exhibits
Independence Policy filed as an Exhibit to Form 8-K dated November
11, 1991, is incorporated by reference --
Exhibit 4(a)
July 31, 1995
Securities and Exchange Commission
450 5th Street NW
Washington, DC 20549
Ladies/Gentlemen:
The company agrees to furnish the Commission upon request copies of the
following long-term debt instruments:
1. Credit Agreement between Equitable of Iowa Companies and Morgan
Guaranty Trust Company of New York, as Agent, and the Bank of New
York, as Administrative Agent, and participating banks, dated March
30, 1995, re: line of credit in amount of $225,000,000.
2. Note Purchase Agreement dated August 19, 1986, between Walnut Mall
Limited Partnership ("Issuer") and Teacher Retirement System of
Texas ("Purchaser") in the remaining principal amount of $25,721,357
due through August 19, 1996.
3. Trust Indenture dated as of January 17, 1995, between Equitable of Iowa
Companies and The First National Bank of Chicago, as Trustee, relating
to $100,000,000 of 8.5% Notes due 2005.
4. Note payable dated February 22, 1995, bearing interest at 8.5%,
maturing February 15, 2005 with outstanding principal amount of
$100,000,000.
Very truly yours,
/s/ John A. Merriman
John A. Merriman
General Counsel/Secretary
Equitable of Iowa Companies
Exhibit 11
EQUITABLE OF IOWA COMPANIES
Consolidated Net Income Per Share Computation
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1995 1994 1995 1994
___________ ___________ ___________ ___________
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C>
Primary:
Net income $26,620 $26,013 $50,414 $48,615
=========== =========== =========== ===========
Average shares
outstanding 31,677,568 31,610,708 31,670,536 31,570,348
=========== =========== =========== ===========
Net income per share $0.84 $0.82 $1.59 $1.54
=========== =========== =========== ===========
Fully diluted:
Net income $26,620 $26,013 $50,414 $48,615
=========== =========== =========== ===========
Average shares
outstanding 31,677,568 31,610,708 31,670,536 31,570,348
Add: Net effect of dilutive
stock options - based on
the treasury stock method
using period-end market
price, if higher than
average market
price 485,521 639,507 449,399 629,253
___________ ___________ ___________ ___________
Total 32,163,089 32,250,215 32,119,935 32,199,601
=========== =========== =========== ===========
Net income per share $0.83 $0.81 $1.57 $1.51
=========== =========== =========== ===========
<FN>
NOTE: This computation is required by Regulation S-K Item 601 and is filed
as an Exhibit under Item 6(a) of Form 10-Q. Fully diluted earnings
per share calculated above has not been presented on the face of the
company's Consolidated Statements of Income because dilution is less
than three percent and, therefore, presentation is not required by
Accounting Principles Board Opinion No. 15.
</TABLE>
Exhibit 21
The company's subsidiaries are:
Name State of Incorporation
Equitable Life Insurance Company of Iowa Iowa
Equitable Investment Services, Inc. Iowa
Equitable of Iowa Securities Network, Inc. Iowa
Locust Street Securities, Inc. Iowa
Shiloh Farming Company Louisiana
Tower Locust, Ltd. Iowa
Walnut Investments, Ltd. Iowa
All are wholly-owned.
USG Annuity & Life Company, an Oklahoma corporation, and Equitable American
Insurance Company, an Iowa corporation, are wholly-owned subsidiaries of
Equitable Life Insurance Company of Iowa. In addition, these entities own
other subsidiaries which are not considered in the aggregate to be a
significant subsidiary as defined in Securities and Exchange Commission
rules.
All subsidiaries do business only under their corporate names.
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENTS OF INCOME AND CONSOLIDATED BALANCE SHEETS (UNAUDITED)
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
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0
0
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22,218
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</TABLE>
