<PAGE> 1
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from _____________ to _____________
Commission File Number 0-9633
AMERICAN BANKERS INSURANCE GROUP, INC.
(Exact name of registrant as specified in its charter)
FLORIDA 59-1985922
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) Identification No.)
11222 QUAIL ROOST DRIVE, MIAMI, FL 33157
(Address of principal executive offices)
Registrant's telephone number, including area code: (305) 253-2244
Securities registered pursuant to Section 12(g) of the Act:
Title of Class
--------------
Common Stock, $1 Par Value
$3.125 Series B Cumulative Convertible Preferred Stock,
$50 Liquidation Preference
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 periods 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
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value on March 21, 1997, of the voting stock held by
non-affiliates of the Registrant was approximately $1,015,099,000. Shares of
Common Stock held by executive officers and directors who individually own 5% or
more of the outstanding Common Stock have been excluded in that such persons may
be deemed to be affiliates; however, this determination of affiliate status is
not necessarily determinative for other purposes.
There were 20,500,000 shares outstanding of the Registrant's Common Stock,
$1 par value, as of March 21, 1997.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the definitive Proxy Statement for the annual shareholders
meeting to be held May 23, 1997 to be filed within 120 days of the Registrant's
fiscal year-end are incorporated by reference in Part III of this Form 10-K.
Portions of the Form S-3 Registration Statement Number 2-94359; the Registrant's
Annual Report on Form 10-K for the years ended 1988, 1990, 1991, 1993, 1994, and
1995; the Registration Statement on Form 8-A filed March 11, 1988; the
Registrant's current report on Form 10-Q dated March 31, 1994, June 30,1995,
March 31, 1996, and June 30, 1996; the 1987 Annual Meeting Proxy Statement; the
Registrant's current report on Form 8-K dated November 14, 1990 are also
incorporated by reference in Part IV of this Form 10-K.
================================================================================
<PAGE> 2
AMERICAN BANKERS INSURANCE GROUP, INC.
AND SUBSIDIARIES
Table of Contents
<TABLE>
<CAPTION>
PAGE
PART I NUMBER
------
<S> <C>
Item 1 Business .................................................................................. 2
Item 2 Properties................................................................................. 21
Item 3 Legal Proceedings ......................................................................... 21
Item 4 Submission of Matters to a Vote of Security Holders ....................................... 22
PART II
Item 5 Market for the Registrant's Common Stock and Related Stockholder Matters .................. 26
Item 6 Selected Financial Data ................................................................... 27
Item 7 Management's Discussion and Analysis of Financial Condition and
Results of Operations ................................................................... 31
Item 8 Financial Statements and Supplementary Data ............................................... 39
Item 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosures .................................................... 75
PART III
Item 10 Directors and Executive Officers of the Registrant ........................................ 76
Item 11 Executive Compensation .................................................................... 76
Item 12 Security Ownership of Certain Beneficial Owners and Management ............................ 76
Item 13 Certain Relationships and Related Transactions ............................................ 76
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K ........................... 77
</TABLE>
1
<PAGE> 3
PART I
ITEM 1
BUSINESS
a. DEVELOPMENT OF BUSINESS
American Bankers Insurance Group, Inc. ("ABIG", "American Bankers" or
the "Company") was incorporated in Florida on July 24, 1978. ABIG
became the holding company of American Bankers Insurance Company of
Florida ("ABIC") and American Bankers Life Assurance Company of Florida
("ABLAC") as a result of their merger with wholly-owned subsidiaries of
ABIG after approval by their respective stockholders on October 31,
1980. In addition to ABIC and ABLAC, the Company's subsidiaries include
American Bankers Compania de Seguros, S.A. ("ABCS"), American Bankers
Suguros de Vida, S.A. ("ABSV"), Seguros la Hemisferica, S.A., Federal
Warranty Service Corp. ("FWSC"), Sureway, Inc., Caribbean American Life
Assurance Company ("CALAC"), Caribbean American Property Insurance
Company ("CAPIC"), American Reliable Insurance Company ("ARIC"),
Bankers American Life Assurance Company ("BALAC"), Bankers Insurance
Company Limited ("BICL"), Bankers Atlantic Reinsurance Company
("BARC"), and five insurance companies referred to collectively as the
Voyager Insurance Companies.
ABIC was incorporated in the state of Florida on October 29, 1947 and
ABLAC, a legal reserve life insurance company, was incorporated in the
state of Florida on February 6, 1952. ABCS, a wholly owned subsidiary
in Mexico, began operations in 1995. ABSV, a wholly owned subsidiary in
Argentina, began operations in 1996. Seguros la Hemisferica, S.A., a
wholly owned subsidiary in the Dominican Republic, began operations in
1996. FWSC, a wholly owned subsidiary in California, was acquired in
1988. Sureway, Inc., a wholly owned subsidiary in Floria, began
operations in 1973. CALAC and CAPIC, wholly owned subsidiaries in
Puerto Rico, began operations in 1988 and 1992 respectively. ARIC, a
wholly owned subsidiary in Arizona, was acquired by the Company in
1984. BALAC, a wholly owned subsidiary in New York, began operations in
1991. BICL, a wholly owned subsidiary in the United Kingdom, began
operations in 1990. BARC, a wholly owned subsidiary in the Turks &
Caicos islands, began operations in 1995. The Voyager Insurance
Companies were acquired by the Company in 1993 and consist of five
companies incorporated in Florida, Georgia and South Carolina.
The Company's credit-related insurance products consist primarily of
credit unemployment, accidental death and dismemberment ("AD&D"),
disability, property, and life insurance issued in connection with the
financing of consumer purchases. American Bankers also writes non
credit-related insurance in markets where it believes it has less
competition from other insurers. For example, the Company also sells
extended service contracts in connection with consumer purchases.
For information on the growth of the Company's business for the years
ended December 31, 1996, 1995, 1994, 1993 and 1992, see the Gross
Collected Premium table set forth below in "Narrative Description of
Business."
b. BUSINESS SEGMENT DATA
See Note 12 to the Consolidated Financial Statements on page 65 in Part
II Item 8 of this report.
2
<PAGE> 4
c. NARRATIVE DESCRIPTION OF BUSINESS
General
The Company is a specialty insurer providing primarily credit-related
insurance products in the U.S. and Canada as well as in Latin America,
the Caribbean and the United Kingdom. The majority of the Company's
gross collected premiums are derived from credit-related insurance
products sold through financial institutions and other entities which
provide consumer financing as a regular part of their businesses.
The Company's credit-related insurance products consist primarily of
credit unemployment, accidental death and dismemberment ("AD&D"),
disability, property, and life insurance issued in connection with the
financing of consumer purchases. Credit-related insurance products
generally offer a consumer a convenient option to insure a credit card
or loan balance so that the amount of coverage purchased equals the
amount of outstanding debt. Coverage is generally available to all
consumers with few of the underwriting conditions that apply to
ordinary term insurance, such as medical examinations and medical
history reports. The Company's life and AD&D insurance products
generally provide payment in full of the outstanding debt balance in
the event of the insured's death. The unemployment and disability
products satisfy the minimum monthly loan payment for a specified
duration in the event of unemployment or disability. The Company's
property insurance products pay the loan balance or the cost of
repairing or replacing the insured's merchandise in the event of a loss
due to a covered event. The Company avoids lines of insurance
characterized by long loss payout periods, such as workers'
compensation and most general liability coverages.
The Company markets its products on a wholesale basis through a network
of clients that consist primarily of major financial institutions,
retailers and other entities which provide consumer financing as a
regular part of their businesses. American Bankers enters into
contracts, typically with terms of three to five years, with its
corporate clients pursuant to which such clients market the Company's
insurance products to their customers. In return, these clients receive
expense reimbursements or commissions and are thus able to recover
costs associated with the marketing of the insurance and generate
incremental revenues. The Company's clients typically share in the
profitability of business written through them.
American Bankers also writes non credit-related insurance in markets
where it believes it has less competition from other insurers. For
example, the Company's extended service contracts products pay the cost
of repairing or replacing the insured's merchandise in the event of
damages due to a covered event. In addition, the Company acts as an
administrator for the National Flood Insurance Program, for which it
earns a fee for collecting premiums and processing claims. The Company
does not assume any underwriting risk with respect to this program.
The Company's business strategy is to continue developing distribution
channels which provide access to large numbers of potential insureds in
markets not traditionally served by other insurance companies. In
addition, the Company emphasizes long-term relationships and the
development of insurance programs designed to meet individual client
needs. An essential part of the Company's strategy is to invest in
technology which enables American Bankers to accommodate a large group
of clients and their customers while simultaneously offering customized
insurance programs.
3
<PAGE> 5
American Bankers has been able to develop a diverse client base. In
1996, no single client accounted for more than 10% of the Company's
gross collected premiums. The Company distributes its products through
various markets or distribution channels involving over one thousand
clients. Its business is generally not concentrated and the ten largest
unrelated clients represent 28% of the Company's gross collected
premiums.
ABIC and ABLAC jointly market products and programs within each
distribution channel, and the Company believes that such
cross-marketing achieves economies of scale thus lowering
administrative costs. By combining its service and marketing
activities, the Company centralizes the processing of its products and
avoids duplication of administrative functions.
The Company also provides management services and marketing support to
its clients. Management services include administration of captive
insurance companies and other participating programs for clients.
American Bankers provides comprehensive administrative support in
claims, accounting, tax, data processing and actuarial matters. The
Company also packages credit-related insurance programs to meet a
client's particular needs and provides the marketing assistance to
implement these programs. Marketing support includes a full range of
marketing materials, direct mail and telemarketing services and
personnel training programs.
The majority of the Company's business utilizes contracts which afford
the Company's clients the opportunity to participate in the
underwriting results of policies they market to their customers. The
"Retro Plan" contract links a client's overall commission to the claims
experience on policies marketed to its customers, so that low loss
ratios result in higher commissions for the client and high loss ratios
result in lower commissions. Another form of participation is a profit
sharing contract under which the client participates in up to 50% of
the profits generated from its insurance business. The Company also
cedes premiums generated by certain clients to the clients' own captive
insurance companies or to reinsurance subsidiaries in which clients
have an equity interest. For the Company's remaining business, the
client's commission is not linked to its claims experience.
Business Segments
Life Insurance
(in thousands)
<TABLE>
<CAPTION>
TOTAL ASSETS NET PREMIUMS TOTAL REVENUES OPERATING INCOME*
EARNED
<S> <C> <C> <C> <C>
1996 $1,439,300 $384,000 $437,500 $63,900
1995 1,333,100 377,100 417,500 44,700
1994 1,023,600 360,100 394,500 32,000
</TABLE>
*Operating income consists of earnings before interest expense and
taxes.
HIGHLIGHTS
o Gross collected premiums increased 9% to $763.2 million in
1996 from $702.5 million in 1995.
o Five products (Credit Life, Credit A&H, Group Life, Mortgage
A&H, and Group A&H) contributed 92% of the segment's
1996 gross collected premiums. These products are sold
through various distribution channels.
o Operating income increased by 43% to $63.9 million in 1996
from $44.7 million in 1995.
4
<PAGE> 6
SUBSIDIARIES
o American Bankers Life Assurance Company of Florida (ABLAC)
o American Bankers Seguros de Vida, S.A. (ABSV)
o Bankers American Life Assurance Company (BALAC)
o Caribbean American Life Assurance Company (CALAC)
o Voyager Life and Health Insurance Company (VLHIC)
o Voyager Life Insurance Company (VLIC)
MAJOR PRODUCTS
o Credit Life
o Credit Accident & Health
o Group Life
o Mortgage Accident & Health
o Group Accident & Health
DISTRIBUTION CHANNELS
o Retailers
o Financial Institutions
Commercial Banks
Consumer Finance Companies
Mortgage Bankers
Savings Institutions
o Manufactured Housing, Travel Trailer and Equipment
Manufacturers, Dealers and Lenders
o Independent Agents
PROPERTY AND CASUALTY INSURANCE
(in thousands)
<TABLE>
<CAPTION>
TOTAL ASSETS NET PREMIUMS EARNED TOTAL REVENUES OPERATING
INCOME*
<S> <C> <C> <C> <C>
1996 $1,969,700 $994,500 $1,080,700 $91,900
1995 1,602,200 863,600 934,200 87,400
1994 1,347,300 734,200 775,300 66,700
</TABLE>
*Operating income consists of earnings before interest expense and
taxes.
HIGHLIGHTS
o Gross collected premiums increased 9% to $1.7 billion in 1996
from $1.6 billion in 1995. Credit Unemployment and Extended
Service Contracts were the products representing the largest
premium increases in 1996.
o Operating income increased 5% to $91.9 million in 1996 from
$87.4 million in 1995.
5
<PAGE> 7
SUBSIDIARIES
o American Bankers Insurance Company of Florida (ABIC)
o American Bankers Compania de Seguros, S.A. (ABCS)
o American Reliable Insurance Company (ARIC)
o Bankers Insurance Company, Ltd. (BICL)
o Caribbean American Property Insurance Company (CAPIC)
o Seguros La Hemisferica, S.A.
o Voyager Indemnity Insurance Company (VIIC)
o Voyager Property and Casualty Insurance Company (VPCIC)
WARRANTY COMPANIES
o Federal Warranty Service Corporation (FWSC)
o Sureway, Inc.
o Voyager Service Warranties, Inc. (VSW)
o Voyager Service Programs, Inc. (VSP)
MAJOR PRODUCTS
o Credit Unemployment
o Credit Property
o Extended Service Contracts
o Mobilehome Physical Damage
o Credit Accident & Health
DISTRIBUTION CHANNELS
o Retailers
o Financial Institutions
Commercial Banks
Consumer Finance Companies
Mortgage Bankers
Savings Institutions
o Manufactured Housing, Travel Trailer and Equipment
Manufacturers, Dealers and Lenders
o Independent Agents
For additional Business Segment Information see page 29 in Part II
Item 6 of this report.
6
<PAGE> 8
PRODUCTS
The following table sets forth the gross collected premiums of the
Company's major insurance products:
<TABLE>
<CAPTION>
GROSS COLLECTED PREMIUMS
MAJOR INSURANCE PRODUCTS
YEARS ENDED DECEMBER 31
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(in millions)
<S> <C> <C> <C> <C> <C>
Credit Unemployment $ 489.4 $ 410.8 $ 269.8 $ 172.9 $ 127.9
Credit A&H 377.6 349.0 244.5 182.8 174.0
Credit Property 336.9 367.7 354.2 268.6 187.2
Credit Life 309.5 287.2 211.7 165.5 152.1
Extended Service Contracts 203.9 129.5 19.3 12.0 10.7
Mobilehome Physical Damage 132.2 137.3 121.4 100.1 41.6
Homeowners 93.7 101.1 87.0 85.6 91.5
Mortgage A&H 66.6 53.3 49.1 44.3 37.4
Group A&H 50.7 39.6 26.4 27.7 22.4
Livestock Mortality 46.6 40.8 48.6 51.9 29.6
All Other (1) 385.7 370.3 329.1 315.8 246.0
-------------- ------------------ --------------- ------------------ ------------------
Total $ 2,492.8 $ 2,286.6 $ 1,761.1 $ 1,427.2 $ 1,120.4
============== ================== =============== ================== ==================
</TABLE>
- ---------------
(1) "All Other" represents a large number of products, approximately 50 to 60
each year. The most significant in 1996 and 1995 are the flood and surety
products.
The Company's business can be divided into two principal types of
products: (1) Financial Market Products, consisting primarily of
credit-related insurance, and (2) Personal Insurance lines, consisting
of non credit-related products and services.
Financial Market Products
Property Insurance. The Company's property insurance is written
primarily by ABIC, ARIC, CAPIC and certain of the Voyager Companies.
Through these subsidiaries, the Company writes a variety of property
insurance which includes homeowners' and coverages for comprehensive
physical damage of mobilehomes, autos, furniture, fixtures and other
consumer goods. In the event of a loss due to a covered event, the
Company will either pay off the loan balance or replace or repair the
merchandise.
The terms of the Company's property policies range from 30 days to
multiple years. Multiple year policies generally coincide with the term
of the financing for the insured property. For example, a consumer
purchasing an automobile and financing the purchase over a three-year
period can purchase a three-year physical damage policy at the
inception of the loan for a single premium. An increasing proportion of
gross collected premiums are monthly premiums received in connection
with credit card purchases. Such premiums are based on the average
outstanding credit card balance.
7
<PAGE> 9
Life and Disability Insurance. Through ABLAC, BALAC, CALAC and
certain of the Voyager Companies, the Company writes life, AD&D and
disability insurance primarily on consumer loans, mortgages and credit
card balances. This life insurance is a form of decreasing term life
insurance written generally without medical examination of the
borrower. Premiums are received either in a single payment at the time
the policy is written or monthly along with the borrower's regular
payment. It is normally written for the term of the installment debt
and retires all or a portion of the indebtedness in the event of the
insured's death. Disability insurance covers a borrower for payments
coming due on an installment loan, mortgage loan or revolving charge
account while the borrower is disabled.
Credit Unemployment Insurance. Through ABIC and CAPIC, the Company
writes unemployment insurance on credit card balances in conjunction
with life, disability and property coverages. This unemployment
insurance provides for the payment of the minimum monthly loan payment
for a specified duration while the insured is involuntarily out of
work. Premiums for this coverage are based on the average outstanding
credit card balance.
Extended Service Contracts. The Company's extended service contract
(ESC) business involves various arrangements including the
administration for and the insuring of obligations for ESC's sold in
conjunction with the sale of consumer products by retailers. The ESC's
typically provide service guarantees through the retailers which go
beyond any manufacturers' warranties underlying the products.
Of the Company's "Major Insurance Products", eight are associated with
the Financial Market Products.
Personal Insurance Lines
The Company also derives revenues from non credit-related insurance
products and services. These products and services principally consist
of: (i) group life and group disability, (ii) individual life and
disability products sold through employer-sponsored payroll deduction
programs, (iii) administration fees earned in connection with the
National Flood Insurance Program, iv) livestock mortality insurance,
(v) individual life insurance and annuity products sold principally
in Latin America and the Caribbean, and (vi) surety coverages.
Underwriting
The Company has over 40 years of experience in providing credit life
and credit property insurance and therefore maintains an extensive
actuarial database for its major lines of business. This database
enables the Company to better identify and quantify the expected loss
experience and is employed in the design of coverage and the
establishment of premium rates. American Bankers uses this information
in monitoring the loss experience of individual clients.
A distinct characteristic of the Company's credit-related insurance
products is that the majority of these products represent relatively
low policy values since policy size is equal to the size of the
installment purchase or credit card balance. Thus, loss severity for
most of the Company's business is low relative to other insurance
companies writing more traditional lines of business. For those product
lines where exposure to catastrophe loss is higher (Homeowners and
Mobilehome Physical Damage) the Company closely monitors and manages
its aggregate risk by geographic area and has entered into reinsurance
treaties to control its exposure to catastrophe losses.
8
<PAGE> 10
With respect to the Company's non credit-related insurance products,
the Company utilizes traditional underwriting techniques. The Company
seeks to ensure the quality of its business by maintaining strict
underwriting standards. In underwriting individual life policies, the
Company employs medical questionnaires, medical examinations, and
current reports from the Medical Information Bureau. Group underwriting
takes into account demographic factors such as age, gender and
occupation of members of the groups. The Company also seeks to reduce
its risk exposure by avoiding lines of insurance characterized by long
loss payout periods, such as workers' compensation and most general
liability coverages.
Marketing
American Bankers markets its credit-related insurance programs as a
wholesale distributor through several defined distribution channels:
Consumer Finance Companies, Mortgage Bankers, Electric, Gas, and
Telephone Utilities, Savings Institutions, Commercial Banks,
Manufactured Housing, Travel Trailer and Equipment Manufacturers,
Dealers, Lenders, and Retailers. These distribution channels constitute
the Company's Financial Market distribution channel. The distribution
channel for the Company's Personal Insurance Lines is primarily
Independent Agents.
At December 31, 1996, the Company had 86 salaried sales representatives
and 15 sales managers located in 14 regional sales offices throughout
the U.S., Canada, Puerto Rico, the United Kingdom and Latin America.
Employees in the regional sales offices solicit potential new clients
and service existing clients. These sales personnel typically have work
experience in the client's industry and have received extensive sales
and product training from the Company. The Company's sales personnel
provide ongoing service and advice to clients to assist them in
marketing the Company's insurance products and attempt to gain new
clients by illustrating how the client can provide a value-added
service to its customers and at the same time enhance their
profitability by marketing the Company's products. Specifically, the
Company's sales personnel approach each potential client with a
structured four-call process: (i) initial contact, (ii) gathering
information and analyzing the prospect's needs, (iii) presenting a
program tailored to those needs, and (iv) agreeing to and implementing
a program that is satisfactory to both the client and the Company.
Products are individual programs underwritten by ABIC, ABLAC, or any of
the insurance subsidiaries or "packages" which are a combination of
products from various subsidiaries. These products can also be sold
through more than one distribution channel. Product cross-over is
commonplace within the Company's system, which facilitates streamlined
administration and processing, as well as product development. For
example, the Company's "Chargegard" product is a combination of life,
accident and disability, unemployment and property insurance coverage
and is marketed through the Consumer Finance Companies, Mortgage
Bankers and Savings Institutions, Commercial Banks and Retailers
distribution channels.
9
<PAGE> 11
Distribution Channels
---------------------
The following is a discussion of the distribution channels for the
Financial Market Products:
Consumer Finance Companies
The client base consists of consumer and commercial finance companies,
leasing and second mortgage institutions, and mortgage brokers. Because
many major consumer finance companies have their own captive insurance
companies, approximately half of the premiums written historically have
been ceded to these captive insurance companies. Therefore, a
substantial portion of the income in this area is derived from the
management fees paid by clients' captive companies for processing and
servicing this insurance.
Mortgage Bankers and Savings Institutions
The client base consists of mortgage bankers, savings institutions and
home builders. Through these clients, the Company markets life, AD&D,
disability and property insurance products to residential and consumer
borrowers as well as to depositors.
Commercial Banks
The Company markets its installment loan and credit card related
insurance products through commercial banks, bank holding companies and
their non-bank subsidiaries and other issuers of general purpose credit
cards. Increases in gross collected premiums have resulted primarily
from the marketing of insurance programs in connection with credit
cards. American Bankers tries to expand the business written by its
clients in this area by assisting them in implementing direct mail and
telemarketing programs.
Manufactured Housing and Travel Trailer Manufacturers and Lenders
The Company provides property insurance and credit related products to
purchasers of mobilehomes and travel trailers. Products are distributed
primarily through manufactured housing, motor home and travel trailer
manufacturers, dealers and lenders.
Retailers
The Company is a major provider of credit-related insurance and is a
provider of extended service contracts products to the retail industry.
This client base includes department and specialty stores, home
furnishings and home improvement stores, appliance and electronic
stores, general merchandise and automotive chains, jewelry stores,
catalogs and rental companies. To further enhance its market position
in this area, the Company develops customized direct mail and
telemarketing programs for these clients. Premiums are generated from
mailings included in monthly credit card statements or are generated at
the point of sale.
Equipment Manufacturers and Dealers
Dealers and Manufacturers revenues are derived from credit life,
disability, physical damage and warranty insurance products sold
through agricultural and other equipment manufacturers.
10
<PAGE> 12
The following is a discussion of the distribution channels for the
Personal Insurance Lines:
Independent Agents
The Company markets individual life insurance and annuity policies to
the public through a network of independent agents. In the agency
market, the Company competes with many large nationwide companies. As a
result, the Company has made the decision to control the growth of this
segment by de-emphasizing the U.S. market and focusing on the Caribbean
and Latin American markets where loss experience has been favorable and
the competition is less vigorous.
Other products sold through agents include livestock insurance which
primarily covers animal mortality, and surety coverages.
Agents also produce the flood premium that the Company administers on
behalf of the National Flood Insurance Program. The Company acts as
administrator and does not assume any underwriting risk with respect to
this program.
Investments
The functions of the investment department are an integral part of any
insurance company's operations. The Company's investment department is
guided by strategic objectives established by the Finance Committee of
the Board of Directors. The major investment objectives are:
o To ensure adequate safety of investments and to protect and
enhance capital.
o To maximize risk-adjusted, after-tax return on investments.
o To make prudent investment decisions based on the current
market environment.
o To provide sufficient liquidity to meet cash requirements with
minimum sacrifice of investment returns.
In seeking to achieve these objectives, the Company invests
predominantly in fixed income securities of the U.S. Government or its
agencies, collateralized mortgage obligations ("CMOs") and investment
grade corporate bonds. Protection against default risk is a primary
consideration. The CMOs are tested for volatility prior to purchase.
Interest rate risk is controlled by matching the average duration of
invested assets with the average duration of the policy liabilities.
Investment department personnel work closely with the Company's
actuaries to ensure that this balance is maintained.
Private investments are made selectively to support the insurance
business. These investments comprise about 2% of the fixed maturities
portfolio. While these Company underwritten investments are non-rated,
a careful evaluation of creditworthiness is performed before an
investment is made. This analysis helps to ensure that prudent
investment standards are maintained, even in the non-rated portfolio
holdings.
The Company's equity portfolio is managed by outside investment
advisors who are monitored on a regular basis against established
performance benchmarks.
11
<PAGE> 13
<TABLE>
<CAPTION>
Quality of Fixed Maturities Maturity of Fixed Maturities
========================================= =====================================
<S> <C> <C> <C>
AAA 57% 0-1 Years 10%
AA 6% 1-5 Years 70%
A 20% 5-10 Years 16%
BBB 14% 10-20 Years 3%
BB/NR 1% Over 20 Years 1%
Private Placement 2% ----------
---------- 100%
100%
</TABLE>
At December 31 (in thousands):
<TABLE>
<CAPTION>
AT CARRYING VALUE: 1996 1995 1994 1993 1992
- ---------------------------------------- -------------- -------------- --------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
FIXED MATURITIES
Corporate - Fixed Rate $679,800 $346,000 $229,900 $169,200 $195,400
Corporate - Adjustable Rate 19,900 15,000 14,400 4,900 10,800
Corporate - Convertible 5,400 6,000 1,400 5,500
State and Municipal 137,500 123,500 109,800 79,800 60,600
U.S. Government 741,600 817,900 631,400 567,800 455,100
Foreign Govt & Jurisdiction 67,100 61,900 36,200 30,100 26,700
Installment Loans 14,000 17,300 22,200 22,200 24,900
- ---------------------------------------- -------------- -------------- --------------- -------------- -------------
$1,665,300 $1,387,600 $1,043,900 $875,400 $779,000
- ---------------------------------------- -------------- -------------- --------------- -------------- -------------
EQUITY SECURITIES
Preferred - Fixed Rate $27,800 $38,400 $16,600 $15,000 $11,000
Preferred - Convertible 5,800 700 600 5,900 5,800
Common 79,300 73,900 48,200 52,600 42,800
- ---------------------------------------- -------------- -------------- --------------- -------------- -------------
$112,900 $113,000 $65,400 $73,500 $59,600
- ---------------------------------------- -------------- -------------- --------------- -------------- -------------
Mortgage Loans $10,200 $11,800 $13,800 $15,500 $17,600
Policy Loans 8,300 7,800 6,800 6,700 5,900
Real Estate 5,600 3,100 3,800 4,200 5,800
Short-Term & Other Investments
(principally invested cash) 166,100 165,100 131,200 135,600 114,200
- ---------------------------------------- -------------- -------------- --------------- -------------- -------------
$190,200 $187,800 $155,600 $162,000 $143,500
- ---------------------------------------- -------------- -------------- --------------- -------------- -------------
TOTAL INVESTMENTS $1,968,400 $1,688,400 $1,264,900 $1,110,900 $982,100
======================================== ============== ============== =============== ============== =============
</TABLE>
The amounts for 1994 and forward are reported in accordance with FASB Statement
115.
12
<PAGE> 14
NET INVESTMENT INCOME
(in millions of dollars)
1996 $ 121
1995 99
1994 74
1993 70
1992 68
Other information with respect to investments is included in Note 3 to the
Consolidated Financial Statements on page 49 in Part II Item 8 of this report.
REINSURANCE
The Company's insurance subsidiaries reinsure that portion of risk in
excess of $250,000 under an ordinary life policy, and $300,000 under a
property policy. In addition, coverage is obtained for the Company's
property business as protection against catastrophic losses. This
coverage is mainly related to the Company's homeowner, mobilehome
physical damage and credit property products. The Company has excess of
loss catastrophe reinsurance providing coverage per catastrophe on
property losses of $30 million excess of a $15 million retention
exclusive of any recoveries from the proportional reinsurance described
above. Additional coverage is provided through aggregate stop loss
coverage if the net loss ratio (after deducting all other reinsurance)
exceeds 37.3%. The Company believes that its catastrophe reinsurance
coverage continues to be adequate. The reinsurance market showed signs
of stabilization in 1996.
The Company's reinsurance receivable and prepaid reinsurance premiums
at December 31, 1996 totaled $709.7 million. The Company's reinsurance
was placed with numerous reinsurers including the following significant
reinsurers: (i) Triton Insurance Company, (ii) Lincoln National Life
Insurance Company, and (iii) Caterpillar Insurance Company, Limited.
The Company historically has not experienced any material losses in
collection of reinsurance receivables.
CERTAIN FACTORS COMMON TO THE OPERATIONS OF INSURANCE COMPANIES
Government Regulation
The Company and its insurance subsidiaries are subject to regulation
and supervision by the states in which the Companys insurance
subsidiaries transact business. This regulation is designed primarily
to ensure the financial stability of insurance companies and to protect
policyholders, rather than stockholders or creditors. State insurance
regulatory agencies have broad administrative powers to grant and
revoke licenses to transact business, regulate trade practices,
establish guaranty associations, license agents, require approval of
policy forms and premium rates on certain business prior to use,
establish reserve requirements, determine the form and content of
required financial statements, determine reasonableness and adequacy of
capital and surplus and prescribe the types of permitted investments
and the maximum concentrations of certain classes of investments.
These agencies also conduct periodic detailed examinations of the
books, records and accounts of insurance companies domiciled in their
states, generally once every three to five years. Applicable state
insurance laws, rather than federal bankruptcy laws apply to the
liquidation or the reorganization of insurance companies.
13
<PAGE> 15
A substantial portion of the business written by the Company's
insurance subsidiaries is credit-related insurance. Most states have
enacted laws which regulate credit-related insurance to a greater
extent than they regulate other forms of insurance including maximum
premiums which may be charged and commissions which may be paid. In
addition, certain states have enacted or are considering regulations
which similarly attempt to limit profitability based upon underwriting
experience.
The National Association of Insurance Commissioners (NAIC) develops and
modifies model laws and regulations which may be modified and adopted
by the various states to meet their perceived needs and concerns
regarding business written in the state. While these model laws and
regulations have no effect on the Company until adopted by the states,
the activities of the NAIC provide useful insight into laws or
regulations that might be adopted by the various states. In the area of
credit insurance, the Creditor-Placed Insurance Model Act adopted in
1996 by the NAIC allows state regulators to take into account factors
other than losses in determining the reasonableness of credit insurance
rates. The NAIC also took action in 1995 on credit life insurance by
adopting an alternative approach to strict loss ratio based rate making
which allows state regulators to take into account factors other than
losses in determining the reasonableness of credit insurance rates.
Neither of these actions is expected to significantly affect the
Companys operations. With respect to investment practices, in 1996 the
NAIC adopted the Investments of Insurers Model Act which provides a
well-capitalized insurer more discretion and flexibility in its
investing practices. The Board of Directors also reviews the investment
policies of the Companys insurance subsidiaries.
Recent federal initiatives that may affect the industry have focused on
Superfund reform and dealing with the cleanup of pollution sites.
Among issues pending are the determination of retroactive liability and
a proposed insurer specific tax. No prediction can be made as to
whether any such initiatives will ultimately result in legislation or
the form that any such legislation might take.
Financial Regulation
Insurance companies are required to file detailed annual and quarterly
statements with state insurance regulators in each of the states in
which they do business. In addition, the Companys insurance
subsidiaries are required to comply with a minimum risk-based capital
(RBC Standards) developed by the NAIC. Under the RBC standards - risk
specific for each company - areas such as asset risk, insurance risk,
interest risk, and business risk are evaluated and compared to the
Companys capital and surplus to determine relative solvency margins.
Standards for the RBC formula were approved by regulators and effective
for 1993 statutory financial statements for life companies and in 1994
for property and casualty companies. All of the Companys insurance
subsidiaries meet the minimum risk-based capital requirements and
requires no action based on the criteria described above.
Dividend Regulation
The Company is a legal entity separate and distinct from its
subsidiaries. As a holding company with no other business operations,
its primary sources of cash needed to meet its obligations are
dividends and other payments from its insurance subsidiaries.
14
<PAGE> 16
The Companys insurance subsidiaries are subject to various regulatory
restrictions on the maximum amount of payments, including dividends,
loans or cash advances that they may make to the Company without
obtaining prior regulatory approval. As Florida domiciled insurance
companies, ABIC and ABLAC are subject to Florida requirements that
insurance company dividends must receive prior regulatory approval
unless, either (i) such dividends do not exceed the larger of: (a) the
lesser of 10% of surplus or net gain from operations (ABLAC) or net
income (ABIC), not including realized capital gains, plus a 2-year
carryforward for ABIC, (b) 10% of surplus, with dividends payable
constrained to unassigned funds minus 25% of unrealized capital gains;
or (c) the lesser of 10% of surplus or net investment income (net gain
before capital gains for ABLAC) plus a 3-year carryforward (2-year
carryforward for ABLAC) with dividends payable constrained to
unassigned funds minus 25% of unrealized capital gains; or (ii) the
dividend is equal to or less than the greater of: (a) 10% of the
insurers surplus as to policyholders derived from realized net
operating profits on its business and net realized capital gains; or
the insurers entire net operating profits and realized net capital
gains derived during the immediately preceding calendar year; and (b)
the insurer will have surplus as to policyholders equal to or exceeding
115% of the minimum required statutory surplus as to policyholders
after the dividend is made. As an Arizona domiciled insurance company,
ARIC must receive prior regulatory approval unless such dividends do
not exceed the lesser of either 10% of surplus as regards policyholders
or the net investment income. As Puerto Rico domiciled companies,
CALAC and CAPIC shall not pay any cash dividend to stockholders except
out of that part of its unassigned surplus funds which is derived from
any realized net profits on its business. As a New York domiciled
company, BALAC must file notice of its intention to declare a dividend
and the amount thereof with the superintendent of insurance who may
disapprove such distribution if he finds that it is not warranted by
the companys financial condition. The Voyager Insurance Companies are
domiciled in Georgia and South Carolina. Georgia and South Carolina
require prior regulatory approval for dividends in excess of the
greater of (i) 10% of a companys surplus as regards policyholders or
(ii) net gain from operations for life companies, or net income, not
including realized capital gains for non-life companies, as of the
preceding year end.
If insurance regulators determine that payment of a dividend or any
other payment to an affiliate (such as a payment under a tax allocation
agreement or for employee or other services or pursuant to a surplus
debenture) would, because of the financial condition of the paying
insurance company or otherwise, be hazardous to such insurance companys
policyholders or creditors, the regulators may block payment of such
dividends or such other payment to the affiliates that would otherwise
be permitted without prior approval.
See other information with respect to dividend regulation in Note 8 to
the Consolidated Financial Statements on page 55 in Part II Item 8 of
this report.
15
<PAGE> 17
Change of Control Regulation
The states in which the Companys insurance subsidiaries are domiciled
have enacted legislation or adopted administrative regulations
affecting the acquisition of control of insurance companies as well as
transactions between insurance companies and persons controlling them.
Most states require administrative approval of the acquisition of
control of an insurance company incorporated in the state or the
acquisition of control of an insurance holding company whose insurance
subsidiary is incorporated in the state. In Florida, the acquisition
of 5% of such shares is generally deemed to be the acquisition of
control for the purpose of the holding company statutes and requires
not only the filing of detailed information concerning the acquiring
parties and the plan of acquisition, but also administrative approval
prior to the acquisition. In the other states in which the Companys
insurance subsidiaries are domiciled, however, an acquisition of 10% of
such shares is generally deemed to be the acquisition of control. In
many states, the insurance authority may find that control in fact does
or does not exist in circumstances in which a person owns or controls
either a lesser or a greater amount of securities.
Competition
The historical competitors of the Company consist of both stock and
mutual insurance companies. Some competing companies, both stock and
mutual, have been in business for a longer time, are more widely known
by reason of such factors as age and size, and have greater financial
resources than the Company. However, due to the specialized nature of
the markets served and products offered, the Company's competitors
differ among the different geographic locations and market segments in
which the Company conducts business.
Banks have begun to market and underwrite insurance products which may
lead to increased competition. However, because the Company's products
do not include traditional life insurance products, the Company does
not expect to be significantly impacted. In addition, lending
institutions have begun to issue debt cancellation agreements, which
are similar to the Companys credit life and disability products. The
Company is unable to predict the market effect that this development
may have.
The Company's strategy is to establish profitable insurance
underwriting and to service business in distribution channels that are
relatively free of competition. In keeping with this strategy, the
Company markets non-traditional insurance products through
non-traditional distribution channels.
RESERVES
Life insurance companies are required to establish and maintain policy
liabilities to meet their obligations on life policies. These
liabilities are amounts which, with additions from premiums to be
received on outstanding policies and with interest on such benefits
compounded annually at certain assumed rates, are calculated to be
sufficient to meet policy obligations at death or maturity in
accordance with the mortality tables employed when the policies were
issued.
Liabilities for losses and loss adjustment expenses for property and
casualty insurance represent estimates of unpaid claims related to
known losses and of claims which have been incurred but not reported.
These liabilities are based upon past experience of ultimate claim
settlements and of unreported losses and loss adjustment expenses. The
length of time for which such costs must be estimated varies depending
upon the coverage involved. Since actual claim costs are dependent upon
such complex factors as inflation, changes in doctrines of legal
liability and damage awards, the process used in computing reserves
cannot be exact, particularly for liability coverages. The majority of
the Company's property and casualty insurance business is represented
by property coverage in which the ultimate loss experience develops
relatively quicker than that for insurers concentrated more heavily in
liability coverages.
In the ordinary course of business, the Company reinsures risks with
other insurance companies; nonetheless, the Company is contingently
liable with respect to risks reinsured, should the reinsuring companies
fail to meet the obligations assumed in the reinsurance agreements.
Information on the Company's Reserves appears in Note 4 to the
Consolidated Financial Statements on page 52 in Part II Item 8 of this
report.
16
<PAGE> 18
Property and Casualty Losses and Loss Adjustment Expenses
The consolidated financial statements include estimated provisions for
unpaid losses and loss adjustment expenses (LAE) applicable to the
Company's property and casualty insurance subsidiaries. Currently,
these subsidiaries write principally credit unemployment, credit
property, extended service contracts, mobilehome physical damage,
homeowners, and livestock lines of business throughout the United
States, Canada, the Caribbean, and the United Kingdom. Such liabilities
are established using a combination of case basis estimates and
statistical projections and include provisions for claims incurred but
not yet reported as of the balance sheet date.
Overall claims experience is principally dependent on the frequency and
severity of claims. With the exception of discontinued lines, the
Company writes primarily property coverages which are characterized by
relatively short settlement periods and quick development of ultimate
losses. The discontinued reinsurance assumed pools involve liability
coverages where development of the ultimate loss is more difficult to
predict because of the settlement duration and the relative absence of
homogeneity of claims as compared to the Company's property coverages.
The Company's estimating and reserving practices are reviewed
continuously. Subsequent adjustments to the original estimates are made
when determinable and are reflected in current year operations.
The following table shows the development of the estimated liability
for the ten years prior to 1996.
17
<PAGE> 19
AMERICAN BANKERS INSURANCE GROUP, INC.
DOMESTIC PROPERTY AND CASUALTY SUBSIDIARIES
ANALYSIS OF REPORTED BALANCE SHEET LOSS AND LAE DEVELOPMENT
GAAP BASIS
(IN THOUSANDS)
<TABLE>
<CAPTION>
1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
Liability
for Unpaid
Losses
& LAE $63,804 $79,915 $83,873 $83,328 $87,262 $89,626 $94,531 $117,080 $137,936 $163,918 $187,212
LIABILITY RE-ESTIMATED AS OF:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 year later $75,086 $89,495 79,857* 88,054* 79,291* 83,107* 106,007* 119,810* 144,123* 168,188*
2 years later $80,793 87,088* 84,156* 84,112* 83,882* 85,203* 110,226* 136,905* 150,478*
3 years later 81,023* 92,783* 83,415* 88,843* 86,954* 89,697* 122,481* 148,475*
4 years later 86,138* 93,414* 87,017* 90,476* 91,670* 104,249* 136,894*
5 years later 88,035* 96,420* 89,180* 96,419* 106,458* 119,228*
6 years later 90,248* 99,029* 94,541* 111,122* 118,389*
7 years later 93,079* 104,150* 109,473* 119,976*
8 years later 98,186* 119,273* 117,301*
9 years later 113,338* 127,056*
10 years later 121,109*
Cumulative
(Deficiency)
Redundancy $(57,305) ($47,141) ($33,428) ($36,648) ($31,127) ($29,602) ($42,363) ($31,395) ($12,542) ($4,270)
CUMULATIVE AMOUNT OF LIABILITY PAID THROUGH:
1 years later $44,862 $53,374 $45,460* $52,144* $49,983* $48,399* $63,922* $65,901* $71,654* $93,449*
2 years later $57,549 63,779* 59,865* 64,778* 61,736* 60,540* 85,500* 92,249* 96,417*
3 years later 61,867* 72,704* 67,232* 71,287* 68,174* 68,190* 101,603* 107,401*
4 years later 68,841* 78,370* 71,444* 74,210* 73,273* 80,932* 112,557*
5 years later 73,678* 81,840* 73,394* 78,292* 84,642* 90,090*
6 years later 76,208* 83,604* 76,938* 89,410* 90.447*
7 years later 77,862* 86,856* 87,886* 91,789*
8 years later 80,973* 97,766* 89,234*
9 years later 91,870* 99,050*
10 years later 93,141*
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
$158,359 $187,999 $239,357 $267,944
Gross Liability - end of year** 41,279 50,063 75,439 80,732
-------- -------- -------- --------
Net Liability - end of year ** $117,080 $137,936 $163,918 $187,212
Gross Re-estimated Liability ** $194,592 $199,861 $244,374
Re-estimated Reinsurance Recoverable 46,117 (49,383) 76,186
-------- -------- --------
Net Re-estimated Liability ** $148,475 $150,478 $168,188
Gross Cumulative (Deficiency) (36,233) (11,862) (5,017)
</TABLE>
* Indicates amounts are net of collected salvage and subrogation to conform with
the presentation of Schedule P in the 1996 Statutory Reports filed with the
state regulatory authorities.
**Amounts do not include issued but unpresented claim drafts as of
December 31; $1,546 (1992), $2,411 (1993), $1,322 (1994), $1,576 (1995),
and $1,374 (1996).
18
<PAGE> 20
The table in the preceding page presents the development of balance sheet
liabilities for 1986 through 1996. The top line of the table shows the estimated
liability for unpaid losses and LAE recorded at the balance sheet date for each
of the indicated years. This liability represents the estimated amount of losses
and LAE for claims arising in all prior years that are unpaid at the balance
sheet date, including losses that had been incurred but not yet reported to the
Company. The upper portion of the table shows the re-estimated amount of the
previously recorded liability based on the experience as of the end of each
succeeding year. The estimate is increased or decreased as more information
becomes known about the frequency and severity of claims.
The lower section of the table shows the cumulative amount paid with respect to
the previously recorded liability as of the end of each succeeding year.
Note that each amount includes the effects of all changes in amounts for prior
periods. Conditions and trends that have affected development of the liabilities
in the past may not necessarily occur in the future. Accordingly, it may not be
appropriate to extrapolate future redundancies or deficiencies based on this
table.
In the most recent years, actual loss development of the estimated liabilities
for unpaid claims and LAE amounts demonstrated that the original estimates have
generally been adequate except for those relating to the line "financial
guarantees" (1985-1986), reinsurance pools, and for 1992 due to Hurricane
Andrew.
The "cumulative (deficiency) redundancy" represents the aggregate change in the
estimates over all prior years. Such amounts have been reflected in income over
the years indicated.
The effect on income of the past three years of changes in estimates of the
liabilities for losses and LAE is shown in Note 4 to the Consolidated Financial
Statements on page 53 in Part II Item 8 of this report.
For the Company, the financial guarantee line is represented by its credit bond
insurance where litigation and certain related legal issues have historically
served to complicate the reserving process. Effective with 1995 settlements,
credit bond insurance is not expected to produce any future impact.
The Company's reserve development includes the effects from losses experienced
from reinsurance pools in which the Company discontinued participation effective
on or prior to 1981. The Company reported pre-tax losses in its discontinued
reinsurance pools of $8.3 million in 1996, $7.3 million in 1995 and $4.2 million
in 1994. The business is long tail in nature, and losses have exceeded both
Company and industry expectations, primarily as a result of evolving legal
theory and application which exceeded the intended scope of coverage when the
policies were written. The Company's insurance liability, which is secondary and
excess in nature, does not surface until the underlying primary coverages and
other reinsurance coverages if any, are exhausted. Loss experience has developed
in excess of historical experience because of the legal development of cases,
including asbestos, environmental and pollution cases. The Company's experience
can differ significantly from that of other insurers which wrote the primary
coverages directly. The reserves are reviewed, at a minimum annually, by both
the reinsurance intermediaries, where the claim liabilities are initially
established, and by the Company's actuaries. Lack of historical development
indicative of ultimate claim cost and a changing legal definition of what the
ultimate liability will be, has created significant uncertainty and has
consequently led to underreserving. The Company continues to evaluate and review
reserve adequacy in this area using, among other analyses, studies supplied by
the Reinsurance Association of America and any adjustments made are reflected in
current year results. Federal government Superfund proposals which would change
or define the liability for pollution claims add to the uncertainty. Given the
inconsistencies of court coverage decisions, plaintiffs' expanded theories of
liability, the risks inherent in major litigation and other uncertainties, it is
not presently possible to quantify the ultimate exposure. As a result, the
Company expects that future earnings may be adversely affected by environmental
and asbestos claims, although the amounts cannot be reasonably estimated.
However, based on its actuarial studies and analysis, the Company believes it is
not likely these claims will have a material adverse effect on the Company's
financial condition. At December 31, 1996, the Company holds $31.9 (gross)
million of reserves related to the reinsurance pools.
19
<PAGE> 21
No specific formula adjustment is made to the reserves in connection with
anticipated inflation; however, most coverages relate to property settlements
which occur relatively quickly. The Company establishes full reserves on all
lines (net of anticipated salvage and subrogation) and does not employ
discounting in its reserving process.
The differences between the December 31, 1996 liability for losses and LAE
reported in the accompanying consolidated financial statements in accordance
with generally accepted accounting principles (GAAP) and that reported in the
annual statement filed with state insurance departments in accordance with
statutory accounting practices (SAP) are as follows:
<TABLE>
<S> <C>
Liability reported on a SAP basis, net of intercompany
elimination for reinsured claim liabilities with affiliated
life and health companies $190,484,000
Deduct estimated salvage and subrogation recoveries
recorded on a cash basis for SAP purposes and on an
accrual basis for GAAP purposes (3,272,000)
----------
Liability reported on a GAAP basis for the domestic Property and
Casualty subsidiaries before unpresented claim drafts and
translation of foreign branch operations 187,212,000
Deduct unpresented claim drafts reported as other liabilities
for SAP purposes, but reported as claim liabilities for GAAP
purposes, and translation of foreign branch operations (1,374,000)
----------
Liability reported on a GAAP basis - domestic Property and
Casualty subsidiaries only 185,838,000
Add reserves of foreign subsidiaries not included in
consolidated statutory liability 11,050,000
----------
Liability reported on a GAAP basis (net) 196,888,000
Add Reinsurance Recoverable for ceded unpaid losses
(domestic of $80,732,000 and foreign of $20,276,000) 101,008,000
-----------
Liability reported on a GAAP basis (gross) $297,896,000
------------
</TABLE>
EMPLOYEES
As of December 31, 1996, the Company employed 2,874 people.
d. FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS
For financial information about foreign and domestic operations see
Note 12 to the Consolidated Financial Statements on page 65 in Part
II Item 8 of this report.
20
<PAGE> 22
ITEM 2
PROPERTIES
The headquarters building is located at 11222 Quail Roost Drive, Miami,
Florida 33157,and is approximately 415,000 square feet in size. The
building is used exclusively for general office use, except for a portion
which functions as the Company's warehouse. Certain other properties are
infrequently acquired through foreclosures of mortgage loans in which ABLAC
has invested. ABLAC holds and operates such properties until sale can be
effected.
ITEM 3
LEGAL PROCEEDINGS
Except as discussed in the following paragraph, there are no material legal
proceedings, other than ordinary routine litigation incidental to the
business, to which the Registrant or any of its subsidiaries is a party or
of which any of their property is the subject.
LITIGATION
Following is a description of material legal proceedings:
ALABAMA AND OTHER LITIGATION:
Certain of ABIG's subsidiaries, including ABIC, ABLAC, and Voyager, are
presently parties to a number of individual consumer and class action
lawsuits pending in Alabama involving premium, rate and policy coverage
issues. While a number of similar suits have been filed in other
jurisdictions, the insurance and finance industries have been targeted in
Alabama by plaintiffs' lawyers who enjoy a favorable judicial climate. The
Company typically has been named as a co-defendant with one or several
retailer or finance companies who have sold the Company's product to a
consumer. A number of other credit insurers are named as co-defendants in
many of the suits.
Although these lawsuits generally involve relatively small amounts of
actual or compensatory damages, they typically assert claims requesting
substantial punitive awards. The Company denies any wrongdoing in any of
these suits and believes that it has not engaged in any conduct that would
warrant an award of punitive damages. The Company has been advised by legal
counsel that it has meritorious defenses to all claims being asserted
against it.
While no one case is necessarily significant in terms of financial risk to
the Company, the judicial climate in Alabama is such that the outcome of
these cases is extremely unpredictable. Without admitting any wrongdoing,
the Company has settled a number of these suits, but there are still a
significant number of cases pending, and it is expected that more suits
alleging essentially the same causes of action are likely to continue to be
filed during 1997. The Company intends to continue to defend itself
vigorously against all such suits and believes, based on information
currently available, that any liabilities that could result are not
expected to have a material effect on the Company's financial position.
The Company is involved with a number of cases in the ordinary course of
business relating to insurance matters or, more infrequently, certain
corporate matters. Generally, the Company's liability is limited to
specific amounts relating to insurance or policy coverage for which
provision has been made in the financial statements. Other cases involve
general corporate matters which generally do not represent significant
contingencies for the Company.
21
<PAGE> 23
ITEM 4
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
fourth quarter of the year ended December 31, 1996.
22
<PAGE> 24
EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below is information concerning each of the Executive Officers of the
Company and the Executive Officers of the Company's subsidiaries:
<TABLE>
<CAPTION>
POSITION AND OFFICES WITH THE COMPANY;
PRINCIPAL OCCUPATION FOR PAST FIVE YEARS
NAME AGE AND OTHER DIRECTORSHIPS, IF ANY
- ---- --- ----------------------------------------
<S> <C> <C>
R. Kirk Landon 67 Chairman of the Board (1990-Present); Chief International Officer
(1996-Present); Chief Executive Officer of the Company (1980-1995);
Chief International Officer (1996-Present) of ABIC and ABLAC; Chief
Executive Officer (1989-1995) of ABIC and ABLAC; Director of BALAC
(1990-1995); Director of BICL (1993-Present); Director of CALAC and
CAPIC (1992-1996); Director of VGI, VLIC, and VLHIC (1993-1995);
Director of Mayor's Jewelers (jewelry retailers (1987-Present).
Gerald N. Gaston 64 Chief Executive Officer and President (1996-Present); President and
Chief Operating Officer (1982-1995); Vice Chairman of the Board (1980-
Present) of the Company. Chief Executive Officer (1996) of ABIC & ABLAC;
Chairman of the Board (1991-Present), Vice Chairman of the Board (1990-
1991) and Chief Operating Officer (1990-1995) of ABIC and ABLAC; Chairman
of the Board, ARIC (1993-present); Director of BALAC (1981-Present);
Chairman of the Board and President of BARC (1995-1996); Chairman of the
Board of VGI, VLHIC, and VLIC (1993-present); Director of Inter
Continental Bank (1993-1995)
Eugene E. Becker 47 Chief Executive Officer (1996-Present) of ABIC and ABLAC; Executive Vice
President (1991-Present) of the Company; Chief Executive Officer of VGI,
VLHIC, and VLIC (1996); and Chief Marketing Officer of the Company
(1991-1995); President of ABIC (1989-1996); Executive Vice President of
ABLAC (1983-1989); Director, Financial Markets of ABIC and ABLAC (1983-
Present); Director (1989-1996) of ARIC; CEO (1996) of ARIC; President,
ARIC (1993-1996); Chairman of the Board (1991-Present) of BALAC;
Director of BARC (1995-Present); President (1993-1996) and Chief
Operating Officer (1993-1995) of VGI, VLHIC, and VLIC.
</TABLE>
23
<PAGE> 25
<TABLE>
<CAPTION>
POSITION AND OFFICES WITH THE COMPANY;
PRINCIPAL OCCUPATION FOR PAST FIVE YEARS
NAME AGE AND OTHER DIRECTORSHIPS, IF ANY
- ---- --- ----------------------------------------
<S> <C> <C>
Floyd G. Denison 53 Executive Vice President - Finance of the Company, ABIC and ABLAC
(1996-Present). Executive Vice President and Director, Corporate Asset
Management of the Company (1991-1996); Treasurer of the Company
(1986-1991); Executive Vice President, Investments of ABIC and ABLAC
(1996-Present), Senior Vice President, Investments, of ABIC and ABLAC
(1983-1996); Vice President of BALAC (1991-Present); Chairman of the
Board of BARC (1996-Present); Director of BICL (1995-1996); Director
of VIIC, VLIC, VLHIC (1996-Present); Director of VPCIC (1993-Present).
Jay R. Fuchs 41 President of ABLAC (1991-Present); President of ABIC (1996-Present);
Executive Vice President of ABIC (1996); Director, ABIC and ABLAC
(1991-Present); Executive Vice President, Financial Markets of ABIC and
ABLAC (1988-1991); Director (1991-Present) and President (1996-Present)
of BALAC; Director of VLIC and VLHIC (1993-Present). Director of VGI
(1993-1995), VIIC, VPCIC (1993-Present).
Leonardo F.Garcia 45 Vice President and Treasurer of the Company (1996-Present); Secretary
of the Company (1994-1996); Senior Vice President and Secretary,
Corporate Planning and Acquisitions of ABIC and ABLAC (1994-1996); Vice
President of Investments (1993-1995); Secretary of VGI (1994-1996).
Assistant Secretary of ARIC (1995-1996); Director (1995-Present) and
Secretary (1994-1996) of BALAC; Secretary of CALAC and CAPIC
(1994-1996); Director and Secretary of BARC (1995-1996); Secretary of
VGI, VPCIC, (1994-1996); Assistant Secretary of VIIC, VLIC and VLHIC
(1994-1996).
Arthur W. Heggen 51 Secretary of the Company (1996-Present); Vice President and Treasurer of
the Company (1991-1996); Vice President and Principal Accounting Officer
of the Company (1990-1991); Senior Vice President (1990-Present),
Secretary (1996-Present) of ABIC and ABLAC; Vice President of BALAC
(1995-1996); Secretary and Director of BALAC (1996-Present); Secretary
of VGI VPCIC, CALAC, and CAPIC (1996-Present); Assistant Secretary VIIC,
VLIC, and VLHIC (1996-Present).
</TABLE>
24
<PAGE> 26
<TABLE>
<CAPTION>
POSITION AND OFFICES WITH THE COMPANY;
PRINCIPAL OCCUPATION FOR PAST FIVE YEARS
NAME AGE AND OTHER DIRECTORSHIPS, IF ANY
- ---- --- ----------------------------------------
<S> <C> <C>
Jason Israel 44 Executive Vice President, Administration (1996-Present); Executive Vice
President, Operations, of ABIC and ABLAC (1993-1995); Senior Vice
President, Financial Operations, of ABIC and ABLAC (1992); Senior Vice
President, Profits, of ABIC and ABLAC (1990-1992); Vice President of
BALAC (1995-Present); Executive Vice President of CALAC and CAPIC
(1995-Present)
Michael T. Ray 43 Executive Vice President, Information Services, of ABIC and ABLAC
(1996-Present); First Senior Vice President, Personal and Financial
Sales, of ABIC and ABLAC (1994-1995); First Senior Vice President,
Marketing Director, of ABIC and ABLAC (1992-1994); Senior Vice
President, Financial Insurance Processing, of ABIC and ABLAC (1990-1992).
Stephen T. Williams 45 Executive Vice President, Subsidiaries (1996-Present) of the Company;
Chief Executive of VGI, VIIC, VLIC, VLHIC, and VPCIC (1996-Present);
Chief Executive Officer (1996-Present) ARIC. Executive Vice President,
Marketing Director, of ABIC and ABLAC (1996-Present); First Senior Vice
President, Marketing Director of ABIC and ABLAC (1994-1995); Senior Vice
President, Regional Sales, of ABIC and ABLAC (1988-1993). Director of
BALAC (1990-Present); President (1991-1995) and Executive Vice President
of BALAC (1996-Present).
</TABLE>
None of the Executive Officers named above are involved in legal proceedings as
defined in Regulation S-K, Item 401(f). Information with respect to promoters
and control persons is not applicable.
25
<PAGE> 27
PART II
ITEM 5
MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
a. MARKET FOR COMMON STOCK
Common Share Prices and Dividend Data
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
1996
- ----
High $39.88 $44.25 $50.38 $52.38
Low 33.25 32.50 39.50 45.75
Dividend 0.19 0.20 0.20 0.20
1995
- ----
High $31.13 $32.88 $37.38 $39.38
Low 23.38 26.63 30.75 34.63
Dividend 0.18 0.19 0.19 0.19
</TABLE>
The last sale price per share of the Company's stock on the last
trading day of 1996, as reported by NASDAQ, was $51.13.
COMMON SHARES
American Bankers Insurance Group, Inc. is traded over-the-counter under
the NASDAQ symbol ABIG. The stock appears in the NASDAQ National Market
stock table. This table presents the high, low and closing sales prices
for the stock under the abbreviation AMBKRSINS.
The ending market price as of March 21, 1996 was $53.50.
b. APPROXIMATE NUMBER OF EQUITY SECURITY HOLDERS
At December 31, 1996, there were 1,532 registered shareholders.
c. DIVIDENDS PER SHARE OF COMMON STOCK
For information of the dividends paid per common share see the Table of
data in Item 5 a. above.
The Company expects to continue its policy of paying regular cash
dividends; however, future dividends are dependent on future earnings,
capital requirements and financial condition. For more information
regarding liquidity and capital resources see page Part II Item 7 page
35.
26
<PAGE> 28
ITEM 6
SELECTED FINANCIAL DATA
At December 31 (in thousands except book value per common share):
<TABLE>
<CAPTION>
Major Balance Sheet Items 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
ASSETS
Investments $1,968,400 $1,688,400 $1,264,900 $1,110,900 $982,100
Cash 30,400 23,300 89,500 39,800 10,400
Reinsurance
receivable 202,600 168,100 130,900 174,200
Deferred policy
acquisition costs 388,000 310,900 229,600 198,800 174,900
Prepaid reinsurance
premiums 507,100 502,300 396,800 310,600
Other assets 373,000 294,700 320,800 326,200 236,900
- --------------------- -------------- -------------- --------------- -------------- --------------
Total assets 3,469,500 2,987,700 2,432,500 2,160,500 1,404,300
- --------------------- -------------- -------------- --------------- -------------- --------------
LIABILITIES
Policy and claim
liabilities 2,070,500 1,858,900 1,502,600 1,395,900 802,800
Notes payable 222,500 236,000 197,800 158,900 139,600
Deferred income
taxes 40,800 29,500 5,000 10,800
Accrued expenses 156,900 136,200 98,800 87,000 77,200
Other liabilities 268,600 214,100 227,400 114,400 105,500
- --------------------- -------------- -------------- --------------- -------------- --------------
Total liabilities 2,759,300 2,474,700 2,026,600 1,761,200 1,135,900
- --------------------- -------------- -------------- --------------- -------------- --------------
STOCKHOLDERS' EQUITY
Preferred stock 115,000
Common stock 20,500 20,400 20,200 20,100 16,400
Additional paid-in
capital 217,900 215,100 212,100 210,900 128,400
Net unrealized
investment and
foreign exchange
gains (losses) 7,400 7,300 (38,500) 400 (2,600)
Retained earnings 359,400 282,700 225,400 183,000 143,100
Treasury stock at
cost (1,400) (2,500) (1,600) (400) (400)
Unamortized
restricted stock (4,400) (3,600) (3,200) (4,100) (3,800)
Collateralization
of loan to
Leveraged Employee
Stock Ownership Plan (4,200) (6,400) (8,500) (10,600) (12,700)
- --------------------- -------------- -------------- --------------- -------------- --------------
Total stockholders'
equity 710,200 513,000 405,900 399,300 268,400
- --------------------- -------------- -------------- --------------- -------------- --------------
Total liabilities
and stockholders'
equity $3,469,500 $2,987,700 $2,432,500 $2,160,500 $1,404,300
- --------------------- -------------- -------------- --------------- -------------- --------------
Book value per
common share $29.12 $25.34 $20.15 $19.87 $16.38
===================== ============== ============== =============== ============== ==============
</TABLE>
The amounts for 1993 and forward are reported in accordance with FASB Statement
113.
27
<PAGE> 29
For the Years ended December 31 (in thousands except per common share
data):
<TABLE>
<CAPTION>
Consolidated
Statements of Income 1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues
Net premiums
earned $1,378,500 $1,240,700 $1,094,300 $882,000 $733,000
Net investment
income 121,200 99,400 74,400 70,400 67,500
Realized
investment gains 7,800 700 2,700 5,400 2,800
Gain on
insurance
settlement 5,400
Other income 21,500 20,100 15,400 10,100 8,800
- --------------------- -------------- --------------- -------------- ------------ -------------
Total revenues 1,529,000 1,360,900 1,186,800 973,300 812,100
- --------------------- -------------- --------------- -------------- ------------ -------------
Benefits and expenses
Benefits,
claims, losses,
and settlement
expenses 523,000 463,100 437,900 349,800 299,800
Commissions 571,800 526,500 437,700 358,000 289,400
Operating expenses 280,800 251,500 220,200 181,700 153,800
Interest expense 17,500 15,600 11,200 8,100 9,600
- --------------------- -------------- --------------- -------------- ------------ -------------
Total benefits and
expenses 1,393,100 1,256,700 1,107,000 897,600 752,600
- --------------------- -------------- --------------- -------------- ------------ -------------
Pre-tax income from
operations 135,900 104,200 79,800 75,700 59,500
- --------------------- -------------- --------------- -------------- ------------ -------------
Income tax
(expense) benefit
Current (28,900) (25,200) (14,800) (24,400) (19,000)
Deferred (12,500) (6,700) (8,500) 2,000 1,800
- --------------------- -------------- --------------- -------------- ------------ -------------
(41,400) (31,900) (23,300) (22,400) (17,200)
- --------------------- -------------- --------------- -------------- ------------ -------------
Net income before
cumulative effect of
change in accounting 94,500 72,300 56,500 53,300 42,300
Cumulative effect
of change in
accounting for
income taxes (1,000)
- --------------------- -------------- --------------- -------------- ------------ -------------
Net income $94,500 $72,300 $56,500 $52,300 $42,300
- --------------------- -------------- --------------- -------------- ------------ -------------
PER COMMON SHARE DATA
Primary
Net income before
cumulative effect
of change in
accounting $4.39 $3.48 $2.74 $2.85 $2.57
Cumulative
effect of change
in accounting for
income taxes (0.05)
- --------------------- -------------- --------------- -------------- ------------ -------------
Net income $4.39 $3.48 $2.74 $2.80 $2.57
- --------------------- -------------- --------------- -------------- ------------ -------------
Weighted average
number of shares
outstanding 20,814 20,746 20,596 18,670 16,432
- --------------------- -------------- --------------- -------------- ------------ -------------
Fully diluted
Net income
before
cumulative
effect of
change in
accounting $4.31 $3.48 $2.74 $2.78 $2.39
Cumulative
effect of
change in
accounting for
income taxes (0.05)
- --------------------- -------------- --------------- -------------- ------------ -------------
Net income $4.31 $3.48 $2.74 $2.73 $2.39
- --------------------- -------------- --------------- -------------- ------------ -------------
Weighted average
number of shares
outstanding 21,965 20,823 20,613 19,317 18,433
- --------------------- -------------- --------------- -------------- ------------ -------------
Dividends per
common share $0.79 $0.75 $0.71 $0.68 $0.60
===================== ============== =============== ============== ============ =============
</TABLE>
28
<PAGE> 30
For the Years ended December 31 (in thousands):
<TABLE>
<CAPTION>
GROSS GROSS PREMIUMS CEDED PREMIUMS NET PREMIUMS
COLLECTED PREMIUMS EARNED EARNED EARNED
1996 1995 1996 1995 1996 1995 1996 1995
- -------------------- ----------- ------------ ------------ ----------- ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Unemployment $489,400 $410,800 $460,100 $367,500 $195,000 $125,300 $265,100 $242,200
Credit A&H 377,600 349,000 381,900 320,200 194,400 136,600 187,500 183,600
Credit Property 336,900 367,700 335,900 320,800 152,400 157,000 183,500 163,800
Credit Life 309,500 287,200 291,300 242,700 158,200 105,800 133,100 136,900
Extended Service
Contracts 203,900 129,500 110,800 31,000 8,400 1,000 102,400 30,000
Mobilehome
Physical Damage 132,200 137,300 136,700 109,600 40,700 27,800 96,000 81,800
Homeowners 93,700 101,100 100,900 100,300 39,000 40,900 61,900 59,400
Mortgage A&H 66,600 53,300 63,700 52,900 6,600 5,000 57,100 47,900
Group A&H 50,700 39,600 51,100 38,800 13,000 9,500 38,100 29,300
Livestock Mortality 46,600 40,800 45,500 41,300 14,400 12,500 31,100 28,800
- -------------------- ----------- ------------ ------------ ----------- ------------ ------------ ----------- ------------
Subtotal 2,107,100 1,916,300 1,977,900 1,625,100 822,100 621,400 1,155,800 1,003,700
- -------------------- ----------- ------------ ------------ ----------- ------------ ------------ ----------- ------------
All Other 385,700 370,300 398,800 383,000 176,100 146,000 222,700 237,000
- -------------------- ----------- ------------ ------------ ----------- ------------ ------------ ----------- ------------
Total $2,492,800 $2,286,600 $2,376,700 $2,008,100 $998,200 $767,400 $1,378,500 $1,240,700
==================== =========== ============ ============ =========== ============ ============ =========== ============
</TABLE>
FIVE-YEAR SELECTED FINANCIAL DATA
At December 31:
<TABLE>
<CAPTION>
LIFE INSURANCE SUBSIDIARIES 1996 1995 1994 1993 1992
- -------------------------------------------- -------------- ------------- ------------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
Statutory capital and surplus
(in thousands)* $234,700 $188,900 $174,100 $175,900 $116,400
- -------------------------------------------- -------------- ------------- ------------- ------------- ----------------
Ratio of statutory capital and surplus to
liabilities 33.2% 28.6% 32.2% 35.5% 24.8%
- -------------------------------------------- -------------- ------------- ------------- ------------- ----------------
PROPERTY AND CASUALTY SUBSIDIARIES
- -------------------------------------------- -------------- ------------- ------------- ------------- ----------------
Statutory capital and surplus
(in thousands)* $374,500 $271,500 $224,900 $215,900 $156,200
- -------------------------------------------- -------------- ------------- ------------- ------------- ----------------
Ratio of net premiums written to statutory
capital and surplus 2.4% 3.1% 2.6% 2.3% 2.6%
- -------------------------------------------- -------------- ------------- ------------- ------------- ----------------
Ratio of loss and loss expense reserves to
statutory capital and surplus 50.8% 65.5% 58.2% 55.6% 65.7%
- -------------------------------------------- -------------- ------------- ------------- ------------- ----------------
Combined loss and expense ratio (statutory
basis) 96.8% 93.8% 96.0% 94.1% 95.7%
- -------------------------------------------- -------------- ------------- ------------- ------------- ----------------
</TABLE>
*See Note 8 to Consolidated Financial Statements.
29
<PAGE> 31
For the Years ended December 31:
<TABLE>
<CAPTION>
Operating Ratios 1996 1995 1994 1993 1992
- ------------------------------------------ -------------- ------------ ------------ ---------- ---------
<S> <C> <C> <C> <C> <C>
As a percent of net premiums earned:
Benefits, claims, losses, and
settlement expenses 37.9% 37.3% 40.0% 39.7% 40.9%
Commissions 41.5 42.4 40.0 40.6 39.5
Operating expenses as a percent
of gross premiums earned 11.8 12.5 13.1 13.6 14.6
- --------------------------------------------------- ------------------ ------------------ ------------------ ------------------
Net operating income as a percent of
gross premiums earned 3.8 3.6 3.3 3.7 3.8
Net operating income as a percent of
total revenues (excluding realized
investment gains and losses) 5.9 5.3 4.6 5.0 5.0
Net income as a percent of average
assets (return on assets) 2.9 2.7 2.5 3.4 3.1
Net income as a percent of average
common stockholders' equity
(return on equity) 16.5 15.7 14.1 15.7 17.4
- --------------------------------------------------- ------------------ ------------------ ------------------ ------------------
At December 31:
Debt as a percent of
total capitalization 23.9 31.5 32.8 28.5 34.2
Price/Earnings Ratio (FULLY DILUTED) 11.9 11.2 8.8 9.4 9.3
Price/Book Value Ratio 1.8 1.5 1.2 1.3 1.5
- --------------------------------------------------- ------------------ ------------------ ------------------ ------------------
</TABLE>
<TABLE>
<CAPTION>
Gross Life Insurance in Force Gross Collected Premiums
(in millions of dollars) (in millions of dollars)
<S> <C> <C>
1996 $ 48,704 $ 2,493
1995 42,708 2,287
1994 32,129 1,761
1993 30,848 1,427
1992 27,878 1,120
</TABLE>
30
<PAGE> 32
ITEM 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
INDUSTRY
Property and casualty insurers are expected to experience higher
earnings in 1996 due to large capital gains, the relative absence of
major catastrophes, and stabilizing provisions for environmental and
asbestos losses. Consequently, return on equity has been projected at
15% or higher for 1996, despite stagnant (3.6%) premium growth. A.M.
Best, however, has reported a weakening of business fundamentals and
increased competition, which is forcing property and casualty insurers
to cut prices, particularly in the commercial sector.
The reinsurance market experienced significant consolidation in 1996.
Despite the reduction in the number of large reinsurance companies, the
cost of reinsurance coverage has been decreasing. This may be
attributable in part to the relatively improved underwriting experience
over the last two years, the expanded Bermuda market and the resurgence
of Lloyd's of London.
Litigation continues to be a major industry concern. In Alabama, and
increasingly in other states, the insurance and finance industries have
been targeted in litigation. The legal environment in Alabama has
received national news coverage and the Alabama legislature is
considering tort reform. Changes in the current environment, if any,
cannot be predicted.
Recent Supreme Court and other regulatory rulings are expected to lead
to increased marketing of insurance products by banks. This may lead to
increased competition; however, the Company does not expect to be
significantly impacted since its major products do not include
traditional life and property and casualty insurance products which
banks may begin to market. Accordingly, this may result in additional
products and services being sold through the Company's bank
distribution channel. Congress has indicated that during 1997, it may
examine the issue of banking reform including state regulation of the
insurance industry.
The Company has become aware that some financial institutions have, in
connection with a loan, begun to issue debt cancellation agreements,
which are similar to the Company's credit life and credit disability
products. Various state insurance and financial institution regulators
are examining these agreements to determine whether they should be
regulated as insurance. It is premature to project the ultimate legal
resolution and resulting market effects this development might have.
The federal government, commercial companies and the insurance industry
continue to work together toward Superfund reform and dealing with the
cleanup of pollution sites. Among issues pending are the determination
of retroactive liability and a proposed insurer-specific tax. The most
recent bill introduced in Congress reflects a scaled down Superfund
reform plan that largely retains the retroactive liability system.
AMERICAN BANKERS
In 1996, net income increased 31% to $94.5 million from $72.3 million
in 1995. Operating results benefited from continued strong growth in
net investment income and in the Company's credit-related products.
After-tax operating income before realized gains generated by the
property and casualty segment was adversely impacted in 1996 by losses
from Hurricanes Bertha, Fran and Hortense of approximately $6.0
million. The Company's United Kingdom insurance subsidiary incurred
additional operating losses in 1996 principally due to cancelled
product lines. The 1995 results included, on an
31
<PAGE> 33
after-tax basis, $.5 million in net investment gains and a $3.8 million
charge on the settlement of the final portion of the credit bond
litigation. The 1994 results included, on an after-tax basis, $1.7
million in net investment gains and a $2.9 million charge on the final
settlement of credit bond litigation initiated by bondholders.
Pre-tax operating income before realized gains by industry segment was
as follows:
(in thousands)
LIFE
----
1996 $ 57,569
1995 $ 43,469
1994 $ 30,434
PROPERTY AND CASUALTY
---------------------
1996 $ 86,067
1995 $ 83,971
1994 $ 66,023
These segment results exclude interest and other corporate activity.
REVENUES
Total revenues increased 12% in 1996 over the prior year, primarily due
to increases in net earned premiums of $137.8 million and investment
income of $21.8 million. Gross collected premiums increased more than
$200 million or approximately 9%, from $2.3 billion in 1995 to $2.5
billion in 1996. Excluding a $66 million block of business acquired in
1995, gross collected premiums increased 12%. In 1996, property and
casualty segment revenues increased by $146.5 million compared to the
life segment increase of $20 million. A significant portion of the
property and casualty segment growth resulted from the increase in net
earned premiums in credit unemployment and extended service contract
products.
The growth in gross collected premiums was primarily related to three
products:
(in thousands)
<TABLE>
<CAPTION>
Product 1996 1995 Increase
------- ---- ----- --------
<S> <C> <C> <C>
Credit Unemployment $ 489,400 $ 410,800 $ 78,600
Credit A&H 377,600 349,000 28,600
Extended Service Contracts 203,900 129,500 74,400
------------- ------------- -----------
Total $ 1,070,900 $ 889,300 $ 181,600
</TABLE>
Growth in these and other products were offset by the decline in the
credit property product, primarily related to the cancellation of
certain accounts due to insufficient profit margins. Premium growth was
also adversely impacted by planned declines in the Mobilehome Physical
Damage and Homeowners product lines which are more susceptible to
seasonal changes and catastrophes.
The Company expects long-term premium growth to continue. Actual growth
in any one year may vary depending on the acquisition or loss of
significant clients, business acquisitions and international expansion
or other factors as described in the Safe Harbor Cautionary Statement.
The cost of reinsurance to cover catastrophe losses has remained
relatively unchanged at $9.3 million and $9.5 million in 1996 and 1995
respectively. The cost in 1994 was $6.4 million. The Company
continually reviews its exposure to catastrophe losses and, in 1995,
increased its coverage which accounted for the majority of the increase
in cost over 1994. The unusually large number of major
32
<PAGE> 34
catastrophe losses experienced by the industry in past years had caused
the reinsurance market capacity to be limited and more costly.
Investment income increased by 22% to $121.2 million in 1996 from $99.4
million in 1995. The increase is mainly due to the overall increase in
invested assets of $280 million. The increase in 1995 from 1994 was
34%; however, this included growth due to the acquisition of a $66
million block of business. The Company's average fixed income
investment yield was 6.8% in 1996, 7.0% in 1995 and 6.7% in 1994.
Gross collected premiums increased 30% in 1995 (26% excluding the $66
million acquisition) and 23% in 1994. Net earned premiums increased 13%
in 1995 and 24% in 1994.
Total net premiums earned by industry segment were as follows:
(in millions)
<TABLE>
<CAPTION>
1996 1995 1994
---------------------------------------
<S> <C> <C> <C>
Life $ 384.0 $ 377.1 $ 360.1
Property and Casualty 994.5 863.6 734.2
----------- ----------- -----------
Total $ 1,378.5 $ 1,240.7 $ 1,094.3
</TABLE>
CLAIMS AND COMMISSIONS
Through our extensive use of adjustable commission arrangements based
on claims experience, we have been able to generate business with
stable underwriting results. The overall loss ratio for the Company was
37.9% in 1996 compared with 37.3% and 40.0% in 1995 and 1994
respectively. The commission expense ratios for the same periods were
41.5% in 1996, 42.4% in 1995 and 40.0% in 1994.
The Company's experience in the property and casualty segment has been
better than industry experience, as demonstrated by the following
statutory combined ratios:
<TABLE>
<CAPTION>
1996 1995 1994
------------------------------
<S> <C> <C> <C>
Property & Casualty Segment 97 94 96
Industry 107* 106.5 108
</TABLE>
*A.M. Best estimates
In 1996, the Company incurred approximately $9.2 million in pre-tax
losses related to Hurricanes Bertha, Fran and Hortense.
Credit bond pre-tax losses and expenses amounted to $11.5 million in
1995 and $6.6 million in 1994, including reserves and partial
litigation settlements of $5.8 million and $4.5 million in 1995 and
1994 respectively. In 1996, the Company did not incur any significant
expenses or losses associated with the remaining credit bond policies
in force.
The Company's 1996 reserve development, both foreign and domestic, was
not significantly different from previously established reserves. The
Company's reserve development includes the effects from losses
experienced from excess casualty reinsurance pools in which the Company
discontinued participation effective in or prior to 1981. The Company
reported pre-tax losses from these pools of $8.3 million in 1996, $7.3
million in 1995 and $4.2 million in 1994. Reserve additions in 1996
increased significantly to $6.7 million from $3.0 million in 1995.
33
<PAGE> 35
This business is long-tail in nature and losses continue to exceed both
Company and industry expectations. Most of these losses result from
asbestos-related and environmental pollution claims. The Company's
exposure is primarily through participation in excess casualty pools.
These pools typically involve high-layer coverages that are applicable
only after primary insurance coverage and, in many cases, reinsurance
coverages have been exhausted. The Company's experience can differ
significantly from that of other insurers which wrote the primary
coverages directly. The Company establishes loss reserves on known
claims as recommended by the various pool managers, plus additional
reserves to compensate for those claims that have not yet been
reported. Reserve additions in 1996 have increased the survival ratio
to 14 years from 8.5 in 1995.
It is difficult to make a reasonable estimate of the Company's ultimate
liability due to a general absence of reliable predictive data and of a
generally accepted actuarial methodology for these exposures,
significant unresolved legal issues including coverage issues, policy
definitions and evolving theories and arguments. Additionally, the
determination of ultimate damages and the final allocation of such
damages to financially responsible parties is complex and uncertain.
Our historical experience suggests, however, that although reinsurance
pool losses will continue, they should not have a materially adverse
effect on the Company's financial condition or cash flows.
A few of the Company's products such as Mobilehome Physical Damage and
Homeowners are affected by seasonal changes during the year, causing
the profitability in those lines and for the Company to fluctuate
throughout the year.
OPERATING AND INTEREST EXPENSES
Operating expenses (excluding interest expense) were $280.8 million in
1996, $251.5 million in 1995 and $220.2 million in 1994. The ratio of
operating expenses to gross premiums earned in 1996 was 11.8%, showing
continued improvement from 1995 of 12.5% and 1994 of 13.1%. The Company
is in the process of replacing many of its legacy systems and is
upgrading its systems to accommodate business for the year 2000. The
most significant of these costs relate to the new processing system
being implemented for the property and casualty segment, which totaled
$6.3 million in 1996, $4.9 million in 1995 and $3.6 million in 1994.
Similar expense levels are expected to continue through 1997.
Interest expense was $17.5 million, $15.6 million and $11.2 million in
1996, 1995 and 1994 respectively. The increase in interest expense in
1996 is primarily due to elevated debt levels during the year. The
increase in interest expense from 1994 to 1995 was due in part to an
increase in interest rates and increases in debt of $38.2 million.
TAXES
The effective tax rate remained constant at 31% in 1996 and 1995
despite an increase in operating losses from our United Kingdom
insurance subsidiary. These losses did not provide any tax benefit to
the Company and were also the primary cause for the increase in 1995
from an effective tax rate of 29% in 1994. The Company continues to
increase its concentration of tax-exempt and tax-credit investments to
minimize its income tax expense.
FINANCIAL CONDITION
Total assets increased 16% to $3.5 billion at December 31, 1996, from
$3.0 billion at December 31,1995. The increase is attributable to
strong cash flows, and the investment of proceeds from the issuance of
the Series B Convertible Preferred Stock. Total assets increased 23% at
December 31, 1995, from $2.4 billion at December 31, 1994. This
increase resulted from strong cash flows, the assumption of a block of
business and additional debt financing. Invested assets at December 31,
1996, 1995 and 1994, were $2.0 billion, $1.7 billion and $1.3 billion
respectively. At December 31, 1996,
34
<PAGE> 36
investments in fixed maturities represented 85% of the total investment
portfolio while short-term and other investments (principally invested
cash) represented another 9%. The Company does not hold significant
investments in equity securities, mortgage loans or real estate. At
December 31, 1996, there were $8.7 million in investments pertaining to
Florida properties, which represents 85% of the total mortgage loans
and real estate portfolio.
Liabilities were $2.8, $2.5 and $2.0 billion at December 31, 1996, 1995
and 1994 respectively. Liabilities associated with policies represent a
major portion of total liabilities including $2.1 billion or 75.0% in
1996, $1.9 or 75.1% in 1995, and $1.5 or 74.1% in 1994. Notes payable
were $222.5 million at December 31, 1996, $236.0 million at December
31, 1995, and $197.8 million at December 31, 1994. The Company's debt
to capitalization ratio of 23.9% at December 31, 1996, is at its lowest
level in years down from 31.5% and 32.8% at December 31, 1995 and 1994
respectively.
The Company registered $200 million in medium-term notes with the
Securities and Exchange Commission in 1994. During 1995 and 1994, the
Company issued $50.0 million and $75.0 million of these medium term
notes respectively. The debt issuance proceeds were used to refinance
outstanding debt and to support the Company's continued growth and
expansion into new markets. In 1995, the Company replaced its
short-term financing facility and borrowed $87 million, mainly used to
pay off its former facility.
Stockholder's equity increased by $310.9 million to $710.2 million at
December 31, 1996, from $399.3 million at January 1, 1994. In July
1996, the Company issued 2.3 million shares of preferred stock with a
stated value of $50 per share that contributed net proceeds of $111.8
million to equity. The other primary sources of growth in stockholder's
equity from January 1, 1994, to December 31, 1996, are accumulated
earnings of $223.3 million reduced by $46.9 million in dividends paid
on the Company's common and preferred shares. Under FASB Statement 115
- Accounting for Certain Investments in Debt and Equity Securities -
certain investments in debt and equity securities are carried in the
balance sheet at fair value. The difference between amortized cost and
fair value of securities available-for-sale (unrealized gain or loss,
net of tax) is included as a component of equity. Unrealized gains, net
of taxes on the Company's fixed maturity portfolio were $7.7 million at
December 31, 1996.
In February 1996, the Board of Directors revoked the 1990 authority to
repurchase Company stock and authorized a repurchase of up to one
million shares of the Company's stock in the open market from time to
time subject to certain conditions. At December 31, 1996, the Company
held approximately 93,000 shares as treasury stock.
LIQUIDITY AND CAPITAL RESOURCES
The increase in interest rates resulted in a reduction in the market
value of the Company's fixed maturity portfolio. Unrealized gains on
fixed maturity investments decreased to $25.1 million at December 31,
1996, from $35.2 million at December 31, 1995. At December 31, 1996,
$2.0 billion or 57.6% of the Company's total assets were comprised of
securities, short-term investments and cash. Securities are principally
readily marketable and none are part of highly leveraged transactions.
In the bond portfolio, 80% of bonds have maturities of under five years
and 83% have a rating of "A" or better (79% and 87% respectively at
December 31, 1995).
The Company's investment portfolio has been structured to match cash
requirements. Liabilities representing current cash requirements
including claim liabilities, accrued commissions and other liabilities
totaled $906.3, $748.0 and $646.1 million, at December 31, 1996, 1995
and 1994 respectively. Other significant cash commitments in 1997
include shareholder dividends of approximately $24.5 million under the
current capital structure.
35
<PAGE> 37
Cash flows from operations of $202.7 million in 1996, $266.0 million in
1995, and $235.2 million in 1994 contributed to meet operating
requirements, as well as anticipated debt service. Cash provided by
operating activities in excess of these needs is used in investing
activities. During 1996, the Company raised $115 million in a public
offering of preferred stock. The net proceeds of $111.8 million were
used primarily to support future growth and reduce debt. Excluding any
significant business acquisitions, the Company expects to provide all
its capital needs internally in 1997.
Capital expenditures planned for 1997 are not expected to be
significant compared to the Company's overall liquidity and cash flow.
The Company began expanding its headquarters and incurred costs of
approximately $2.9 million in 1996. The cost to complete the expansion
in 1997 is expected to be an additional $2.6 million. The one million
share stock buyback program is not expected to significantly impact the
Company's liquidity or cash flow in any one financial reporting period.
While the impact, if any, from the resolution of pending litigation
cannot presently be identified, the Company does not expect any
unfavorable outcome to have a material effect on liquidity or financial
condition.
In 1995, the Company executed a $250 million financing program with a
group of banks, which features a bid loan and revolving line of credit
facility to replace the $130 million financing program. In 1994, the
Company registered $200 million of medium-term notes with maturities
ranging from nine months to thirty years, with the Securities and
Exchange Commission. In 1994 and 1995, the Company issued a $75 million
fixed rate note and a $50 million floating rate note respectively. The
interest rate on the floating rate note is determined quarterly, and
interest under the short-term facility is determined at the time
amounts are borrowed. Accordingly, interest rate changes may impact the
Company's interest expense. Under these arrangements, approximately
$245 million is available for short-term liquidity needs as of year
end.
The Company does not commit a significant portion of its investment
portfolio to equity securities, which were 5.7% of total invested
assets at December 31, 1996; consequently, liquidity is not
significantly affected by changes in the equity securities markets. The
Company's preferred stock portfolio is exposed to market value
fluctuations which result primarily, but not exclusively, from the
sensitivity of the preferred stocks to interest rate changes. To
mitigate the interest rate sensitivity of this portfolio, the Company
has established a limited cross-hedging program utilizing U.S. Treasury
futures and option contracts. Open positions at December 31, 1996 were
not significant.
The Company does not concentrate in policy coverages under which
policyholders may control, on a discretionary basis, access to cash
benefits through policy surrender and withdrawals.
The Company expects to continue its policy of paying regular cash
dividends; however, future dividends are dependent on the Company's
future earnings, capital requirements and financial condition.
Additionally, based on the current dividend paying abilities of the
insurance subsidiaries, the Company does not foresee any difficulty in
servicing its outstanding indebtedness or its dividend-paying
abilities.
Payment of dividends to ABIG by its insurance subsidiaries is dependent
on regulations dictated by statutory authorities in each state in which
they are domiciled. The National Association of Insurance Commissioners
has introduced standards which would treat dividends in excess of the
lesser of 10% of surplus or net income as extraordinary dividends
requiring insurance department approval. While some states have adopted
the standards, others have not. The payment of dividends by the
subsidiaries is subject to restrictions discussed further in Notes 7
and 8 to the Consolidated Financial Statements.
36
<PAGE> 38
REGULATIONS
ABIG's insurance subsidiaries, like other insurance companies, are
subject to regulation and supervision in the states in which they are
authorized to engage in business. Such regulations vary from state to
state, but generally relate to standards of solvency, pricing,
licensing, investment restrictions, insurance policy forms approval,
computation of reserves, assessments and financial reporting.
A substantial portion of the business written by the insurance
subsidiaries is credit insurance. Most states have enacted laws which
regulate credit insurance to a greater extent than they regulate other
forms of insurance, including maximum premiums which may be charged and
commissions which can be paid. A component rating approach which allows
state regulators to take into account factors other than losses in
determining the reasonableness of credit insurance rates was made part
of the National Association of Insurance Commissioners (NAIC)
Creditor-Placed Insurance Model Act that was adopted in 1996.
Individual states which adopt the regulation are generally expected to
adapt the model regulation to their perceived needs and to apply the
regulation to business written in that state. Adoption of this
Regulation is not expected to significantly affect the Company's
operations.
The investments of the insurance subsidiaries are limited as to type
and amount by the insurance laws of the state of domicile. During 1996,
the NAIC adopted the Investments of Insurers Model Act which provides a
well-capitalized insurer more discretion and flexibility in its
investing practices. Additionally, investment policies are reviewed by
the Board of Directors.
The NAIC has promulgated Risk-Based Capital (RBC) requirements. Under
the RBC requirements, areas such as asset risk, insurance risk,
interest risk and business risk are evaluated and compared to the
Company's capital and surplus to determine relative solvency margins.
The Company's insurance subsidiaries all exceed their respective RBC
requirements.
The Catastrophe Reserve Subgroup of the NAIC is currently working on
the development and implementation of a mandatory, tax-deductible,
pre-event catastrophe reserve based on geographic exposure zones and
premiums by line of business. Agreement is yet to be reached on certain
factors included in the design of the reserve, such as a trigger point
and a cap on the reserve.
COMPETITION
The competitors of the Company consist of both stock and mutual
insurance companies. Because the profits, if any, of mutual companies
accrue to the policyholders, such companies may have certain
competitive advantages. Some competing companies, both stock and
mutual, have been in business a longer time, are more widely known by
reason of such factors as age and size, and have greater financial
resources than ABIG. However, due to the specialized nature of the
markets served and products offered, most businesses of the Company
compete directly with a relatively small number of other insurance
companies, which share the Company's specialty nationwide and in
regional and state markets.
Profits of insurance companies are affected not only by volume of
insurance sold and renewed, but by such factors as mortality and loss
experience, investment income and underwriting expenses.
RESERVES
Life insurance companies are required to establish and maintain policy
liabilities to meet their obligations on life policies. These
liabilities are amounts which, with additions from premiums to be
received on outstanding policies and with interest on such funds
compounded annually at certain assumed rates, are calculated to be
sufficient to meet policy obligations at death or maturity in
accordance with the mortality tables employed when the policies were
issued. Liabilities for losses and loss adjustment expenses for
37
<PAGE> 39
property and casualty insurance represent estimates of unpaid claims
related to known losses and of claims which have been incurred but not
reported. These liabilities are based upon past experience of ultimate
claim settlements and of unreported losses and loss adjustment
expenses. The length of time for which such costs must be estimated
varies depending upon the coverage involved. Since actual claim costs
are dependent upon such complex factors as inflation, changes in
doctrines of legal liability and damage awards, the process used in
computing reserves cannot be exact, particularly for liability
coverages.
The majority of the Company's property and casualty insurance business
is represented by property coverage in which the ultimate loss
experience develops relatively quicker than that for insurers
concentrated more heavily in liability coverages.
In the ordinary course of business, the Company reinsures risks with
other insurance companies; nonetheless, the Company is contingently
liable with respect to risks reinsured, should the reinsuring companies
fail to meet the obligations assumed in the reinsurance agreements.
(See Note 5 to the Consolidated Financial Statements.)
SAFE HARBOR CAUTIONARY STATEMENT
Except for historical information provided in this Annual Report,
statements made throughout this document, including Management's
Discussion and Analysis, are forward-looking and, as such, actual
results could differ materially from those expected by the Company. The
actual results of the Company may be affected by (i) adverse
catastrophe experience in certain of the Company's property and
casualty products, (ii) significant changes in interest rates, (iii)
increased competition causing reduction in product margin or loss of a
significant client, (iv) adverse loss development on property and
casualty prior years' claims or the excess casualty reinsurance pools,
(v) premium growth expectation not met because of the loss of a
significant client, (vi) outcome of litigation and other state and
federal regulatory issues, and (vii) general economic conditions. In
addition, the actual results of forward-looking statements are also
subject to the specific factors which may be included with a particular
forward-looking statement.
38
<PAGE> 40
ITEM 8
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
AMERICAN BANKERS INSURANCE GROUP, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Certified Public Accountants 40
Consolidated Balance Sheets at
December 31, 1996 and 1995 41
Consolidated Statements of Income for the
years ended December 31, 1996, 1995, and 1994 42
Consolidated Statements of Common Stock and
Other Stockholders' Equity for the years ended
December 31, 1996, 1995, and 1994 43
Consolidated Statements of Cash Flows for the years
ended December 31, 1996, 1995, and 1994 44
Notes to Consolidated Financial Statements for the
year ended December 31, 1996 45
SCHEDULES: *
I - Summary of Investments - Other Than Investments in Related
Parties 67
II - Condensed Financial Information of Registrant 68-71
III - Supplementary Insurance Information 72
IV - Reinsurance 73
V - Supplemental Information Concerning Property - Casualty
Insurance Operations 74
</TABLE>
* Note: All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes thereto.
39
<PAGE> 41
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Director and Stockholders of
American Bankers Insurance Group, Inc.
In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of
American Bankers Insurance Group, Inc. and its subsidiaries at December 31, 1996
and 1995, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Miami, Florida
March 12, 1997
40
<PAGE> 42
CONSOLIDATED BALANCE SHEETS
AT DECEMBER 31 (IN THOUSANDS EXCEPT PAR VALUE OF STOCK):
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
1996 1995
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments
Held-to-maturity securities, at amortized cost
(fair value: $864,307 in 1996 and $613,749 in 1995) $ 851,146 $ 594,277
Available-for-sale securities, at fair value
(amortized cost: $793,217 in 1996 and $777,540 in 1995) 805,124 793,277
Trading securities at fair value (amortized cost: $8,867 in 1996) 9,038
Equity securities, at approximate market value
(cost: $98,662 in 1996 and $98,612 in 1995) 112,895 113,028
Mortgage loans on real estate 10,236 11,793
Policy loans 8,290 7,819
Short-term and other investments 171,674 168,216
- ----------------------------------------------------------------------------------------------------------------
Total investments 1,968,403 1,688,410
- ----------------------------------------------------------------------------------------------------------------
Cash 30,434 23,257
Accounts receivable, net of allowance for doubtful accounts of
$4,526 in 1996 and $5,024 in 1995 128,963 130,970
Reinsurance receivable 202,626 168,128
Accrued investment income 24,296 20,943
Deferred policy acquisition costs 387,993 310,879
Prepaid reinsurance premiums 507,077 502,312
Other assets 219,711 142,835
- ----------------------------------------------------------------------------------------------------------------
Total assets $ 3,469,503 $ 2,987,734
- ----------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Policy liabilities $ 291,756 $ 275,250
Unearned premiums 1,291,142 1,178,867
Claim liabilities 487,596 404,745
- ----------------------------------------------------------------------------------------------------------------
2,070,494 1,858,862
- ----------------------------------------------------------------------------------------------------------------
Other policyholders' funds 6,795 7,113
Notes payable 222,490 235,981
Deferred income taxes 40,795 29,549
Accrued commissions and other expenses 156,896 136,174
Other liabilities 261,826 207,058
- ----------------------------------------------------------------------------------------------------------------
Total liabilities 2,759,296 2,474,737
- ----------------------------------------------------------------------------------------------------------------
Commitments and Contingencies (Note 11)
- ----------------------------------------------------------------------------------------------------------------
Stockholders' Equity
Preferred stock: authorized 3,500 shares
$3.125 Series B Cumulative Convertible Preferred Stock (stated
at liquidation preference of $50 per share), issued and
outstanding 2,300 shares 115,000
Common stock of $1 par value. Authorized 35,000 shares;
issued and outstanding 20,530 shares in 1996 and 20,384 shares in 1995 20,530 20,384
Additional paid-in capital 217,939 215,121
Net unrealized investment and foreign exchange gains 7,437 7,255
Retained earnings 359,359 282,748
Treasury stock at cost - 93 shares in 1996 and 136 shares in 1995 (1,426) (2,516)
Unamortized restricted stock (4,382) (3,620)
Collateralization of loan to Leveraged Employee Stock Ownership Plan (4,250) (6,375)
- ----------------------------------------------------------------------------------------------------------------
Total stockholders' equity 710,207 512,997
- ----------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 3,469,503 $ 2,987,734
================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
41
<PAGE> 43
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31 (IN THOUSANDS EXCEPT PER COMMON SHARE DATA):
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
1996 1995 1994
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
GROSS COLLECTED PREMIUMS $ 2,492,828 $ 2,286,573 $ 1,761,080
======================================================================================================
PREMIUMS AND OTHER REVENUES
Net premiums earned $ 1,378,485 $ 1,240,713 $ 1,094,317
Net investment income 121,200 99,400 74,442
Realized investment gains 7,812 721 2,679
Other income 21,538 20,014 15,397
- ------------------------------------------------------------------------------------------------------
Total revenues 1,529,035 1,360,848 1,186,835
- ------------------------------------------------------------------------------------------------------
BENEFITS AND EXPENSES
Benefits, claims, losses, and settlement expenses 523,024 463,130 437,959
Commissions 571,768 526,425 437,674
Operating expenses 280,768 251,519 220,218
Interest expense 17,530 15,579 11,168
- ------------------------------------------------------------------------------------------------------
Total benefits and expenses 1,393,090 1,256,653 1,107,019
- ------------------------------------------------------------------------------------------------------
Income before income taxes 135,945 104,195 79,816
- ------------------------------------------------------------------------------------------------------
Income tax expense
Current (28,921) (25,205) (14,830)
Deferred (12,521) (6,730) (8,442)
- ------------------------------------------------------------------------------------------------------
Total income tax expense (41,442) (31,935) (23,272)
- ------------------------------------------------------------------------------------------------------
NET INCOME $ 94,503 $ 72,260 $ 56,544
======================================================================================================
PER COMMON SHARE DATA
Primary:
NET INCOME $ 4.39 $ 3.48 $ 2.74
======================================================================================================
Weighted average number of shares outstanding 20,814 20,746 20,596
======================================================================================================
Fully diluted:
NET INCOME $ 4.31 $ 3.48 $ 2.74
======================================================================================================
Weighted average number of shares outstanding 21,965 20,823 20,613
======================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
42
<PAGE> 44
CONSOLIDATED STATEMENTS OF COMMON STOCK AND OTHER STOCKHOLDERS' EQUITY
For the Years ended December 31 (in thousands except per common share data):
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
1996 1995 1994
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PREFERRED STOCK:
Proceeds from sale of stock $ 115,000
Balance at end of year $ 115,000
- ------------------------------------------------------------------------------------------------------------
COMMON STOCK:
Balance at beginning of year $ 20,384 $ 20,244 $ 20,140
Exercise/forfeitures of options 146 140 104
Balance at end of year $ 20,530 $ 20,384 $ 20,244
- ------------------------------------------------------------------------------------------------------------
ADDITIONAL PAID-IN CAPITAL:
Balance at beginning of year $ 215,121 $ 212,139 $ 210,878
Exercise/forfeitures of options and related tax expense 5,479 2,982 1,261
Issuance of treasury stock 658
Expenses related to issuance of stock (3,319)
Balance at end of year $ 217,939 $ 215,121 $ 212,139
- ------------------------------------------------------------------------------------------------------------
NET UNREALIZED INVESTMENT AND FOREIGN EXCHANGE GAINS (LOSSES):
Balance at beginning of year $ 7,255 $ (38,554) $ 356
Change in net unrealized investment (losses) gains (4,013) 71,310 (52,588)
Taxes on net unrealized investments gains (losses) 1,215 (23,628) 17,094
Equity adjustment from foreign currency translation 2,980 (1,873) (3,416)
Balance at end of year $ 7,437 $ 7,255 $ (38,554)
- ------------------------------------------------------------------------------------------------------------
RETAINED EARNINGS:
Balance at beginning of year $ 282,748 $ 225,374 $ 182,975
Net income 94,503 72,260 56,544
Cash dividends ($.79, $.75 and $.71 per share), net of tax
benefit on unallocated LESOP shares (17,892) (14,886) (14,145)
Balance at end of year $ 359,359 $ 282,748 $ 225,374
- ------------------------------------------------------------------------------------------------------------
TREASURY STOCK:
Balance at beginning of year $ (2,516) $ (1,623) $ (416)
Purchase of treasury stock (175) (893) (1,207)
Issuance of treasury stock 1,265
Balance at end of year $ (1,426) $ (2,516) $ (1,623)
- ------------------------------------------------------------------------------------------------------------
UNAMORTIZED RESTRICTED STOCK:
Balance at beginning of year $ (3,620) $ (3,205) $ (4,053)
Exercise/forfeitures of options (2,306) (1,822) (116)
Amortization expense 1,544 1,407 964
Balance at end of year $ (4,382) $ (3,620) $ (3,205)
- ------------------------------------------------------------------------------------------------------------
COLLATERALIZATION OF LOAN TO LESOP:
Balance at beginning of year $ (6,375) $ (8,500) $ (10,625)
Reduction of LESOP loan 2,125 2,125 2,125
Balance at end of year $ (4,250) $ (6,375) $ (8,500)
- ------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements
43
<PAGE> 45
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years ended December 31 (in thousands):
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
1996 1995 1994
- ----------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income $ 94,503 $ 72,260 $ 56,544
Adjustments to reconcile net income to net cash provided
operating activities:
Increase in policy liabilities, unearned premiums and
claim liabilities (net of reinsurance) 172,195 213,544 66,219
Change in other assets and other liabilities (15,174) 43,818 76,031
Decrease (increase) in accounts receivable 2,007 (25,414) 26,895
(Increase) in accrued investment income (3,353) (4,881) (2,264)
Increase in accrued commission and expenses 20,722 37,355 11,862
(Decrease) increase in other policyholders' funds (318) (6,108) 6,855
Increase in policy loans (471) (978) (119)
Amortization of deferred policy acquisition costs 497,855 449,749 345,505
Amortization of cost of insurance acquired 1,899 2,447 6,109
Policy acquisition costs deferred (574,969) (531,048) (376,327)
Provision for amortization and depreciation 9,150 11,873 13,089
Deferred income taxes 12,521 6,730 8,442
Net gain on sale of investments (7,812) (721) (2,679)
Compensation and tax effect on stock option shares 2,837 1,407 965
Net cash flow from purchases and sales of trading securities (8,852) (4,019) (1,887)
- ----------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 202,740 266,014 235,240
- ----------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Purchase of investments
Held-to-maturity securities (351,992) (159,185) (164,825)
Available-for-sale securities (844,994) (346,237) (430,475)
Mortgage loan (263) (1,517)
Real estate (563)
Proceeds from sale of investments
Held-to-maturity securities 158
Available-for-sale securities 223,292 94,267 218,914
Mortgage loans 1,200 2,654 3,286
Real estate 1,473 87
Proceeds from maturities of investments
Held-to-maturity securities 95,100 71,395 104,226
Available-for-sale securities 608,029 27,244 57,535
(Increase) decrease in short-term investments (1,447) (38,345) 5,919
Transactions related to capital assets
Capital expenditures (10,946) (9,770) (5,784)
Sales of capital assets 509 302 282
- ----------------------------------------------------------------------------------------------------------
Net cash used in investing activities (279,776) (358,414) (212,281)
- ----------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Proceeds from issuance of notes payable 138,147 131,000 96,723
Repayment of notes payable (149,513) (90,683) (55,683)
Dividends paid to shareholders (17,951) (14,824) (14,304)
Proceeds from sale of stock 113,679 1,248 1,238
Purchase of treasury stock (175) (893) (1,208)
- ----------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 84,187 25,848 26,766
- ----------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash 26 273 (15)
- ----------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash 7,177 (66,279) 49,710
Cash at beginning of year 23,257 89,536 39,826
- ----------------------------------------------------------------------------------------------------------
Cash at end of year $ 30,434 $ 23,257 $ 89,536
- ----------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements
44
<PAGE> 46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) DESCRIPTION OF BUSINESS
American Bankers Insurance Group, Inc. provides credit-related insurance
programs in the United States, Canada and the Caribbean. The Company also
conducts business in Latin America and the United Kingdom. ABIG, as an
international wholesaler and marketer of insurance products, services and
programs, concentrates on marketing through financial institutions,
retailers and other entities which provide consumer financing as a regular
part of their business.
(2) SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles which vary in certain respects
from reporting practices prescribed or permitted by state insurance
departments and include the following significant accounting policies:
(a) Consolidation Policy
The accompanying consolidated financial statements include the
accounts of American Bankers Insurance Group, Inc. (ABIG) and its
subsidiaries (the Company):
v American Bankers Insurance Company of Florida (ABIC)
v American Bankers Life Assurance Company of Florida (ABLAC)
v American Reliable Insurance Company (ARIC)
v Bankers American Life Assurance Company (BALAC)
v Bankers Insurance Company, Ltd. (BICL)
v Caribbean American Life Assurance Company (CALAC)
v Caribbean American Property Insurance Company (CAPIC)
v Federal Warranty Service Corporation (FWSC)
v Voyager Insurance Companies
All significant intercompany transactions and accounts have been
eliminated in consolidation.
(b) Investments
Under FASB Statement 115, investments in debt and equity securities are
classified as either held-to-maturity, available-for-sale or trading.
Investments in debt securities are classified as held-to-maturity and
measured at amortized cost if the Company has the positive intent and
ability to hold these securities to maturity. Investments in debt
securities not classified as held-to-maturity and equity securities
with readily determinable fair values are classified as either
available-for-sale or trading securities and measured at fair value.
Securities that are purchased and held principally for the purpose of
selling them in the near term shall be classified as trading securities
and reported at fair value with subsequent changes in value reflected
as unrealized investment gains and losses in the Consolidated
Statements of Income. Investments not classified as either trading
securities or held-to-maturity securities are classified as
available-for-sale securities and reported at fair value with
subsequent changes in value reflected as unrealized investment gains
and losses in the Consolidated Statements of Common Stock and Other
Stockholders' Equity.
45
<PAGE> 47
Equity securities are carried at market value. Mortgage loans and
policy loans are stated at the unpaid principal balance of such loans
net of unamortized discount. Investments with impairment in value,
which is other than temporary, are written down to estimated realizable
value. The writedowns are included in realized investment gains in the
Consolidated Statements of Income. Premiums and discounts on
mortgage-backed securities are amortized using the simple interest
method over the expected life of each security - generally 2 to 7
years. In addition, a pro rata portion of premiums and discounts is
recognized when principal payments are received and is included in net
investment income in the Consolidated Statements of Income. Unrealized
gains and losses on equity securities are reflected in Stockholders'
Equity. The cost of securities sold is based on the specific
identification method.
(c) Premium Revenues
Life insurance and annuity premiums, including single premiums for
accidental death and dismemberment policies, are reported as earned
when due. Credit life insurance premiums and accident and health
premiums are earned over the terms of the contracts in relation to
anticipated benefits to the policyholders. Property insurance premiums
are recognized as income principally on a pro rata basis over the life
of the policies.
(d) Policy Acquisition Costs
For life business, the costs of acquiring new business (principally
commissions and certain variable underwriting, agency and policy issue
expenses) are deferred and amortized over the term of the contracts as
follows:
v Acquisition costs relating to ordinary life contracts are
amortized over the estimated term of the contracts in
proportion to the ratio of the annual premium revenue to total
premium revenue expected. Acquisition costs for universal life
and annuities are amortized over the lives of the policies in
relation to the present value of estimated gross profits from
surrender charges and investment, mortality, and expense
margins. The assumptions used for the estimates are consistent
with those used in computing the policy liabilities.
v Acquisition costs relating to credit life and accident and
health insurance are amortized over the term of the contracts
in relation to premiums earned.
v The method of computing the deferred policy acquisition costs
for property business (commissions and other acquisition
expenses) limits the amount deferred to the lower of (1)
unearned premiums which remain after deducting the expected
amount of losses, loss adjustment expenses, and servicing
costs estimated to be incurred as the premiums are earned; or
(2) the costs applicable to the unearned premiums.
Deferred acquisition costs are reviewed quarterly to assure their
recoverability. The recoverability of the deferral is calculated
without considering investment income.
(e) Policy Liabilities and Unearned Premiums
Policy liabilities on life and annuity business are computed
principally by the net level premium method based upon assumptions as
to future investment yield, mortality, morbidity, and withdrawals
consistent with those used to develop the gross premiums on the
policies in force. Universal life and annuity policyholders'
liabilities are based on full account values. Unearned premiums for
credit insurance and property business represent the unexpired portion
of the premiums.
46
<PAGE> 48
(f) Claim Liabilities
Claim liabilities net of salvage and subrogation are based primarily
upon past experience and may be more or less than the amounts
ultimately paid or recovered when the claims are settled. Changes in
the estimated liability are charged or credited to operations as the
estimates are revised.
(g) Income Taxes
Deferred taxes are provided for temporary differences in the bases of
assets and liabilities for financial reporting and tax purposes.
(h) Property and Equipment
Depreciation of property and equipment is provided primarily on the
accelerated method. Buildings are depreciated on the straight-line
method.
Depreciation expense for the years ended December 31, 1996, 1995 and
1994 was $9,278,000, $8,607,000 and $8,550,000 respectively and is a
component of operating expenses. Estimated useful lives range from 10
to 40 years for buildings and 3 to 10 years for furniture and
equipment.
(i) Earnings Per Common Share
Primary earnings per common share are based on net income (adjusted for
dividends on preferred stock) using the weighted average number of such
shares outstanding during the year after giving effect to common stock
equivalents and treasury shares.
Fully diluted earnings per share also assume conversion, if dilutive,
of the Company's convertible debt, preferred stock and options into
common shares after appropriate adjustments for interest.
(j) Pension Plan
Pension costs are comprised of service costs applicable to benefits
earned during the year, net interest cost or credit applicable to
interest on plan liabilities and plan assets, and amortization of
certain charges and credits including prior service costs.
(k) Translation of Foreign Currencies
For those foreign affiliates where the foreign currency is the
functional currency, unrealized foreign exchange gains (losses) net of
taxes have been reflected in Common Stock and Other Stockholders'
Equity under the caption "Net unrealized investment and foreign
exchange gains (losses)."
(l) Fair Values of Financial Instruments
The Company has used the following methods and assumptions in
estimating its fair value disclosures:
v Investment securities: Fair values for fixed maturity
securities are based on quoted market prices when available.
If quoted market prices are not available, fair values are
based on quoted market prices of comparable instruments or
values obtained from independent pricing services. The fair
values for equity securities are based on quoted market
prices.
47
<PAGE> 49
v Mortgage loans and policy loans: The fair values for mortgage
loans are estimated using discounted cash-flow analysis, using
interest rates currently being offered for loans with similar
terms. The carrying amounts for policy loans approximate their
fair values at the reporting date.
v Cash and short-term investments: The carrying amounts reported
in the balance sheet for these instruments approximate their
fair values.
v Trade receivables and payables: The carrying amounts reported
in the balance sheet for these instruments approximate their
fair values.
v Notes payable: The carrying amount of the Company's short-term
financing program approximates its fair value. The carrying
amount of the Company's convertible subordinated debentures
approximates their fair values. Fair values for the Company's
promissory notes and the note payable guaranteed by the
Company for the LESOP are based on a discounted cash-flow
calculation using the Company's current borrowing rate for
similar debts. Fair values for the Company's medium-term notes
are based on a discounted cash-flow calculation using the
current market rate for notes with a similar term.
(m) Reinsurance
The Company recognizes the income (ceding fees) on reinsurance
contracts principally on a pro rata basis over the life of the policies
covered under the reinsurance agreements.
(n) Segment Information
Operating results and other financial data for each segment are
presented in Note 12. Industry segments are primarily composed of the
Company's business in the life and property and casualty insurance
industries. The geographic segments include the companies or branches
located in the United States and its possessions as domestic and all
other as foreign. Included in the domestic segments is one foreign
insurance subsidiary which writes no direct business, reinsures only
affiliated U.S. risks transacted in U.S. dollars and has elected to be
taxed as a U.S. corporation.
(o) Reclassifications
Certain items in the 1995 and prior financial statements have been
reclassified to conform with the 1996 presentation.
(p) Estimates
Generally accepted accounting principles require management to make
estimates and assumptions that affect the reported amounts. Certain
significant estimates, including those used in determining property and
casualty loss reserves, life insurance policy liabilities, valuation
allowances for investment assets, and unrecoverable reinsurance, are
discussed throughout the notes to consolidated financial statements.
48
<PAGE> 50
(3) INVESTMENTS AND FAIR VALUES
INVESTMENTS
The Company periodically purchases securities for trading purposes
generally not to exceed $20,000,000. At December 31, 1996, the Company held
trading securities with a fair value of $9,038,000 (amortized cost
$8,867,000) resulting in an unrealized gain of $171,000 which was included
in operating results. There were no securities in the trading portfolio at
December 31, 1995.
At December 31, 1996 and 1995, the fair value, amortized cost, and gross
unrealized gains and losses of investments in held-to-maturity and
available-for-sale securities consisted of the following:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
DECEMBER 31, 1996 (in thousands) FAIR AMORTIZED GROSS UNREALIZED
HELD-TO-MATURITY VALUE COST GAINS LOSSES
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations of U.S.
Government corporations and agencies $ 180,212 $178,900 $ 2,157 $ (845)
Obligations of states and political subdivisions 119,427 117,953 1,736 (262)
Debt securities issued by foreign governments 31,416 29,502 1,969 (55)
Corporate securities 506,196 497,735 9,946 (1,485)
Other debt securities 27,056 27,056
- --------------------------------------------------------------------------------------------------
TOTAL $864,307 $851,146 $ 15,808 $ (2,647)
- --------------------------------------------------------------------------------------------------
AVAILABLE-FOR-SALE
U.S. Treasury securities and obligations of U.S.
Government corporations and agencies $ 43,456 $ 44,256 $ (800)
Obligations of states and political subdivisions 19,597 19,326 $ 497 (226)
Debt securities issued by foreign governments 37,638 34,537 3,182 (81)
Corporate securities 136,629 133,807 3,743 (921)
Other debt securities 5,855 5,976 64 (185)
- --------------------------------------------------------------------------------------------------
Subtotal 243,175 237,902 7,486 (2,213)
Collateralized mortgage obligations 561,949 555,315 8,476 (1,842)
TOTAL $805,124 $793,217 $ 15,962 $ (4,055)
- --------------------------------------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------------------------------------------------
DECEMBER 31, 1995 (in thousands) FAIR AMORTIZED GROSS UNREALIZED
HELD-TO-MATURITY VALUE COST GAINS LOSSES
- --------------------------------------------------------------------------------------------------
U.S. Treasury securities and obligations of U.S.
Government corporations and agencies $ 189,138 $184,463 $ 4,799 $ (124)
Obligations of states and political subdivisions 111,219 108,793 2,573 (147)
Debt securities issued by foreign governments 17,748 17,373 825 (450)
Corporate securities 267,514 255,518 12,087 (91)
Other debt securities 28,130 28,130
- --------------------------------------------------------------------------------------------------
TOTAL $613,749 $594,277 $ 20,284 $ (812)
- --------------------------------------------------------------------------------------------------
Available-for-Sale
- --------------------------------------------------------------------------------------------------
U.S. Treasury securities and obligations of U.S.
Government corporations and agencies $ 51,917 $ 52,199 $ 8 $ (290)
Obligations of states and political subdivisions 14,676 14,364 613 (301)
Debt securities issued by foreign governments 44,514 41,260 3,305 (51)
Corporate securities 64,555 62,593 3,587 (1,625)
Other debt securities 12,637 12,607 329 (299)
- --------------------------------------------------------------------------------------------------
Subtotal 188,299 183,023 7,842 (2,566)
Collateralized mortgage obligations 604,978 594,517 12,343 (1,882)
- --------------------------------------------------------------------------------------------------
Total $793,277 $777,540 $ 20,185 $ (4,448)
- --------------------------------------------------------------------------------------------------
</TABLE>
49
<PAGE> 51
At December 31, 1996 and 1995, fixed maturities with an amortized cost
of $67,356,000 and $58,356,000 respectively were on deposit with
insurance regulatory authorities to meet statutory requirements. In
addition, fixed maturities with an amortized cost of $37,467,000 and
$46,325,000 were being held in trust under reinsurance agreements at
December 31, 1996 and 1995, respectively. The approximate market value
and amortized cost of fixed maturity investments at December 31, 1996,
are shown below by contractual or expected maturity periods. Expected
maturities may differ from contractual maturities because borrowers may
have the right to call or prepay obligations with or without call or
prepayment penalties. During 1995, the Company transferred securities
from the held-to-maturity category to the available-for-sale category,
as allowed under the FASB 115 Guide to Implementation. The amortized
cost of the transferred securities was $61,193,000 and the related
unrealized gain was $2,678,000.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
HELD-TO-MATURITY AVAILABLE-FOR-SALE
---------------- ------------------
FAIR AMORTIZED FAIR AMORTIZED
(in thousands): VALUE COST VALUE COST
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Due in one year or less $106,786 $106,753 $ 15,501 $ 15,478
Due after one year through five years 558,286 549,402 112,285 110,249
Due after five years through ten years 165,057 162,629 98,617 96,352
Due after ten years 34,178 32,362 16,772 15,823
- ---------------------------------------------------------------------------------------------
Subtotal 864,307 851,146 243,175 237,902
Collateralized mortgage obligations 561,949 555,315
- ---------------------------------------------------------------------------------------------
Balance at December 31, 1996 $864,307 $851,146 $805,124 $793,217
- ---------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Foreign exchange gains and losses due to the translation of foreign currency are
combined with net unrealized investment gains and losses in the Stockholders'
Equity section of the Balance Sheet. Following is a reconciliation of the "Net
unrealized investment and foreign exchange gains (losses)" account:
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
CHANGE CHANGE
DECEMBER 31 (in thousands): 1996 FOR 1996 1995 FOR 1995 1994
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Fixed Maturities Available-for-Sale:
Gross unrealized gains $ 15,962 $ (4,223) $ 20,185 $ 19,425 $ 760
Gross unrealized losses (4,055) 393 (4,448) 38,873 (43,321)
Equity Securities:
Gross unrealized gains 18,184 420 17,764 11,782 5,982
Gross unrealized losses (3,951) (603) (3,348) 1,230 (4,578)
- ------------------------------------------------------------------------------------------------
Subtotal 26,140 (4,013) 30,153 71,310 (41,157)
Taxes (9,015) 1,215 (10,230) (23,628) 13,398
Foreign Exchange Translation (9,688) 2,980 (12,668) (1,873) (10,795)
- ------------------------------------------------------------------------------------------------
TOTAL $ 7,437 $ 182 $ 7,255 $ 45,809 $(38,554)
- ------------------------------------------------------------------------------------------------
</TABLE>
Investments by the Company in investment grade corporate debt
securities may be affected by a rating decline subsequent to
acquisition. However, the percentage of the portfolio affected by such
developments is generally not significant due to the diversification of
the aggregate portfolio.
The Company has no significant investment concentration of credit risk
by issuer, industry or geographic region.
50
<PAGE> 52
An analysis of net realized gains and losses applicable to investments
is as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31 (in thousands): 1996 1995 1994
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed Maturities Held-to-Maturity:
Gross realized gains $ 2
Gross realized losses $ (118) (168) $ (234)
Fixed Maturities Available-for-Sale:
Gross realized gains 2,240 712 828
Gross realized losses (1,652) (266) (512)
Fixed Maturities Trading:
Gross realized gains 218 272
Gross realized losses (282) (2,159)
Equity Securities:
Gross realized gains 14,353 6,734 6,086
Gross realized losses (6,028) (1,653) (1,783)
Other Invested Assets:
Gross realized gains 1,160 1,285 2,393
Gross realized losses (2,143) (5,861) (2,212)
- ---------------------------------------------------------------------------------------
TOTAL $ 7,812 $ 721 $ 2,679
- ---------------------------------------------------------------------------------------
</TABLE>
The Company disposed of certain held-to-maturity securities due to deteriorating
credit or mandatory redemption.
The components of investment income are as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31
(in thousands): 1996 1995 1994
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest on fixed maturities $ 103,539 $ 83,724 $ 63,347
Dividends on preferred stocks 3,100 3,169 2,365
Dividends on common stocks 5,720 1,509 1,326
Interest on mortgage loans 1,072 1,228 1,293
Interest on policy loans 499 475 305
Short-term and other investment income 12,180 14,777 11,085
- ---------------------------------------------------------------------------------------
Total 126,110 104,882 79,721
Less: Investment expenses (4,910) (5,482) (5,279)
- ---------------------------------------------------------------------------------------
Net investment income $ 121,200 $ 99,400 $ 74,442
- ---------------------------------------------------------------------------------------
</TABLE>
FAIR VALUES
The fair value of the Company's financial instruments other than investments and
those where fair values approximate carrying value (See Note 2(l)) are as
follows:
<TABLE>
- ---------------------------------------------------------------------------------------
1996 1995
AT DECEMBER 31 FAIR CARRYING FAIR CARRYING
(in thousands): VALUE AMOUNT VALUE AMOUNT
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Mortgage Loans $ 10,600 $ 10,200 $ 12,200 $ 11,800
Notes Payable $ 221,300 $ 222,500 $ 238,800 $ 236,000
- ---------------------------------------------------------------------------------------
</TABLE>
51
<PAGE> 53
(4) POLICY LIABILITIES, UNEARNED PREMIUMS AND LIABILITIES FOR LOSSES AND
LOSS ADJUSTMENT EXPENSES
The composition of the liability at December 31, 1996 and 1995, and related
significant assumptions used are as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
LIFE AMOUNT OF
INSURANCE FUTURE POLICY BASES OF ASSUMPTIONS (B)
IN FORCE (A) BENEFITS (A)
LINE OF BUSINESS (in millions) (in thousands) INTEREST RATES
1996 1995 1996 1995 AND METHODS MORTALITY
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
LIFE:
Ordinary $ 288 $ 279 $ 30,309 $ 30,425 Rates range from 110% 55-60
8% graded to 4% Select and
for most recent Ultimate
issues and 4%
graded to 3% for
earliest issues.
Annuity
Fixed Premium 10,967 12,241 Same as above. Same as above.
Flexible Premium 34,766 35,243 Full Account Value
Single and Other
Paid Up 18,475 19,248 Full Account Value
Credit 15,819 13,874 113,638 109,432 Unearned premiums
based principally
on the "Rule of 78's"
method.
Group 10,335 14,424 1,304 1,603 7 1/2% Net Level
130% 60 CSG
Universal Life 3,094 2,635 105,210 85,846 Full Account Value
All Other 898 973 6,696 7,048 2.5%-6% Various
Net Level
ACCIDENT AND HEALTH:
Group 10,397 7,939 Unearned premiums
based on the
pro rata method.
Credit 104,604 98,021 Unearned premiums
based on the
average of the
pro rata and "Rule
of 78's" methods.
Individual 49,252 50,046 3% 105%
1959 ADB
Table
Property: 552,141 457,969 Unearned premiums
based on the
pro rata method.
- --------------------------------------------------------------------------------------------------------------------------
Totals - Net 30,434 32,185 1,037,759 915,061
Reinsurance Ceded 18,270 10,523 545,139 539,056
Totals - Gross $48,704 $42,708 $1,582,898 $1,454,117
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
(A) Life insurance in force and future policy benefits are stated
individually net of reinsurance ceded to other companies. Reinsurance
ceded to other companies has been added back to policy liabilities and
unearned premiums for balance sheet presentation.
(B) All withdrawal assumptions are based on the Company's experience.
52
<PAGE> 54
PROPERTY AND CASUALTY
LOSSES AND LOSS ADJUSTMENT EXPENSES
The consolidated financial statements include estimated provisions for unpaid
losses and loss adjustment expenses (LAE) applicable to the Company's property
and casualty insurance subsidiaries. These subsidiaries write principally credit
property, unemployment, homeowners, mobilehome physical damage and livestock
lines of business throughout the United States, Canada, the Caribbean and the
United Kingdom. Such liabilities are established using a combination of case
basis estimates and actuarial projections and include provisions for claims
incurred but not yet reported as of the balance sheet date.
Overall claims experience is principally dependent on the frequency and severity
of claims as well as trends in litigation and loss cost inflation. With the
exception of discontinued lines, the Company writes primarily property coverages
which are characterized by relatively short settlement periods and quick
development of ultimate losses. Discontinued business includes the Company's
participation in excess casualty reinsurance assumed pools. The business is
long-tail in nature and losses continue to exceed both Company and industry
expectations. Most of these losses result from asbestos-related and
environmental pollution claims. Management is unable to make a reasonable
estimate of the Company's ultimate liability from these pools due to a general
absence of reliable predictive data and of a generally accepted actuarial
methodology for these exposures, significant unresolved legal issues including
coverage issues, policy definitions and evolving theories and arguments.
Additionally, the determination of ultimate damages and the final allocation of
such damages to financially responsible parties is complex and uncertain. The
Company establishes loss reserves on known claims as recommended by the various
pool managers and additional reserves to compensate for those claims that have
not yet been reported. Losses from its discontinued reinsurance pools included
in the accompanying table are $8.3 million, $7.3 million and $4.2 million in
1996, 1995 and 1994 respectively. Reinsurance pool reserves represent
approximately 10.7% of the gross liability for property and casualty losses and
LAE at December 31, 1996. The Company's estimating and reserving practices are
reviewed continually. Subsequent adjustments to the original estimates are made
when determinable and are reflected in current year operations.
The accompanying tables present an analysis of losses and LAE for the
Company's domestic property and casualty subsidiaries. The following table
provides a reconciliation of beginning and ending liability balances for 1996,
1995 and 1994.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Reconciliation of Liability for Losses and Loss Adjustment Expenses for Domestic
Property and Casualty Subsidiaries
- -----------------------------------------------------------------------------------------------
(in thousands): 1996 1995 1994
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Liability for losses and LAE at beginning of year (net) $ 162,342 $ 137,978 $ 119,491
- -----------------------------------------------------------------------------------------------
Losses and LAE incurred related to:
Current year 321,487 269,623 235,857
Prior years (3,748) 332 2,612
- -----------------------------------------------------------------------------------------------
Total incurred 317,739 269,955 238,469
- -----------------------------------------------------------------------------------------------
Losses and LAE paid related to:
Current year (223,754) (173,937) (154,498)
Prior years (70,489) (71,654) (65,484)
- -----------------------------------------------------------------------------------------------
Total paid (294,243) (245,591) (219,982)
- -----------------------------------------------------------------------------------------------
Liability for losses and LAE at end of year (net) 185,838 162,342 137,978
Reinsurance receivable for unpaid losses 80,732 75,439 50,063
Liability for losses and LAE at end of year (gross) $ 266,570 $ 237,781 $ 188,041
- -----------------------------------------------------------------------------------------------
</TABLE>
Accident and health net claim liabilities reported in the Company's life
subsidiaries were $80,026,000, $57,049,000 and $55,875,000 at December 31, 1996,
1995 and 1994, respectively. There was no significant adverse development during
the past three years.
53
<PAGE> 55
(5) REINSURANCE
The Company's insurance subsidiaries follow the policy of reinsuring risk
in excess of $250,000 under an ordinary life policy and $300,000 under a
property policy. In addition, aggregate excess of loss coverage is obtained
for the Company's property and casualty business as protection against
catastrophic losses. Ceded claim and policy liabilities are recorded as
assets on the balance sheet under the caption "Reinsurance Receivable." The
Company's insurance subsidiaries are liable for these amounts in the event
reinsurers are unable to pay their portion of the claims. The Company
evaluates the financial condition of its reinsurers and monitors
concentration of credit risk arising from similar geographic regions,
activities or economic attributes of the reinsurers to lessen its exposure
to significant losses from reinsurer insolvencies. Reinsurance ceded
incurred losses for 1996 and 1995 were $315,096,000 and $268,820,000
respectively. Liabilities for ceded claim reserves and recoverables on paid
losses at December 31, 1996 and 1995 are shown below.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
AT DECEMBER 31 (in thousands): 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C>
Ceded Claim Liabilities:
Life and health business $ 63,554 $ 51,169
Property and casualty business $101,010 $ 80,215
- ------------------------------------------------------------------------------
Reinsurance Recoverable on Paid Losses:
Life and health business $ 19,492 $ 12,784
Property and casualty business $ 20,682 $ 16,435
- ------------------------------------------------------------------------------
</TABLE>
The effect of reinsurance on premiums written and earned for the years ended
December 31 is as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
1996 1995 1994
(in thousands): WRITTEN EARNED WRITTEN EARNED WRITTEN EARNED
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Life and Health:
Direct premiums $ 714,651 $ 677,758 $ 653,256 $ 562,360 $ 499,140 $ 495,066
Assumed premiums $ 48,563 $ 62,878 $ 49,209 $ 57,058 $ 42,998 $ 41,146
Ceded premiums $ 362,458 $ 356,671 $ 277,893 $ 242,311 $ 188,568 $ 176,112
- -------------------------------------------------------------------------------------------------------
Property and Casualty:
Direct premiums $1,690,883 $1,561,533 $1,474,399 $1,309,557 $1,136,660 $1,060,463
Assumed premiums $ 38,731 $ 74,524 $ 109,709 $ 79,158 $ 82,276 $ 79,450
Ceded premiums $ 637,448 $ 641,537 $ 601,123 $ 525,109 $ 482,525 $ 405,696
- -------------------------------------------------------------------------------------------------------
</TABLE>
54
<PAGE> 56
(6) INCOME TAXES
Prior to 1984, ABLAC was taxed at regular corporate rates in accordance
with the Life Insurance Company Income Tax Act of 1959, whereby a portion
of its statutory income was not subject to current income taxation, but was
accumulated in an account designated "policyholders' surplus." The
aggregate balance in this account ($17,000,000 at December 31, 1996) would
be taxed at applicable current rates only if distributed to stockholders or
if the account exceeded a prescribed maximum. The Deficit Reduction Act of
1984 eliminated additions to the account for 1984 and thereafter. ABLAC
does not anticipate any transactions that would cause any part of this
amount to become taxable. Deferred taxes in the amount of $5,950,000 have
not been provided since the Company does not anticipate any transactions
that would cause any part of the account balance to become taxable. As of
December 31, 1996, ABLAC has a shareholders' surplus account balance (on a
tax basis) of approximately $128,000,000 from which it could pay dividends
to stockholders without incurring any federal income tax liability, subject
to regulatory requirements and the availability of funds. The other life
insurance subsidiaries do not have policyholders' surplus account balances.
Under current Internal Revenue Code provisions, the life insurance
subsidiaries are taxed under a single-phase structure incorporating tax
rules comparable to other corporate taxpayers. The life insurance
subsidiaries are included in the Company's consolidated tax return.
ABIG and all other subsidiaries are taxed at regular corporate rates
applied to taxable income as determined in accordance with the Internal
Revenue Code.
Pre-tax income is derived from the following sources:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
(in thousands): 1996 1995 1994
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Domestic (including U.S. possessions) $ 144,381 $ 107,772 $ 78,459
Foreign (8,436) (3,577) 1,357
- ----------------------------------------------------------------------------
Total $ 135,945 $ 104,195 $ 79,816
- ----------------------------------------------------------------------------
</TABLE>
Pre-tax income from foreign sources excludes the results of Canadian branches of
domestic companies.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's net deferred tax liabilities and assets are as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
AT DECEMBER 31, (IN THOUSANDS): 1996 1995
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax liabilities:
Deferred policy acquisition costs $ 104,687 $ 87,519
Net unrealized investment gains 9,015 10,230
Depreciation and amortization 5,218 5,442
Others - net 10,918 6,211
- ---------------------------------------------------------------------------------------------------------------
Total gross deferred tax liabilities 129,838 109,402
- ---------------------------------------------------------------------------------------------------------------
Deferred tax assets:
Insurance policy liabilities (61,385) (53,138)
Difference between book and tax bases of investments (9,403) (5,195)
Accrued expenses and other amounts not currently deductible for tax purposes (16,179) (15,583)
Tax loss carryforward of U.K. subsidiary (4,496) (1,434)
Others - net (2,076) (5,937)
- ---------------------------------------------------------------------------------------------------------------
Total gross deferred tax assets (93,539) (81,287)
Less valuation allowance 4,496 1,434
- ---------------------------------------------------------------------------------------------------------------
Net deferred tax assets (89,043) (79,853)
- ---------------------------------------------------------------------------------------------------------------
Net deferred tax liability (asset) $ 40,795 $ 29,549
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
55
<PAGE> 57
Significant components of the provision for income taxes attributable to
continuing operations are as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31
(in thousands): 1996 1995 1994
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ 24,169 $ 19,608 $ 12,480
Foreign 4,752 5,597 2,350
- ---------------------------------------------------------------------------
Total current 28,921 25,205 14,830
- ---------------------------------------------------------------------------
Deferred:
Federal 11,032 6,773 7,901
Foreign 1,489 (43) 541
- ---------------------------------------------------------------------------
Total deferred 12,521 6,730 8,442
- ---------------------------------------------------------------------------
Total provision for income taxes $ 41,442 $ 31,935 $ 23,272
- ---------------------------------------------------------------------------
</TABLE>
The provision for foreign taxes includes amounts attributable to income from
U.S. possessions which are considered foreign under U.S. tax laws.
Total income tax expense (benefit) varies from amounts computed by applying
current federal income tax rates to income before income taxes. The reasons for
these differences and the approximate tax effects thereon for each year ended
December 31 are as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
1996 1995 1994
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Statutory tax rate 35.0% 35.0% 35.0%
Foreign operating loss carryforward 2.5 1.6
Rate differential - U.S. possessions (2.5) (3.4) (1.1)
Tax exempt investment income and dividends (1.7) (2.4) (2.6)
Tax settlement, refunds and other taxes 1.0 (.4) (.8)
Tax credits, others - net (3.8) .3 (1.3)
- ----------------------------------------------------------------------
Effective tax rate 30.5% 30.7% 29.2%
- ----------------------------------------------------------------------
</TABLE>
Deferred income taxes (benefits) of $9,015,000, $10,230,000 and $(13,398,000) in
1996, 1995 and 1994 respectively have been provided on net unrealized investment
gains (losses).
The Company intends to indefinitely reinvest the undistributed earnings of its
wholly owned foreign subsidiaries. The cumulative amount of undistributed
earnings for which the Company has not provided deferred income taxes is
approximately $60,000,000 as of December 31, 1996. Upon distribution of such
earnings in a taxable transaction, the Company would incur additional U.S.
income taxes in the amount of approximately $12,700,000 net of anticipated
foreign tax credits.
Current tax benefits of approximately $1,300,000 related to the vesting of
restricted stock were credited directly to additional paid-in capital in 1996.
At December 31, 1996, the Company's U.K. subsidiary had approximately
$13,624,000 in net operating loss (NOL) carryforwards. A valuation allowance for
the full amount of the related tax benefit has been established due to
uncertainties associated with utilization of the NOL carryforwards.
The Company made federal income tax payments (net of refunds) of $21,875,000,
$13,448,000 and $16,550,000 for the years 1996, 1995 and 1994 respectively.
56
<PAGE> 58
(7) Notes Payable
Following is a summary of outstanding debt at December 31:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
(in thousands): 1996 1995
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Short-term credit facility $ 80,317 $ 87,000
$200,000,000 medium-term note program 125,000 125,000
10.2% promissory notes due September 12, 1998, annual prepayments of $4.6 million
commenced September 12, 1995. Interest is payable quarterly 9,200 13,800
Note payable guaranteed by the Company for LESOP. (See Note 9.) 4,250 6,375
Convertible debenture bonds due to officers on May 24, 1999 (convertible into 150,000 shares of
the Company's Common Stock). Interest is payable quarterly at 1% above prime 3,723 3,723
Other notes payable 83
- ---------------------------------------------------------------------------------------------------------------------
Total $222,490 $235,981
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
On December 1, 1995, the Company replaced its short-term credit facility with a
$250,000,000 five-year competitive advance and revolving credit agreement with a
group of banks. The agreement features a revolving line of credit, commercial
paper and/or bid loan facilities. Interest rates vary according to the credit
instrument exercised and the market rates then prevailing. Quarterly fees
payable under this credit facility are: (a) fees payable to each lender, based
upon the Company's Moody's and Standard & Poor's ratings at every quarter end;
(b) utilization fees; and (c) administrative fee. The fees incurred in 1996 were
$316,000 for these facilities. Fees were $1,482,000 and $906,000 for 1995 and
1994 respectively. The credit agreement contains various covenants pertaining to
minimum stockholders' equity, maximum funded debt ratio and insurance statutory
surplus and other ratios. No dividend payments are permitted if there is a
default under the credit agreement.
In 1994, the Company filed with the Securities and Exchange Commission a shelf
registration statement for $200,000,000 medium-term notes which provides for
maturities ranging from nine months to thirty years. Under this shelf
registration, the Company issued a $75,000,000 fixed rate note in May 1994 at
7.6% that is due May 1999 and interest is payable semi-annually. In addition,
the Company issued a five-year $50,000,000 floating rate note in April 1995.
Interest is payable and the rate is established on a quarterly basis. At
December 31, 1996, the interest rate was 6.2%.
Interest paid was $17,924,000 in 1996, $14,328,000 in 1995 and $10,719,000 in
1994.
The following information is furnished with respect to the Company's short-term
borrowings (commercial paper and revolving line of credit):
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
AT DECEMBER 31 (in thousands): 1996 1995
- -------------------------------------------------------------------------
<S> <C> <C>
Amount outstanding $ 80,317 $87,000
Weighted average interest rate on outstanding debt 5.62% 6.15%
For the year ended December 31 (in thousands): 1996 1995
- -------------------------------------------------------------------------
Average amount outstanding $114,058 $83,417
Maximum amount outstanding $188,147 $97,000
Average interest rate 5.63% 6.23%
- -------------------------------------------------------------------------
</TABLE>
57
<PAGE> 59
(8) Stockholders' Equity
The Company has authorized 3,500,000 shares of no par preferred stock. On
February 24, 1988, the Board of Directors adopted a "Rights Plan" (amended
November 14, 1990) creating certain rights which attach to and trade with
each share of common stock outstanding on or after March 11, 1988. Upon the
acquisition of, or the announcement of a tender offer for, specified
amounts of the Company's common stock, the rights will separate from the
common stock, at which time holders of the rights will be entitled to
purchase units of the Company's Series A Participating Preferred Stock.
Thereafter, under certain circumstances (including acquisitions of
specified amounts of the Company's common stock, mergers involving the
Company, and certain self-dealing transactions by an acquisitor), holders
of the rights will be entitled to purchase common stock (or other property)
of the Company (or of the acquiring entity) at prescribed levels. At
December 31, 1996, there were 350,000 shares of Series A Preferred Stock
reserved for issuance. The rights are redeemable at the Company's option
and expire on March 10, 1998.
At December 31, 1996, the Company had 2,300,000 shares of $3.125 Series B
Cumulative Convertible Preferred Stock issued and outstanding. Holders of
the Convertible Preferred Stock are entitled to a cumulative dividend,
payable quarterly, at the annual rate of $3.125 per share. If six quarterly
dividends are in arrears, the holders of the convertible preferred stock
will be entitled to vote as a separate class to elect two directors of the
Company. The Convertible Preferred Stock will not be redeemable prior to
August 7, 2000. On and after such date, the Convertible Preferred Stock
will be redeemable, in whole or in part, at the option of the Company, at
$51.88 per share of Convertible Preferred Stock during the period from
August 7, 2000 to August 6, 2001 and declining ratably annually to $50 per
share of Convertible Preferred Stock on or after August 7, 2006, plus in
each case accrued and unpaid dividends to the redemption date.
Each share of Preferred Stock has a liquidating preference of $50, plus
accrued and unpaid dividends, and is convertible at any time at the option
of the holders thereof into .9987 shares of Common Stock of the Company
(equivalent to a conversion price of $50.065 per Common Share), subject to
adjustment under certain conditions.
Stock insurance companies are subject to various states' insurance laws and
regulations whereby amounts available for dividends are restricted. Net
consolidated assets restricted as to distribution to the Company are
$570,400,000. The maximum statutory allowed dividends in 1997 are
$139,800,000.
A summary of statutory financial information for the domestic insurance
companies is presented below:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31 (IN THOUSANDS) 1996 1995 1994
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory Net Income (including net realized capital gains/losses)
Life insurance subsidiaries $54,100 $21,000 $15,700
Property and casualty insurance subsidiaries $52,200 $29,400 $40,400
<CAPTION>
- -------------------------------------------------------------------------------------------------
AT DECEMBER 31 (IN THOUSANDS) 1996 1995
- -------------------------------------------------------------------------------------------------
Statutory Capital and Surplus
Life insurance subsidiaries $234,700 $188,900
Property and casualty insurance subsidiaries $374,500 $271,500
</TABLE>
Statutory Permitted Practices
The Company's insurance subsidiaries prepare their statutory financial
statements in accordance with accounting principles and practices prescribed or
permitted by the insurance department of their state of domicile. Prescribed
statutory accounting practices include state laws, regulations and general
58
<PAGE> 60
administrative rules as well as a variety of publications of the National
Association of Insurance Commissioners (NAIC). Permitted statutory accounting
practices encompass all accounting practices that are not prescribed; such
practices differ from state to state and may change in the future. The NAIC has
a project to codify statutory accounting practices, the result of which is
expected to constitute the only source of "prescribed" statutory accounting
practices. The codification, when completed, will likely change the definitions
of what comprises prescribed as opposed to permitted statutory accounting
practices and may result in changes to the accounting policies that insurance
companies use to prepare their statutory financial statements.
(9) Compensation and Other Plans
Stock Option Plans
Senior Management Plan
On May 25, 1994, stockholders approved the adoption of the 1994 Senior
Management Stock Option Plan (Senior Plan). Under the terms of the Senior Plan,
certain key employees may be granted options at prices equivalent to the fair
market value of ABIG's common stock on the grant date. Each option further
entitles the employee to be awarded two additional shares of restricted common
stock. Options are not exercisable before the six-month anniversary nor after
the third anniversary from the date of grant. During a three-year vesting
period, the restricted shares are subject to forfeiture in the event the related
primary shares are disposed, or if employment with the Company is terminated
except by death, disability or retirement. Dividends and voting rights on the
restricted shares remain with the employee during the vesting period. Full
vesting occurs on the third anniversary after the date the options are
exercised. As of December 31, 1996 there were 608,878 shares authorized. Grants
may be made under this plan until February 18, 2004.
Non-Employee Directors' Stock Option Plan
On May 25, 1994, stockholders approved the adoption of the 1994 Non-Employee
Directors' Stock Option Plan (Director's Plan). Under the terms of the plan,
each non-employee director will receive 1,000 options annually at prices
equivalent to the fair market value of ABIG's common stock on the grant date.
Options granted are not exercisable before the six-month anniversary nor after
the fifth anniversary from the date of the grant. As of December 31, 1996, there
were 50,000 shares authorized. Grants may be made under this plan until March
24, 2004.
Award and Incentive Plans
On May 22, 1991, stockholders approved two stock option plans: (1) 1991 Stock
Option/Restricted Stock Award Plan (Award Plan) and (2) 1991 Stock Incentive
Compensation Plan (Incentive Plan). Under the terms of the Award Plan, certain
key employees may be granted options at prices equivalent to the fair market
value of ABIG's common stock on the grant date. Each option further entitles the
employee to be awarded three additional shares of restricted common stock.
Options are not exercisable before the six-month anniversary nor after the third
annual anniversary from the date of grant. During the vesting period, the
restricted shares are subject to forfeiture in the event the related primary
shares are disposed, or if employment with the Company is terminated except by
death, disability or retirement. Dividends and voting rights on the restricted
shares remain with the employee during the vesting period. Full vesting occurs
on the fifth annual anniversary after the date the options are exercised. In
1995, the Company amended the Plan's vesting period provision, originally five
years, to allow certain restricted shareholders to elect an additional one-,
two- or three-year vesting period for their shares. In 1994, the stockholders
approved the Senior Management Stock Option Plan, and as a result, no new grants
will be made under the
59
<PAGE> 61
Award Plan
Under the terms of the Incentive Plan, certain other management employees may be
granted options at prices equivalent to fifty percent of the fair market value
of the Company's common stock on the grant date. Shares obtained by exercise are
subject to restrictions. Non-vested shares are subject to forfeiture if
employment is terminated except by death, disability or retirement. Vesting
occurs ratably over a five-year period from the date of exercised. As of
December 31, 1996 there were 289,586 shares authorized. Grants may be made under
the Incentive Plan until November 14, 2000.
A summary of the status and activity for options and shares granted and
exercised under the Plans at December 31, 1996, is
as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Award/Senior Plan Incentive Plan Non-Employee Directors Plan
- -----------------------------------------------------------------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Granted Exercised Price Granted Exercised Price Granted Exercised Price
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
As of December 31, 1993 38,400 470,478 60,465
1994
Grants 89,500 75,100 13,000
Exercises (Award Plan $14.63 - $23.13,
Senior Plan $22.13, and principally
$11.06 Incentive Plan) (49,400) 49,400 (51,100) 51,100
Forfeitures/Reacquisitions (56,400) (4,360)
Lapses (3,900) (24,000)
- -----------------------------------------------------------------------------------------------------------------------------------
Outstanding at End of Year
(all exercisable) 74,600 463,478 107,205 13,000
1995
Grants 74,400 65,500 13,000
Exercises (Award Plan $18.13 - $26.50,
Senior Plan $23.13 - $30.25, and
$15.13 - 17.00 Incentive Plan and
$22.56 Non-Employee) (66,500) 66,500 (41,200) 41,200 (2,000) 2,000
Forfeitures/Reacquisitions (7,500) (5,390)
Lapses (19,500) (24,300)
- -----------------------------------------------------------------------------------------------------------------------------------
Outstanding at End of Year
(all exercisable) 63,000 522,478 $27.20 N/A 143,015 N/A 24,000 2,000 $26.52
1996
Grants 94,200 $41.10 73,300 $20.53 13,000 $40.38
Exercises (Award Plan $26.50,
Senior Plan $22.13 - $47.50, and
$20.50 - 23.75 Incentive Plan and
$22.56 - $29.88 Non-Employee) (60,600) 60,600 $33.46 (45,000) 45,000 $20.51 (5,000) 5,000 $26.95
Forfeitures/Reacquisitions (14,538) $27.90 (6,570)
Lapses (9,300) $27.90 (28,300) $20.55
- -----------------------------------------------------------------------------------------------------------------------------------
Outstanding at End of Year
(all exercisable) 87,300 $37.78 N/A N/A 32,000 $32.08
Exercised - Net 568,540 181,445 7,000
- -----------------------------------------------------------------------------------------------------------------------------------
Weighted average fair value of options
granted during the year $8.18 $20.57 $11.42
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The following table summarizes information about stock options outstanding at
December 31, 1996:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Options Outstanding Options Exercisable
- -----------------------------------------------------------------------------------------------------------------------------------
Number Weighted-Average Number
Range of Outstanding Remaining Weighted-Average Exercisable Weighted-Average
Exercise Prices at 12/31/96 Contractual Life Exercise Price at 12/31/96 Exercise Price
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$22.13 - $30.25 39,700 2.0 $ 8.88 39,700 $ 8.88
$40.38 - $47.50 79,600 2.8 $27.37 79,600 $27.37
- -----------------------------------------------------------------------------------------------------------------------------------
$22.13 - $47.50 119,300 2.6 $36.25 119,300 $36.25
</TABLE>
60
<PAGE> 62
Shares issued under the plans are recorded at fair market value at the effective
date of the grant. The unamortized difference ($4,382,000 as of December 31,
1996, and $3,620,000 as of December 31, 1995) between the fair market value and
option price on shares which are restricted is reported as part of stockholders'
equity. Amortization of the restricted stock is recorded as compensation expense
ratably over the vesting period ($1,544,000 in 1996, $1,407,000 in 1995 and
$965,000 in 1994). Furthermore, any difference between the fair market value and
the option price on the unrestricted shares in the Award Plan and Senior Plan is
recorded as compensation expense. Forfeitures are included as credits in the
income statement during the period in which the forfeiting event occurs.
Fair Values of Stock Options
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) and related Interpretations
in accounting for its employee stock options as allowed pursuant to FASB
Statement No. 123, "Accounting for Stock Based Compensation" (FASB Statement
123). FASB Statement 123 requires use of option valuation models that require
the input of highly subjective assumptions, including expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from traded options and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
measure of the fair value of its employee stock options.
Had compensation cost for the Company's stock option plans been determined based
on the fair value at the grant date for awards under those plans, consistent
with FASB Statement No. 123, the reduction in the Company's 1996 and 1995 net
income and net income per share would have been insignificant. The effect of
applying the fair value method of accounting for stock options on reported net
income and net income per share for 1996 and 1995 may not be representative of
the effects for future years because outstanding options vest over a period of
several years and additional awards are generally made each year.
The fair value of options granted was estimated at the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions for 1996 and 1995:
<TABLE>
<S> <C> <C>
Risk-free interest rate 5.63% 5.97%
Expected life 1.33 1.34
Expected volatility 26% 32%
Expected dividend yield 1.99% 2.56%
</TABLE>
ESODAP
The Executive Stock Option/Dividend Accrual Plan (ESODAP) authorizes stock
options for key management employees of the Company. As of December 31, 1996,
options representing 710,414 shares had been issued under the plan, of which
275,912 had been exercised and 65,938 had been terminated. A key feature of the
plan is the Dividend Accrual Account which allows for the crediting of dividends
in order to assist the executive in the exercise of the options. The Company
discontinued making grants under this plan effective with the approval and
adoption of the 1991 Incentive and Award plans.
Other Plans
KEDP
Under the 1994 Key Executive Debenture Plan (KEDP), the Board may select certain
Company officers to be eligible to purchase convertible debentures. As of
December 31, 1996, two debentures in the aggregate amount of $3.7 million had
been issued which are convertible into all the 150,000 shares as currently
reserved under the plan.
61
<PAGE> 63
LESOP
The Leveraged Employee Stock Ownership Plan (LESOP) through its trust was funded
by a loan from a bank which was collateralized with newly issued shares of the
Company's stock purchased by the LESOP at market price.
Although the debt is not a direct obligation of the Company, it is nevertheless
reported as part of the Company's debt with an offsetting balance reflected as a
reduction of stockholders' equity. As contributions to the LESOP are made by the
Company, the debt is repaid to the bank by the LESOP and the balances on the
Company's balance sheet are reduced accordingly. The Company has guaranteed the
Trust's loan obligation. It intends to make contributions to the LESOP in
amounts sufficient to enable the Trust to repay the loan on a quarterly basis
over ten years, including interest equal to 6%. The shares held by the bank as
collateral are released proportionately as loan repayments are made. Upon such
release, the shares are available for allocation to employees based upon years
of service. Employees are entitled to vote the shares allocated to them.
Unallocated shares are voted by the LESOP's Trustee. At December 31, 1996 and
1995, the loan balance was $4.3 million and $6.4 million respectively. The
interest portion of the LESOP pension expense was $.4 million in 1996 and $.6
million in 1995 and in 1994.
As a result of the promulgation of Statement of Position (SOP) 93-6 -
"Employers' Accounting for Employee Stock Ownership Plans" - by the American
Institute of Certified Public Accountants in late 1993, new reporting rules
became effective in 1994. These changes are mandated for shares acquired in 1993
and later, and are optional for previously acquired shares. The Company has no
shares subject to the mandated provisions and, as permitted by the SOP, is not
electing to change its accounting for previously acquired shares. The following
disclosures are made to supplement previously disclosed plan information:
o Dividends paid on all shares held by the LESOP are used to
service the existing debt of the LESOP.
o Compensation expense for the years ended December 31, 1996, 1995
and 1994 was $1,186,000, $1,430,000 and $1,480,000
respectively. The compensation expense represents the
Company's contributions to the LESOP necessary to meet its
periodic debt service, after applying dividend payments
received on the shares held by the LESOP. All dividends paid
on such shares retain their character as distributions made
from the Company's retained earnings.
o All shares held by the LESOP are treated as issued and
outstanding and, accordingly, are included in the Company's
earnings per share calculations.
o Shares held by the LESOP as of December 31, 1996 include the
following:
<TABLE>
<S> <C>
Prior allocated 1,237,159
Allocated in 1996 171,717
Suspense shares 343,439
Distribution (322)
--------
Total 1,751,993
---------
</TABLE>
Directors' Deferred
Compensation Plan
The 1994 Amended and Restated Directors' Deferred Compensation Plan (Deferred
Plan) allows the directors to defer their fees in cash or in common stock
equivalents. The fees that are deferred in common stock equivalents will
accumulate and earn interest from the time the fees are deferred until the last
day of each quarter when they are converted to common stock equivalents. Upon
termination from the board, the director will receive, as elected, either cash
or actual shares of the Company's common stock. The Deferred Plan provides for
the issuance of up to 100,000 shares of the Company's common stock. At December
31, 1996 there were 75,563 shares allocated under this plan.
62
<PAGE> 64
(10) Pension Plan
The Company has a non-contributory pension plan covering substantially all of
its domestic employees. Benefits under the Plan are based on years of service
and compensation levels near retirement. The Company's funding policy is to
contribute amounts that meet minimum funding requirements but which do not
exceed the maximum funding limits as currently determined under applicable tax
regulations. The Plan previously reached the full funding limitation and,
accordingly, no contributions were made.
The pension plan expense included the following components for the years ended
December 31:
<TABLE>
<CAPTION>
- -------------------------------------------------------------
(in thousands) 1996 1995 1994
- -------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 2,146 $ 1,903 $ 2,534
Interest cost 2,230 1,988 1,924
Actual return on plan assets (7,656) (9,228) 1,354
Net amortization and deferral 4,499 6,862 (3,426)
- -------------------------------------------------------------
Pension plan expense $ 1,219 $ 1,525 $ 2,386
- -------------------------------------------------------------
</TABLE>
The following sets forth the funded status of the Plan and the amount of prepaid
pension cost included in the Company's balance sheet at December 31:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
(in thousands) 1996 1995
Actuarial present value of benefit obligations:
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
A. Vested benefit obligation $(21,892) $(24,119)
- -----------------------------------------------------------------------------------------------
B. Accumulated benefit obligation $(25,228) $(27,648)
- -----------------------------------------------------------------------------------------------
C. Projected benefit obligation $(33,868) $(38,777)
Plan assets at fair value, primarily
listed stocks and bonds 44,897 37,747
- -----------------------------------------------------------------------------------------------
Excess (deficit) of Plan assets over projected benefit obligation 11,029 (1,030)
Unrecognized net (gain) loss from past
experience different from that assumed (8,435) 4,884
Prior service cost not yet recognized in net periodic
pension costs (208) (249)
- -----------------------------------------------------------------------------------------------
Prepaid pension cost included in other assets $ 2,386 $ 3,605
- ------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
Assumptions used were as follows: 1996 1995
- -------------------------------------------------------------------------
<S> <C> <C>
Plan discount rate for benefit obligation 7.5% 6.5%
Rate of increase in compensation 5% 6%
Expected long-term rate of return on assets 9% 9%
- -------------------------------------------------------------------------
</TABLE>
The Board of Directors previously approved a non-qualified supplemental benefit
plan. This unfunded deferred compensation plan is intended to provide pension
benefits which would otherwise be provided under the benefit accrual formula
applicable to all employees in the Company's qualified Plan, but which are in
excess of an annual amount permitted under current tax regulations. Expense ($.1
million in 1996, $.1 million in 1995 and $.3 million in 1994) is being
recognized over the remaining service period for the officers presently covered.
63
<PAGE> 65
(11) Commitments and Contingencies
A summary of the approximate future minimum rental payments required under
operating leases that have initial or remaining non-cancelable lease terms in
excess of one year at December 31, 1996, is as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
For the Years ending December 31
(in thousands): Real Property Equipment Total
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
1997 2,374 3,052 5,426
1998 2,162 2,751 4,913
1999 1,848 1,401 3,249
2000 1,325 641 1,966
2001 498 518 1,016
- ---------------------------------------------------------------------------------
$ 8,207 $ 8,363 $16,570
- ---------------------------------------------------------------------------------
</TABLE>
Total rental expense for the years ended December 31, 1996, 1995 and 1994 was
$9,258,000, $7,661,000 and $5,716,000 respectively.
Contingencies
During 1995, the Company completed a settlement with the Federal Deposit
Insurance Corporation (FDIC) of the only remaining lawsuit against the Company
relating to its relationship with a former credit bond client. This settlement
included the entry of orders by the Court dismissing all claims between the
Company and the FDIC with prejudice. The settlement, net of previously
established reserves, resulted in a charge of $5.8 million. Effective with this
settlement, the Company concluded all litigation ever initiated against it in
connection with its discontinued credit bond insurance business.
Certain of ABIG's subsidiaries, including ABIC, ABLAC and Voyager, are presently
parties to a number of individual consumer and class action lawsuits pending in
Alabama involving premium, rate and policy coverage issues. While a number of
similar suits have been filed in other jurisdictions, the insurance and finance
industries have been targeted in Alabama by plaintiffs' lawyers who enjoy a
favorable judicial climate. The Company typically has been named as a
co-defendant with one or several retailer or finance companies who have sold the
Company's product to a consumer. A number of other insurers are also named as
co-defendants in many of the suits.
Although the Alabama lawsuits and similar suits pending in other jurisdictions
generally involve relatively small amounts of actual or compensatory damages,
they typically assert claims requesting substantial punitive awards or purport
to represent a large class of policyholders. The Company denies any wrongdoing
in any of these suits and believes that it has not engaged in any conduct that
would warrant an award of punitive damages or that the class allegations have
merit. The Company has been advised by legal counsel that it has meritorious
defenses to all claims being asserted against it.
While no one case is necessarily significant in terms of financial risk to the
Company, the judicial climate in Alabama is such that the outcome of these cases
is extremely unpredictable. Without admitting any wrongdoing, the Company has
settled a number of these suits, but there are still a significant number of
cases pending, and it is expected that more suits alleging essentially the same
causes of action are likely to continue to be filed during 1997. The Company
intends to continue to defend itself vigorously against all such suits and
believes, based on information currently available, that any liabilities that
could result are not expected to have a material adverse effect on the Company's
financial position.
The Company is involved with a number of cases in the ordinary course of
business relating to insurance matters or, more infrequently, certain corporate
matters. Generally, the Company's liability is limited to specific amounts
relating to insurance or policy coverage for which provision has been made in
the financial statements. Other cases involve general corporate matters which
generally do not represent significant contingencies for the Company.
64
<PAGE> 66
(12) Segment Information
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
Industry Segments (in thousands): 1996 1995 1994
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net premiums earned:
Life $ 383,965 $ 377,108 $ 360,100
Property and Casualty 994,520 863,605 734,217
- ------------------------------------------------------------------------------------
Total $ 1,378,485 $ 1,240,713 $ 1,094,317
- ------------------------------------------------------------------------------------
Income before interest and income taxes:
Life $ 63,901 $ 44,731 $ 32,020
Property and Casualty 91,876 87,357 66,693
Other (2,302) (12,314) (7,729)
- ------------------------------------------------------------------------------------
Subtotal 153,475 119,774 90,984
Interest expense (17,530) (15,579) (11,168)
- ------------------------------------------------------------------------------------
Total $ 135,945 $ 104,195 $ 79,816
- ------------------------------------------------------------------------------------
Identifiable assets:
Life $ 1,439,254 $ 1,333,076 $ 1,023,634
Property and Casualty 1,969,705 1,602,160 1,347,262
Other 60,544 52,498 61,603
- ------------------------------------------------------------------------------------
Total $ 3,469,503 $ 2,987,734 $ 2,432,499
- ------------------------------------------------------------------------------------
</TABLE>
Summarized data for the Company's foreign operations (principally in Canada and
the United Kingdom) and domestic operations are as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
GEOGRAPHIC SEGMENTS
FOR THE YEARS ENDED DECEMBER 31 (in thousands) 1996 1995 1994
- -------------------------------------------------------------------------------------
Net premiums earned:
<S> <C> <C> <C>
Domestic (including U.S. possessions) $1,315,822 $1,190,084 $1,048,603
Foreign 62,663 50,629 45,714
- -------------------------------------------------------------------------------------
Total $1,378,485 $1,240,713 $1,094,317
- -------------------------------------------------------------------------------------
Income before income taxes:
Domestic (including U.S. possessions) $ 129,652 $ 100,616 $ 76,305
Foreign 6,293 3,579 3,511
- -------------------------------------------------------------------------------------
Total $ 135,945 $ 104,195 $ 79,816
- -------------------------------------------------------------------------------------
Identifiable assets:
Domestic (including U.S. possessions) $3,294,847 $2,871,773 $2,326,076
Foreign 174,656 115,961 106,423
- -------------------------------------------------------------------------------------
Total $3,469,503 $2,987,734 $2,432,499
- -------------------------------------------------------------------------------------
</TABLE>
The Company distributes its products through eight markets or distribution
channels involving over one thousand clients. Its business is generally not
concentrated, and no single customer accounted for 10% or more of the Company's
consolidated gross collected premiums in 1996.
65
<PAGE> 67
(13) Quarterly Financial Information (Unaudited)
Quarterly financial information for the years ended December 31, 1996 and 1995,
is presented below:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
(in thousands except per common share data): First Second Third Fourth
1996 Quarter Quarter Quarter Quarter
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total revenues $375,697 $385,988 $399,619 $367,731
Total benefits and expenses $344,810 $350,733 $367,922 $329,625
Net income $ 20,636 $ 25,060 $ 22,637 $ 26,170
Net income per common share - primary $ .99 $ 1.19 $ 1.02 $ 1.16
- --------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
First Second Third Fourth
1995 Quarter Quarter Quarter Quarter
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total revenues $309,775 $326,207 $357,245 $367,621
Total benefits and expenses $288,143 $303,791 $332,158 $332,561
Net income $ 14,871 $ 16,048 $ 18,684 $ 22,657
Net income per common share - primary $ .72 $ .77 $ .90 $ 1.09
- --------------------------------------------------------------------------------------
</TABLE>
The sum of the quarterly earnings per share amounts may not equal the comparable
amounts for the full year because the computations are done independently.
66
<PAGE> 68
Schedule I
AMERICAN BANKERS INSURANCE GROUP, INC.
SUMMARY OF INVESTMENTS - OTHER THAN INVESTMENTS IN RELATED PARTIES
DECEMBER 31, 1996
(IN THOUSANDS)
Information on Summary of Investments - Other Than Investments in Related
Parties is included on page 11 in Part I Item 1 c. of this report, and in Note 3
on page 49 in Part II Item 8 of this report, with the exception of the
Information on Equity Securities which is included below.
<TABLE>
<CAPTION>
AMOUNT
AT WHICH SHOWN IN
COST MARKET VALUE THE BALANCE SHEET
---- ------------ -----------------
<S> <C> <C> <C>
Equity Securities:
Common Stocks:
Public Utilities $837 $704 $704
Banks, Trust and Insurance
Companies 4,207 6,807 6,807
Industrial, Miscellaneous and
All Other 60,378 71,752 71,752
Non-Redeemable Preferred Stock
33,240 33,632 33,632
------ ------- ------
Total Equity Securities $ 98,662 $ 112,895 $ 112,895
======== ========= =========
</TABLE>
67
<PAGE> 69
Schedule II
AMERICAN BANKERS INSURANCE GROUP, INC. (PARENT)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEETS
AT DECEMBER 31,
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
ASSETS
Investments in subsidiaries* $934,610 $730,501
Amounts due from subsidiaries* 0 19,988
Other investments 1,109 2,613
Cash 366 459
Other 12,439 9,310
-------- --------
Total Assets $948,524 $762,871
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term debt 80,317 87,000
Long-term debt 142,173 148,981
Amounts due to subsidiaries* 2,853 0
Accrued expenses and other liabilities 12,974 13,893
-------- --------
Total liabilities $238,317 $249,874
-------- --------
STOCKHOLDERS' EQUITY
Preferred stock 115,000
Common stock 20,530 20,384
Additional paid-in capital 217,939 215,121
Net unrealized investment and foreign
exchange gains 7,437 7,255
Retained earnings 359,359 282,748
Treasury stock, at cost (1,426) (2,516)
Unamortized restricted stock (4,382) (3,620)
Collaterization of loan to Leveraged Employee
Stock Ownership Plan (4,250) (6,375)
-------- --------
Total stockholders' equity 710,207 512,997
-------- --------
Total liabilities and stockholders' equity $948,524 $762,871
======== ========
</TABLE>
*Eliminated in consolidated financial statements.
See accompanying note to condensed financial statements.
68
<PAGE> 70
Schedule II
AMERICAN BANKERS INSURANCE GROUP, INC. (PARENT)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31,
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
REVENUES:
Net investment income $ 5,934 $ 2,744 $ 2,547
Net realized investment (losses) gains (4,379) (194) 891
Dividends from subsidiaries* 21,270 8,775 22,539
----------------- ---------------- -------------
Total revenues 22,825 11,325 25,977
----------------- ---------------- -------------
EXPENSES:
Operating expenses 3,943 13,214 10,178
Interest 17,530 15,565 11,158
----------------- ---------------- -------------
Total expenses 21,473 28,779 21,336
----------------- ---------------- -------------
Income (loss) before income taxes and
equity in undistributed income of subsidiaries 1,352 (17,454) 4,641
INCOME TAX (BENEFIT) EXPENSE:
Current (5,356) (8,853) (7,235)
Deferred (1,313) 27 1,178
----------------- ---------------- -------------
(6,669) (8,826) (6,057)
----------------- ---------------- -------------
Income (loss) before equity in
undistributed income of subsidiaries 8,021 (8,628) 10,698
Equity in undistributed income of
subsidiaries* 86,482 80,888 45,846
----------------- ---------------- -------------
Net income $94,503 $72,260 $56,544
================= ================ =============
</TABLE>
*Eliminated in consolidated financial statements.
See accompanying note to condensed financial statements.
69
<PAGE> 71
Schedule II
AMERICAN BANKERS INSURANCE GROUP, INC. (PARENT)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Operating Activities:
Net income $ 94,503 $ 72,260 $ 56,544
Adjustments to reconcile net income to net cash provided by
operating activities:
Equity in undistributed earnings of subsidiaries (73,427) (79,523) (47,926)
(Increase) in amounts due from subsidiaries 41,891 (8,654) (13,544)
Decrease in other assets (6,423) 2,289 12,912
(Decrease) increase in accrued liabilities (13,552) 7,932 (1,000)
Other 2,836 1,397 1,066
Deferred income taxes (2,213) 27 1,178
--------- --------- ---------
Net cash provided by (used in) operating activities 43,615 (4,272) 9,230
--------- --------- ---------
Investing activities:
Increase in investment in subsidiaries (82,789) (4,587) (565)
Decrease (Increase) in other investments 1,636 (193) (3,046)
Payment for purchase of subsidiaries, net of cash acquired (46,742) (17,034) (32,284)
--------- --------- ---------
Net cash used in investing activities (127,895) (21,814) (35,895)
--------- --------- ---------
Financing activities:
Purchase of treasury stock (175) (893) (1,208)
Proceeds from issuance of common stock 1,898 1,248 1,238
Proceeds from issuance of preferred stock 111,781 0 0
Proceeds from issuance of short-term debt - other 138,147 50,000 18,000
Proceeds from issuance of long-term debt - other 0 81,000 78,723
Repayment of long-term debt - other (4,683) (4,683) (4,683)
Repayment of short-term debt - other (144,830) (86,000) (51,000)
Cash dividends paid to stockholders (17,951) (14,824) (14,304)
--------- --------- ---------
Net cash provided by financing activities 84,187 25,848 26,766
--------- --------- ---------
Net (decrease) increase in cash (93) (238) 101
Cash at beginning of year 459 697 596
--------- --------- ---------
Cash at end of year $ 366 $ 459 $ 697
========= ========= =========
</TABLE>
See accompanying note to condensed financial statements
70
<PAGE> 72
Schedule II
AMERICAN BANKERS INSURANCE GROUP, INC. (PARENT)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
DECEMBER 31, 1996
NOTES TO CONDENSED FINANCIAL STATEMENTS
The accompanying condensed financial statements should be read in conjunction
with the Consolidated Financial Statements and notes thereto of American Bankers
Insurance Group, Inc. and Subsidiaries.
The Company is scheduled to repay the LESOP note at a yearly amount of
$2,125,000 plus interest. For a description of short-term and long-term debt
payable to others and related information see Note 7 to the Consolidated
Financial Statements on page 57 in Part II Item 8 of this report. For a
description of the Company's commitments and contingencies, see Note 11 to the
Consolidated Financial Statements on page 64 in Part II Item 8 of this report.
71
<PAGE> 73
Schedule III
AMERICAN BANKERS INSURANCE GROUP, INC.
SUPPLEMENTARY INSURANCE INFORMATION
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
Deferred Policy Future Other Policy
Acquisition Policy Unearned Claim Premium
Costs Benefits Premiums Benefits Revenue
---------------- -------- -------- ------------ -------
<S> <C> <C> <C> <C> <C>
1996
Life & Health $167,686 $291,756 $419,573 $189,700 $383,965
Property & Casualty 220,307 871,569 297,896 994,520
Other
-------- -------- ---------- -------- ----------
Total $387,993 $291,756 $1,291,142 $487,596 $1,378,485
-------- -------- ---------- -------- ----------
1995
Life & Health $146,548 $275,250 $399,500 $161,926 $377,108
Property & Casualty 164,331 779,367 242,819 863,605
Other
-------- -------- ---------- -------- ----------
Total $310,879 $275,250 $1,178,867 $404,745 $1,240,713
-------- -------- ---------- -------- ----------
1994
Life & Health $128,606 $266,221 $330,986 $141,587 $360,100
Property & Casualty 100,975 572,293 191,526 734,217
Other
-------- -------- ---------- -------- ----------
Total $229,581 $266,221 $903,279 $333,113 $1,094,317
-------- -------- ---------- -------- ----------
</TABLE>
<TABLE>
<CAPTION>
Benefits
Net Claims and Other Net
Investment Loss Amortization of Operating Premiums
Income* Expenses** DAC Expenses Written**
---------- ---------- --------------- --------- ----------
<S> <C> <C> <C> <C> <C>
1996
Life & Health $47,604 $176,935 $93,843 $91,700 $ 152,681
Property & Casualty 69,960 346,089 404,012 250,532 1,092,166
Other 3,636 12,449
-------- -------- -------- -------- ----------
Total $121,200 $523,024 $497,855 $354,681 $1,244,847
-------- -------- -------- -------- ----------
1995
Life & Health $40,249 $168,899 $91,953 $96,105 $196,596
Property & Casualty 58,415 294,231 357,796 206,190 982,985
Other 736 25,900
-------- -------- -------- -------- ----------
Total $99,400 $463,130 $449,749 $328,195 $1,179,581
-------- -------- -------- -------- ----------
1994
Life & Health $34,022 $180,513 $73,140 $106,225 $191,997
Property & Casualty 39,225 257,446 272,365 181,425 736,411
Other 1,195 24,737
-------- -------- -------- -------- ----------
Total $74,442 $437,759 $345,505 $312,387 $928,408
-------- -------- -------- -------- ----------
</TABLE>
*Excluding net realized investment gains of $7,812, $721 and $2,679 for 1996,
1995 and 1994, respectively.
**Excluding Life and Annuity premiums.
72
<PAGE> 74
Schedule IV
AMERICAN BANKERS INSURANCE GROUP, INC.
REINSURANCE
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
Percentage of
Gross Ceded to other Assumed from amount assumed
amount companies other companies Net amount to net
------ -------------- --------------- ---------- --------------
<S> <C> <C> <C> <C> <C>
1996
Life insurance in force $37,851,887 $18,270,339 $10,852,864 $30,434,412 35.7%
----------- ----------- ----------- -----------
Premiums:
Life insurance $357,795 $190,201 $47,825 $215,419 22.2%
Accident & Health insurance* 469,532 213,834 26,688 282,386 9.5%
Property & Liability insurance 1,411,964 594,173 62,889 880,680 7.1%
----------- ----------- ----------- -----------
Total premiums $2,239,291 $998,208 $137,402 $1,378,485 10.0%
----------- ----------- ----------- -----------
1995
Life insurance in force $41,916,797 $10,522,839 $791,405 $32,185,363 2.4%
----------- ----------- ----------- -----------
Premiums:
Life insurance $285,100 $123,004 $40,329 $202,425 19.9%
Accident & Health insurance* 376,010 151,155 35,870 260,725 13.8%
Property & Liability insurance 1,169,333 493,268 101,498 777,563 13.1%
----------- ----------- ----------- -----------
Total premiums $1,830,443 $767,427 $177,697 $1,240,713 14.3%
----------- ----------- ----------- -----------
1994
Life insurance in force $30,685,770 $8,686,424 $1,443,472 $23,442,818 5.9%
----------- ----------- ----------- -----------
Premiums:
Life insurance $262,340 $83,411 $25,808 $204,737 12.6%
Accident & Health insurance* 313,839 111,634 15,415 217,620 7.1%
Property & Liability insurance 979,350 386,763 79,373 671,960 11.8%
----------- ----------- ----------- -----------
Total premiums $1,555,529 $581,808 $120,596 $1,094,317 11.0%
----------- ----------- ----------- -----------
</TABLE>
*Includes premiums from both the life and property and casualty segments.
73
<PAGE> 75
Schedule VI
AMERICAN BANKERS INSURANCE GROUP, INC.
SUPPLEMENTAL INFORMATION CONCERNING PROPERTY AND CASUALTY
INSURANCE OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
Claims and Claim Adjustment
Expenses Incurred Related To
Paid Claims and Claim
Current Year Prior Years* Adjustment Expenses
------------ ----------- -------------------
<S> <C> <C> <C>
1996
Consolidated Property and Casualty Entities $345,857 $ 232 $313,299
1995
Consolidated Property and Casualty Entities $285,119 $ 9,112 $261,463
1994
Consolidated Property and Casualty Entities $252,403 $ 5,043 $234,292
</TABLE>
Information otherwise required in the Schedule is provided in Schedule III.
* 1995 and 1994 amounts have been restated to reflect the reclassification
of credit bond losses in Schedule III, approximately $8,000 in 1995 and
$3,500 in 1994.
74
<PAGE> 76
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
75
<PAGE> 77
PART III
ITEM 10
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding the Directors of the Company is included in the
Definitive Proxy Statement for the annual shareholders meeting, to be
filed within 120 days of the registrant's fiscal year-end. Information
regarding the Executive Officers of the Company is included in Part I
of this report.
There are no failures by directors, officers, beneficial owners of more
than ten percent of the Company's stock or other persons subject to
reporting under Section 16(a) of the Exchange Act of 1934 to timely
file reports thereunder is included in the aforementioned Definitive
Proxy Statements.
ITEM 11
EXECUTIVE COMPENSATION
Information regarding Executive Compensation is included in the
Definitive Proxy Statement for the annual shareholders meeting, to be
filed within 120 days of the registrant's fiscal year-end.
ITEM 12
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding Security Ownership of Certain Beneficial Owners
and Management is included in the Definitive Proxy Statement for the
annual shareholders meeting, to be filed within 120 days of the
registrant's fiscal year-end.
The registrant has no knowledge of any contractual arrangement that may
result in a change of control at a subsequent date.
ITEM 13
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding Certain Relationships and Related Transactions is
included in the Definitive Proxy Statement for the annual shareholders
meeting, to be filed within 120 days of the registrant's fiscal
year-end.
76
<PAGE> 78
PART IV
ITEM 14
EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a.)
(1) and (2) - The response to this portion of Item 14 is listed on page
36 of this report.
<TABLE>
<S> <C>
(3) Exhibits
3(a)(14) - Third Amended and Restated Articles of Incorporation.
3(b)(13) - Corporate By-Laws, Amended and Restated. As amended on April 18, 1996.
4(a)(2) - Rights to Purchase Series A Participating Preferred Stock.
4(b)(5) - Amendment to the Rights to Purchase Series A Participating Preferred Stock
10(a)(1) - Form of Executive Compensation Agreement.
10(b)(3) - 1987 Executive Stock Option/Dividend Accrual Plan.
10(c)(6) - Form of Executive Severance Benefits Agreement.
10(d)(12) - 5 Year Competitive Advance and Revolving Credit Facility Agreement dated as of December 1,
1995 among the Company, certain banks and Barclays Bank PLC.
10(e)(12) - Issuance and Paying Agent Agreement (For Commercial Paper) dated as of 21st day of
November 1995 by and between the Company and Chemical Bank.
10(f)(7) - $23,000,000, 10.2% Promissory Notes.
10(g)(7) - Nonqualified Supplemental Benefit Plan.
10(h)(8) - Master License Agreement between Policy Management Systems Corporation ("PMSC"), a South Carolina
Corporation and American Bankers Insurance Group, Inc. ("customer").
10(i)(9) - Trust Indenture and Selling Agency Agreement for shelf filing of $200,000,000 medium-term notes.
10(j)(10) - 1991 Stock Incentive Compensation Plan, as amended February 18, 1994.
10(k)(10) - 1991 Stock Option/Restricted Stock Award Plan, as amended February 18, 1994.
10(l)(10) - Director's Deferred Compensation Plan, amended and restated May 25, 1994.
10(m)(10) - Retirement Plan, as amended December 30, 1994.
10(n)(10) - Management Incentive Plan, as amended May 25, 1994.
10(o)(10) - 1994 Key Executive Convertible Subordinated Debenture Plan.
10(p)(10) - 1994 Non-Employee Directors' Stock Option Plan.
</TABLE>
77
<PAGE> 79
<TABLE>
<S> <C>
10(q)(10) - 1994 Senior Management Stock Option Plan.
10(r)(10) - $75,000,000, 7.60% Medium-term Note dated May 2,1994.
10(s)(10) - Irrevocable Stand-by Letter of Credit in favor of Tandy Corporation dated
January 31, 1995;
10(t)(10) - Reimbursement Agreement with certain banks dated January 31, 1995.
10(u)(11) - $50,000,000, Floating Rate, Medium-term Note dated April 12, 1995.
10(v)(12) - Form of Executive Compensation Agreement.
10(w)(12) - Amendment to the 1991 Stock Option/Restricted Stock Award Plan.
11 - Statement regarding computation of earnings per share.
21 - Subsidiaries of the registrant.
23 - Consent of Independent Accountants.
27 - Financial Data Schedule
28 - Information from Reports furnished to Insurance Regulatory Authorities.
99 - Additional Exhibits
Documents relating to American Bankers Insurance Group, Inc. Leverage Employee Stock Ownership
Plan (LESOP).
99(a)(4) - Note
99(b)(4) - Guaranty Agreement from American Bankers Insurance Group, Inc., American Bankers Insurance
Company of Florida and American Bankers Life Assurance Company of Florida in favor of
Sun Bank/Miami, N.A.
99(c)(6) - Modified ESOP Note.
99(d)(7) - Second Amendment to Trust Agreement among American Bankers Insurance Group and Barnett Banks Trust
Company, N.A. (Successor to Southeast Bank, N.A., original trustee).
99(e)(10) - American Bankers Insurance Group, Inc. Leveraged Employee Stock Ownership Plan, as amended
December 30, 1994.
</TABLE>
Footnotes
78
<PAGE> 80
(1) Exhibit incorporated herein by reference from Form S-3
Registration Statement Number 2-94359.
(2) Exhibit incorporated herein by reference from Registrant's
Statement on Form 8-A filed on March 11, 1988.
(3) Exhibit incorporated herein by reference from 1987 Annual
Meeting Proxy Statement (Exhibit "A," pages 14 through 19).
(4) Exhibit incorporated herein by reference from Registrant's
Annual Report on Form 10-K for 1988.
(5) Exhibit incorporated herein by reference from Registrant's
Current Report on Form 8-K dated November 14, 1990.
(6) Exhibit incorporated herein by reference from Registrant's
Annual Report on Form 10-K for 1990.
(7) Exhibit incorporated herein by reference from Registrant's
Annual Report on Form 10-K for 1991.
(8) Exhibit incorporated herein by reference from Registrant's
Annual Report on Form 10-K for 1993.
(9) Exhibit incorporated herein by reference from Registrant's
Current Report on Form 10-Q for March 31, 1994.
(10) Exhibit incorporated herein by reference from Registrant's
Annual Report on Form 10-K for 1994.
(11) Exhibit incorporated herein by reference from Registrant's
Current Report on Form 10-Q for June 30, 1995.
(12) Exhibit incorporated herein by reference from Registrant's
Current Report on Form 10-K for 1995.
(13) Exhibit incorporated herein by reference from Registrant's
Current Report on Form 10-Q for March 31, 1996.
(14) Exhibit incorporated herein by reference from Registrant's
Current Report on Form 10-Q for June 30, 1996.
(b.) REPORTS ON FORM 8-K
No report on Form 8-K was filed during the fourth quarter 1996.
(c.) EXHIBITS
The response to this portion of Item 14 is submitted as a separate
section of this report.
(d.) FINANCIAL STATEMENT SCHEDULES
The response to this portion of Item 14 is submitted as part of Part II
Item 8 of this report.
79
<PAGE> 81
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
American Bankers Insurance Group, Inc.
<TABLE>
<S> <C> <C>
/s/ Gerald N. Gaston
By: --------------------------------------- Chief Executive Officer, President, March 28, 1997
Gerald N. Gaston and Vice Chairman of the Board
/s/ Robert Hill
By: --------------------------------------- Senior Vice President and March 28, 1997
Robert Hill Principal Accounting Officer
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
signed below by the following persons on behalf of the Registrant and in the
capacities and on March 28, 1996.
American Bankers Insurance Group, Inc.
/s/ R. Kirk Landon
- ------------------------------ Chairman of the Board March 28, 1997
R. Kirk Landon and Director
/s/ Gerald N. Gaston
- ------------------------------ Chief Executive Officer, March 28, 1997
Gerald N. Gaston President, Vice Chairman
of the Board and Director
/s/ William H. Allen, Jr.
- ------------------------------ Director March 28, 1997
William H. Allen Jr.
- ------------------------------ Director March 28, 1997
Nicholas A. Buoniconti
/s/ Armando M. Codina
- ------------------------------ Director March 28, 1997
Armando M. Codina
/s/ Peter J. Dolara
- ------------------------------ Director March 28, 1997
Peter J. Dolara
/s/ Jack F. Kemp
- ------------------------------ Director March 28, 1997
Jack F. Kemp
80
<PAGE> 82
/s/ James F. Jorden
- ------------------------------ Director March 28, 1997
James F. Jorden
- ------------------------------ Director March 28, 1997
Daryl L. Jones
/s/ Malcolm G. MacNeill
- ------------------------------ Director March 28, 1997
Malcolm G. MacNeill
/s/ Eugene M. Matalene Jr.
- ------------------------------ Director March 28, 1997
Eugene M. Matalene Jr.
/s/ Albert H. Nahmad
- ------------------------------ Director March 28, 1997
Albert H. Nahmad
/s/ Nicholas J. St. George
- ------------------------------ Director March 28, 1997
Nicholas J. St. George
/s/ Robert C. Strauss
- ------------------------------ Director March 28, 1997
Robert C. Strauss
/s/ George E. Williamson II
- ------------------------------ Director March 28, 1997
George E. Williamson II
81
<PAGE> 83
ITEM 14 (C)
EXHIBIT INDEX
<TABLE>
<CAPTION>
Pages
-----
<S> <C>
Exhibit 11 - Statement regarding computation of earnings per share E-1
Exhibit 21 - Subsidiaries of the registrant E-2
Exhibit 23 - Consent of Independent Certified Public Accountants E-3
Exhibit 27 - Financial Data Schedule E-4
</TABLE>
Other exhibits have been incorporated by reference. See Item 14, Part IV of this
Annual Report on Form 10-K.
82
<PAGE> 1
EXHIBIT 11
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
FOR THE YEARS ENDED DECEMBER 31,
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Primary:
Weighted average shares outstanding 20,814 20,746 20,596
======== ======== ========
Net income $ 94,503 $ 72,260 $ 56,544
Less convertible preferred stock dividend 3,115 -- --
-------- -------- --------
Adjusted net income $ 91,388 $ 72,260 $ 56,544
======== ======== ========
Per share amount:
Net income $ 4.39 $ 3.48 $ 2.74
======== ======== ========
Fully diluted:
Weighted average shares outstanding 20,814 20,746 20,596
Assumed conversion of convertible
preferred stock, subordinated debentures
and stock options 1,151 77 17
-------- -------- --------
Total 21,965 20,823 20,613
======== ======== ========
Net income $ 94,503 $ 72,260 $ 56,544
Add convertible debenture interest, net of
federal income tax effect 228 260 --
-------- -------- --------
Adjusted net income $ 94,731 $ 72,520 $ 56,544
======== ======== ========
Per share amount:
-------- -------- --------
Net income $ 4.31 $ 3.48 $ 2.74
======== ======== ========
</TABLE>
E-1
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
STATE OF PERCENT OF VOTING
SIGNIFICANT SUBSIDIARIES INCORPORATION SECURITIES OWNED
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
American Bankers Insurance Company of Florida Florida 100%
American Bankers Life Assurance Company of Florida 100%
Florida
American Reliable Insurance Company Arizona 100%
Bankers American Life Assurance Company New York 100%
Bankers American Reinsurance Company Turks & Caicos 100%
Bankers Insurance Company Limited United Kingdom 100%
Caribbean American Life Assurance Company Puerto Rico 100%
Caribbean American Property Insurance Company Puerto Rico 100%
Voyager Group, Inc. Florida 100%
Voyager Life and Health Insurance Company Georgia 100%
Voyager Life Insurance Company Georgia 100%
</TABLE>
E-2
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statement on Form S-3 (No.33-77564) and in
the Registration Statements on Form S-8 (No. 33-28936, No. 33-40802 and No.
33-82342) of American Bankers Insurance Group, Inc. of our report dated March
12, 1997 appearing on page 40 of this Form 10-K.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Miami, Florida
March 28, 1997
E-3
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<DEBT-HELD-FOR-SALE> 805,124
<DEBT-CARRYING-VALUE> 851,146
<DEBT-MARKET-VALUE> 864,307
<EQUITIES> 112,895
<MORTGAGE> 10,236
<REAL-ESTATE> 0
<TOTAL-INVEST> 1,968,403
<CASH> 30,434
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 387,993
<TOTAL-ASSETS> 3,469,503
<POLICY-LOSSES> 291,756
<UNEARNED-PREMIUMS> 1,291,142
<POLICY-OTHER> 487,596
<POLICY-HOLDER-FUNDS> 6,795
<NOTES-PAYABLE> 222,490
0
115,000
<COMMON> 20,530
<OTHER-SE> 574,677
<TOTAL-LIABILITY-AND-EQUITY> 3,469,503
1,378,485
<INVESTMENT-INCOME> 121,200
<INVESTMENT-GAINS> 7,812
<OTHER-INCOME> 21,538
<BENEFITS> 523,024
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 0
<INCOME-PRETAX> 135,945
<INCOME-TAX> 41,442
<INCOME-CONTINUING> 94,503
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 94,503
<EPS-PRIMARY> 4.39
<EPS-DILUTED> 4.31
<RESERVE-OPEN> 162,342
<PROVISION-CURRENT> 321,487
<PROVISION-PRIOR> (3,748)
<PAYMENTS-CURRENT> 223,754
<PAYMENTS-PRIOR> 70,489
<RESERVE-CLOSE> 185,838
<CUMULATIVE-DEFICIENCY> (4270)
</TABLE>
