FORM 10-Q/A
AMENDMENT NO. 2
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For The Quarterly Period Ended September 30, 1993
____________________________
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to ________________
Commission file number 1-7697
___________________________________
I.C.H. Corporation
_________________________________________________________________
(Exact name of registrant as specified in its charter)
Delaware 43-6069928
_________________________________________________________________
(State or other jurisdiction of incorporation I.R.S. Employer
or organization) Identification No.)
100 Mallard Creek Road, Suite 400, Louisville, Kentucky 40207
_________________________________________________________________
(Address of principal executive offices) (Zip Code)
(502) 894-2100
_________________________________________________________________
(Registrant's telephone number, including area code)
__________________________________________________________________
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class and Title of Shares Outstanding
Capital Stock as of November 3, 1993
__________________ ______________________
Common Stock, $1.00 Par Value 47,817,839
Common Stock, Class B, $1.00 Par Value 100,000
The Index to Exhibits appears on pages 29 and 30.
This filing contains 32 pages.
<PAGE>
This Amendment No. 2 amends Items 1 and 2 of Part I and Exhibit
11.1 of the Form 10-Q of I.C.H. Corporation for the quarter ended
September 30, 1993.
<PAGE>
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
I.C.H. CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
ASSETS 1993 1992
(In Thousands)
<S> <C> <C>
Investments:
Fixed maturities:
Actively managed at fair value $1,419,276 $1,341,468
Held for sale at fair value 422,681
Held to maturity at amortized cost 132,730 149,740
Equity securities, at fair value 76,844 129,304
Mortgage loans on real estate, at
amortized cost 146,735 184,023
Real estate, at lower of cost or fair value 71,719 66,386
Policy loans 180,305 192,973
Collateral loans 29,584 37,773
Investments in equity investees 41,321
Investments in limited partnerships 39,900 39,808
Cash and short-term investments 656,596 421,765
Other invested assets 122,940 25,055
__________ __________
Total investments 2,876,629 3,052,297
Due from reinsurers 334,613
Notes and accounts receivable and
uncollected premiums 14,054 11,743
Accrued investment income 29,665 35,108
Deferred policy acquisition costs 175,986 178,807
Present value of future profits of
acquired business 56,971 63,863
Deferred income tax asset 25,930 121,007
Excess cost of investments in subsidiaries
over net assets acquired, net of
accumulated amortization 310,004 317,197
Other assets 65,301 82,733
Assets held in separate accounts 5,281 5,305
__________ __________
$3,894,434 $3,868,060
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Insurance liabilities:
Future policy benefits and other policy
liabilities $ 824,610 $1,008,586
Universal life and investment contract
liabilities 1,800,876 1,598,548
Notes payable:
Due within one year 4,534 79,422
Due after one year 463,176 463,908
Collateralized mortgage note obligations 157,231
Federal income taxes currently payable 31,612 1,491
Other liabilities 157,160 134,320
Liabilities related to separate accounts 5,281 5,305
__________ __________
3,287,249 3,448,811
__________ __________
Stockholders' equity:
Preferred stock 279,239 329,242
Common stock 71,584 71,401
Common stock, Class B 100 100
Additional paid-in capital 155,509 155,391
Net unrealized investment gains, net of
deferred income taxes 60,334 18,823
Retained earnings (accumulated deficit) 93,956 (102,654)
__________ __________
660,722 472,303
Notes receivable collateralized by
common stock (1,713) (2,163)
Treasury stock, at cost (51,824) (50,891)
__________ __________
607,185 419,249
__________ __________
$3,894,434 $3,868,060
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<PAGE>
I.C.H. CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)
(In Thousands, Except Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1993 1992 1993 1992
<S> <C> <C> <C> <C>
Income:
Premium income and other
considerations $ 119,543 $ 391,261 $ 356,142 $ 1,162,048
Net investment income 43,896 77,022 150,082 241,625
Realized investment gains
(losses) 18,876 (8,573) 32,245 (41,796)
Equity in earnings (losses)
of equity investees and
limited partnerships 9,140 (313) 33,662 3,362
Gain on sale of investment
in BLHC 197,398 296,774
Other income 10,362 6,491 43,708 22,756
___________ __________ ___________ __________
399,215 465,888 912,613 1,387,995
___________ __________ ___________ __________
Benefits, expenses and costs:
Policyholder benefits 110,748 320,754 327,301 975,499
Amortization of deferred policy
acquisition costs and present
value of future profits 10,968 42,564 38,720 115,635
Other operating expenses 76,928 69,122 168,692 241,017
Amortization of excess cost 2,401 2,817 7,204 8,449
Interest expense 15,331 19,239 51,613 58,183
___________ _________ __________ _________
216,376 454,496 593,530 1,398,783
___________ _________ __________ _________
Operating earnings (loss)
before income taxes 182,839 11,392 319,083 (10,788)
Income tax expense (credit) 57,105 (1,652) 96,202 (11,459)
__________ _________ __________ _________
Operating earnings 125,734 13,044 222,881 671
Cumulative effect to
January 1, 1993 of change
in method of accounting
for postretirement benefits,
net of tax effect (1,812)
Extraordinary losses, net of
tax effects (714) (1,360) (3,230)
___________ _________ _________ ________
Net earnings (loss) 125,734 12,330 219,709 (2,559)
Less dividends on
preferred stock (7,700) (7,700) (23,100) (23,100)
___________ _________ ________ ________
Net earnings (loss) applicable
to common stock $ 118,034 $ 4,630 $196,609 $(25,659)
=========== ========== ======== ========
Weighted average shares
outstanding 47,914,861 48,182,219 47,913,89 48,181,908
=========== ========== ========= ==========
Earnings (loss) per common share:
Primary:
Operating earnings
(loss) $2.46 $.11 $4.17 $(.46)
Cumulative effect to January 1,
1993 of change in method of
accounting for postretirement
benefits (.04)
Extraordinary losses (.01) (.03) (.07)
____________ _________ ________ __________
Net earnings (loss) $2.46 $ .10 $4.10 $(.53)
============ ========= ======== ==========
Fully diluted:
Operating earnings (loss) $2.14 $ .11 $3.69 $(.46)
Cumulative effect to January 1, 1993
of change in method of accounting
for postretirement benefits (.03)
Extraordinary losses (.01) (.02) (.07)
____________ _________ ________ _________
Net earnings (loss) $2.14 $ .10 $3.64 $(.53)
============ ========= ======== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<PAGE>
I.C.H. CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 1993 and 1992
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
1993 1992
<S> <C> <C>
Cash flows from operating activities:
Operating earnings $ 222,881 $ 671
Items not requiring (providing) cash:
Adjustments related to universal life
and investment products:
Interest credited to account balances 78,053 103,304
Charges for mortality and administration (54,648) (66,921)
Depreciation and amortization 13,306 18,250
Increase (decrease) in future policy benefits (120) 22,682
Decrease (increase) in deferred policy
acquisition costs 2,944 (4,323)
Increase (decrease) in currently payable
income taxes 18,981 (44,535)
Decrease (increase) in deferred income
taxes 74,294 (11,726)
Increase in policy liabilities, other
policyholder funds, accounts payable
and accrued expenses 11,013 3,536
Decrease in notes and accounts
receivable and accrued investment income 2,719 23,403
Increase (decrease) in asset valuation
allowances (11,676) 42,062
Equity in earnings of equity investees
and limited partnerships (33,662) (3,362)
Gain on termination of reinsurance (22,642)
Gain on sale of BLHC (296,774)
Other, net 17,633 (25,036)
_________ ___________
Net cash provided by operating
activities 22,302 58,005
_________ ___________
Cash flows from investing activities:
Sales and maturities of long-term invested
assets 1,262,974 1,753,467
Sale of investment in BLHC 287,639
Purchases of fixed maturities (837,916) (1,601,730)
Purchases of other long-term invested assets (119,205) (100,272)
Cash transferred on reinsurance transactions (43,152)
Other (8,001)
__________ ____________
Net cash provided by investing
activities 550,340 43,464
__________ ____________
Cash flows from financing activities:
Proceeds of notes payable 6,200
Proceeds of collateralized mortgage note
obligations 171,000
Policyholder contract deposits 152,014 560,206
Policyholder contract withdrawals (305,128) (308,485)
Principal payments on notes payable (38,119) (79,775)
Early retirement of subordinated debt (38,190) (1,694)
Principal payments on collateralized mortgage
note obligations (205,356)
Redemption of preferred stock (50,000)
Purchase of common stock for treasury (932)
Dividends on preferred shares (23,100) (23,100)
_________ _________
Net cash provided (used) by financing
activities (337,811) 153,352
_________ _________
Net increase in cash and short-term investments 234,831 254,821
Cash and short-term investments at beginning of
period 421,765 386,476
___________ ___________
Cash and short-term investments at end of period $ 656,596 $ 641,297
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<PAGE>
I.C.H. CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
____________
1. Significant Accounting Policies:
The financial information included herein was prepared in
conformity with generally accepted accounting principles, and
such principles were applied on a basis consistent with those
reflected in the 1992 Annual Report to Shareholders.
The information furnished includes all adjustments and accruals
which are, in the opinion of management, necessary for a fair
statement of results for the interim periods.
The disclosures in the notes presume that the users of the
interim financial information have read or have access to the
audited financial statements included in the 1992 Annual Report
to Shareholders.
Effective January 1, 1993, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions."
SFAS No. 106 requires that an enterprise accrue, during the
years that an employee renders the necessary service, the
expected cost of providing postretirement life and health care
benefits to an employee and the employee's beneficiaries and
covered dependents. The Company's transition obligation as of
January 1, 1993, approximated $22,873,000. The Company had
previously provided a liability totaling $20,127,000 at December
31, 1992, for postretirement benefits for retired employees of
certain acquired companies through its purchase accounting
relative to such companies. The Company has reflected a charge
for the cumulative effect to January 1, 1993, of providing for
postretirement benefits for its remaining employees totaling
$2,746,000. The cumulative charge has been reflected net of
$934,000 in related income tax effects.
In December 1992, the Financial Accounting Standards Board
(FASB) issued SFAS No. 113, "Accounting and Reporting for
Reinsurance of Short-Duration and Long-Duration Contracts,"
which changes the accounting and reporting for reinsurance
contracts. SFAS No. 113 requires that when a reinsurance
contract does not relieve the insurer from the legal liability
to its policyholders, ceding insurers must report amounts
recoverable from reinsurers as assets rather than as a reduction
of the related policyholder liabilities. This statement is
required to be adopted in 1993, but the effects on revenue
recognition and costs of reinsurance are not required for
interim financial statements during 1993 in order to give
insurance companies time to accumulate the necessary data. At
September 30, 1993, the Company has reflected in its balance
sheet an asset for amounts due from reinsurers totaling
$334,613,000 and has correspondingly increased universal life
and investment contract liabilities by the same amount.
Management estimates that the adoption of SFAS No. 113 will not
have a material impact on ICH's consolidated results of
operations.
Primary earnings per share are computed by dividing earnings,
less preferred dividend requirements, by the weighted average
number of common shares outstanding. In computing fully diluted
earnings per share, the weighted average number of common shares
outstanding is adjusted to reflect common stock equivalents
resulting from stock options and the assumed conversion of the
Company's Series 1984-A and 1986-A Preferred Stock into common
shares, and preferred dividend requirements are adjusted to
eliminate dividends on
<PAGE>
<PAGE>
I.C.H. CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
____________
1. Significant Accounting Policies, continued:
the shares assumed to have been converted. The computation of
fully diluted earnings per share excludes the assumed conversion
of such preferred shares for each period in which the assumed
conversion would be antidilutive.
Previously reported amounts for 1992 have, in some instances,
been reclassified to conform to the 1993 presentation.
2. Investment in Bankers Life Holding Corporation:
At December 31, 1992, the Company held direct and indirect
common equity interests in Bankers Life Holding Corporation
(BLHC) totaling approximately 39.9%. Effective March 31, 1993,
BLHC completed an initial public offering of 19.55 million
shares of its common stock, or an approximate 35.8% interest in
BLHC, at $22 per share. Proceeds of the offering, after
underwriting expenses, approximated $405 million. Effective the
same day, Conseco Capital Partners, L.P. (CCP) announced a plan
of dissolution and BLHC common shares held by CCP were
subsequently distributed to the respective partners in
accordance with that plan. The Company received 2,917,318
shares of BLHC common stock as a result of such distribution,
increasing its direct ownership in BLHC common stock to
13,316,168 shares, or approximately 24.4% of BLHC's outstanding
common shares following the offering. For the three months
ended March 31, 1993, the Company reflected a pre-tax gain on
the BLHC offering totaling $99,376,000, primarily representing
the Company's 24.4% equity in the net proceeds of the BLHC
offering. As a result of the Company's sale of its investment
in BLHC, such gain and the related tax effects, previously
classified as a non-operating gain, have been reclassified in
the accompanying consolidated statement of earnings as
components of operating earnings. BLHC utilized a portion of
the offering proceeds to redeem certain of its outstanding
securities, including $50 million stated value of BLHC preferred
stock and $34.7 million principal amount of BLHC junior
subordinated notes held by the Company. Because a portion of
the purchase price paid for such investments had been allocated
to the Company's common equity investments in BLHC, such
redemptions resulted in additional gains totaling $8,252,000,
which have been included as a component of realized investment
gains.
On September 30, 1993, the Company sold its investment in BLHC
to Conseco, Inc. (Conseco) and one of Conseco's subsidiaries for
$287,639,000. The sale price consisted of (i) cash totaling
$237,639,000 and (ii) the exchange by Conseco's subsidiary of
$50 million stated value of the Series 1987-A Preferred Stock
of the Company. The sale of the BLHC shares resulted in a pre-
tax gain totaling $197,398,000, which has been reflected in the
consolidated statement of earnings for the three months and the
nine months ended September 30, 1993, under the caption "Gain
on sale of investment in BLHC."
The Company continued to reflect its equity in the earnings of
BLHC through the date of sale. Following are unaudited
condensed statement of financial results for BLHC for the nine
months September 30, 1993 and the Company's
<PAGE>
<PAGE>
I.C.H. CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
____________
2. Investment in Bankers Life Holding Corporation, continued:
equity in such results as reflected in its consolidated
statement of earnings (in thousands):
<TABLE>
<S> <C>
Bankers Life Holding Corporation:
Revenues $ 1,081,600
Earnings from operations 95,300
Extraordinary loss from early debt retirement (5,600)
Net earnings attributable to common stock 85,200
Amounts recorded by the Company:
Equity in operating earnings of BLHC $ 29,117
Equity in extraordinary losses of BLHC (1,370)
___________
Equity in earnings of BLHC $ 27,747
===========
</TABLE>
3. Notes Payable and Collateralized Mortgage Note Obligations:
Notes payable at September 30, 1993 and December 31, 1992, are
summarized as follows:
<TABLE>
<CAPTION>
1993 1992
(In Thousands)
<S> <C> <C>
Borrowings under senior secured loan $ 30,000 $ 30,000
16 1/2% Senior Subordinated Debentures due 1994 49,934 124,910
11 1/4% Senior Subordinated Notes due 1996 353,207 353,207
9 1/2% unsecured note payable due 1996 29,200 29,200
Note payable, interest at prime, due in
monthly installments through 1999,
collateralized by aircraft equipment 5,072 5,654
Mortgage notes payable, 6% to 9.5%, with
maturities through 2007, collateralized by
real estate 279 322
Other 18 37
__________ __________
$ 467,710 $ 543,330
========== ==========
</TABLE>
On March 31, 1993, the Company effected an early redemption of
$37.5 million of its 16-1/2% Senior Subordinated Debentures due
1994 (Debentures) at a price totaling 101.84% of the principal
amount redeemed. Such redemption satisfied the Company's
January 1994 sinking fund requirement.
On October 4, 1993, the Company commenced an offer to exchange
up to $403,141,000 principal amount of its new 11-1/4% Senior
Subordinated Notes due 2003 (New Notes) for $49,934,000
principal amount of its Debentures and $353,207,000 principal
amount of its 11-1/4% Senior Subordinated Notes due 1996 (Old
Notes). The exchange ratio was set at $1,000 principal amount
of the New Notes for each $1,000 principal amount of Debentures
and each $1,000 principal amount of Old Notes validly tendered.
The terms and covenants of the New Notes are substantially
similar to those of the Old Notes, except that the New Notes are
non-callable until December 1, 1996 and mature December 1, 2003.
<PAGE>
<PAGE>
I.C.H. CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
____________
3. Notes Payable and Collateralized Mortgage Note Obligations,
continued:
Through November 2, 1993, $3,784,000 principal amount of the
Debentures and $84,669,000 principal amount of the Old Notes had
been tendered for exchange, and the Exchange Offer has been
extended to November 10, 1993. The Company does not expect to
further extend the Exchange Offer. The Company intends to
redeem all Debentures not tendered pursuant to the Exchange
Offer at 100% of the principal amount thereof on or after
January 2, 1994, as permitted by the terms of such Debentures,
although no assurance can be given that the Company will effect
such redemption.
At September 30, 1993, the Company has notes receivable totaling
$26,000,000 from an unaffiliated third party, which is
collateralized by the Company's note payable in the amount of
$20,200,000. The Company has the right to set off its
obligation against the notes receivable. In the accompanying
balance sheets, the Company's notes receivable have been
reflected net of amounts due under the note payable.
At December 31, 1992, the Company reflected a collateralized
mortgage note obligation totaling $157,231,000 payable to its
former subsidiary, Bankers Life and Casualty Company (Bankers).
The obligation was collateralized by certain mortgage-backed
securities which had previously been owned by Bankers and which
had been placed in a special purpose trust (the Trust) prior to
the sale of Bankers on November 9, 1992. The Company retained
a residual interest in the securities held in the Trust with a
carrying value of $79,715,000 at December 31, 1992. All of the
receipts on the securities placed in the Trust were to be
applied first to repay the principal and interest at 8-1/2% on
the obligation due Bankers. On February 5, 1993, the Company
completed the sale to unaffiliated parties of collateralized
note obligations of the Trust totaling $171,000,000 and utilized
$142,092,000 of the proceeds to retire the remaining obligation
due Bankers. On July 30, 1993, the Company and an affiliate
sold 75% of their rights with respect to the Trust to an
unaffiliated party and the accounts of the Trust, including the
collateralized mortgage note obligations, were eliminated from
the consolidated financial statements of the Company for periods
subsequent to that date.
4. Federal Income Taxes:
The provision (credit) for income taxes on operating earnings
(loss) consists of the following components:
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1993 1992
(In Thousands)
<S> <C> <C>
Current tax expense $ 21,908 $ 267
Deferred tax expense (credit) 74,294 (11,726)
_________ _________
$ 96,202 $ (11,459)
========= =========
</TABLE>
<PAGE>
<PAGE>
I.C.H. CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
____________
4. Federal Income Taxes, continued:
In August 1993, Congress enacted legislation which raised the
federal corporate income tax rate from 34% to 35%, retroactive
to January 1, 1993. The effect of such rate increase has been
reflected in the Company's results of operations for the three
months ended September 30, 1993.
A reconciliation of the income tax provisions based on the
prevailing corporate income tax rates of 35% in 1993 and 34% in
1992 to the provisions reflected in the consolidated financial
statements is as follows (in thousands):
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
______________________
1993 1992
____ ____
<S> <C> <C>
Computed expected income tax expense
(credit) at statutory regular tax rate $ 111,679 $ (3,668)
Amortization of excess cost 2,521 2,873
Reduction in deferred income tax asset
valuation allowances (14,573) (10,978)
Effect of change in income tax rate on
deferred income tax asset at beginning
of year (3,500)
Benefit from utilization of capital loss
carryforwards not previously reflected
for financial reporting purposes (9,890)
Capital losses of subsidiary not includable
in consolidated tax return 9,108
Other 857 314
_________ _________
Income tax expense (credit) $ 96,202 $ (11,459)
========= =========
</TABLE>
Net unrealized investment gains included in stockholders' equity
are reflected net of deferred income taxes totaling $32,488,000
and $9,696,000 at September 30, 1993 and December 31, 1992,
respectively.
5. Commitments, Litigation and Contingent Liabilities:
The Internal Revenue Service (IRS) has completed its examination
of the tax returns of the Company and certain of its
subsidiaries for the years 1983 through 1985 and has issued
Preliminary Notices of Deficiency to certain companies totaling
approximately $17.5 million before interest. Management did not
agree with the tax issues involved and, as a result, filed
formal protests of the proposed deficiencies with the IRS Office
of Appeals. Agreement has subsequently been reached with the
IRS in regard to a number of the issues involved and, as a
result, management believes the ultimate liability resulting
from the proposed deficiencies will not exceed amounts recorded
in the Company's financial statements.
<PAGE>
<PAGE>
I.C.H. CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
____________
5. Commitments, Litigation and Contingent Liabilities, continued:
The Company's subsidiary, Modern American Life Insurance Company
(Modern American), is a defendant in William D. Castle, et al.
v. Modern American Life Insurance Company, CV93-10275, a lawsuit
filed on or about May 14, 1993 in the Circuit Court of Jackson
County, Missouri (the Castle case). The suit purports to be
brought on behalf of a class of persons who are policyholders
of Modern American who allegedly purchased what plaintiffs
denominate as "charter contracts" from life insurance companies
merged into Modern American or its predecessors. The petition
alleges that the so-called "charter contracts" are investment
contracts which entitle the charter contract holders to
participate in a certain fixed percentage of the annual profits
of Modern American. The petition alleges breach of contract for
alleged underpayment of policyholder dividends in prior years
and a declaratory judgment determining the manner of calculating
the dividends payable pursuant to the contracts with plaintiffs
in the future and directing Modern American to pay yearly
dividends to plaintiffs in accordance with the declaratory
judgment sought, plus costs and litigation expenses. The
petition alternatively seeks rescission and restitution should
the Court find that the "charter contracts" are unenforceable.
No specific amount of damages is sought in the petition for
either the breach of contract or rescission claims. Modern
American believes it has meritorious defenses to the claims
asserted in the litigation and intends to defend the litigation
vigorously.
Various other lawsuits and claims are pending against the
Company and its subsidiaries. Based in part upon the opinion
of counsel as to the ultimate disposition of these matters,
management believes that the liability, if any, will not be
material. See "Legal Proceedings" in Part II, Item 1, of this
Report for a summary of recent legal matters.
6. Realized Investment Gains (Losses):
Following is an analysis of the major components of gains
(losses) on investments (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
______________________ _______________________
1993 1992 1993 1992
____ ____ ____ ____
<S> <C> <C> <C> <C>
Fixed maturities $ (796) $ 24,362 $ 13,227 $ 28,821
Mortgage-backed
securities (3,342) (29,659) (4,356) (74,084)
Equity securities 31,783 (18) 37,896 2,243
Investment in limited
partnership (5,013)
Real estate (4,287) 7 (5,042) 851
Other (4,482) (3,265) (4,467) 373
________ ________ ________ ________
$ 18,876 $ (8,573 $ 32,245 $(41,796)
======== ======== ======== ========
</TABLE>
<PAGE>
<PAGE>
I.C.H. CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
____________
7. Extraordinary Losses:
For the nine months ended September 30, 1993, the Company
reflected an extraordinary loss totaling $690,000, resulting
from the premium paid to effect the early redemption of $37.5
million principal amount of the Company's Debentures. In
addition, the Company reflected its equity in the
extraordinary loss of BLHC resulting from early retirement of
debt totaling $1,370,000. For the nine months ended September
30, 1992, the Company reflected extraordinary losses totaling
$4,894,000. Of this amount, $3,812,000 resulted from the
writeoff of deferred loan costs applicable to the portion of
the senior secured loan which was prepaid on January 6, 1992
and the costs associated with terminating a related interest
rate floor arrangement. In addition, for the three months
ended September 30, 1992, the Company reflected its equity in
the extraordinary losses of a limited partnership totaling
$1,082,000, which resulted from costs associated with the
early extinguishment of debt. The extraordinary losses have
been reflected net of the estimated tax effects totaling
$700,000 and $1,664,000 in 1993 and 1992, respectively.
8. Reinsurance:
Effective March 31, 1993, Bankers and a subsidiary of the
Company terminated a reinsurance agreement under which Bankers
had previously ceded substantially all of its directly
underwritten participating life insurance business to the
Company's subsidiary. Assets, primarily fixed maturities and
cash, with a fair value of approximately $163.6 million were
transferred to Bankers and Bankers assumed policy liabilities
on the reinsured business totaling $186.2 million. The
Company realized a gain on the termination of the reinsurance
agreement totaling approximately $22.6 million.
9. Transactions With Consolidated Fidelity Life Insurance
Company:
Effective June 15, 1993, the Company purchased shares of
preferred stock from an affiliate, Consolidated Fidelity Life
Insurance Company (CFLIC), in exchange for certain investments
with an estimated fair value of $63 million. CFLIC is a
subsidiary of Consolidated National Corporation (CNC) and CNC
is also the controlling shareholder of the Company. The
purchase of the CFLIC preferred stock was the first step in a
series of transactions which are designed 1) to terminate
existing reinsurance arrangements under which business written
by a subsidiary and a former subsidiary of the Company is
reinsured (through an unaffiliated insurer) by CFLIC and 2) to
redeem or retire certain of the Company's securities which are
currently held by CFLIC. See Management's Discussion and
Analysis of Financial Condition and Results of Operations for
a more detailed discussion of the anticipated effects of the
proposed transactions.
<PAGE>
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources:
Primarily as a result of the sale of its remaining interest in
Bankers Life Holding Corporation (BLHC) on September 30, 1993, ICH
has significantly improved its financial condition and, assuming
the exchange of new debt for a substantial portion of existing debt
scheduled to mature over the next several years through a presently
outstanding exchange offer, will have sufficient liquidity with
which to meet its financial obligations for the foreseeable future.
The sale of the remaining interest in BLHC resulted in a
significant gain which has been reflected in ICH's 1993 third
quarter results. Earlier in 1993, ICH had reflected a significant
gain resulting from its equity in the proceeds of BLHC's initial
public offering of common stock. ICH's subsidiaries also realized
significant gains in the 1993 third quarter from the sale of common
stock investments in CCP Insurance, Inc. (CCP Insurance). In
addition, during the third quarter of 1993, ICH and its
subsidiaries disposed of a substantial portion of their residual
interest and interest only mortgage-backed securities without
incurring material additional losses and completed the
restructuring of the ICH insurance holding company system.
During the first nine months of 1993, ICH's common
stockholders' equity has increased to $327.9 million, or $6.85 per
share, from $90.0 million, or $1.88 per share at year-end 1992.
Total stockholders' equity has increased from $419.2 million to
$607.2 million. In addition, ICH has reduced its outstanding notes
payable by $75.4 million, from $543.3 million at year-end 1992 to
$467.7 million at September 30, 1993. The Company repaid $75.0
million principal amount of its 16-1/2% Senior Subordinated
Debentures due 1994 (Debentures), including $37.5 million repaid
through a regular sinking fund installment on January 15, 1993, and
$37.5 million called for early redemption on March 31, 1993. As a
result of the reduction in notes payable and the increase in
stockholders' equity, ICH's debt-to-equity ratio has been reduced
from 1.30-to-1 at year-end 1992 to .77-to-1 at September 30, 1993.
Sale of Investment in Bankers Life Holding Corporation:
At December 31, 1992, ICH's subsidiaries held direct and
indirect common equity interests in BLHC totaling approximately
39.9%. Such interests had been acquired in conjunction with the
sale of ICH's subsidiary, Bankers Life and Casualty Company
(Bankers) in November 1992 as discussed in ICH's 1992 Annual
Report. During the first quarter of 1993, ICH acquired such
interests from its subsidiaries. Effective March 31, 1993, BLHC
completed an initial public offering of 19.55 million shares of its
common stock, or an approximate 35.8% interest in BLHC, at $22 per
share. Proceeds of the offering, after underwriting expenses,
approximated $405 million. Effective the same day, Conseco Capital
Partners, L.P. (CCP) announced a plan of dissolution and BLHC
common shares held by CCP were subsequently distributed to the
respective partners. ICH received 2,917,318 shares of BLHC common
stock as a result of such distribution, increasing its direct
ownership in BLHC common stock to 13,316,168 shares, or
approximately 24.4% of BLHC's outstanding common shares following
the offering. For the three months ended March 31, 1993, ICH
reflected a pre-tax gain on the BLHC offering totaling $99,376,000,
primarily representing ICH's equity in the net proceeds of the BLHC
offering. As a result of ICH's sale of its interest in BLHC, such
gain and the related tax effects, previously classified as a non-
operating gain, have been reclassified as components of operating
earnings. BLHC utilized a portion of the offering proceeds to
redeem certain of its outstanding securities, including $50 million
stated value of BLHC preferred stock and $34.7 million principal
amount of BLHC junior subordinated notes held by ICH's
subsidiaries. Because a portion of the purchase price paid for
such investments had been allocated to ICH's common equity
investments in BLHC, such redemptions resulted in additional pre-
tax investment gains totaling $8,252,000.
<PAGE>
<PAGE>
On September 30, 1993, ICH sold its investment in BLHC to
Conseco, Inc. (Conseco) and one of Conseco's subsidiaries for
$287.6 million. The sale price consisted of (i) cash totaling
$237.6 million and (ii) the exchange by Conseco's subsidiary of $50
million stated value of ICH's Series 1987-A Preferred Stock. The
sale of the BLHC shares resulted in a pre-tax gain totaling $197.4
million, which has been reflected in the consolidated statement of
earnings for the three months ended September 30, 1993, under the
line item caption, "Gain on sale of investment in BLHC." ICH
continued to reflect its equity in the operating results of BLHC
through the date of sale.
On a combined basis, the gains on the sale of the ICH's
investment in BLHC reflected in the first quarter and the third
quarter of 1993 and the gains reflected on the redemption of BLHC
securities in the first quarter of 1993 total $305.0 million before
tax effects and $198.3 million after tax effects, or $4.14 per
common share.
Effective March 31, 1993, Bankers and an ICH subsidiary
terminated a reinsurance agreement under which Bankers had
previously ceded substantially all of its directly underwritten
participating life insurance business to ICH's subsidiary. Assets,
primarily fixed maturities and cash, with a fair value of
approximately $163.6 million were transferred to Bankers and
Bankers assumed policy liabilities on the reinsured business
totaling approximately $186.2 million. ICH realized a gain on the
termination of the reinsurance agreement totaling approximately
$22.6 million.
Exchange Offer and Parent Company Liquidity:
On October 4, 1993, ICH commenced an offer to exchange up to
$403.1 million of its new 11-1/4% Senior Subordinated Notes due
2003 (New Notes) for $49.9 million principal amount of its
Debentures and $352.2 million principal amount of its 11-1/4%
Senior Subordinated Notes due 1996 (Old Notes). Through November
2, 1993 $3.8 million principal amount of the Debentures and $84.7
million principal amount of the Old Notes had been tendered for
exchange and the Exchange Offer was extended until November 10,
1993. See Note 3 of the Notes to Financial Statements for
additional information regarding the Exchange Offer, including
terms of the New Notes.
Prior to the Exchange Offer, ICH and its subsidiaries already
held $46.8 million of the Old Notes which, at ICH's option, can be
utilized to partially satisfy its first $100 million sinking fund
obligation relative to the Old Notes on December 1, 1994. Assuming
the exchange of all of the Old Notes which have been tendered to-
date, the results of the Exchange Offer will provide the Company
additional flexibility in meeting such sinking fund obligation,
since the amount of the Old Notes exchanged for New Notes can, also
at ICH's option, be taken into consideration in determining what
portion, if any, of the Old Notes it wishes to redeem through
operation of the sinking fund. Alternatively, ICH may purchase Old
Notes in the open market from time to time and may use sinking fund
provisions in 1994 to retire up to $100 million principal amount of
Old Notes at their par value.
The sale of the BLHC shares has generated substantial
liquidity at the ICH parent company level which management believes
will provide the Company additional flexibility in the future
development of its insurance operations and the completion of its
capital restructuring plans. At September 30, 1993, cash and
short-term investments at the parent company totaled approximately
$276.6 million. ICH intends to use a portion of its available cash
to retire as early as January 1994 any remaining outstanding
Debentures that are not tendered in the Exchange Offer, although it
can provide no assurance that it will do so. ICH intends to
ultimately deploy the balance of its available cash for selective
debt reduction and/or retirement of preferred stock, the
strengthening and growth of its insurance business and general
corporate purposes. The actual uses of available cash will be
subject to a number of factors, including developments in
<PAGE>
<PAGE>
the marketplace, regulatory and competitive conditions in the
industry, the interest rate environment and the final outcome of
the Exchange Offer.
Restructuring of ICH Holding Company System:
On September 29, 1993, ICH completed the restructuring of its
insurance holding company system, from a vertical to a
substantially horizontal structure. The restructuring was designed
to increase the financial independence of ICH's subsidiary
insurance companies and reduce the effect of multi-jurisdictional
regulation that results when such subsidiaries are held indirectly,
through other insurance subsidiaries. In the process of such
restructuring, a surplus debenture due to ICH from a subsidiary
with an outstanding principal balance of $105.8 million was retired
and added to ICH's investment in its subsidiaries. As a
consequence, there are no remaining surplus debentures due to ICH
from its subsidiaries. The restructuring is expected to facilitate
more accurate analysis and understanding of the Company by rating
agencies, securities analysts, and regulators, and will permit the
direct payment of dividends from subsidiaries to ICH in future
periods. Following such restructuring, ICH's subsidiaries affected
by the restructuring have maintained risk-based capital levels
substantially in excess of those required by applicable regulatory
authorities.
Investment Portfolio:
At September 30, 1993 and December 31, 1992, ICH reflected
unrealized investment gains of $60,334,000 and $18,823,000,
respectively. Following is an analysis of the major components of
such unrealized gains (in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
1993 1992
_____________ ____________
<S> <C> <C>
Actively managed fixed maturities $ 74,620 $ 4,268
Equity securities:
CCP Insurance, Inc. 1,413 24,123
Other 1,650 285
Equity in unrealized gains of limited
partnerships:
Life Partners Group 13,001
Other 2,159
Equity in unrealized gains of BLHC 877
Other (21) (1,034)
Gross unrealized investment gains 92,822 28,519
Deferred income taxes at 35% in 1993
and 34% in 1992 (32,488) (9,696)
________ ________
Net unrealized investment gains $ 60,334 $ 18,823
======== ========
</TABLE>
The fair value in excess of amortized cost of ICH's actively
managed fixed maturities increased from approximately $4.3 million
at year-end 1992 to approximately $74.6 million, or 5.5% over
amortized cost, at September 30, 1993. Substantially all of the
increase in fair value was related to declines in market interest
rates between the two dates. Except as may be required to meet its
liquidity requirements, ICH has no current plans over the near-term
to liquidate a significant portion of its actively managed fixed
maturity investments to realize such gains. Following is an
analysis of gross unrealized investment gains and losses on
actively managed fixed maturities as of September 30, 1993 and
December 31, 1992 (in thousands):
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
September 30, December 31,
1993 1992
_____________ ____________
<S> <C> <C>
Gross unrealized gains $ 77,417 $ 22,661
Gross unrealized losses (2,797) (18,393)
________ ________
Net unrealized gains $ 74,620 $ 4,268
======== ========
</TABLE>
Effective September 29, 1993, CCP Insurance completed an
underwritten primary and secondary public offering of shares of its
common stock. ICH's subsidiaries sold 1,764,439 shares of common
stock of CCP Insurance in conjunction with the offering for $47.3
million cash and realized investment gains totaling $27.8 million.
During the first nine months of 1993, an ICH subsidiary also sold
438,075 shares of CCP Insurance common stock in open market
transactions and realized gains totaling $5.1 million. On an
after-tax basis, gains from the sale of CCP Insurance common stock
totaled $19.6 million, or $.41 per ICH common share, and $21.4
million, or $.45 per ICH common share, for the three months and the
nine months ended September 30, 1993, respectively. At September
30, 1993, a subsidiary continues to hold 86,925 shares of CCP
Insurance common stock with a fair value of approximately $2.7
million.
During the first quarter of 1993, Life Partners Group, Inc.
(LPG), the holding company formed to acquire certain subsidiaries
from ICH in 1990, completed an initial public offering of 15.2
million shares of its common stock, or a 58.5% interest in LPG, at
$17 per share. In conjunction with the sale of such subsidiaries,
ICH acquired an approximate 31% interest in a partnership, HMC/Life
Partners L.P., which, in turn, directly owns approximately 5.1
million shares of LPG common stock. The partnership has no other
significant assets or liabilities and ultimately intends to sell
its interests in LPG or distribute the LPG shares to its respective
partners. Based on an assumed liquidation of the partnership and
a distribution of the LPG common stock under provisions of a
partnership agreement, the holder of ICH's partnership interest
would be entitled to receive shares of LPG common stock with a fair
value at September 30, 1993, of approximately $23.7 million, or
$18.7 million more than the adjusted cost of ICH's investment in
the partnership. As discussed later under "Transactions With
Consolidated Fidelity Life Insurance Company," the investment in
HMC/Life Partners L.P. was transferred to an affiliated company in
exchange for preferred stock as the first step in a series of
transactions to terminate a reinsurance arrangement with the
affiliate.
LPG utilized a portion of the proceeds from its offering to
redeem its 15% preferred stock, including $22.1 million stated
value of such preferred stock held by certain of ICH's
subsidiaries. There were no gains or losses reflected on such
redemptions.
As a result of the sale of substantially all of its residual
interest and interest only mortgage-backed securities as later
discussed, ICH had no fixed maturities classified as "held for
sale" at September 30, 1993. The following table sets forth the
carrying value and quality for each of the remaining two categories
of fixed maturities as of September 30, 1993, classified in
accordance with the rating assigned by Standard & Poor's
Corporation (S&P) or, if not rated by S&P, based on ratings
assigned by the National Association of Insurance Commissioners,
with Class 1 treated as A, Class 2 treated as BBB-, Class 3 treated
as BB- and Classes 4, 5 and 6 treated as B and below (in millions):
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Held to
Actively Maturity Percent of Percent
Managed at Total Total of Total
Investment at Fair Amortized Fixed Fixed Invested
Quality Value Cost Maturities Maturities Assets
__________ ________ __________ ___________ ___________ __________
<S> <C> <C> <C> <C> <C>
AAA $ 444.2 $ 15.6 $ 459.8 29.6% 16.0%
AA 213.9 45.3 259.2 16.7 9.0
A 446.3 20.2 466.5 30.1 16.2
BBB+ 74.2 74.2 4.8 2.6
BBB 69.9 15.3 85.2 5.5 3.0
BBB- 96.3 96.3 6.2 3.3
_______ ________ ________ ____ ____
Total
investment
grade 1,344.8 96.4 1,441.2 92.9 50.1
________ ________ ________ ____ ____
BB+ 23.0 .1 23.1 1.5 .8
BB and BB 29.6 11.4 41.0 2.6 1.4
B and Below 21.9 24.8 46.7 3.0 1.6
________ ________ ________ ____ ____
Total non-
investment-
grade 74.5 36.3 110.8 7.1 3.8
________ ________ ________ ____ ____
Total
fixed
maturi-
ties $1,419.3 $ 132.7 $1,552.0 100.0% 53.9%
======== ======== ======== ===== ====
</TABLE>
Fixed maturities classified as held to maturity are
principally private placement mortgage-backed securities and other
corporate securities and had gross unrealized gains of $2.5 million
and gross unrealized losses of $7.5 million as of September 30,
1993.
The amortized cost and fair value of noninvestment-grade fixed
maturities totaled $108.9 million and $108.1 million, respectively,
at September 30, 1993.
As reflected in its year-end 1992 financial statements, ICH
held mortgage-backed residual interests and interest-only
certificates (IOs) with a carrying value and fair value of $422.7
million. Such year-end values were reflected net of reserves for
anticipated losses in 1993 totaling $34.9 million, which had been
provided based on the prepayment experience incurred and expected
on the mortgage loans underlying such residual interests and IOs
through the first three months of 1993. At June 30, 1993, the
carrying value and fair value of such investments had declined to
$358.3 million as a result of principal repayments. Based on an
analysis of subsequent prepayment experience, management believed
that the reserves provided at year-end 1992 had been adequate and,
as a consequence, ICH did not incur any significant additional
losses on its residual interests and IOs during the first six
months of 1993.
Effective July 30, 1993, ICH and its subsidiaries, along with
an affiliate, Consolidated Fidelity Life Insurance Company (CFLIC),
entered into a transaction designed to substantially reduce their
exposure to the prepayment risks associated with their investments
in residual interest and IO mortgage-backed securities, including
liquidating a substantial portion of such investments. ICH's
subsidiaries and CFLIC sold directly-owned residual interests and
IOs with a carrying value of approximately $137.8 million and $26.5
million, respectively, to an unaffiliated third party, Fund America
Investors Corporation II (Fund America). In addition, ICH and
CFLIC sold to Fund America 75% of their rights with respect to
residual interests in certain mortgage-backed securities which were
acquired in conjunction with the sale of Bankers and are held in a
special-purpose trust (the Trust) to collateralize certain mortgage
note obligations (see ICH's 1992 Annual Report and Note 3 of the
Notes to Financial Statements included elsewhere in this Report).
CFLIC had acquired its interest in the Trust as later
<PAGE>
<PAGE>
discussed under "Transactions With Consolidated Fidelity Life
Insurance Company." Because ICH was deemed to be the Trust's
sponsor and, with CFLIC, retained a majority ownership in the
residual interest, the accounts of the Trust were included in ICH's
consolidated balance sheet at year-end 1992 and at June 30, 1993.
Following is a summary of the various accounts of the Trust as
reflected in ICH's balance sheet at June 30, 1993, and ICH's net
residual interest in the Trust (in millions):
<TABLE>
<S> <C>
Fixed maturities, held for sale $ 195.8
Collateralized mortgage note obligations (133.7)
Other liabilities:
Deferred income and other (6.6)
Minority interest held by CFLIC (45.0)
_______
ICH net residual interest in the Trust $ 10.5
=======
</TABLE>
The net carrying value of the 75% interests sold by ICH and
CFLIC approximated $7.0 million and $33.7 million, respectively.
Fund America sponsored the formation of a new trust (the New
Trust) into which it deposited the purchased securities. Interests
in the New Trust aggregating $217 million, or 68.4% of its total
outstanding securities, were sold to other unaffiliated parties.
A portion of the sales proceeds were utilized to acquire additional
securities which were deposited into the New Trust, including
certain securities designed to assure the ultimate return of
principal on the interests retained by ICH, its subsidiaries and
CFLIC. The remaining proceeds, after underwriting expenses, were
utilized to pay a portion of the purchase price for the securities
purchased from ICH and its subsidiaries and CFLIC. The remainder
of the purchase price was paid by issuing participation
certificates representing residual interests in the pool of $101.0
million principal amount of securities placed in the New Trust.
The participation certificates received in the transaction were
valued for financial reporting purposes at their fair value,
assuming an 11% annual return to maturity.
Before the recognition of gains totaling approximately $14.3
million resulting from the disposal of certain securities utilized
to hedge prepayment risks on the mortgage-backed securities, the
transactions resulted in losses for ICH and CFLIC totaling
approximately $23.1 million. ICH has reflected its portion of the
losses resulting from these transactions in its third quarter 1993
results. Following is a summary of the effects of the above-
described transactions (in millions):
<TABLE>
<CAPTION>
ICH CFLIC Total
___ _____ _____
<S> <C> <C> <C>
Investments transferred to Fund America:
75% interest in the Trust $ 7.0 $ 33.7 $ 40.7
Directly-held securities 137.7 26.5 164.2
______ ______ ______
Total 144.7 60.2 204.9
______ ______ ______
Consideration received:
Cash, net of underwriting expenses 61.5 28.9 90.4
Participation certificates,
at fair value 68.1 23.3 91.4
______ ______ ______
Total 129.6 52.2 181.8
______ ______ ______
Loss before sale of hedge securities (15.1) (8.0) (23.1)
Gains on sale of hedge securities 11.8 2.5 14.3
______ ______ ______
Net loss on transactions $ (3.3) $ (5.5) $ (8.8)
====== ====== ======
</TABLE>
At September 30, 1993, the Company's remaining investments in
residual interest mortgage-backed securities, including those
received in the above
<PAGE>
<PAGE>
described transactions, totaled $115.5 million and are included in
other invested assets in the consolidated balance sheet.
Management believes that if ICH had continued to hold its portfolio
of residual interest and IO mortgage-backed securities, it is
highly likely that the recent and continuing decline in market
interest rates and the related increase in mortgage loan
refinancings would have resulted in significant additional losses.
Management further believes the above transactions have
significantly reduced ICH's exposure to principal writedowns
resulting from the prepayment risks associated with such
investments. While ICH and its subsidiaries still retain an
interest in the securities which were sold, such interest is
substantially smaller and has been enhanced in a manner which was
designed to assure the ultimate return of principal on the retained
interest. Further, because ICH and CFLIC no longer hold a direct
or indirect majority interest in the Trust and have not guaranteed
any portion of the collateralized mortgage note obligations, the
accounts of the Trust have not been consolidated with those of the
Company at September 30, 1993.
The yield on invested assets averaged 7.0% for the nine months
ended September 30, 1993, as compared to 8.3% for the year ended
December 31, 1992. The decline in yields is attributable, in part,
to reduced market rate yields between the respective periods and to
holding a substantial amount of cash and short-term investments.
Cash and short-term investments declined from $421.8 million at
year-end 1992 to $314.3 million at June 30, 1993, but increased to
$656.6 million at September 30, 1993, primarily as a result of the
sales of investments in BLHC and CCP Insurance at the end of the
period, as previously discussed. Management is presently
addressing how these short-term funds should be invested over the
near term.
As discussed in ICH's 1992 Annual Report, the claims-paying
ratings assigned to certain of ICH's subsidiaries by various
nationally recognized statistical rating organizations were
recently lowered. In June 1993, Moody's Investors Service Inc.
further lowered the rating it had assigned to one of ICH's
subsidiaries. Except as discussed below, management believes ICH's
subsidiaries have not experienced more than normal policy
surrenders and withdrawals as a result of these ratings downgrades.
For the nine months ended September 30, 1993, policyholder contract
withdrawals, principally guaranteed investment contracts (GICs),
exceeded policyholder contract deposits by approximately $153.1
million. A substantial portion of such withdrawals represented
scheduled maturities of GICs which were not reinvested with an ICH
subsidiary due to the lowered ratings. As a result of the
previously discussed restructuring of ICH's holding company system,
the surplus of such subsidiary was significantly reduced and, as a
consequence, some policyholders became entitled to an early
withdrawal of their GICs. The subsidiary is also voluntarily
offering certain other GIC holders the right of early withdrawal.
Because of its available liquidity and readily marketable
securities, the subsidiary has not encountered, and management does
not anticipate that the subsidiary will encounter, any difficulty
in meeting its obligations relative to such withdrawals.
Transactions With Consolidated Fidelity Life Insurance Company
Effective June 15, 1993, ICH entered into an agreement (the
Agreement) which initiated the process of terminating certain
reinsurance arrangements involving CFLIC. CFLIC is a subsidiary of
Consolidated National Corporation (CNC) and CNC is also the
controlling shareholder of ICH. The reinsurance arrangements
involve certain annuity business with reserves totaling $334.6
million as of September 30, 1993, which was transferred by a
subsidiary of ICH, Southwestern Life Insurance Company
(Southwestern), to an unaffiliated reinsurer in 1990. The
unaffiliated reinsurer, in turn, transferred the business to
another CNC subsidiary, Marquette National Life Insurance Company
(Marquette). In 1991, Marquette transferred the annuity business
to CFLIC.
The reinsurance arrangements have been under review by the
Texas Department of Insurance and, in March 1993, ICH and
Southwestern agreed with the Texas
<PAGE>
<PAGE>
Department that they would, among other things, develop a plan to
enhance and diversify the assets supporting the liabilities
reinsured by CFLIC, including possibly recapturing the reinsured
annuity business. The recapture is subject to negotiations with
the unaffiliated reinsurer and approval by the Texas Department.
CNC and CFLIC agreed to structure the proposed recapture in a
manner that will permit ICH to redeem or retire certain of its
outstanding securities, provided CFLIC would be allowed to retain
certain assets following the recapture. CFLIC holds ICH's senior
secured debt, with a current balance of $30 million, which it
acquired in 1992 from ICH's bank lenders. In addition, CFLIC holds
approximately $22.2 million stated value of ICH's Series 1984-A
Preferred Stock and $7 million stated value of Series 1987-B
Preferred Stock.
CFLIC also intends to terminate another reinsurance
arrangement under which business written by Bankers is reinsured by
CFLIC. Under terms of the Agreement, ICH will be responsible for
the negotiation of both the Southwestern and Bankers recaptures and
will manage the affairs of CFLIC and Marquette, including
management of their investments, until the recaptures are effected.
Upon completion of the recaptures, CFLIC will have no remaining
insurance business.
To facilitate the recaptures of the reinsured business, ICH
acquired $63 million in CFLIC preferred stock in exchange for its
ownership interest in certain investments with an estimated fair
value as of June 15, 1993, of $63 million, including its ownership
in a limited partnership (the HMC/Life Partners L.P.) and 83
percent of a residual interest in a pool of mortgage-backed
securities (the Trust). The CFLIC preferred stock is non-
redeemable and non-voting, with cumulative 6% annual dividends that
will be payable in kind until the recaptures are completed. ICH
and CFLIC anticipate that the assets received by CFLIC from ICH in
consideration for the preferred stock, along with other assets held
by CFLIC, including its ownership in Marquette, will be transferred
to Southwestern upon recapture of the annuity business. Following
the recaptures, CFLIC is obligated to redeem its preferred stock by
transferring its ownership in the ICH securities and additional
assets to ICH. Upon their receipt, ICH intends to retire the ICH
debt and securities.
For financial reporting purposes, no gain or loss was
recognized on the transfer of the assets to CFLIC and the cost
basis in the CFLIC preferred stock was recorded at ICH's $50
million basis in the assets transferred. The Agreement identifies
the specific assets and liabilities plus, subject to certain
conditions, an amount in cash that will be retained by CFLIC
following the recaptures. All remaining assets held by CFLIC,
including the ICH securities, will revert to ICH in redemption of
CFLIC's preferred stock. As a consequence, ICH will benefit or
suffer the consequences to the extent of any appreciation or
depreciation in the value of the assets transferred to CFLIC. At
September 30, 1993, ICH has accounted for unrealized appreciation
in the HMC/Life Partners L.P. totaling approximately $13.0 million
as of the date of the transfer to CFLIC as an unrealized investment
gain on the CFLIC preferred stock.
Because the purchase of the preferred stock and the proposed
recapture involves transactions between companies under common
control, ICH's Board of Directors retained independent legal
counsel, received a valuation of the business being recaptured by
an independent actuarial consulting firm and obtained financial
advice from an independent investment banking firm.
Management believes the transactions with CFLIC, if completed,
will be beneficial for several reasons. In addition to eliminating
$30 million in scheduled debt principal requirements, the
redemption or retirement of the ICH securities would reduce ICH's
interest and preferred dividend requirements by approximately $5.4
million annually. Further, the recapture of the Southwestern
annuity business would substantially eliminate the possibility for
conflicts of interest by reducing affiliated party transactions
between CNC and its
<PAGE>
<PAGE>
subsidiaries and ICH. The termination of the reinsurance treaties
is dependent on the performance and level of concentration of the
assets of CFLIC supporting the reinsured liabilities and the
completion of successful negotiations. Management is presently
unable to predict with any certainty the completion date of the
transactions with CFLIC.
Results of Operations:
On a line-by-line basis in the consolidated statements of
earnings (loss), the comparison of current period amounts with
historical prior period amounts is significantly affected by the
sale of Bankers effective October 31, 1992, as described in the
Notes to Financial Statements in ICH's 1992 Annual Report. The
following unaudited pro forma statement of earnings (loss) for the
three months and the nine months ended September 30, 1992, presents
information regarding ICH's operating results as though Bankers'
pre-tax operating results had been reported under the equity method
of accounting beginning January 1, 1992 (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
______________________ ________________________
1992 1992
1993 Pro 1993 Pro
Actual Forma Actual Forma
______ _____ ______ _____
<S> <C> <C> <C> <C>
Income:
Premium income and other
considerations $ 119,543 $ 111,970 $ 356,142 $ 330,304
Net investment income 43,896 46,932 150,082 147,279
Realized investment gains
(losses) 18,876 583 32,245 (10,149)
Equity in earnings (losses)
of equity investees and
limited partnerships 9,140 (313) 33,662 3,362
Gain on sale of investment
in BLHC 197,398 296,774
Other income 10,362 7,197 43,708 22,692
Equity in earnings of
Bankers 28,171 62,409
___________ ___________ ___________ ___________
399,215 194,540 912,613 555,897
___________ ___________ ___________ ___________
Benefits, expenses and costs:
Policyholder benefits 110,748 106,818 327,301 320,748
Amortization of deferred
policy acquisition costs
and present value of
future profits 10,968 19,738 38,720 44,436
Other operating expenses 76,928 34,961 168,692 136,144
Amortization of excess cost 2,401 2,392 7,204 7,174
Interest expense 15,331 19,239 51,613 58,183
___________ ___________ ___________ ___________
216,376 183,148 593,530 566,685
___________ ___________ ___________ ___________
Operating earnings (loss)
before income taxes 182,839 11,392 319,083 (10,788)
Income tax expense (credit) 57,105 (1,652) 96,202 (11,459)
___________ ___________ ___________ ___________
Operating earnings 125,734 13,044 222,881 671
Cumulative effect of change
in accounting principle,
net of tax effect (1,812)
Extraordinary losses, net
of tax effects (714) (1,360) (3,230)
____________ ___________ ___________ ___________
Net income (loss) 125,734 12,330 219,709 (2,559)
Less dividends on
preferred stock (7,700) (7,700) (23,100) (23,100)
____________ ___________ ___________ ___________
Net earnings (loss)
applicable to
common stock $ 118,034 $ 4,630 $ 196,609 $ (25,659)
============ =========== =========== ===========
</TABLE>
<PAGE>
<PAGE>
To enhance comparability, the historical and pro forma amounts
reflected above will be the basis of comparison in Management's
Discussion and Analysis of Results of Operations.
For the nine months ended September 30, 1993, premium income
and other considerations increased $25.8 million, or 7.8%, as
compared to the corresponding period in 1992. Following is a
summary of premiums by major line of business for each of the
respective periods (in thousands):
<TABLE>
<CAPTION>
Nine Months Ended September 30,
_________________________________
1992
1993 Pro
Actual Forma
______ _____
<S> <C> <C>
Individual life and annuity $ 86,001 $ 92,642
Individual health 165,230 162,161
Group and other 104,911 75,501
________ ________
$356,142 $330,304
======== ========
</TABLE>
ICH's subsidiaries presently derive substantial revenues from
their interest-sensitive and universal life products; however, for
financial reporting purposes, these types of products are treated
as deposit products and, therefore, premiums received are not
reflected as a component of premium income. The $29.4 million, or
39%, increase in group and other premium income is primarily
attributable to new sales of group health insurance products.
During the nine months of 1993, net investment income
increased $2.8 million, or 2%, as compared to the corresponding
period in 1992. Substantially all of the improvement is
attributable to investment earnings on the mortgage-backed
securities placed in the Trust in conjunction with the sale of
Bankers as discussed in ICH's 1992 Annual Report. Except for
approximately $1.3 million of earnings attributable to ICH's
residual interest in such trust, the investment income on such
securities has been offset in other line items in the consolidated
statement of earnings, including interest expense attributable to
related collateralized mortgage note obligations, expenses
associated with a first quarter 1993 refinancing by the Trust and
additional provisions for losses on the securities held in trust.
Realized investment gains in 1993 totaled $32.2 million, as
compared to pro forma losses totaling $10.1 million in 1992.
Included in 1993 are $8.2 million of gains resulting from BLHC's
redemption of certain of its securities and $33.9 million of gains
on the sale of CCP Insurance common stock as previously discussed.
During the quarter ended June 30, 1993, ICH reflected a $5.0
million total writedown of an investment in a Hicks/Muse limited
partnership, which owned a controlling interest in Healthco
International, Inc. In the 1993 third quarter, ICH reflected
writedowns, primarily relating to investment real estate and fixed
maturities held at amortized cost, totaling $10.9 million. The
investment losses in 1992 were primarily attributable to writedowns
of mortgage-backed residual interests and IOs, which resulted from
declines in mortgage interest rates and an acceleration of
prepayments on the mortgage loans underlying such investments. As
previously discussed, at year-end 1992, ICH reflected a provision
for losses which were expected to occur relative to such
investments during 1993 and, other than the approximate $3.3
million of losses incurred in disposing of these securities, there
were no significant losses on these investments in the first nine
months of 1993.
Since 1990, ICH has invested a total of $25 million in various
partnerships organized by the Hicks/Muse Equity Fund, including
$5.0 in the HMC/Life Partners L.P. Substantially all of these
investments were made to participate in the potential appreciation
resulting from leveraged buyouts and corporate reorganizations, and
through September 30, 1993, ICH has reflected unrealized
appreciation on certain of these investments totaling $15.2
million. During June
<PAGE>
<PAGE>
1993, Healthco filed for bankruptcy protection and, as a result,
management determined that it was unlikely that any of the
investment in that particular partnership would be recovered.
Management is not aware of any other potential writedowns relative
to its limited partnership investments and believes, that in the
aggregate, these investments will ultimately return attractive
risk-adjusted yields.
Equity in the earnings (losses) of equity investees and
limited partnerships includes ICH's pro rata share of the operating
earnings of BLHC and other investments in limited partnerships
which are accounted for by the equity method. Following is an
analysis of the components of such earnings (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1992 1992
1993 Pro 1993 Pro
Actual Forma Actual Forma
<S> <C> <C> <C> <C>
Equity in operating earnings
(losses) of:
BLHC $ 8,578 $ 29,117
Limited partnership investments 562 $ (313) 4,545 $ 3,362
________ ________ ________ _________
$ 9,140 $ (313) $ 33,662 $ 3,362
======== ======== ======== =========
</TABLE>
See Note 2 of the Notes to Financial Statements for condensed
financial information of BLHC.
In 1993, other income includes $22.6 million of non-recurring
income associated with the termination of a reinsurance agreement
between Bankers and an ICH subsidiary as previously discussed. In
addition, ICH has received distributions representing its share of
the profits of CFSB Corporation (CFSB) totaling $1.1 million. As
discussed in the 1992 Annual Report, ICH is entitled to receive
13.85% of profit distributions made by CFSB. ICH's stated policy
is to reflect earnings only to the extent distributions from CFSB
are actually received. Excluding the income from the reinsurance
transaction and the CFSB distributions, other income decreased from
$22.7 million in 1992 to $20.0 million in 1993.
Following is a summary of policyholder benefits by major
business segment (in thousands):
<TABLE>
<CAPTION>
Nine Months Ended September 30,
_______________________________
1992
1993 Pro
Actual Forma
______ _____
<S> <C> <C>
Individual life and annuity $103,489 $122,628
Individual health 106,548 108,470
Group and other 77,139 48,999
Accumulation products 40,125 40,651
________ ________
$327,301 $320,748
======== ========
</TABLE>
Life and annuity benefits decreased approximately $19.1
million, or 16%, a substantial portion of which was attributable to
a reduction in credited rates on interest-sensitive life insurance
policies between the periods. Individual health benefits decreased
slightly, reflecting an improvement in the individual health
benefit ratio from 66.9% in 1992 to 64.5%. Group benefits
increased approximately $28.1 million, or 57%. Such increase was
greater than the 39% increase in group premiums, which resulted in
a significant increase in the group benefit ratio from 64.9% in
1992 to 73.5% in 1993. This increase was attributable to an
unexpected increase in claim costs resulting from an upswing in the
utilization and cost of physician services and several large
individual claims covered under group plans. Benefits related to
accumulation products
<PAGE>
<PAGE>
include primarily interest credited to annuity and guaranteed
investment contract account balances.
Other operating expenses increased approximately $32.5 million
from the 1992 period to the 1993 period. Following is a summary of
the major items included in other operating expenses (in
thousands):
<TABLE>
<CAPTION>
Nine Months Ended September 30,
_______________________________
1992
1993 Pro
Actual Forma
______ _____
<S> <C> <C>
Non-deferrable commissions $ 32,895 $ 27,660
General and administrative expenses 87,258 79,386
Taxes, licenses and fees 12,936 11,298
Consolidation and reorganization 23,870
Provision for costs of litigation and
other contingencies 7,320
Placement fee for collateralized
mortgage note obligations 4,413
Litigation settlement 17,800
________ ________
$168,692 $136,144
======== ========
</TABLE>
In the 1993 third quarter, ICH reflected $23.9 million of
consolidation and reorganization expenses. The Company had
previously provided a provision for similar types of expenses in
the fourth quarter of 1992 totaling $10.9 million. The 1992
provision included costs which the Company expected to incur
relative to its plan to consolidate the operations of its three
Texas-based subsidiaries. Management has continued to assess the
usefulness and recoverability of property and equipment utilized in
the Company's business and the recoverability of certain
capitalized costs. Based on such assessment, management determined
that a substantial portion of such assets were nonproductive and
should be written off. Accordingly, the 1993 expenses include a
$10.8 million writedown of certain home office real estate, a $9.8
million writeoff of certain capitalized data processing costs and
a $3.3 million writeoff of furniture and equipment. As a result of
the previously discussed consolidation and the writeoff of the
nonproductive assets, management expects significant costs savings
to begin emerging in the 1993 fourth quarter. In addition, during
the 1993 third quarter, management assessed the Company's exposure
to the costs associated with pending litigation and certain other
contingencies and provided reserves totaling $7.3 million for the
costs anticipated to be incurred relative to such matters.
Exclusive of the above described expenses, non-deferrable
commissions increased primarily as a result of the sale of new
group health insurance products. General and administrative
expenses increased primarily as a result of the growth in new group
business, both in directly underwritten business and administrative
services only claims processing. The placement fee in 1993 relates
to the refinancing of the Trust's collateralized mortgage note
obligations (see Note 3 of the Notes to Financial Statements). The
litigation settlement in 1992 related to a class action suit filed
by certain policyholders and is addressed in detail in ICH's 1992
Annual Report.
Interest expense declined $6.6 million, or approximately 11%.
Interest expense on long-term notes payable declined $12.6 million,
or 22%, primarily reflecting the effect of approximately $238.4
million in debt reductions between the two periods. Offsetting a
substantial portion of such interest savings in 1993 was $6.0
million of interest expense relative to collateralized mortgage
note obligations. As previously discussed, the collateralized
mortgage note obligations arose in conjunction with the sale of
Bankers and there was no similar expense item in 1992. As a result
of the transactions entered into in
<PAGE>
<PAGE>
July 1993 to reduce the Company's exposure to prepayment risks on
certain mortgage-backed securities, the accounts of a special-
purpose trust, which includes the collateralized mortgage note
obligations and the related interest expense, are no longer
included in ICH's consolidated balance sheet or statement of
earnings after July 30, 1993. As a result, interest expense as
reflected in the statement of earnings in subsequent periods is
expected to be substantially lower.
Income tax expense in 1993 represented 30% of pre-tax earnings
and an income tax credit in 1992 represented in excess of 100% of
the pre-tax loss. In August 1993, Congress enacted legislation
which raised the federal income tax rate from 34% to 35%,
retroactive to January 1, 1993. The effect of such rate increase
on the Company's deferred income tax asset as of the beginning of
1993, a benefit totaling approximately $3.5 million, has been
reflected in the Company's results of operations for the three
months ended September 30, 1993. Such benefit was offset, in part,
by the utilization of the higher 35% rate in determining the
Company's income tax provision in 1993. The effective income tax
rate differed from the expected 35% rate in 1993 and the 34% rate
in 1992 as a result of amortization of excess cost for which there
are no income tax consequences, reductions in valuation allowances
for deferred income tax assets and the utilization of capital loss
carryforwards which had previously not been reflected for financial
reporting purposes. See Note 4 of the Notes to Financial
Statements for an analysis of the various components affecting
ICH's income tax provisions.
At December 31, 1992 and 1991, ICH reflected deferred income
tax assets, net of valuation allowances, totaling $121.0 million
and $65.4 million, respectively, a significant portion of which at
each date consisted of benefits expected to be derived from net
operating loss and capital loss carryforwards. Valuation
allowances totaling $24.2 million in 1992 and $104.1 million in
1991 had been provided, in part, based on the uncertainty as to
ICH's ability to fully utilize its available loss carryforwards.
Exclusive of CMO writedowns, ICH realized significant investment
gains in 1992 and for the nine months ended September 30, 1992,
reflected a tax benefit from a reduction in its valuation allowance
of approximately $11.0 million. In 1993, primarily as a result of
the gains on the sales of its investment in BLHC and the CCP
Insurance common stock, ICH utilized substantially all of its
remaining loss carryforwards and for the nine months ended
September 30, 1993, has reflected a tax benefit from a reduction
in the valuation allowance of approximately $14.6 million. The
1993 benefit was previously reflected in the quarter ended March
31, 1993 as a component of the tax provision related to the non-
operating gain on the sale of common stock by BLHC; however, as a
result of the reclassification of such gain, such benefit is now
included in the income tax provision related to operations. As a
result of the realized gains reflected in the consolidated
statement of earnings in 1993 and the substantial increase in
unrealized investment gains reflected in stockholders' equity, at
September 30, 1993, ICH had reduced its deferred income tax asset
to approximately $25.9 million.
As previously discussed, ICH redeemed $50 million stated value
of its Series 1987-A Preferred Stock in conjunction with the sale
of its interest in BLHC. Such redemption will result in a
reduction in annual preferred dividend requirements totaling $5.5
million beginning in the fourth quarter of 1993.
ICH recognized a $1.8 million charge, net of $.9 million in
deferred taxes, for the cumulative effective to January 1, 1993, of
the adoption of Statement of Financial Accounting Standards (SFAS)
No. 106, "Employers' Accounting for Postretirement Benefits Other
than Pensions." ICH had previously provided a liability totaling
$20.1 million for postretirement benefits for retirees of certain
acquired companies through its purchase accounting relative to
such companies. The current period charge reflects the cost of
providing postretirement benefits for its remaining employees. ICH
also reported extraordinary losses in both periods, all of which
were related to early
<PAGE>
<PAGE>
extinguishment of debt. Extraordinary losses, net of tax effects,
totaled $1.4 million and $3.2 million in 1993 and 1992,
respectively. See Note 7 of the Notes to Financial Statements for
additional information regarding such losses.
Substantially all of the earnings in 1993 are attributable to
gains resulting from the sale of ICH's investment in BLHC and other
invested assets, a gain on Bankers' recapture of certain
reinsurance, and tax benefits realized from the utilization of
available tax loss carryforwards as a result of such gains. These
gains have been partially offset by charges in the third quarter
for investment writedowns, non-recurring consolidation and
reorganization expenses and a provision for the costs of pending
litigation and other contingencies. Exclusive of these gains and
charges, ICH's results from operations in 1993 have been
insufficient to cover interest on its debt obligations and
preferred dividend requirements. Following is a summary of the
effects of the above credits and charges on ICH's results of
operations for the three months and the nine months ended September
30, 1993, and an analysis of the shortfall from normal operations
to cover interest on debt obligations and preferred dividend
requirements (in thousands):
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
September 30, September 30,
1993 1993
_____________ _____________
<S> <C> <C>
Realized investment gains and other
non-recurring credits (charges):
Gain on sale of investment in BLHC $ 197,398 $ 296,774
Realized investment gains, net of
writedowns 18,876 32,245
Gain on Bankers' reinsurance recapture 5,525 22,643
Consolidation and reorganization
expenses (23,870) (23,870)
Provision for costs of litigation
and other contingencies (7,320) (7,320)
___________ ___________
Pre-tax credits, net 190,609 320,472
___________ ___________
Tax effects:
Expected tax provision at 35% 66,713 112,165
Benefits from utilization of tax
loss carryforwards (10,592) (24,463)
___________ ___________
Net tax effects 56,121 87,702
___________ ___________
Net after-tax realized gains and non-
recurring credits $ 134,488 $ 232,770
=========== ===========
Operating earnings, as reported $ 125,734 $ 222,881
=========== ===========
Shortfall of operating earnings
over net after-tax realized gains
and non-recurring credits $ (8,754) $ (9,889)
Less: Preferred dividend requirements (7,700) (23,100)
___________ ___________
Shortfall in operating earnings to
cover interest on debt and preferred
dividend requirements $ (16,454) $ (32,989)
=========== ===========
</TABLE>
As previously discussed in ICH's Annual Report and subsequent
quarterly reports, such operating results are in line with
management's expectations because the Company was not able to
redeploy the proceeds from the sale of Bankers in November 1992 in
a manner that would replace the earnings of Bankers.
<PAGE>
<PAGE>
ICH has implemented a consolidation program to lower its operating
expenses and has stated its goal of restructuring its capital
accounts to lower its cost of capital. As previously discussed,
management believes that the sale of ICH's interest in BLHC has
provided the Company with substantial additional flexibility in
achieving its capital restructuring plans. The Company is
presently attempting to lengthen the maturity of a substantial
portion of its outstanding debt through its Exchange Offer;
however, until the final results of such Exchange Offer are
determined, management will be unable to determine how the Company
will ultimately utilize its available cash. As a consequence, a
substantial portion of the parent company's available cash will be
invested in short-term investments during the 1993 fourth quarter.
Because of the relatively low yields that the Company can earn on
such short-term investments, approximately 2-1/2% at current rates,
and because the Company will no longer reflect its share of the
earnings of BLHC, management does not expect a significant
improvement in ICH's operating results during the fourth quarter of
1993. However, because of savings which are expected to be
realized from the consolidation program, the reinvestment of
proceeds from the sale of certain investments (such as the equity
investment in CCP Insurance which produced substantially no
income), the reduction in preferred dividend requirements and the
more effective utilization of the parent company's available cash
following the completion of the Exchange Offer, management believes
that ICH will reflect profitable operating results beginning in
the first quarter of 1994.
Reporting results of insurance operations on a quarterly basis
necessitates numerous estimates throughout the year, principally in
the calculation of reserves and in the determination of the
effective rate for federal income taxes. It is the Company's
practice to review its estimates at the end of each quarter and, if
necessary, make appropriate refinements, with the resulting effect
being reported in current operations. Only at year-end is the
Company able to assess retrospectively the precision of its
previous quarter estimates. The Company's fourth quarter results
contain the effect of the difference between previous estimates and
final year end results, and therefore, the results for an interim
period may not be indicative of the results for the entire year.
Proposed Accounting Standards:
In April 1993, the FASB approved the issuance of SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities."
SFAS No. 115 expands the use of fair value accounting for certain
investments in debt and equity securities and will require
financial institutions to classify their fixed maturity investments
into three categories. Fixed maturity investments that an entity
has the positive intent and ability to hold to maturity will be
classified as "held to maturity" and will continue to be reported
at amortized cost. Fixed maturity and equity investments available
for sale, which may or may not be traded before maturity, are to be
marked to their current value, with any unrealized gains and losses
reported as a separate component of stockholders' equity. Finally,
fixed maturities and equity investments held only for trading must
be marked to their current value, with any unrealized losses
charged to earnings. The proposed accounting standard must be
adopted for 1994 financial statements. As a result of the sale of
Bankers effective October 31, 1992, and based on management's
assessment of ICH's liquidity needs, at year-end 1992, ICH
classified its fixed maturity portfolio into three categories,
including "held to maturity," "actively managed," and "held for
sale." Investments classified in the actively managed category
were adjusted to their fair values with unrealized gains and losses
reflected as a component of stockholders' equity. Investments
classified as held for sale were adjusted to their fair value
through a charge to earnings. Management believes that the
accounting treatment utilized by ICH at December 31, 1992 and
September 30, 1993, closely parallels the new accounting standard
and, as a consequence, does not expect that its adoption will have
a significant effect on ICH's financial position or results of
operations.
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
I.C.H. CORPORATION
BY: /s/ John T. Hull
_________________________________
John T. Hull, Executive Vice
President, Treasurer and
Principal Accounting Officer
Date: April 28, 1994
<PAGE>
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NO. DESCRIPTION PAGE NO.
_______ ___________ __________
<S> <C> <C>
2.6 Stock Purchase Agreement dated October 3,
1989, between the Registrant and HMS
Acquisition Corporation (filed as Exhibit 1 to
the Registrant's Current Report on Form 8-K
dated October 3, 1989, and incorporated herein
by reference) and amendment thereto (filed as
Exhibit 19.4 to the Registrant's Annual Report
on Form 10-K for the year ended December 31,
1989 and incorporated herein by reference). . . .
2.9 Stock Acquisition Agreement dated February 20,
1992, between the Registrant and Conseco, Inc.
(filed as Exhibit 2.10 to the Registrant's
Current Report on Form 8-K dated February 20,
1992 and incorporated herein by reference) and
amendments thereto (filed as Exhibit 2.15 to
the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1991, and as
Exhibit 2.16 of the Registrant's Report on
Form 10-Q for the quarter ended September 30,
1992, and incorporated herein by reference) . . .
2.17 Agreement, dated June 15, 1993, among I.C.H.
Corporation, Consolidated National Corporation
and Consolidated Fidelity Life Insurance
Company (filed as Exhibit 2.1 to the
Registrant's Current Report on Form 8-K dated
June 15, 1993 and incorporated herein by
reference). . . . . . . . . . . . . . . . . . . .
10.1 Agreement, dated September 11, 1993, between
I.C.H. Corporation and Conseco, Inc. (incorpo-
rated by reference to Exhibit 4 to Amendment
No. 1 to the Schedule 13D relating to the
common stock of Bankers Life Holding Corpora-
tion, filed by I.C.H. Corporation,
Consolidated National Corporation, Robert T.
Shaw and C. Fred Rice dated September 15,
1993) . . . . . . . . . . . . . . . . . . . . . .
10.2 Agreement, dated September 11, 1993, between
I.C.H. Corporation and Bankers National Life
Insurance Company (incorporated by reference
to Exhibit 5 to Amendment No. 1 to the
Schedule 13D relating to the common stock of
Bankers Life Holding Corporation, filed by
I.C.H. Corporation, Consolidated National
Corporation, Robert T. Shaw and C. Fred Rice
dated September 15, 1993) . . . . . . . . . . . . .
<PAGE>
<PAGE>
EXHIBIT SEQUENTIAL
NO. DESCRIPTION PAGE NO.
_______ ___________ __________
10.3 Letter agreement, dated September 11, 1993,
among I.C.H. Corporation, Conseco, Inc. and
Bankers Life Holding Corporation (incorporated
by reference to Exhibit 6 to Amendment No. 1
to the Schedule 13D relating to the common
stock of Bankers Life Holding Corporation,
filed by I.C.H. Corporation, Consolidated
National Corporation, Robert T. Shaw and C.
Fred Rice dated September 15, 1993) . . . . . . . .
11.1 Computation of Earnings (Loss) Per Share of
Common Stock on Average Shares Outstanding and
Fully Diluted Bases for the Three Months and
Nine Months Ended September 30, 1993 and
1992. . . . . . . . . . . . . . . . . . . . . . . .
28.1 Offer to Exchange 11-1/4% Senior Subordinated
Notes due 2003 for any and all outstanding
16-1/2% Senior Subordinated Debentures due
1994 and 11-1/4% Senior Subordinated Notes due
1996, incorporated by reference to Exhibit
T3E-1 to the Company's Application for
Qualification of Indenture on Form T-3 (No.
22-25286), filed with the Securities and
Exchange Commission (the "Commission") on
October 1, 1993, as amended by that certain
First Amendment to Form T-3, filed with the
Commission on October 19, 1993. . . . . . . . . . .
</TABLE>
<PAGE>
<PAGE>
Exhibit 11.1
I.C.H. CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS (LOSS) PER SHARE OF COMMON STOCK
ON AVERAGE SHARES OUTSTANDING AND FULLY DILUTED BASES
(Unaudited)
(Dollars in Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
______________________ ________________________
1993 1992 1993 1992
____ ____ ____ ____
<S> <C> <C> <C> <C>
Computation for statements
of earnings:
Operating earnings
(loss) $ 125,734 $ 13,044 $ 222,881 $ 671
Less dividends on
preferred stock (7,700) (7,700) (23,100) (23,100)
___________ ___________ ___________ ___________
Operating earnings
(loss) applicable
to common stock 118,034 5,344 199,781 (22,429)
Cumulative effect to
January 1, 1993 of
change in method of
accounting for post-
retirement benefits (1,812)
Extraordinary losses (714) (1,360) (3,230)
___________ ___________ ___________ ___________
Net earnings (loss)
applicable to
common stock $ 118,034 $ 4,630 $ 196,609 $ (25,659)
=========== =========== =========== ===========
Weighted average common
shares outstanding 47,914,861 48,182,219 47,913,898 48,181,908
=========== =========== =========== ===========
Earnings (loss) per common share:
Operating earnings
(loss) $ 2.46 $ .11 $ 4.17 $ (.46)
Cumulative effect
to January 1,
1993 of change
in method of
accounting for
postretirement
benefits (.04)
Extraordinary losses (.01) (.03) (.07)
___________ ___________ ___________ ___________
Net earnings
(loss) $ 2.46 $ .10 $ 4.10 $ (.53)
=========== =========== =========== ===========
Additional computations(A):
Weighted average
common shares
outstanding 47,914,861 48,182,219 47,913,898 48,181,908
Incremental common
shares applicable
to common stock
options based on
the common stock
daily average market
price during the
period 664,431 186,017 821,411 294,737
___________ ___________ ___________ ___________
Weighted average
common shares,
as adjusted 48,579,292 48,368,236 48,735,309 48,476,645
=========== =========== =========== ===========
Weighted average
common shares
outstanding 47,914,861 48,182,219 47,913,898 48,181,908
Incremental common
shares applicable
to common stock
options based on
the more dilutive
of the common stock
ending or daily
average market
price during the
period 842,111 280,582 1,034,481 298,803
Assumed conversion
of convertible
preferred shares 7,867,466 7,867,542 7,867,466 7,867,542
__________ __________ __________ __________
Weighted average
common shares,
assuming full
dilution 56,624,438 56,330,343 56,815,845 56,348,253
=========== =========== =========== ===========
Net earnings (loss)
applicable to
common stock
assuming conver-
sion of convertible
preferred stock $ 122,212 $ 8,808 $ 209,143 $ (13,125)
=========== =========== =========== ===========
<FN>
______________
(A) These calculations are submitted in accordance with Securities Exchange
Act of 1934 Release No. 9083, although not required by footnote 2 to
paragraph 14 of Accounting Principles Board Opinion No. 15 because they
result in dilution of less than 3% or antidilution.
</TABLE>
(Continued)
<PAGE>
<PAGE> Exhibit 11.1
I.C.H. CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS (LOSS) PER SHARE OF COMMON STOCK
ON AVERAGE SHARES OUTSTANDING AND FULLY DILUTED BASES, Continued
(Unaudited)
(Dollars in Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
_________________________ _______________________
1993 1992 1993 1992
<S> <C> <C> <C> <C>
Additional computations,
continued(A):
Earnings (loss)
per common share:
Average shares
outstanding:
Operating earnings
(loss) $2.43 $ .11 $4.10 $(.46)
Cumulative effect
to January 1, 1993
of change in method
of accounting for
postretirement
benefits (.04)
Extraordinary losses (.01) (.03) (.07)
_____ _____ _____ _____
Net earnings
(loss) $2.43 $ .10 $4.03 $(.53)
===== ===== ===== =====
Fully diluted, assuming
conversion of all
applicable securities(B):
Operating earnings
(loss) $2.14 $ .17 $3.69 $(.17)
Cumulative effect to
January 1, 1993 of
change in method of
accounting for post-
retirement benefits (.03)
Extraordinary losses (.01) (.02) (.06)
_____ _____ _____ _____
Net earnings
(loss) $2.14 $ .16 $3.64 $(.23)
===== ===== ===== =====
<FN>
______________
(B) Fully diluted earnings in 1992 as reflected in this exhibit are
considered "antidilutive" because they result in per share earnings that
exceed per share earnings as determined on the primary basis or per share
losses that are less than per share losses as determined on the primary
basis. Fully diluted earnings per share in 1992 as reflected in the
consolidated statement of earnings (loss) were determined based on primary
earnings per share calculations as a result of such antidilution.
</TABLE>
