===========================================================================
FORM 10-Q
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 June 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________________ to ______________________
Commission File Number 1-7697
Southwestern Life Corporation
(Exact name of registrant as specified in its charter)
Delaware 43-6069928
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
500 North Akard Street
Dallas, Texas 75201
(Address of principal executive of- (Zip code)
fices)
(214) 954-7111
(Registrant's telephone number, including area code)
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 August 14, 1995
------------------ ---------------------
Common Stock, $1.00 Par Value 47,122,316
Index to Exhibits appears on page 24.
This filing contains 26 pages.
===========================================================================<PAGE>
<PAGE>
SOUTHWESTERN LIFE CORPORATION
FORM 10-Q
INDEX
Page(s)
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at June 30, 1995 and
December 31, 1994 . . . . . . . . . . . . . . . . . . .3
Consolidated Statements of Earnings (Loss) for the
Three Months and the Six Months Ended June 30,
1995 and 1994 . . . . . . . . . . . . . . . . . . . . .4
Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 1995 and 1994 . . . . . . . . . .5
Notes to Consolidated Financial Statements . . . . . . . .6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . 21
Item 3. Defaults Upon Senior Securities . . . . . . . . . . 22
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . 22
Index to Exhibits . . . . . . . . . . . . . . . . . . . . . . . 24
2<PAGE>
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
SOUTHWESTERN LIFE CORPORATION
CONSOLIDATED BALANCE SHEETS
(In Thousands)
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
June 30, December 31,
Investments: 1995 1994
Fixed maturities: ------------- -------------
<S> <C> <C>
Available for sale at fair value . . . . . . . . . . . . . . . . . . . . $ 1,544,877 $ 1,638,867
Held to maturity at amortized cost . . . . . . . . . . . . . . . . . . . 15,305 15,915
Equity securities, at fair value . . . . . . . . . . . . . . . . . . . . . 9,645 10,812
Mortgage loans on real estate, at amortized cost . . . . . . . . . . . . . 118,075 127,047
Real estate, at lower of cost or fair value . . . . . . . . . . . . . . . 53,398 57,068
Policy loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 172,651 172,108
Collateral loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,819 55,466
Investments in limited partnerships . . . . . . . . . . . . . . . . . . . 34,237 42,027
Cash and short-term investments . . . . . . . . . . . . . . . . . . . . . 474,011 229,522
Other invested assets . . . . . . . . . . . . . . . . . . . . . . . . . . 10,569 9,666
------------- -------------
Total investments . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,483,587 2,358,498
Due from reinsurers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 216,933 236,272
Notes and accounts receivable and uncollected premiums . . . . . . . . . . . 8,281 6,978
Accrued investment income . . . . . . . . . . . . . . . . . . . . . . . . . . 29,554 31,825
Deferred policy acquisition costs . . . . . . . . . . . . . . . . . . . . . . 190,007 208,952
Present value of future profits of acquired business . . . . . . . . . . . . 65,483 68,805
Deferred income tax asset . . . . . . . . . . . . . . . . . . . . . . . . . . 42,306 84,862
Excess cost of investments in subsidiaries over net assets acquired,
net of accumulated amortization . . . . . . . . . . . . . . . . . . . . . 79,237 80,500
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60,837 70,032
------------- -------------
$ 3,176,225 $ 3,146,724
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Insurance liabilities:
Future policy benefits and other policy liabilities . . . . . . . . . . . $ 891,261 $ 894,100
Universal life and investment contract liabilities . . . . . . . . . . . . 1,678,207 1,692,013
Notes payable:
Due within one year . . . . . . . . . . . . . . . . . . . . . . . . . . . 59,806 59,802
Due after one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . 309,537 309,592
Federal income taxes currently payable . . . . . . . . . . . . . . . . . . . 42,670 39,628
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99,570 116,251
------------- -------------
3,081,051 3,111,386
------------- -------------
Commitments and contingencies
Stockholders' equity:
Preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 199,997 199,997
Common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48,841 48,983
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . 126,143 126,583
Net unrealized investment gains (losses), net of deferred income taxes . . 16,108 (55,359)
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . (291,090) (279,265)
------------- -------------
99,999 40,939
Notes receivable collateralized by common stock . . . . . . . . . . . . . (1,019) (1,795)
Treasury stock, at cost . . . . . . . . . . . . . . . . . . . . . . . . . (3,806) (3,806)
------------- -------------
95,174 35,338
------------- -------------
$ 3,176,225 $ 3,146,724
============= =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
3<PAGE>
<PAGE>
SOUTHWESTERN LIFE CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)
(In Thousands, Except Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
----------------------- -----------------------
1995 1994 1995 1994
Income: ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Premium income and other considerations . . $ 95,906 $ 113,131 $ 190,027 $ 229,705
Net investment income . . . . . . . . . . . 72,165 51,997 144,589 82,004
Realized investment gains (losses) . . . . . 2,552 673 4,559 (45,101)
Equity in earnings of limited partnerships . 1,317 431 1,911 843
Other income . . . . . . . . . . . . . . . . 3,604 8,826 5,982 11,325
---------- ---------- ---------- ----------
175,544 175,058 347,068 278,776
---------- ---------- ---------- ----------
Benefits, expenses and costs:
Policyholder benefits . . . . . . . . . . . 123,252 99,584 241,349 190,269
Amortization of deferred policy acquisition
costs and present value of future profits . 13,958 13,102 28,936 25,395
Other operating expenses . . . . . . . . . . 31,243 34,869 58,900 72,349
Amortization of excess cost . . . . . . . . 631 2,398 1,263 4,796
Interest expense . . . . . . . . . . . . . . 11,375 12,664 22,750 25,109
---------- ---------- ---------- ----------
180,459 162,617 353,198 317,918
---------- ---------- ---------- ----------
Operating earnings (loss) before income taxes . (4,915) 12,441 (6,130) (39,142)
Income tax expense (credit) . . . . . . . . . . 4,595 7,703 5,695 (4,511)
---------- ---------- ---------- ----------
Net earnings (loss) . . . . . . . . . . . . . . (9,510) 4,738 (11,825) (34,631)
Less dividends on preferred stock . . . . . . . (3,500) (7,825)
---------- ---------- ---------- ----------
Net earnings (loss) applicable to common stock $ (9,510) $ 1,238 $ (11,825) $ (42,456)
========== ========== ========== ==========
Weighted average shares outstanding . . . . . . 47,126,870 47,829,460 47,169,454 47,853,939
========== ========== ========== ==========
Net earnings (loss) per common share . . . . . $ (.28) $ .03 $ (.40) $ (.89)
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
4<PAGE>
<PAGE>
SOUTHWESTERN LIFE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 1995 and 1994
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
1995 1994
Cash flows from operating activities: ----------- -----------
<S> <C> <C>
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (11,825) $ (34,631)
Items not requiring (providing) cash:
Adjustments related to universal life and investment products:
Interest credited to account balances . . . . . . . . . . . . . . . . 93,872 20,937
Charges for mortality and administration . . . . . . . . . . . . . . . (32,431) (35,778)
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . 2,894 9,352
Increase (decrease) in future policy benefits . . . . . . . . . . . . . (1,277) 3,219
Decrease (increase) in deferred policy acquisition costs . . . . . . . . 2,199 (505)
Increase (decrease) in currently payable income taxes . . . . . . . . . . 3,165 (19,914)
Deferred income tax expense . . . . . . . . . . . . . . . . . . . . . . . 4,072 7,315
Decrease in policy liabilities, other policyholder funds, accounts
payable and accrued expenses. . . . . . . . . . . . . . . . . . . . . . (10,693) (12,725)
Decrease (increase) in notes and accounts receivable and accrued
investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . 962 (2,671)
Realized investment (gains) losses. . . . . . . . . . . . . . . . . . . . (4,559) 45,101
Equity in earnings of limited partnerships. . . . . . . . . . . . . . . . (1,911) (843)
Gain on termination of reinsurance. . . . . . . . . . . . . . . . . . . . (8,735)
Other, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,038 3,229
----------- -----------
Net cash provided (used) by operating activities . . . . . . . . . . . 55,506 (26,649)
----------- -----------
Cash flows from investing activities:
Sales and maturities of long-term invested assets. . . . . . . . . . . . . . 810,425 517,849
Purchases of fixed maturities . . . . . . . . . . . . . . . . . . . . . . . (266,555) (462,866)
Purchases of other long-term invested assets . . . . . . . . . . . . . . . (293,692) (88,997)
Additional investment in CFLIC preferred stock . . . . . . . . . . . . . . (21,078)
Purchase of subsidiary, net of cash acquired . . . . . . . . . . . . . . . (3,589)
Cash received on reinsurance transactions . . . . . . . . . . . . . . . . 10,108
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 454 (2,500)
----------- -----------
Net cash provided (used) by investing activities . . . . . . . . . . . 250,632 (51,073)
----------- -----------
Cash flows from financing activities:
Policyholder contract deposits . . . . . . . . . . . . . . . . . . . . . . 78,232 87,770
Policyholder contract withdrawals . . . . . . . . . . . . . . . . . . . . (139,830) (91,664)
Principal payment on notes payable . . . . . . . . . . . . . . . . . . . . (51) (402)
Purchase of common stock for treasury . . . . . . . . . . . . . . . . . . (500)
Dividends on preferred shares . . . . . . . . . . . . . . . . . . . . . . (7,825)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,550)
---------- -----------
Net cash used by financing activities . . . . . . . . . . . . . . . . . (61,649) (17,171)
---------- -----------
Net increase (decrease) in cash and short-term investments . . . . . . . . . 244,489 (94,893)
Cash and short-term investments at beginning of period . . . . . . . . . . . 229,522 366,922
---------- -----------
Cash and short-term investments at end of period . . . . . . . . . . . . . . $ 474,011 $ 272,029
========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
5<PAGE>
<PAGE>
SOUTHWESTERN LIFE CORPORATION
NOTES TO CONSOLIDATED 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 1994 Annual
Report to Stockholders of Southwestern Life Corporation (the Company or
SLC).
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 1994 Annual Report to Stockholders.
Earnings per share are computed by dividing earnings, less preferred
dividend requirements, by the weighted average number of common shares
outstanding. On January 27, 1995, the Company's Board of Directors
authorized the suspension of the payment of dividends on the Company's
Series 1986-A Preferred Stock until reinstated by action of the Board. The
dividends on such preferred stock are cumulative; at June 30, 1995,
preferred dividends in arrears aggregated $7.0 million, or $0.875 per share
of preferred stock outstanding. Although neither declared nor paid during
the six months ended June 30, 1995, such preferred dividends have been
taken into consideration in the calculation of earnings (loss) per common
share.
Previously reported amounts for 1994 have, in some instances, been
reclassified to conform to the 1995 presentation.
2. Acquisitions and Dispositions:
On March 24, 1995, the Company entered into a definitive agreement to
sell to an unaffiliated party its ownership interest in its 98.8% owned
subsidiary, Integrity National Life Insurance Company (Integrity National),
for $9,578,000 cash, subject to closing adjustments. The transaction is
subject to, among other conditions, receipt of required regulatory
approvals and reinsurance of certain of Integrity National's business.
On July 26, 1995, the Company sold to an unaffiliated third party its
indirect wholly-owned subsidiary, Bankers Life Insurance Company of New
York (Bankers New York), for $35.5 million. The operating results of
Bankers New York are included in the consolidated operating results through
June 30, 1995, and will be excluded in subsequent periods.
In unrelated separate actions, the letters of intent previously
entered into by the Company to sell Philadelphia American Life Insurance
Company (PALICO) and Constitution Life Insurance Company (Constitution)
were terminated because the parties could not reach final agreements on
terms.
On May 24, 1995, a letter of intent was entered into to sell the
charter and licenses of the Company's indirect subsidiary Marquette
National Life Insurance Company (Marquette) for $1,640,000 plus Marquette's
statutory capital and surplus, subject to closing adjustments. Marquette is
a direct wholly-owned subsidiary of Union Bankers Insurance Company (Union
Bankers). This transaction is subject to, among other conditions, the
negotiation and execution of a definitive agreement and receipt of required
regulatory approvals.
On August 4, 1995, a letter of intent was entered into to sell the
realtors' errors and omissions line of business of the Company's indirect
subsidiary Bankers Multiple Line Insurance Company (BML) for up to
$1,100,000, subject to certain contingencies. BML is a direct wholly-owned
subsidiary of Care Financial Corporation. This transaction is subject to,
among other conditions, the negotiation and execution of a definitive
agreement.
6<PAGE>
<PAGE>
SOUTHWESTERN LIFE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
3. Notes Payable:
At June 30, 1995, the Company had notes payable due within one year
of $59,806,000. Notes payable at June 30, 1995, and December 31, 1994 are
summarized as follows:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
(In Thousands)
<S> <C> <C>
11 1/4% Senior Subordinated Notes due 1996. $ 256,101 $ 256,101
11 1/4% Senior Subordinated Notes due 2003. 91,161 91,161
9 1/2% unsecured note payable due 1996 . . 21,900 21,900
Other . . . . . . . . . . . . . . . . . . . 181 232
--------- ---------
$ 369,343 $ 369,394
========= =========
</TABLE>
At June 30, 1995, the Company held $22,399,000 principal amount of
the 11 1/4% Senior Subordinated Notes due 1996 (Old Notes) which, at the
Company's option, can be used to partially satisfy its $100,000,000 sinking
fund obligation relative to such notes due December 1, 1995. In addition,
an SLC subsidiary, Constitution, holds an additional $21,500,000 principal
amount of Old Notes. Regulatory approval will be required to transfer these
Old Notes to SLC in the form of a dividend. In determining the amount of
notes payable due within one year as reflected in the consolidated balance
sheet at June 30, 1995, it has been assumed that the aggregate $43,899,000
principal amount of the Old Notes held by SLC and its subsidiary will be
available for sinking fund purposes and that the sinking fund requirement
in 1995 after application of such Old Notes by the Company will total
$56,101,000. At its option, the Company may alternatively determine to use
sinking fund provisions in 1995 to retire up to $100,000,000 principal
amount of the Old Notes at their par value.
See "--Liquidity and Capital Resources of Parent Company" under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Form 10-Q for information regarding
the Company's currently projected deficiency in cash sources with which to
meet its remaining 1995 debt obligations as they become due and the
available alternatives which are being considered.
At June 30, 1995, the Company had notes receivable totaling
$27,000,000 from an unaffiliated third party, which is secured by the
Company's note payable with a carrying value of $21,389,500. 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.
4. Federal Income Taxes:
The provision (credit) for income taxes on operating earnings (loss)
consists of the following components:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ ------------------------
1995 1994 1995 1994
----------- ----------- ----------- -----------
(In Thousands)
<S> <C> <C>
Current tax expense (credit) . . . . . . $ 686 $ (12,148) $ 1,623 $ (11,826)
Deferred tax expense . . . . . . . . . . 3,909 19,851 4,072 7,315
----------- ----------- ----------- -----------
$ 4,595 $ 7,703 $ 5,695 $ (4,511)
=========== =========== =========== ===========
</TABLE>
7<PAGE>
<PAGE>
SOUTHWESTERN LIFE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
4. Federal Income Taxes (continued):
A reconciliation of the income tax provisions based on the prevailing
corporate income tax rate of 35% to the provisions reflected in the
consolidated financial statements is as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ ------------------------
1995 1994 1995 1994
----------- ----------- ----------- -----------
(In Thousands)
<S> <C> <C> <C> <C>
Computed expected income tax expense
(credit) at statutory regular tax rate $ (1,720) $ 4,354 $ (2,145) $ (13,700)
Amortization of excess cost . . . . . . 221 840 442 1,679
Increase in deferred income
tax asset valuation allowance. . . . . 6,081 3,250 7,432 5,000
Permanent loss of deductions from redemp-
tion of company's equity securities . 4,532 4,532
Other . . . . . . . . . . . . . . . . . 13 (5,273) (34) (2,022)
----------- ----------- ----------- -----------
Income tax expense (credit) . . . . $ 4,595 $ 7,703 $ 5,695 $ (4,511)
=========== =========== =========== ===========
</TABLE>
Management has periodically assessed the ability of the Company's
insurance subsidiaries to produce taxable income in future periods
sufficient to fully utilize their operating book/tax temporary differences
and tax loss carryforwards. These assessments have included actuarial
projections under alternative scenarios of future profits on the existing
insurance in force of the Company's insurance subsidiaries, including
provisions for adverse deviation and assumptions regarding new business,
adjusted to reflect the Company's anticipated debt service costs. Valuation
allowances totaling $48,897,000 and $41,465,000 were provided against the
Company's deferred tax assets at June 30, 1995 and December 31, 1994,
respectively, to reflect the uncertainties of realizing all of the benefits
of temporary differences and available tax loss carryforwards.
Included in the deferred income tax asset at December 31, 1994 were
tax effects totaling $29,809,000, associated with unrealized investment
losses included in stockholders' equity. Substantially all of such
unrealized investment losses were attributable to the Company's insurance
subsidiaries' available for sale fixed maturity securities. At June 30,
1995, the Company's insurance subsidiaries had unrealized investment gains
relative to such securities and the deferred tax asset was reflected net of
an $8,674,000 deferred tax liability applicable to such unrealized gains.
5. Commitments, Litigation and Contingent Liabilities:
The Company and its subsidiaries have been under examination by the
Internal Revenue Service (IRS) for the tax years 1986 through 1992. In
1994, the IRS issued Notices of Proposed Deficiencies in the amount of
$127.7 million to the Company's insurance subsidiaries for the tax years
1986 through 1989. In July 1995, the Company agreed to settle this matter
by paying $31.8 million of additional income taxes and $32.2 million of
interest. The Company is indemnified by the third party seller of certain
former and presently owned subsidiaries relative to approximately $20.2
million of the additional taxes and $8.9 million of interest and is in the
process of attempting to recover such amounts under provisions of the
indemnification. In addition, upon settlement, the Company will be entitled
to $10.3 million in additional alternative minimum tax carryovers and a
subsidiary of the Company will be entitled to recover $6.6 million in
previously paid income taxes through the carryback of certain net operating
losses. As a result of amounts accrued in prior periods relative to this
settlement and assuming the full recovery of amounts due under the
previously discussed indemnification, the net effect of the settlement has
been reflected in the Company's financial statements as of June 30, 1995.
8<PAGE>
<PAGE>
SOUTHWESTERN LIFE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
5. Commitments, Litigation and Contingent Liabilities (continued):
The IRS has not completed its examination for the years 1990 through
1992 and therefore has not issued Notices of Proposed Deficiencies for
those years.
As discussed in SLC's 1994 Annual Report, SLC's subsidiary, Modern
American Life Insurance Company (Modern American), was a defendant in two
lawsuits described therein as the Castle case and the Meyer case. SLC had
also been named as a defendant in the Castle case. On July 28, 1995, SLC
and Modern American agreed in principle to settle both of these cases by
agreeing to pay the plaintiffs $4.0 million in cash and by SLC issuing a
$3.0 million unsecured promissory note due in a single payment in December
1997 and bearing interest at the prime rate. The settlement of the Castle
case is subject to approval by the Circuit Court of Jackson County,
Missouri. The Meyer case would be dismissed with prejudice upon the payment
of the $4.0 million cash portion of the settlement. At year-end 1994, the
Company provided a $4.0 million litigation reserve relative to these cases,
and the remaining $3.0 million settlement expense has been reflected
through a charge to operating results for the three months and the six
months ended June 30, 1995.
Reference is hereby made to Item 1, "Legal Proceedings," of Part II
of this Form 10-Q for a discussion of certain other outstanding litigation
involving the Company and certain of its subsidiaries.
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 the above discussed and other matters, management
believes that the liability, if any, will not be material.
6. Realized Investment Gains (Losses):
Following is an analysis of the major components of gains (losses) on
investments:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ ------------------------
1995 1994 1995 1994
----------- ----------- ----------- -----------
(In Thousands)
<S> <C> <C> <C> <C>
Fixed maturity securities . . . . . . . $ 1,594 $ 225 $ 1,652 $ 2,245
Limited partnerships . . . . . . . . . . 952 2,758
Collateralized mortgage obligations . . (46,448)
Equity securities . . . . . . . . . . . 740 (485)
Other . . . . . . . . . . . . . . . . . 6 (292) 149 (413)
----------- ----------- ----------- -----------
$ 2,552 $ 673 $ 4,559 $ (45,101)
=========== =========== =========== ===========
</TABLE>
Collateralized mortgage obligation (CMO) writedowns in 1994 included
$46,448,000 of other than temporary writedowns of derivative CMO
investments in Fund America Investors Corporation II and the Secured
Investors Secured Trust 1993-1, which was discussed in detail in the
Company's 1994 Annual Report.
9<PAGE>
<PAGE>
SOUTHWESTERN LIFE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
7. Other Operating Expenses:
Following is a summary of the major items included in other operating
expenses:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ ------------------------
1995 1994 1995 1994
----------- ----------- ----------- -----------
(In Thousands)
<S> <C> <C> <C> <C>
Nondeferrable commissions . . . . . . . $ 5,196 $ 9,533 $ 11,252 $ 19,603
General and administrative expenses . . 18,789 20,444 36,476 44,153
Taxes, licenses and fees . . . . . . . . 4,258 4,892 8,172 8,593
Provision for litigation settlement . . 3,000 3,000
----------- ----------- ----------- -----------
$ 31,243 $ 34,869 $ 58,900 $ 72,349
=========== =========== =========== ===========
</TABLE>
10<PAGE>
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The following is an analysis of the financial condition of SLC and
its consolidated subsidiaries and their results of operations. The
consolidated financial statements and related notes and schedules included
elsewhere in this Form 10-Q should be read in conjunction with this
analysis.
Liquidity and Capital Resources of Operating Companies
The primary sources of liquidity for SLC's insurance subsidiaries
include operating cash flows and short-term investments. Exclusive of
withdrawals by holders of guaranteed investment contracts ("GICs") as
discussed below, the net cash provided by operating activities and by
policyholder contract deposits, after the payment of policyholder contract
withdrawals, benefits and operating expenses, for the six months ended June
30, 1995 and 1994 totaled approximately $35.3 million and $38.8 million,
respectively. SLC believes that its short-term investments are readily
marketable and can be sold quickly for cash. Cash and short-term
investments of SLC's subsidiaries totaled $432.4 million or 17% at June 30,
1995 and $212.8 million, or 9% of consolidated investments, at year-end
1994.
The principal requirement for liquidity of SLC's insurance
subsidiaries is their contractual obligations to policyholders, including
policy loans, payments of benefits and claims, and general operating
expenses.
In each of 1992, 1993 and 1994 and in January 1995, the claims paying
ratings assigned to certain of SLC's subsidiaries by various nationally
recognized statistical ratings organizations were lowered. Prior to 1995,
and except for withdrawals made by certain GIC holders, management believes
SLC's subsidiaries had not experienced more than normal policy surrenders
and withdrawals as a result of these ratings downgrades. In January 1995,
SLC announced the indefinite suspension of dividends on its $1.75
Convertible Exchangeable Preferred Stock, Series 1986-A ("1986-A Preferred
Stock"), and steps being contemplated by SLC's Board of Directors to
strengthen the holding company's capital structure and reduce outstanding
debt and fixed charges. Management believes that primarily as a result of
these announcements, subsequent downgrades in credit and claims paying
ratings, and the similarity between the holding company's name and that of
its largest insurance subsidiary, Southwestern Life Insurance Company
("Southwestern Life"), surrender activity relative to the life insurance
and annuity businesses of Southwestern Life and, to a lesser extent, the
Company's other insurance subsidiaries has increased above comparable
periods in 1994.
The following table sets forth cash withdrawals of policyholder
account balances and surrenders of traditional life insurance policies,
including partial surrenders, net of applicable surrender charges and
penalties, for the periods indicated:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ ------------------------
1995 1994 1995 1994
----------- ----------- ----------- -----------
(In Thousands)
<S> <C> <C> <C> <C>
Individual life insurance:
Retained business . . . . . . . . . .$ 24,574 $ 19,516 $ 46,599 $ 37,692
Business to be divested (1). . . . . . 2,118 3,496 5,958 7,208
----------- ----------- ----------- -----------
Total . . . . . . . . . . . . . . .$ 26,692 $ 23,012 $ 52,557 $ 44,900
=========== =========== =========== ===========
Accumulation products:
Guaranteed investment contracts . . .$ 4,091 $ 21,870 $ 21,014 $ 49,956
Annuities . . . . . . . . . . . . . . 45,670 13,040 74,585 27,021
----------- ----------- ----------- -----------
Total . . . . . . . . . . . . . . .$ 49,761 $ 34,910 $ 95,599 $ 76,977
=========== =========== =========== ===========
</TABLE>
____________________
(1) Represents business expected to be divested in connection with
the sale of Bankers New York and the proposed sale of
Integrity National.
In 1993, an SLC subsidiary specializing in the writing and issuance
of GICs withdrew from the GIC marketplace. Subsequent to that time, the
subsidiary offered to voluntarily terminate substantially all of its
existing GIC business. Withdrawals in 1995 include $6.2 million in
voluntary GIC terminations and $14.8 million in scheduled
11<PAGE>
<PAGE>
maturities which were not reinvested with the subsidiary. Withdrawals in
1994 represent scheduled maturities of GICs which were not reinvested with
the subsidiary.
Annuity surrenders have increased significantly in 1995 as compared
to 1994, primarily as a result of the downgrades in claims paying ratings.
Surrenders of annuities in the 1995 second quarter exceeded those in the
1995 first quarter by $16.8 million. Substantially all of the increase was
due to the surrender of the Company's two largest group deposit pension
accounts, which had been in process for several months.
Because of their available liquidity, SLC's insurance subsidiaries
have not encountered any difficulty in meeting their obligations relative
to these withdrawals and surrenders. SLC's subsidiaries maintain
significant levels of cash and short-term investments and approximately
two-thirds of their investment portfolios are comprised of readily
marketable, investment-grade fixed maturity investments. In management's
estimate, substantially all of the net surrender values of the Company's
insurance policies in force at June 30, 1995, could be met through the
liquidation of such investments, if required. Accordingly, management is
confident that SLC's insurance subsidiaries have the capacity to meet all
of their policyholder obligations as they become due.
Certain of SLC's insurance subsidiaries have ceded blocks of
insurance to unaffiliated reinsurers for enhancing their levels of surplus
and other purposes. Statutory surplus provided by such treaties before tax
effects totaled $48.8 million at June 30, 1995, compared with $57.8 million
at December 31, 1994.
Liquidity and Capital Resources of Parent Company
The primary sources of liquidity for SLC include dividends from both
its insurance and non-insurance subsidiaries, and earnings on invested
assets.
SLC's principal needs for liquidity are debt service and, to a lesser
extent, preferred dividend requirements. SLC's consolidated indebtedness
totaled $369.3 million at June 30, 1995 and $369.4 million at December 31,
1994. Substantially all indebtedness of SLC was incurred in connection with
acquisitions of subsidiaries in periods prior to 1987, including unsecured
subordinated debt, a portion of which was exchanged for new debt in 1993.
For the six months ended June 30, 1995, the pretax operating earnings
of SLC and its subsidiaries were insufficient to cover SLC's debt service
by approximately $11.3 million, and would have been insufficient to cover
both SLC's debt service and preferred dividend requirements by
approximately $22.1 million. As previously reported, on January 27, 1995,
SLC's Board of Directors authorized the suspension of the payment of
dividends on the Company's 1986-A Preferred Stock until reinstated by
action of the Board. However, the 1986-A Preferred Stock has cumulative
dividend rights. At June 30, 1995 such dividends were $7.0 million in
arrears. See Note 1 of Notes to Consolidated Financial Statements.
12<PAGE>
<PAGE>
The following table sets forth the current projection of SLC's cash
sources and requirements for 1995.
<TABLE>
<CAPTION>
Projected
(Dollars In Millions) 1995
-----------------------------------------------------------------
<S> <C>
Cash sources:
Sale of Integrity National . . . . . . . . . . . $ 9.6
Dividends from non-insurance subsidiaries . . . 2.2
Investment income . . . . . . . . . . . . . . . 4.8
Other . . . . . . . . . . . . . . . . . . . . . 5.9
-----------------------------------------------------------------
Total sources . . . . . . . . . . . . . . . . 22.5
-----------------------------------------------------------------
Cash requirements/uses:
Subordinated debt sinking fund and unaffiliated
principal payments (1) . . . . . . . . . . . . 59.8
Operating expenses . . . . . . . . . . . . . . . 3.6
Interest . . . . . . . . . . . . . . . . . . . . 46.6
Contribution to subsidiary . . . . . . . . . . . 12.0
Other . . . . . . . . . . . . . . . . . . . . . 1.8
-----------------------------------------------------------------
Total requirements/uses . . . . . . . . . . . 123.8
-----------------------------------------------------------------
Net cash required during year . . . . . . . . . . . (101.3)
Cash and marketable securities available, beginning
of year . . . . . . . . . . . . . . . . . . . . . 60.8
-----------------------------------------------------------------
Cash and marketable securities available
(deficiency), end of year . . . . . . . . . . . . $(40.5)
-----------------------------------------------------------------
</TABLE>
____________________
(1) Based on the expectation that the $21.5 million of SLC subordinated
debt held by Constitution Life Insurance Company will be available to
SLC for meeting the sinking fund requirement. The transfer of these
securities to SLC will require regulatory approval.
In its Form 10-Q for the quarter ended March 31, 1995 and in its 1994
Annual Report, SLC had previously projected a cash deficiency for 1995
totaling $25.0 million. For the reasons set forth below, SLC has updated
its projected 1995 cash deficiency to $40.5 million. In order to settle the
IRS income tax audits for the years 1986 through 1989 and to fund the cash
portion of the Castle and Meyer cases settlement, SLC anticipates that it
will be required to make a capital contribution to its subsidiary, Modern
American, totaling approximately $12.0 million. In addition, based on
operating results for the first six months of 1995, SLC has reduced
anticipated dividends from its non-insurance subsidiaries by $3.0 million
and other cash sources by $0.5 million. The revised deficiency of $40.5
million assumes that during 1995 the Company successfully recovers $29.1
million, which amount the Company believes is owed by an independent third
party pursuant to a preexisting tax indemnity obligation. If for any reason
the indemnified amount is not collected, the Company's projected 1995 cash
deficiency could total $69.6 million. See Note 5 of the Notes to
Consolidated Financial Statements included elsewhere in this Report on Form
10-Q for a more complete discussion of the Company's obligations to the IRS.
As indicated in the above table, SLC does not currently have
sufficient specifically projected cash sources to meet all of its 1995 cash
requirements (which requirements do not include dividends on its 1986-A
Preferred Stock because the payment of such dividends has been suspended),
and SLC is severely limited regarding the amount of dividends that could be
paid in 1995 by its insurance subsidiaries in the absence of regulatory
approval. Since January 1995, SLC has sought to sell several of its
nonstrategic subsidiaries in order to generate additional liquidity. As of
August 14, 1995, only one of such sales, that of Bankers New York, had been
consummated and only one other, that of Integrity National for $9.6
million, is evidenced by a definitive agreement. Letters of intent to sell
PALICO and Constitution were terminated because the parties could not reach
agreement on definitive terms. Letters of intent to sell the charter and
licenses of Marquette and the realtors' errors and omissions line of
business of BML have been signed. See Note 2 of Notes to Consolidated
Financial Statements elsewhere in this Report on Form 10-Q. The proceeds
from the sale of Integrity National are included as a source of cash in the
preceding projection because such subsidiary is directly owned by SLC. The
$35.5 million of proceeds from the sale of Bankers New York on July 26,
1995 (see Note 2 of Notes to Consolidated Financial Statements) have not
been included because such subsidiary had been directly
13<PAGE>
<PAGE>
owned by Southwestern Life and the distribution of any portion of the
proceeds would require regulatory approval. Efforts continue to evaluate
possible transactions or other actions that would permit SLC to access the
value of BML in excess of acceptable capital requirements. No assurance can
can be given as to (1) whether dividends from SLC's insurance subsidiaries
would receive regulatory approval, (2) whether the aforementioned tax
indemnity will be collected during 1995, or (3) when or if any of the
transactions involving Integrity, Marquette or BML will be completed. Also,
at the present time the Company has not developed its plans for dealing
with the $222 million of indebtedness coming due in late 1996. These
circumstances raise substantial doubt about the parent company's ability to
continue as a going concern, and the interim consolidated financial
statements do not include any adjustments that might result from the
outcome of these developments.
Earlier this year, the Company initiated the development of a plan
to deal with its existing indebtedness and improve its capital structure.
As a result of the efforts of the Company's investment advisor, Donaldson,
Lufkin & Jenrette, to identify financially capable parties interested in
participating in such a plan, certain parties indicated interest in
acquiring one or more of the Company's core subsidiaries rather than
investing in the Company. The expressions of interest received by the
Company would involve the sale of, individually or in combination,
Southwestern Life, Union Bankers, Constitution and all or portions of the
business of BML. The Company intends to (1) consider soliciting additional
expressions of interest, (2) pursue certain of the expressions of interest
and (3) consider alternatives to the sale of one or more of the Company's
core subsidiaries. There can be no assurance as to whether or when an
acceptable sale or other alternative could be effected or whether either
would produce sufficient resources to satisfy all of SLC's existing
indebtedness and other obligations. Additionally, it is likely that any
restructuring plan involving SLC would result in the substantial dilution
of its existing stockholders, especially its common stockholders, and could
possibly result in a change in control of SLC. Also, any transaction would
likely be subject to the satisfaction of a number of conditions outside of
the Company's control, including the approval of the transaction and its
component parts by the insurance departments of several states, and may
require the consent of the Company's creditors and its stockholders.
Finally, the Company has not determined, in the event any acceptable
transaction or strategy is successful, in what manner the available cash
proceeds, if any, would be applied.
If the Company fails to meet any of its 1995 debt obligations, such
failure could result in a default on one or more of such obligations and
the holder thereof would be entitled to exercise certain remedies,
including accelerating the maturity of the entire indebtedness and
commencing legal proceedings to collect the indebtedness. The Company is
examining and considering the range of available alternatives for effecting
a transaction and avoiding the exercise of creditors' remedies.
Investments
At June 30, 1995, SLC reflected unrealized investment gains of
$16,108,000 and at December 31, 1994, reflected unrealized investment
losses of $55,359,000. Following is an analysis of the major components of
such unrealized gains (losses):
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
------------- -------------
(In Thousands)
<S> <C> <C>
Available for sale fixed maturity securities . . . . . . . . . $ 19,871 $ (101,029)
Equity securities . . . . . . . . . . . . . . . . . . . . . . 2,894 1,023
Equity in unrealized gains of limited partnerships . . . . . . 1,900 5,424
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,413 329
------------- -------------
26,078 (94,253)
Less effect on other balance sheet accounts:
Deferred policy acquisition costs . . . . . . . . . . . . . (2,237) 17,831
Unearned revenue reserves . . . . . . . . . . . . . . . . . 941 (8,745)
------------- -------------
Gross unrealized investment gains (losses) . . . . . . . . . . 24,782 (85,167)
Deferred income taxes . . . . . . . . . . . . . . . . . . . . (8,674) 29,808
------------- -------------
Net unrealized investment gains (losses) . . . . . . . . . $ 16,108 $ (55,359)
============= =============
</TABLE>
14<PAGE>
<PAGE>
The difference between amortized cost and fair value of SLC's
available for sale fixed maturity securities improved from an approximate
$101.0 million unrealized loss at year-end 1994 to an approximate $19.9
million unrealized gain at June 30, 1995, or a net change of $120.9
million. The improvement was primarily attributable to declining long-term
interest rates experienced during the period.
Unless determined to be other than temporary, changes in the fair
values of available for sale fixed maturity securities have no effect on
SLC's reported results of operations, but can have a volatile effect on
stockholders' equity and book value per common share, as the carrying
values of available for sale fixed maturity securities are adjusted in
SLC's balance sheet to their fair values at each reporting date through a
charge or credit to stockholders' equity. Following is an analysis of gross
unrealized investment gains and losses on available for sale fixed maturity
securities as of June 30, 1995 and December 31, 1994:
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
------------- -------------
(In Thousands)
<S> <C> <C>
Gross unrealized gains . . . . . . . . . . . . . . . . . . . .$ 46,517 $ 3,222
Gross unrealized losses . . . . . . . . . . . . . . . . . . . (26,646) (104,251)
------------- -------------
Net unrealized gains (losses). . . . . . . . . . . . . . . .$ 19,871 $ (101,029)
============= =============
</TABLE>
The following table sets forth the carrying value and quality for
each of the two categories of fixed maturity securities as of June 30,
1995, 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 ("NAIC"),
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):
<TABLE>
<CAPTION>
Percent
Held to Total Total Percent
Available Maturity at Fixed Fixed of Total
for Sale at Amortized Maturity Maturity Invested
Investment Quality Fair Value Cost Securities Securities Assets
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
AAA . . . . . . . . . . . . . . . . . . . . . . . . $ 613,146 $ 1,405 $ 614,551 39.4% 24.7%
AA . . . . . . . . . . . . . . . . . . . . . . . . 165,212 165,212 10.6 6.7
A . . . . . . . . . . . . . . . . . . . . . . . . 363,757 363,757 23.3 14.6
BBB+ . . . . . . . . . . . . . . . . . . . . . . . . 75,764 75,764 4.8 3.1
BBB . . . . . . . . . . . . . . . . . . . . . . . . 134,566 7,556 142,122 9.1 5.7
BBB- . . . . . . . . . . . . . . . . . . . . . . . . 100,850 100,850 6.5 4.1
------------ --------- ------------ ----- ----
Total investment-grade . . . . . . . . . . . . . . 1,453,295 8,961 1,462,256 93.7 58.9
------------ --------- ------------ ----- ----
BB+ . . . . . . . . . . . . . . . . . . . . . . . . 33,759 33,759 2.2 1.3
BB and BB- . . . . . . . . . . . . . . . . . . . . . 35,105 35,105 2.2 1.4
B and below . . . . . . . . . . . . . . . . . . . . . 22,718 6,344 29,062 1.9 1.2
------------ --------- ------------ ----- ----
Total noninvestment-grade . . . . . . . . . . . . 91,582 6,344 97,926 6.3 3.9
------------ --------- ------------ ----- ----
Total fixed maturities . . . . . . . . . . . . . $ 1,544,877 $ 15,305 $ 1,560,182 100.0% 62.8%
============ ========= ============ ===== ====
--------------------------------------------------------------------------------------------------------------------------
</TABLE>
Fixed maturity securities classified as held to maturity are
principally private placement corporate securities and gross unrealized
losses on such investments totaled $2.6 million as of June 30, 1995.
The amortized cost and fair value of noninvestment-grade fixed
maturity securities totaled $99.7 million and $91.3 million, respectively,
at June 30, 1995.
During the six months ended June 30, 1995, net investment income
increased $62.6 million, or 76%, as compared to the corresponding period in
1994. Net investment income includes 1) earnings on surplus investments and
assets invested to support the reserve liabilities of the Company's
traditional and interest-sensitive life and health insurance products
(general investment portfolio) and 2) investment activity related to
separately held assets supporting a GIC product, the credited rate on which
is indexed to the Standard & Poor's 500 Stocks Composite Average ("S&P
500"). Assets supporting the S&P 500 GIC product include, among other
investments, put and call options on various
15<PAGE>
<PAGE>
equity based index futures, including the S&P 500. The return on such
investments is highly volatile and, under certain market conditions, such
as the overall decline in equity markets experienced in the first six
months of 1994, can result in investment losses, or negative investment
yields. The negative investment yield experienced in the first six months
of 1994 on the assets supporting the indexed GIC product was more than
offset by a reduction in GIC benefits as discussed below under Results of
Operations.
In 1995, the substantial increase in the S&P 500 resulted in a large
increase in investment income that is largely offset by a corresponding
increase in policyholder benefits. Following is a summary of investment
income (loss) for the two categories of investments as described above:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
----------------------- ------------------------
1995 1994 1995 1994
----------- ----------- ----------- -----------
(In Thousands)
<S> <C> <C> <C> <C>
General investment portfolio . . . . . . . . $ 46,221 $ 53,010 $ 91,767 $ 93,543
Investments supporting indexed GIC product . 28,132 1,138 57,885 (6,907)
----------- ----------- ----------- -----------
Gross investment income . . . . . . . . . . 74,353 54,148 149,652 86,636
Less investment expenses . . . . . . . . . . (2,188) (2,151) (5,063) (4,632)
----------- ----------- ----------- -----------
Net investment income . . . . . . . . . . $ 72,165 $ 51,997 $ 144,589 $ 82,004
=========== =========== =========== ===========
</TABLE>
Yields on the general investment portfolio averaged 7.75% for the six
months ended June 30, 1995, as compared to 7.15% for the comparable period
in 1994. The decrease in investment income from the general investment
portfolio for the three months ended June 30, 1995 versus the comparable
1994 period was attributable, in part, to a $3.9 million payment-in-kind
dividend received on the preferred stock of a former affiliate,
Consolidated Fidelity Life Insurance Company (CFLIC) and a $2.0 million fee
received upon the prepayment of certain notes by Financial Benefit Group
during the three months ended June 30, 1994.
Results of Operations
Following is a condensed summary of results by major sources of
income and expense:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ ------------------------
1995 1994 1995 1994
----------- ----------- ----------- -----------
(In Thousands)
<S> <C> <C> <C> <C>
Operating earnings before realized investment gains
(losses), amortization of excess cost, corporate
interest expense and provision for income taxes. $ 4,539 $ 26,830 $ 13,324 $ 35,864
Realized investment gains (losses). . . . . . . . . 2,552 673 4,559 (45,101)
Amortization of excess cost . . . . . . . . . . . . (631) (2,398) (1,263) (4,796)
Corporate interest expense . . . . . . . . . . . . (11,375) (12,664) (22,750) (25,109)
Income tax (expense) benefit. . . . . . . . . . . . (4,595) (7,703) (5,695) 4,511
----------- ----------- ----------- -----------
Net earnings (loss) . . . . . . . . . . . . . . . . $ (9,510) $ 4,738 $ (11,825) $ (34,631)
=========== =========== =========== ===========
</TABLE>
For the six months ended June 30, 1995, premium income and other
considerations decreased $39.7 million, or 17%, as compared to the
corresponding period in 1994. Following is a summary of premiums by major
line of business for each of the respective periods:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ ------------------------
1995 1994 1995 1994
----------- ----------- ----------- -----------
(In Thousands)
<S> <C> <C> <C> <C>
Individual life and annuity . . . . . . $ 34,026 $ 31,548 $ 62,859 $ 61,519
Individual health . . . . . . . . . . . 51,821 54,316 104,613 108,610
Group . . . . . . . . . . . . . . . . . 10,059 27,267 22,555 59,576
----------- ----------- ----------- -----------
$ 95,906 $ 113,131 $ 190,027 $ 229,705
=========== =========== =========== ===========
</TABLE>
16<PAGE>
<PAGE>
Following is a summary of policyholder benefits by major business
segment:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ ------------------------
1995 1994 1995 1994
----------- ----------- ----------- -----------
(In Thousands)
<S> <C> <C> <C> <C>
Individual life and annuity . . . . . . $ 41,608 $ 40,210 $ 75,474 $ 76,964
Individual health . . . . . . . . . . . 39,930 35,925 82,847 75,595
Accumulation products . . . . . . . . . 35,652 5,388 69,726 (1,068)
Group . . . . . . . . . . . . . . . . . 6,062 18,061 13,302 38,778
----------- ----------- ----------- -----------
$ 123,252 $ 99,584 $ 241,349 $ 190,269
=========== =========== =========== ===========
</TABLE>
Group premium income and related group benefits declined
significantly between the two periods primarily as a result of management's
decision in late 1993 to de-emphasize sales of new group business. As
previously discussed under "--Investments," the assets supporting a GIC
product indexed to the S&P 500 produced negative investment yields, i.e.,
investment losses, in the first six months of 1994. As reflected in the
preceding table, benefits attributed to the accumulation products segment
were correspondingly reduced and resulted in negative benefit expense.
Analysis of Operating Results by Industry Segment
The following table sets forth revenues and pretax operating earnings
attributed or allocated to each industry segment. "Pretax operating
earnings (loss)" reflected in the table represents SLC's consolidated
operating earnings or loss before realized investment gains or losses,
interest expense, amortization of excess cost, and provision for income
taxes.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
----------------------- ------------------------
1995 1994 1995 1994
----------- ----------- ----------- -----------
(In Thousands)
<S> <C> <C> <C> <C>
Revenues:
Individual life insurance:
Retained . . . . . . . . . . . . . . . . . . . $ 48,214 $ 52,598 $ 94,598 $ 93,589
Business to be divested (1). . . . . . . . . . 15,849 9,655 26,281 20,985
----------- ----------- ----------- -----------
Total . . . . . . . . . . . . . . . . . . . 64,063 62,253 120,879 114,574
Individual health insurance . . . . . . . . . . 54,576 57,533 109,929 114,286
Accumulation products . . . . . . . . . . . . . 36,511 10,733 73,963 10,242
Group life and health . . . . . . . . . . . . . 12,295 32,193 27,240 67,770
Corporate . . . . . . . . . . . . . . . . . . . 5,547 11,673 10,498 17,005
Realized investment gains (losses) . . . . . . . 2,552 673 4,559 (45,101)
----------- ----------- ----------- -----------
$ 175,544 $ 175,058 $ 347,068 $ 278,776
Operating earnings (loss): =========== =========== =========== ===========
Individual life insurance:
Retained . . . . . . . . . . . . . . . . . . . $ 7,401 $ 7,895 $ 15,531 $ 6,949
Business to be divested (1). . . . . . . . . . 1,307 1,563 1,660 2,334
----------- ----------- ----------- -----------
Total . . . . . . . . . . . . . . . . . . . 8,708 9,458 17,191 9,283
Individual health insurance . . . . . . . . . . (585) 5,859 (3,884) 7,585
Accumulation products . . . . . . . . . . . . . (2,235) 1,425 (1,559) 5,280
Group life and health . . . . . . . . . . . . . 163 (1,197) (1,376) (640)
Corporate . . . . . . . . . . . . . . . . . . . (1,512) 11,285 2,952 14,356
----------- ----------- ----------- -----------
Total pretax earnings before realized invest-
ment gains (losses), amortization of excess
cost and interest expense. . . . . . . . . $ 4,539 $ 26,830 $ 13,324 $ 35,864
=========== =========== =========== ===========
</TABLE>
____________________
(1) Represents business to be divested in connection with the sale of
Bankers New York and the proposed sale of Integrity National.
17<PAGE>
<PAGE>
The following table sets forth new business sales (annualized first year
premiums) attributed or allocated to each industry segment:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ ------------------------
1995 1994 1995 1994
----------- ----------- ----------- -----------
(In Thousands)
<S> <C> <C> <C> <C>
Individual life insurance:
Retained business . . . . . . . . . . $ 2,622 $ 3,222 $ 5,488 $ 5,555
Business to be divested (1). . . . . . 9,090 2,363 13,119 6,229
----------- ----------- ----------- -----------
Total . . . . . . . . . . . . . . . 11,712 5,585 18,607 11,784
Individual health insurance . . . . . . 10,150 12,356 21,016 27,427
Accumulation products . . . . . . . . . 8,352 15,399 22,750 31,233
Group life and health . . . . . . . . . 210 2,566 506 6,669
----------- ----------- ----------- -----------
$ 30,424 $ 35,906 $ 62,879 $ 77,113
=========== =========== =========== ===========
</TABLE>
____________________
(1) Represents business expected to be divested in connection with
the sale of Bankers New York and the proposed sale of
Integrity National. Included in the individual life insurance
business being divested is annuity production of Bankers New
York totaling $10.2 million and $4.0 million for the six
months ended June 30, 1995 and 1994, respectively, and $7.6
million and $1.2 million for the three months ended June 30,
1995 and 1994, respectively.
Individual Life Insurance. Revenues of the individual life insurance
segment increased from $114.6 million for the six months ended June 30,
1994, to $120.9 million for the same period in 1995, primarily as a result
of a $2.8 million increase in investment income. Sales of new life
insurance products totaled $18.6 million in the first six months of 1995, a
58% improvement over the corresponding period in 1994. Notwithstanding the
improvement in sales, premium income for the individual life insurance
segment increased only from $61.5 million in the first six months of 1994
to $62.9 million in the first six months of 1995, primarily reflecting the
effects of an increase in lapses and surrenders of traditional life
insurance policies. SLC's subsidiaries 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.
Pretax operating results of the individual life insurance segment
improved from a gain of $9.3 million in the first six months of 1994 to a
gain of $17.2 million in the corresponding period in 1995, primarily as a
result of the increase in investment income discussed above and an
improvement in mortality experience. Individual life insurance death
benefits, which can vary significantly from quarter to quarter, totaled
$33.7 million in the first six months of 1994, as compared to $29.7 million
in the corresponding period in 1995.
Individual Health Insurance. Revenues of the individual health
insurance segment totaled $109.9 million in the first six months of 1995,
as compared to $114.3 in the corresponding 1994 period, primarily
reflecting a decline in individual health premium income totaling $4.0
million, or 3.7%. Sales of new health insurance products totaled $21.0
million in the first six months of 1995, as compared to $27.4 million in
the same 1994 period, or a 23% decline in new sales. Substantially all of
the decline was attributable to sales of comprehensive health products.
The individual health insurance segment incurred a $3.9 million
pretax operating loss in the first six months of 1995, as compared to
pretax operating earnings of $7.6 million in the same 1994 period.
Substantially all of the decline in pretax operating earnings was
attributable to an increase in benefits incurred. Individual health
benefits totaled $82.8 million in the first six months of 1995, as compared
to $75.6 million in the corresponding 1994 period. The ratio of policy
benefits to premiums earned increased from 69.6% in the first six months of
1994 to 79.2% in the first six months of 1995, primarily reflecting a
deficiency in the premiums charged for the Company's Medicare supplement
line of business and increased claims on a closed block of comprehensive
health business. The Company has sought approval for substantial rate
increases relative to its Medicare supplement business and has begun
implementing such increases in the states in which it has obtained
approvals. Due to delays in receiving approvals and the subsequent
implementation of such rate increases, there was no significant effect
realized in the 1995 first quarter, when losses in the individual health
segment for the three months ended March 31, 1995 were $3.3 million. The
loss in this segment declined to $0.6 million for the three months ended
June 30, 1995 as some of the rate increases were implemented. The effects
of remaining rate increases are expected to be realized in subsequent
quarters.
18<PAGE>
<PAGE>
Accumulation Products. Revenues of the accumulation products segment
increased significantly, from $10.2 million in the first six months of 1994
to $74.0 million in the 1995 period. Substantially all of the improvement
in this segment's revenues were attributable to the $64.8 million increase
in investment income between the two periods on the investments supporting
an indexed GIC product, as previously discussed under "--Investments."
Sales of annuities in the first six months of 1995 totaled $22.7 million,
as compared to $31.2 million in the first six months of 1994.
Pretax operating earnings of the accumulation products segment
declined from $5.3 million in the first six months of 1994 to a $1.6
million loss in the same 1995 period. The decline in such operating
earnings was primarily attributable to a decline in the profitability of
the previously discussed indexed GIC product. A single indexed GIC, with an
account balance of $292.0 million, matured on June 30, 1995, and a remaining
indexed GIC, with an account balance of $50.7 million, is scheduled to
mature in August 1995. Management does not anticipate that such GICs will
be renewed, and, accordingly, the process of liquidating the long-term
assets supporting the indexed GIC product began during the 1995 first
quarter. Proceeds from such liquidations have been held in lower-yielding
short-term investments during the intervening period, the yields on which
have been insufficient to cover the interest required to be credited to
such GICs.
Group Insurance. Sales of new group insurance products declined
significantly during 1994 and the decline has continued into 1995. In the
first six months of 1995, sales totaled $0.5 million, as compared to $6.7
million in the corresponding 1994 period. The decline in sales was based on
management's decision to de-emphasize growth in the group insurance segment
due to losses incurred in 1993 and 1994 by the Company's primary group
insurance company, PALICO. Revenues of the group segment have
correspondingly declined from $67.1 million in the first six months of 1994
to $27.2 million in the 1995 period as PALICO has terminated unprofitable
business.
Pretax operating results of the group segment declined from a loss of
$0.6 million in the first six months of 1994 to a loss of $1.4 million in
the first six months of 1995. The ratio of group benefits incurred to
premiums earned declined from 65.1% in the 1994 period to 59.0% in the 1995
period. However, expenses of the group segment, including operating
expenses, loss adjustment expenses, commissions and premium taxes, as a
percentage of earned premiums has increased from approximately 49.7% in the
first six months of 1994 to 67.9% in the corresponding 1995 period. The
higher expense ratio reflects, in part, costs associated with closing down
and consolidating certain of PALICO's claims paying offices and
administrative services only operations.
Corporate. Corporate revenues, primarily investment income of the
parent company and earnings on surplus investments, declined from $17.0
million in the first six months of 1994 to $10.5 million in the
corresponding 1995 period. In the second quarter of 1994, the Company
recorded a pretax gain of approximately $8.7 million as a result of the
termination of certain reinsurance arrangements and other transactions with
CFLIC.
Realized Investment Gains (Losses). Realized investment gains totaled
$4.6 million in the first six months of 1995, as compared to realized
investment losses totaling $45.1 million in the same period of 1994. Of the
1995 gains, $2.8 million represented gains on the liquidation of two
limited partnership interests. The realized losses in 1994 were
substantially all attributable to $46.4 million of other than temporary
writedowns of the Company's investments in two derivative CMOs, which were
discussed in detail in SLC's 1994 Annual Report to Stockholders. See Note 6
of Notes to Consolidated Financial Statements included elsewhere in this
Report on Form 10-Q for a comparative analysis of realized investment gains
(losses).
Amortization of Excess Cost (Goodwill). As reported at year-end 1994,
the Company adopted an accounting change relative to its methodology for
assessing the recoverability of goodwill. As a result of such accounting
change, the Company reflected a charge to earnings totaling $210.7 million
and reduced the balance of remaining goodwill by a corresponding amount. In
addition, the Company reflected a writedown of other goodwill totaling $6.8
million. Accordingly, the charge to earnings for the amortization of excess
cost was reduced approximately $3.5 million in the first six months of 1995
compared with the comparable 1994 period.
Interest Expense and Preferred Dividend Requirements. Interest
expense in the first six months of 1995 totaled $22.8 million, as compared
to $25.1 million in the corresponding 1994 period. The decline was
primarily attributable to the $18.2 million reduction in long-term notes
payable between the periods. Preferred dividends totaled $7.8 million in
the first six months of 1994. As previously discussed under "--Liquidity
and Capital Resources of the
19<PAGE>
<PAGE>
Parent Company," SLC's Board of Directors has suspended the payment of
dividends on the Company's 1986-A Preferred Stock. Accordingly, there are
no preferred dividends reflected in the Company's Consolidated Statement of
Earnings (Loss) for the six months ended June 30, 1995. However, because
such preferred dividends are cumulative, the suspended dividends have been
taken into consideration in the calculation of net loss per common share.
See Note 1 of Notes to Consolidated Financial Statements.
Income Tax Provisions and Deferred Income Tax Asset. The income tax
expense for the six months ended June 30, 1995, totaled $5.7 million on a
reported pretax loss of $6.1 million. This unusual relationship resulted
from a $7.4 million increase in the deferred income tax asset valuation
allowance based on management's assessment of SLC's ability to utilize its
available tax loss carryforwards. For the comparable period in 1994, the
Company reflected an income tax benefit totaling $4.5 million on a pretax
loss of $39.1 million, or an effective income tax rate of 11.5%. The
effective rate was lower than the expected rate due to the amortization of
excess cost for which there are no income tax consequences and a $5.0
million increase in the deferred income tax asset valuation allowance. See
Note 4 of Notes to Consolidated Financial Statements for an analysis of the
various factors affecting the Company's income tax provisions.
The Company's deferred income tax asset was reduced from $84.9
million at year-end 1994 to $42.3 million at June 30, 1995, primarily as a
result of a $38.5 million reduction in deferred tax effects related to the
change in pretax unrealized investment gains (losses), as previously
discussed under "--Investments" and a $7.4 million increase in the deferred
income tax asset valuation allowance.
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.
20<PAGE>
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
Reference is made to Item 3 of Part I of the Annual Report on Form
10-K of the Registrant for the year ended December 31, 1994, in which the
material legal proceedings affecting the Registrant were reported. The
following is a description of recent developments in such reported
proceedings:
1. William D. Castle, et al v. Modern American Life Insurance
Company, et al, Case No. CV-93-10275, (the "Castle" case) and Robert
J. Meyer, et al, v. Jay Angoff, Director of the Missouri Department
of Insurance and Modern American Life Insurance Company, Case No. CV-
193-1331-CC, (the "Meyer" case): On July 28, 1995, the parties agreed
in principle to settle both of these cases by a cash payment by
Modern American in the amount of $4.0 million and the issuance of an
unsecured promissory note by the Company in the amount of $3.0
million, bearing interest at the prime rate, payable in one
installment in December 1997. The Meyer case will be dismissed with
prejudice upon payment of the $4.0 million cash portion of the
settlement. The settlement is subject to the execution of a
definitive settlement agreement by the parties and approval of
the settlement by the Jackson County, Missouri Circuit Court.
2. Mutual Security Life Insurance Company, by Its Liquidator,
John F. Mortell v. James M. Fail, Emily S. Fail, Jack A. Gochenaur,
Alvin R. Townsend, Sr., Janice T. Townsend, Charles D. Casper, Harry
T. Carneal, Clifford G. Smith, Katheryn F. Smith, Thomas K.
Pennington, Michael Boedeker, Melvin R. Schock, Lifeshares Group,
Inc., LSC-Marketing, Inc., Lifeshares Services Company, Michael S.
Lang, Lang Associates, Inc., Beta Financial Corporation, The Oklahoma
Bank, Robert T. Shaw, Consolidated National Corporation, I.C.H.
Corporation, Bankers Life and Casualty Company, Marquette National
Life Insurance Company, Robert L. Beisenherz, Marilyn Beisenherz,
Theodore L. Kessner, and Crosby, Guenzel, Davis, Kessner & Kuester,
United States District for the Southern District of Indiana,
Indianapolis Division, Case No. IP94-0001-C-M/S (the "Mutual
Security" case). On April 20, 1995, the United States District Court
for the Southern District of Indiana granted defendants' Motion for
Summary Judgment regarding plaintiff's allegations in its Second
Amended Complaint of violations of the Racketeer Influenced & Corrupt
Organization Act ("RICO"), 18 U.S.C. Section 1961 et seq. The Company
believes it has meritorious defenses to the Mutual Security case and
the related second suit currently also pending in the United States
District Court in the Southern District of Indiana, Case No. IP94-
1934-C-M/S, and intends to defend each suit vigorously.
3. Charles Opitz, et al v. Robert L. Beisenherz, et al, Civil
Action No. 3:95-CV-0516-G, United States District Court for the
Northern District of Texas, Dallas Division. The Opitz Plaintiffs
originally sued Southwestern Life and the individual Defendants. On
June 12, 1995, Southwestern Life and the individual Defendants moved
to dismiss Plaintiffs' Complaint. Thereafter, on July 3, 1995, the
Opitz Plaintiffs filed their First Amended Class Action Complaint
("Amended Complaint") naming SLC, Robert Beisenherz, C. Fred Rice,
and James R. Kerber as Defendants. On July 6, 1995, the Court
dismissed Southwestern Life and the late Charles Duncan from the Opitz
case. On that same date, the Court stayed any further action on
Defendants' Motion to Dismiss. In addition, pursuant to an Order
entered July 28, 1995, the Court has permitted SLC and the individual
Defendants to withhold responding and moving to dismiss the Opitz
Amended Complaint until the consolidation issue (described below) is
resolved.
4. David Golde, et al v. Daniel B. Gail, et al, Civil Action
No. 3:95-CV-0626-G, United States District Court for the Northern
District of Texas, Dallas Division. SLC and the individual Defendants
moved to dismiss the Golde Class Action and Shareholder Derivative
Complaint on June 12, 1995. On July 6, 1995, the Court stayed any
further action on Defendants' Motion to Dismiss, including the filing
of any response by the Golde Plaintiffs.
5. Michael Sheniak, et al v. Southwestern Life Corporation, et
al, Civil Action No. 3:95-CV-0627-G, United States District Court for
the Northern District of Texas, Dallas Division. SLC and the
individual Defendants moved to dismiss the Sheniak Class Action
Complaint on June 12, 1995. On July 6, 1995, the Court stayed any
further action on Defendants' Motion to Dismiss, including the filing
of any response by the Sheniak Plaintiffs.
21<PAGE>
<PAGE>
6. Marion Antonicello v. Robert L Beisenherz, et al, Civil
Action No. 3:95-CV-0696-G, United States District Court for the
Northern District of Texas, Dallas Division. SLC and the individual
Defendants moved to dismiss the Antonicello Class Action Complaint on
June 12, 1995. On June 20, 1995, the Court on its own motion denied
Defendants' Motion to Dismiss on procedural grounds. On June 30,
1995, SLC and the individual Defendants moved for reconsideration.
The Antonicello Plaintiff has not yet responded to the Defendants'
Motion for Reconsideration, nor has the Court ruled on that Motion at
this time.
Each of the cases numbered 3 through 6 above are now pending in the
same Court in the Northern District of Texas. On July 20, 1995, all
Plaintiffs in each of the lawsuits jointly moved to consolidate these four
lawsuits into one action and proposed the entry of a Pretrial Order. The
Plaintiffs have further signaled their intention to file an "Amended
Consolidated Complaint," if the Court grants their consolidation motion.
SLC and the individual Defendants are at this time opposed to consolidation
and to the filing of any so-called Consolidated Amended Complaint. On
July 27, 1995, all Defendants moved for a Protective Order to Stay
Discovery in each lawsuit until such time as the Court resolves issues
relating to the Defendants' respective Motions to Dismiss. Plaintiffs are
opposed to such a stay of discovery and the Court has not yet ruled on
Defendants' request. In addition, no activity relating to class
certification is occurring in any of the lawsuits. All of the Defendants
deny all of the allegations, believe they have meritorious defenses to all
of the claims and intend to defend each of the foregoing cases vigorously.
7. IRS Proceedings. The terms of the settlement with the IRS
relative to the Notices of Proposed Deficiencies for the tax year
1986 through 1989 have been finalized, and the Company's insurance
subsidiaries have agreed to pay additional income taxes and interest
totaling $63.9 million. See Note 5 of Notes to Consolidated Financial
Statements included elsewhere in this Report on Form 10-Q.
The Company has no developments to report for the quarter ended June
30, 1995 in any other previously reported legal proceeding.
Item 3. Defaults Upon Senior Securities.
(b) The payment of dividends on the Company's $1.75 Convertible
Exchangeable Preferred Stock, Series 1986-A, has been
suspended. As of the date of filing of this Report on Form 10-
Q, the total amount of arrearage is $7,000,000.
Item 6. Exhibits and Reports on Form 8-K.
(a) The exhibits listed on the Index to Exhibits appearing on page
24 are filed herewith.
(b) During the quarter ended June 30, 1995, SLC did not file any
Reports on Form 8-K.
22<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.
SOUTHWESTERN LIFE CORPORATION
By:/s/Glenn H. Gettier, Jr.
------------------------
Glenn H. Gettier, Jr.
Chairman of the Board and
Chief Executive Officer
By:/s/John T. Hull
-------------------------
John T. Hull
Executive Vice President,
Chief Financial Officer and
Treasurer
Date: August 14, 1995
23<PAGE>
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Description Sequential
No. Page No.
------- --------------------------------------------------------- ----------
<C> <S> <C>
11.1 Computation of Earnings (Loss) Per Share of Common Stock
on Average Shares Outstanding and Fully Diluted Bases for
the Three Months and Six Months Ended June 30, 1995 and
1994 . . . . . . . . . . . . . . . . . . . . . . . . . 25
27 Financial Data Schedule . . . . . . . . . . . . . . . . 26
</TABLE>
24<PAGE>
<PAGE>
EXHIBIT 11.1
SOUTHWESTERN LIFE CORPORATION
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 Six Months Ended
June 30, June 30,
---------------------------- ----------------------------
1995 1994 1995 1994
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Computation for statements of earnings (loss):
Net earnings (loss) . . . . . . . . . . . . $ (9,510) $ 4,738 $ (11,825) $ (34,631)
Less dividends on preferred stock (A) . . . . (3,500) (3,500) (7,000) (7,825)
------------- ------------- ------------- -------------
Net earnings (loss) applicable to common stock $ (13,010) $ 1,238 $ (18,825) $ (42,456)
============= ============= ============= =============
Weighted average common shares outstanding. . 47,126,870 47,829,460 47,169,454 47,853,939
============= ============= ============= =============
Net earnings (loss) per common share . . . . $ (.28) $ .03 $ (.40) $ (.89)
============= ============= ============= =============
Additional computations (B):
Weighted average common shares outstanding. . 47,126,870 47,829,460 47,169,454 47,853,939
Incremental common shares applicable to common
stock options based on the common stock daily
average market price during the period . . 528,046 688,831
------------- ------------- ------------- -------------
Weighted average common shares, as adjusted . 47,126,870 48,357,506 47,169,454 48,542,770
============= ============= ============= =============
Weighted average common shares outstanding . 47,126,870 47,829,460 47,169,454 47,853,939
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 . . . . . . 528,046 689,018
Assumed conversion of convertible preferred
shares . . . . . . . . . . . . . . . . . . 6,153,755 6,153,755 6,153,755 6,153,755
Weighted average common shares, assuming ------------- ------------- ------------- -------------
full dilution . . . . . . . . . . . . . . 53,280,625 54,511,261 53,323,209 54,696,712
Net earnings (loss) applicable to common stock ============= ============= ============= =============
assuming conversion of convertible preferred
stock . . . . . . . . . . . . . . . . . . $ (9,510) $ 4,738 $ (11,825) $ (34,631)
============= ============= ============= =============
Earnings (loss) per common share:
Average shares outstanding . . . . . . . . $ (.28) $ .03 $ (.40) $ (.87)
============= ============= ============= =============
Fully diluted assuming conversion of all
applicable securities (C). . . . . . . . . $ (.18) $ .09 $ (.22) $ (.63)
============= ============= ============= =============
</TABLE>
____________________
(A) For the three months and six months ended June 30, 1994, represents
preferred dividends actually paid. For the three and six months ended,
June 30, 1995, represents aggregate undeclared and unpaid cumulative
preferred dividends applicable to such period.
(B) 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.
(C) Fully diluted earnings in 1994 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.
<TABLE> <S> <C>
<ARTICLE> 7
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<DEBT-HELD-FOR-SALE> 1,544,877
<DEBT-CARRYING-VALUE> 15,305
<DEBT-MARKET-VALUE> 12,683
<EQUITIES> 9,645
<MORTGAGE> 118,075
<REAL-ESTATE> 53,398
<TOTAL-INVEST> 2,483,587
<CASH> 474,011
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 255,490
<TOTAL-ASSETS> 3,176,225
<POLICY-LOSSES> 2,569,468
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 369,343
<COMMON> 48,841
0
199,997
<OTHER-SE> (153,664)
<TOTAL-LIABILITY-AND-EQUITY> 3,176,225
190,027
<INVESTMENT-INCOME> 144,589
<INVESTMENT-GAINS> 4,559
<OTHER-INCOME> 7,893
<BENEFITS> 241,349
<UNDERWRITING-AMORTIZATION> 28,936
<UNDERWRITING-OTHER> 58,900
<INCOME-PRETAX> (6,130)
<INCOME-TAX> (5,695)
<INCOME-CONTINUING> (11,825)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (11,825)
<EPS-PRIMARY> (.40)
<EPS-DILUTED> (.40)
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
