<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(X) Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended DECEMBER 31, 1994
or
( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from __________________ to ________________________
Commission File No. 0-1984
INSURANCE INVESTORS & HOLDING CO.
(Exact name of registrant as specified in its charter)
ILLINOIS 37-0858627
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2512 North Knoxville Avenue, Peoria, Illinois 61604-3622
(Address of principal executive offices) (Zip Code)
309-685-7661
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Class A, Common stock, $1 par value
(Title of class)
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 by check mark if disclosure of delinquent filers pursuant to item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. /X/
As of the close of the period covered by this report, the number of shares
outstanding of the registrant's Class A, Common Stock was 807,649 and
registrant's Class B, Common Stock was 472,423.
<PAGE> 2
INSURANCE INVESTORS & HOLDING CO.
PART I
ITEM 1. BUSINESS
(a) General development of business. The Registrant, incorporated in
1963, is a holding company managing and operating a life insurance company,
Central Investors Life Insurance Company of Illinois ("Central") and a general
insurance agency, C I Agency, Inc. ("CI"). Substantially all business is
conducted through the Registrant's two subsidiaries and these two subsidiaries
represent the major assets of the Registrant as follows:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
Original % of voting
invested No. of securities
Description cost shares owned
----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Central Investors Life Insurance Company
of Illinois:
Common Stock $1,386,338 604,475 93.0%
C I Agency, Inc.:
Common Stock $ 50,000 50,000 100.0%
----------------------------------------------------------------------------------------------
</TABLE>
On November 28, 1994, Registrant and Central signed a definitive
written agreement with Citizens, Inc., a Colorado life insurance holding
company based in Austin, Texas for the acquisition of all of the stock of
Registrant and Central by Citizens, Inc. The agreement provides that
shareholders of Registrant will receive one (1) share of Citizens, Inc. Class A
common stock for each eight (8) shares of the Registrant's Class A or B stock
owned. Shareholders of Central other than the Parent will receive one (1)
share of Citizens, Inc. Class A Common Stock for each four (4) shares of
Central stock owned. The companies will continue to operate in their
respective locations under a combined management team with the consolidation of
computer data processing on Citizens, Inc.'s system. The agreement is subject
to the approval of regulatory authorities and stockholders of the Registrant
and Central. On March 10, 1995, the Illinois Department of Insurance indicated
that the companies could proceed with the merger and Citizens, Inc.'s
acquisition of control of Central.
Other than interest and dividend income from general investments, the
Registrant has no source of revenue or income independent from its
subsidiaries; therefore, it must rely primarily upon its operating subsidiaries
for dividends. The Registrant's subsidiary, C I, has paid to the Registrant
seven dividends totaling $90,000 since 1973. The Registrant's subsidiary,
Central, has not paid dividends to stockholders to date.
The Registrant and its subsidiaries as of December 31, 1994 had in
their employment one computer programmer, two data processing and accounting
personnel and one part-time and one full-time salaried officers. In addition,
four commission agents were licensed for life insurance sales. These agents
serviced existing business, but were restricted from writing new business in
1994 because of Central's lack of approved policies and a coinsurance or
reinsurance contract for new business. Central continued to be licensed in
Illinois, Indiana, Oklahoma and Arizona during the year.
2
<PAGE> 3
The Illinois Legislature passed new Statutory Standard Nonforfeiture
and Standard Valuation Laws which took effect January 1, 1989. Since that
date, Central has lacked the funds to file any policy revisions with Illinois
and does not have any policies currently approved for sale. Between 1974 and
1987, Central's yearly volume of new business primarily came from two policy
plans, Modified Whole Life (MWL) and Decreasing Term Life to Age 100 (DTL).
Each individual risk insured under either of these two plans was regularly in
excess of Central's own risk retention. The excess retention was coinsured
with Life Reassurance Corporation (then General Reassurance Co.). Life
Reassurance notified Central that it would not coinsure new risk on these plans
after February 28, 1987. To date, the efforts to secure another satisfactory
coinsurance or reinsurance contract for theses two plans have been delayed by
Central's inability to finance the completion of the required policy revisions.
Central's inquiries into a new contract were further hampered by a
decline in sales of MWL and DTL plans which had started before the cancellation
of the contract. Market conditions were changing and independent agents who
had been selling these plans were increasingly shifting their business to
interest sensitive plans offered by the large brokerage companies. In
inquiries with different coinsurance and reinsurance companies, problems arose
over commission allowances, which would have made the plans less attractive to
agents, and expenses involved in additional revisions to allow male or female,
smoker or nonsmoker classifications. The expense of these policy revisions was
compounded because two different sets of numerical factors must be actuarially
developed for each plan in order to meet the differences in Federal and State
reporting requirements.
The development of interest sensitive plans was considered, but so
far Central has found sales proposals and administrative programs required for
interest sensitive plans to be in a price range which would not allow Central a
reasonable expectation of profit on projected sales. Recent declines in
interest rates on investment grade securities have increased the pricing
problem. Initial indications of the cost of interest sensitive plans in 1987
resulted in changing the decision to discontinue the MWL and DTL plans. During
1988, $11,000 was spent with an actuarial firm for the first set of numerical
factors. In 1989, there was limited programming done on Central's computer to
enable it to print revised DTL policy forms, but increased death claim expenses
and general expenses in 1988 and 1989 reduced funds available for revision
expenditures. Death claim expenses and general expenses were lower in 1990 and
1991, but during these years concern about the possibility of high death claim
expenses and the increased regulatory capital and surplus requirements
precluded expenditures for further policy revisions. In 1992, a record high
amount of death claim expenses did occur and no funds were available for policy
revisions. Death claims were lower in 1993 and 1994, but declining premium and
investment income plus increased regulatory requirements did not permit
expenditures for policy or market development.
A 1993 change in the Illinois statutory deposit law requires the
Company to maintain a trust deposit of U.S. Government obligations with a
market value of $1,200,000. This change required the Company to increase its
U.S. Government investments by $900,000 in late 1993, a time of very low
interest yields which negatively affected investment income by approximately
$25,000 to $30,000 from late 1993 to late 1994. The market value requirement
and the Company's small asset base made it necessary to choose short term U. S.
Governments to insure less market price volatility, further penalizing yields.
3
<PAGE> 4
Central's statement prepared under statutory accounting practices for
state insurance departments reported a loss of $13,337 in 1994 compared to a
loss of $12,520 in 1993. A lack of new sales and policy terminations resulted
in a premium income decrease of $5,999. Net investment income was down
$16,455, as a result of Central being required to purchase $900,000 of short
term U. S. Treasury Notes during a period of low interest rates in late 1993.
Several of these notes matured and were reinvested during a period of rising
interest rates in late 1994. Further decline in investment income is not
expected if starting 1995 interest rates do not decline. As a result of a
1992 regulation requiring an interest maintenance reserve liability account
(IMR), Central's statutory realized capital gain of $1,081 was reduced to $-0-
with the $1,081 to the IMR account, compared to a recognized gain of $18,670 in
1993. The regulation further provided a formula for the yearly amortization
of a portion of the IMR. In 1994, $3,288 was treated as income from the IMR.
The significant statutory expense changes occurring in 1994, were increases of
$27,877 in reserve expense, $1,693 in loading cost and $472 in death claims.
The full impact of these changes was reduced by reductions of $25,719 in cash
surrender benefits paid, $4,422 in commission expenses less co-insurance
allowances, $36,255 in general insurance expenses and $679 in insurance taxes,
licenses and fees. Dividends and annual endowment expense declined by $2,436.
Since the Company is not selling policies with annual endowments or dividends,
these policy benefits decrease from time to time at a rate determined by cash
surrenders. In 1994, the Registrant's, and its subsidiary, CI Agency, Inc.'s,
expense charges to Central were increased for salaries by $23,000 and for legal
fees by $1,376, and reduced for rent by $1,200 from 1993's allocations.
Additional allowances were made for accounting fees. Converted to Generally
Accepted Accounting Principles (GAAP), Central's 1994 results reflected a loss
of $25,698 compared to a gain of $1,736 in 1993. The major changes in GAAP
from 1993 to 1994, involved a decrease of $16,050 in premium income, $16,455 in
investment income, $35,018 in capital gains and an increase of $30,696 in
policyholder reserves for future benefits. The impact of these changes was
offset partially by decreases of $36,255 in general expenses and $25,719 in
cash surrenders and $8,083 in commission expense.
Central's general expenses are high in relation to its size because
of varied government reporting requirements. From inception in 1965, Central
has been required to report to State Insurance Departments in accordance with
Statutory Accounting Practices. In 1973, the Securities and Exchange
Commission started requiring reports prepared in accordance with Generally
Accepted Accounting Principles (GAAP). Each complex system of accounting
represents a significant expense to Central, but GAAP expenses are more readily
identified since they were added last. GAAP accounting and quarterly reporting
expenses were estimated at $34,150 for 1994, compared to $31,050 in 1993. The
1994 expenditure for GAAP accounting represents approximately 21.2% of Central's
general insurance expenses of $154,106 before inter-company allocations in 1994.
On a consolidated basis with Central and C I, the Registrant's net
loss for 1994 was $125,831 compared to a net loss of $79,465 in 1993 and
$103,151 in 1992. Total revenues for 1994 decreased $55,885 as GAAP premium
income decreased $16,050, investment income decreased $16,566 and realized
investment gain decreased $23,269. Policy benefit expenses decreased $25,270,
as cash surrenders decreased by $25,719 and death claims slightly increased by
$472. The benefit expenses for annual endowments and dividends were down
$2,413 as the block of policies containing these benefits continued to decline.
Future life policy benefits increased $30,696 with decreases in cash surrenders
and lapses. The overall policy termination ratio improved to 4.9% in 1994 from
18.4% in 1993. The lower rate of policy terminations also reduced the
amortization of deferred acquisition cost by $6,185 and deferred premiums by
$720.
4
<PAGE> 5
In 1986, the decision was made to have the Registrant's GAAP
statements follow Central's statutory accounting practice of not recognizing
any agents debit balances as an asset and $49,329 was charged off as an
expense. During 1994, recovery of this charge-off, from renewal commissions,
was $1,309 making a total recovery to date of $15,592. The amount of recovery
is down in 1994 as was expected and will remain so for 1995. The decrease of
general insurance expenses of $13,733 was primarily distributed among the
accounts for legal fees, group insurance and printing. Actuarial fees rose as
regulatory certification requirements increased. Loan expense increased $5,489
from additional loans made in 1994 and 1993. Taxes, licenses and fees
decreased by $730, as assessments by State guarantee funds were lower.
(b) Financial information about industry segments, and
(c) Narrative description of business, and
(d) Financial information about foreign and domestic operations and
export sales.
The Registrant and its subsidiaries are in the life insurance
industry, writing ordinary life insurance policies for individuals. All
policies are sold within the United States and no one policyholder or agent
accounts for more than 10% of premium revenues.
The following tables in this section reflect information as to the
life insurance business of Central. The presentation of the Registrant's
consolidated operations and admitted assets is according to generally accepted
accounting principles.
<TABLE>
<CAPTION>
AS OF DECEMBER 31: 1994 1993 1992 1991 1990
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
New business (face amount)
paid:
Ordinary - whole life $ -- -- -- -- --
Ordinary - term life -- -- -- -- --
-------------------------------------------------------------------
Total $ -- -- -- -- --
===================================================================
Life insurance in force:
Ordinary - whole life $3,154,472 3,346,971 4,276,205 5,348,561 6,102,650
Ordinary - term life 2,861,870 3,038,751 3,468,531 4,032,557 4,309,426
-------------------------------------------------------------------
Total $6,016,342 6,385,722 7,744,736 9,381,118 10,412,076
===================================================================
Policy lapse (termination)
ratio 4.9% 18.4% 17.3% 9.9% 19.6%
===================================================================
Premium income:
First year $ -- -- -- -- 215
Single 6,801 9,734 7,260 6,486 7,381
Renewal 46,780 59,897 65,527 71,089 80,581
-------------------------------------------------------------------
Total $ 53,581 69,631 72,787 77,575 88,177
===================================================================
Net Loss $ (125,831) (79,465) (103,151) (46,554) (11,957)
===================================================================
Total Assets $2,402,385 2,461,948 2,512,310 2,609,977 2,629,253
===================================================================
</TABLE>
5
<PAGE> 6
Substantially all business of the Registrant is conducted through its
two subsidiaries, Central and CI. CI has a non-exclusive Agency Contract with
Central to secure, train and supervise life insurance agents to sell policies
of Central. CI's efforts to recruit agents were curtailed in 1987 as a result
of Central ceasing to issue Modified Whole Life and Decreasing Term Life to Age
100 policy plans. CI has no salaried personnel, but reimburses Central for use
of Central's personnel. CI owns IBM, Gateway 2000 and Data General computer
equipment. Time on this equipment is leased to the Registrant and Central.
Central's personnel operate the equipment. CI also leases other office
equipment to Central.
Central is licensed to sell life and accident and health insurance;
however, Central has not developed any accident and health policies to date.
On January 1, 1989, new Illinois Statutory Standard Nonforfeiture and Standard
Valuation Laws took effect. Modified Whole Life and Decreasing Term Life to
Age 100 are the only policy plans upon which any policy revision work has been
started. Each of Central's other policy plans will be reviewed to determine if
future sales potential justifies the cost of actuarial and printing revisions.
Prior to January 1, 1989, but not after, Central had approval by the Illinois
Insurance Department and sold the following ordinary life policies:
Participating policies:
Life paid up at 63 with annual pure endowments.
Life paid up at 75 with 15 year level term and 20 year return of
premium benefits.
Nonparticipating policies:
Annual Renewable Term.
Decreasing Term to Age 100.
Modified Whole Life.
Ordinary Whole Life.
Premium Endowment at 60.
Nonparticipating riders:
The following policy riders were also sold according to general
underwriting practice of the life insurance industry:
Waiver of Premium, Payor Insurance. Double and Triple
Indemnity.
Family Income Rider (decreasing term) on 10, 15, 20, 25 and
30 year basis. Family Plan.
Between 1974 and 1987, Central's yearly volume of new business was
basically from two policy plans, Modified Whole Life and Decreasing Term Life to
Age 100. The introduction of these two policies marked a change in Central's
sales emphasis from high cash value life insurance policies to lower premium
policies with little or no cash value. The change was necessitated because
increasing interest rates and inflation were detrimental to the starting of
savings through high cash value life insurance policies. Before these new
policy plans were introduced, first year premium had averaged as high as $35.79
per $1,000 in 1969, but for 1987, the last year of sales, it was $16.89. When
Central introduced these plans, it entered into a coinsurance contract with Life
Reassurance Corporation to cover risks in excess of its $10,000 retention. The
retention limit was changed to
6
<PAGE> 7
$20,000 in 1976. Life Reassurance Corporation notified Central in December,
1986 that it would not accept coinsurance on these two plans after February 28,
1987. This action stopped sales efforts of Modified Whole Life and Decreasing
Term Life to Age 100.
Prior to 1973, GAAP accounting and quarterly reporting were not
requirements for life insurance companies and an allowance for these expenses
was not included in the calculation of Central's earlier life insurance premium
rates. The impact of GAAP accounting is significant, and in 1994, it was
estimated to be 21.2% of Central's annual general insurance expenses, up from
19.4% in 1993. Central has not been able to adjust premiums for GAAP expenses
since premiums on life insurance policies cannot be increased after issue to
reflect increased costs. It is difficult to factor GAAP accounting expenses
into new premiums since mutual and certain stock life insurance companies are
not required to maintain their records in accordance with GAAP accounting or
prepare quarterly SEC reports. Further regulatory changes developed additional
expenses when Central's state of domicile, Illinois, required certified annual
statements in accordance with statutory accounting principles of domestic
companies, certain portions of which have been waived for Central.
Competition remains strong as there are more than 850 life insurance
companies licensed to do business in the State of Illinois. There are also a
large number of life insurance companies in Arizona, Indiana, and Oklahoma.
The Registrant and its subsidiaries, with limited staff and financial
resources, were continuing to experience difficulty in developing their sales
programs and computer system because of the workload and expense involved in
maintaining separate accounting and reporting processes for Federal and State
Regulators. Plans to develop an interest sensitive product were stalled as the
Registrant could not locate software to administer the product at a price
reasonable to expected sales. As the purchase price and performance of
various software packages were investigated, a recurring difficulty was that
they were found to be more costly and less complete than initially indicated by
their sellers. Time was also diverted from new product development by the
Illinois Insurance Department's triennial examination of Central in 1988.
Increased death claims in 1988 and 1989 and the requirement to increase capital
and surplus by the end of 1990 were additional restrictions on funds available
for business development. The Registrant borrowed $40,000 in 1990 to
strengthen Central's capital and surplus. An additional $35,000 was borrowed
in 1991 for the same purpose and to replace a thirteen year old computer whose
repair cost, after a disk drive failure, exceeded replacement cost.
When Central's death claim expenses increased in the latter part of
1992, the Registrant borrowed an additional $47,500 to apply to expenses and
preserve Central's capital and surplus position. At the same time, Central
began negotiating a reinsurance agreement covering Central's premium paying
policies with another life insurance company. The primary purpose of the
agreement was to reduce Central's exposure to death claims. The agreement
provided for a transfer of reserves to the other company and a payment to
Central of $140,000 and a contract to service the premium paying policies. The
agreement was finalized in December, 1992, subject to the approval of the
Illinois Insurance Department, with an effective date of December 1, 1992. The
Illinois Department made additional requests for information, which each time
renewed their thirty day review period, until they sent Central a letter dated
March 25, 1993, indicating they would not approve the agreement and requested
its withdrawal.
7
<PAGE> 8
During the Spring of 1993, the Illinois Insurance Department
conducted an in-house audit of Central's books and records. Their financial
examination report confirmed Central's statutory reports, found no regulatory
violations and was adopted and filed October 13, 1993. This report is
available for public examination at the Illinois Insurance Department's offices
in Chicago or Springfield, Illinois.
Later in 1993, the Registrant increased its borrowings by $58,000 as
income declined and expense reductions failed to keep pace. The registrant
borrowed $87,400 additional in 1994. On November 28, 1994, the Registrant and
Central signed a definitive written agreement with Citizens, Inc., a Colorado
life insurance holding company based in Austin, Texas for the acquisition of
the stock of the Registrant and Central by Citizens, Inc. The agreement
provides that shareholders of Registrant will receive one (1) share of
Citizens, Inc. Class A common stock for each eight (8) shares of the Registrant
s Class A or B stock owned. Shareholders of Central other than the Parent will
receive one (1) share of Citizens, Inc. Class A Common Stock for each four (4)
shares of Central stock owned. The companies will continue to operate in their
respective locations under a combined management team with consolidation of
computer data processing on Citizens, Inc.'s system. The agreement is subject
to the approval of regulatory authorities and stockholders of the Registrant
and Central. On March 10, 1995, the Illinois Department of Insurance indicated
that the companies could proceed with the merger and Citizens, Inc.'s
acquisition of control of Central.
ITEM 2. PROPERTIES
The Registrant and its two subsidiaries share a common office located
at 2512 North Knoxville, Peoria, Illinois. The lease for this office is in the
name of Central and the total monthly rental is $800 for approximately 2,900
square feet of space. During 1994, CI reimbursed Central $1,200 for its share
of space occupied.
The Registrant's general business equipment has been fully amortized.
During the year, the Registrant received $400 a month from Central for use of
the equipment.
C I owns miscellaneous data processing equipment and office equipment
with a year-end net book value of $921 and $527, respectively. During the
year, C I received $6,000 from Central for use of the equipment.
Central owns general business equipment which is fully amortized.
ITEM 3. LEGAL PROCEEDINGS
The Company is unaware if any pending litigation to which the
Registrant or any of its subsidiaries are parties or to which any of their
property is subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No items were submitted, during the fourth quarter of the fiscal year
covered by this report, to a vote of security holders, through the
solicitation of proxies or otherwise.
8
<PAGE> 9
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
Neither class of the Company's common stock is listed or actively
traded through security brokerage firms, and there is virtually no
over-the-counter trading activity.
There have been no dividends paid since the inception of the Company.
<TABLE>
<CAPTION>
Approximate Number of Equity Security Holders
Number of
Title of Class Record Holders
-------------- --------------
<S> <C>
Class A, Common Stock, $1,00 par value 1,688
Class B, Common Stock, no par value, stated value
$.10 per share 38
</TABLE>
ITEM 6. SELECTED FINANCIAL DATE
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
---- ---- ------ ---- ----
<S> <C> <C> <C> <C> <C>
Total revenue $ 161,170 217,055 240,633 248,393 255,046
Net Loss $ (125,831) (79,465) (103,151) (46,554) (11,957)
Net loss per common share (.10) (.06) (.08) (.04) (.01)
Total assets $2,402,385 2,461,948 2,512,310 2,609,977 2,629,253
Long-term obligations $ 267,900 180,500 100,000 75,000 40,000
Cash dividends per common
share None None None None None
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
On November 28, 1994, the Registrant and its life subsidiary, Central
Investors Life Insurance Company of Illinois (Central), signed a definitive
written agreement with Citizens, Inc., a Colorado life insurance holding
company based in Austin, Texas for the acquisition of the stock of the
Registrant and Central by Citizens, Inc. The agreement provides that
shareholders of the Registrant will receive one (1) share of Citizens, Inc.
Class A common stock for each eight (8) shares of the Registrant's Class A or B
stock owned. Shareholders of Central other than the Parent will receive one
(1) share of Citizens, Inc. Class A common stock for each four (4) shares of
Central stock owned. The companies will continue to operate in their
respective locations under a combined management team with consolidation of
computer data processing on Citizens, Inc.'s system. The agreement is subject
to the approval of regulatory authorities and stockholders of the Registrant
and Central. On March 10, 1995, the Illinois Department of Insurance indicated
that the companies could proceed with the merger and Citizens, Inc.'s
acquisition of control of Central.
9
<PAGE> 10
CONSOLIDATED RESULTS OF OPERATIONS
The Company's consolidated loss for 1994 was $125,831 compared to
losses of $79,465 in 1993 and $103,151 in 1992. A significant part of the
changes occurring between each of the years was due to fluctuations in death
claims and realized investment gains along with declining premium and
investment income. Premium income in 1994 decreased by $16,050 compared to
decreases of $3,156 in 1993 and $4,788 in 1992. The premium decline in 1993
was reduced by an unusual number of Modified Whole Life policyholders electing
to pay a one time re-entry fee and continue their policies another ten years.
Policy lapses and no new sales were the cause of decreasing premium income.
The Company's policy lapse ratios were 4.9% in 1994, a significant improvement
from 18.4% in 1993, and 17.3% in 1992.
Investment income was down $16,566 in 1994 compared to decreases of
$24,564 in 1993 and $18,363 in 1992. The 1994 and 1993 decreases in investment
income were the result of falling interest rates during the past three years,
which lead to the Company experiencing almost all of its bonds with over 7%
yield being called in for redemption. Investment income was further affected
by a 1993 change in the Illinois statutory deposit law requiring the Company to
maintain a trust deposit of U. S. Government obligations with a market value of
$1,200,000. This change required the Company to increase its U. S. Government
investments by $900,000 in late 1993, a time of very low interest yields which
negatively affected investment income, approximately $25,000 to $30,000 from
late 1993 to late 1994. The market value requirement and the Company's small
asset base made it necessary to choose short term U. S. Governments to insure
less market price volatility, further penalizing yields.
The realized investment gains of $1,081 in 1994, and $24,350 in 1993
and $20,208 in 1992 were the result of early calls plus adjustments in stock
and U. S. Treasury Note holdings. The Company's bond investments have always
been limited to investment grade bonds, but two bonds have been reduced by
Moody's Investment Service to a rating of Ba1 or lower. These two bonds
represent less than 1.2% of total assets and were current with interest
payments at the end of the year. The Company has no direct investments in
mortgages or real estate.
The Financial Accounting Standards Board (FASB) has issued a
Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for
Certain Investments in Debt and Equity Securities". In 1994, this required the
Company to classify its debt and marketable equity securities in one of three
categories: trading, held-to-maturity, or available-for-sale. Securities
which qualify for the held-to-maturity category are to be stated at amortized
cost. Since the Company's practice has been to purchase U. S. Treasuries and
other bonds with the intent to hold-to-maturity, there was no significant
change in the stated value of these investments.
In 1994, death claim expenses were $30,020, compared to $29,548 in
1993 and $76,617 in 1992. The death claim expense in 1992 was the highest in
the Company's history and developed from Modified Whole Life (MWL) policies
written in the early "80's. During 1993, the lapsing of these policies
accelerated as a large block of 1983 MWL policies were subject to a premium
increase and deposit refund on their tenth anniversary date. The amount of cash
surrenders decreased by $25,719 in 1994 compared to an increase of $15,474 in
1993 and a decrease of $8,235 in 1992. Since the Company is not selling
policies with annual endowments or dividends, these policy benefits will also
decrease from time to time at a rate determined by cash surrenders. As a
result of decreased lapses and cash surrenders in 1994, expenses for future
life policy benefits and deferred
10
<PAGE> 11
premium increased while amortization of deferred acquisition cost decreased.
The recovery of $1,309 in uncollectible agents balances was a result of
contractual changes in MWL policies which continued into their eleventh year.
Recovery of uncollectible agents balances decreased significantly in 1994, as
expected, and will remain low in 1995.
General insurance expenses in 1994 decreased by $13,733 compared to a
decrease of $8,792 in 1993 and an increase of $10,527 in 1992. The 1994 change
resulted from decreases in expenses for legal fees, group insurance and
printing. Actuarial fees rose as regulatory certification requirements
increased in 1994. Between 1993 and 1992, the decrease in expenses resulted
from lower expenditures for salaries, group insurance, printing, equipment
repair and computer programs. Loan expense increased $5,489 from additional
loans made in 1994 and 1993. The Company continues to have difficulty
developing sales programs and computer programs, because of the growing work
load and expense involved in maintaining separate accounting and reporting
processes for Federal and State Regulators. Although the rate of inflation has
eased over the past few years, the Company was still adversely affected by
modest declines in the purchasing power of the dollar since it cannot increase
the premiums on present in-force policies. Taxes, licenses and fees decreased
in 1994 as assessment by state guarantee funds were lower.
During the Spring of 1993, the Illinois Insurance Department
conducted an in-house audit of the books and records of the Company's life
insurance subsidiary. Their financial examination report confirmed the
subsidiary's statutory reports, found no regulatory violations and was adopted
and filed October 13, 1993. This report is available for public examination at
the Illinois Insurance Department's offices in Chicago or Springfield,
Illinois.
Later in 1993, the Registrant increased its borrowings by $58,000 as
income declined and expense reductions failed to keep pace. The Registrant
borrowed $87,400 additional in 1994. On November 28, 1994, the Registrant and
Central signed a definitive written agreement with Citizens, Inc., a Colorado
life insurance holding company based in Austin, Texas for the acquisition of
the stock of the Registrant and Central by Citizens, Inc. The agreement
provides that shareholders of the Registrant will receive one (1) share of
Citizens, Inc., Class A common stock for each eight (8) shares of the
Registrant's Class A or B stock owned. Shareholders of Central, other than the
Parent, will receive one (1) share of Citizens, Inc. Class A common stock for
each four (4) shares of Central stock owned. The companies will continue to
operate in their respective locations under a combined management team with
consolidation of computer data processing on Citizens, Inc. system. The
agreement is subject to the approval of regulatory authorities and stockholders
of the Registrant and Central. On March 10, 1995, the Illinois Department of
Insurance indicated that the companies could proceed with the merger and
Citizens, Inc.'s acquisition of control of Central.
LIQUIDITY AND CAPITAL RESOURCES
Funds from premium income, interest income, bond maturities and
redemptions, and a loan increase of $87,400 were used to meet 1994 liquidity
and capital requirements. The company's total assets and liabilities decreased
between 1994 and 1993 as a result of decreased investment income and premium
income. Although the Company has a substantial amount of liquidity in interest
earning cash accounts and short term investments totaling $207,500 and
anticipates the maturing of $1,038,000 of bonds in 1995, the requirement to
maintain $1,200,000 of capital and surplus in the life subsidiary and to
maintain two complex accounting systems for different regulatory layers of
government has imposed severe limits on the use of these funds. None of the
funds can be applied
11
<PAGE> 12
toward loan repayments due in 1995. The Company will need to secure an
extension of its loans or a new loan, an effort which will not be enhanced by
the Company's record or previous earnings trends unless regulatory and
stockholder approval is secured implementing the previously described
definitive written agreement between Citizens, Inc. and the Company. Progress
on product development continues to be postponed by concern for the rising cost
of supporting the regulatory reporting system, claim experience and maintaining
the current capital and surplus requirements for the life insurance subsidiary.
During the early part of 1993, the Company sought approval from the
Illinois Insurance Department for a reinsurance contract designed to reduce the
Company's exposure to claims while injecting additional capital and permitting
the Company to earn a fee servicing the business reinsured. In a letter dated
March 25, 1993, the Department requested the contract be withdrawn. Once the
computer system, which has been adjusted to service the reinsured business, was
readjusted, the decision developed reasonably well for the Company. Death
claim expense for 1993 and 1994 returned to near average levels, policy
terminations in the block of policies generating claims reduced potential claim
expense and, in 1994 the lapse rate dropped to 4.9% from 18.4% in 1993 and
17.3% in 1992.
The Company, directly and through its life subsidiary, continued to
investigate options for raising additional capital and surplus. Options
available, as a result of changing regulatory requirements, have become more
restricted by the cost of studies, legal fees, actuarial services and audit
certifications required to satisfy various regulators. Among options which
have been investigated were the redomestication of the life subsidiary, the
sale of premium paying policies to reduce exposure to death claims, surplus
debentures and sale or merger of the Company or its life subsidiary. A sale of
stock by the Company or its life subsidiary was also considered. However, the
Company comes under the Securities and Exchange Commission (SEC) rules, which
makes it very costly to sell a small block of stock; nor would the Company's
history be conducive to selling additional stock. Toward the end of 1994, the
previously described definitive written agreement was included in a Form A
filing with the Illinois Insurance Department regarding a change of control of
a life insurance company. On March 10, 1995, the Illinois Insurance Department
indicated the companies could proceed to secure approval from other regulatory
agencies and stockholders.
The National Association of Insurance Commissioners established new
minimum capital requirements in the form of Risk Based Capital. Risk-based
capital factors the type of business written by a company, the quality of its
assets, and various other factors into account, to develop a minimum level of
capital called "authorized control level risk-based capital" and compares this
level to an adjusted statutory capital that includes capital and surplus as
reported under Statutory Accounting Principles, plus certain investment
reserves. Should the ratio of adjusted statutory capital to control level
risk-based capital fall below 200%, a series of actions by insurance regulators
begins. At December 31, 1994, the Company's life subsidiary's ratio was
8,346.7%. This unusual ratio was a result of a high percentage of investments
in U.S. Government securities and a low ratio of liabilities to capital and
surplus.
At the end of 1994 the life subsidiary had $1,202,323 of statutory capital and
surplus. This was a decrease of $11,924 compared to an increase of $4,628 in
1993 and a decrease of $24,799 in 1992. The Illinois Legislature established
$1,200,000 as the minimum statutory capital and surplus for an Illinois
domiciled life insurance company after December 31, 1990. On December 31,
1995, the
12
<PAGE> 13
requirement changes to $1,500,000 capital and surplus. The normal
"grandfather" provision was not allowed, and life insurance companies which
were in existence before the changes were established are required to meet the
new minimums as they come into effect.
The cost of maintaining and reporting under two complex standards of
accounting, GAAP for Federal Regulators and statutory accounting for State
Regulators, continues to drain resources from more productive efforts.
Statutory accounting has always been required of the Company, but GAAP
accounting was not required until 1973. In 1994, GAAP accounting was estimated
to have cost $34,150 or 21.2% of 1994 GAAP general insurance expenses. From
the start of GAAP accounting in 1973, the Company estimates, exclusive of
internal expenses, that $377,518 has been spent with independent actuarial and
accounting firms to assist in maintaining the GAAP accounting system. In the
opinion of management, statutory accounting will remain the primary accounting
method determining the Company's solvency, and ability to make expenditures and
pay dividends.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Insurance Investors & Holding Co. and Subsidiaries:
Independent Auditor's Report
Consolidated Balance Sheets - December 31, 1994 and 1993
Consolidated Statements of Operations - Three Years Ended
December 31, 1994
Consolidated Statements of Changes in Stockholders Equity -
Three Years Ended December 31, 1994
Consolidated Statements of Cash Flows - Three Years Ended
December 31, 1994
Notes to Consolidated Financial Statements
13
<PAGE> 14
INSURANCE INVESTORS & HOLDING CO. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page(s)
-------
<S> <C>
Independent Auditors' Report 15
Consolidated Balance Sheets - December 31, 1994 and 1993 16 - 17
Consolidated Statements of Operations - Years ended December 31, 1994, 1993,
and 1992 18
Consolidated Statements of Changes in Stockholders' Equity - Years
ended December 31, 1994, 1993 and 1992 19
Consolidated Statements of Cash Flows - Years ended December 31, 1994, 1993,
and 1992 20
Notes to Consolidated Financial Statements December 31, 1994, 1993
and 1992 21 - 32
Schedule
--------
II Condensed Financial Information of Registrant 33 - 36
III Supplementary Insurance Information 37
VI Reinsurance 38
</TABLE>
14
<PAGE> 15
[KPMG PEAT MARWICK LLP LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Insurance Investors & Holding Co.:
We have audited the consolidated financial statements of Insurance Investors &
Holding Co. and subsidiaries. In connection with our audits of the
consolidated financial statements, we also have audited the financial statement
schedules as listed in the accompanying index. These consolidated financial
statements and financial statement schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedules based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Insurance Investors
& Holding Co. and subsidiaries as of December 31, 1994 and 1993, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1994, in conformity with generally
accepted accounting principles. Also in our opinion, the related financial
statement schedules, when considered in relation to the basic consolidated
financial statements taken as a whole, present fairly, in all material
respects, the information set forth therein.
KPMG Peat Marwick LLP
/s/ KPMG Peat Marwick LLP
Dallas, Texas
June 6, 1995
15
<PAGE> 16
INSURANCE INVESTORS & HOLDING CO. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1994 and 1993
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
Assets 1994 1993
-----------------------------------------------------------------------------------------------------
<S> <C> <C>
Investments (note 2):
U. S. Treasury bills, at amortized cost (market value
$512,491 in 1993). $ - 512,491
Bonds, at amortized cost (market value $1,902,194 in
1994; $1,497,262 in 1993) 1,955,882 1,482,278
Preferred stocks, at market (cost $81,473 in
1994 and 1993, respectively) 57,957 71,013
Policy loans 101,749 110,871
-----------------------------------------------------------------------------------------------------
Total Investments 2,115,588 2,176,653
Cash 207,506 203,106
Accrued investment income 26,581 22,017
Deferred acquisition costs (note 3) 51,262 57,806
Furniture and equipment, at cost less accumulated
depreciation of $108,713 in 1994 and $107,795 in 1993. 1,448 2,366
-----------------------------------------------------------------------------------------------------
TOTAL ASSETS $2,402,385 2,461,948
-----------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
16
<PAGE> 17
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity 1994 1993
-----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Liabilities:
Policy liabilities:
Future life policy benefits (notes 3 and 11) $ 717,441 712,464
Deferred premium reserve 67,443 67,537
Policyholders' funds:
Supplemental contracts 9,407 11,768
Dividends and endowments payable (note 8) 11,345 11,444
Dividend accumulations 136,502 138,589
Endowment accumulations 135,188 147,679
Premiums received in advance 277 177
-----------------------------------------------------------------------------------------------------------
1,077,603 1,089,658
Accounts payable and accrued expenses 26,424 19,214
Minority interest (note 9) 93,268 95,996
Other liabilities 3,549 4,967
Notes payable (note 4) 267,900 180,500
-----------------------------------------------------------------------------------------------------------
Total liabilities 1,468,744 1,390,335
-----------------------------------------------------------------------------------------------------------
Stockholders' equity (notes 5 and 6):
Class A common stock of $1 par value. Authorized 1,500,000
shares; issued 819,249 shares 819,249 819,249
Class B common stock of $.10 stated value. Authorized 500,000
shares; issued and outstanding 472,423 shares 47,242 47,242
Paid-in capital 576,347 576,347
Net unrealized depreciation on investments (note 2) (21,869) (9,728)
Retained deficit (477,903) (352,072)
-----------------------------------------------------------------------------------------------------------
943,066 1,081,038
Less cost of Class A shares in treasury - 11,600 shares 9,425 9,425
-----------------------------------------------------------------------------------------------------------
Total stockholders' equity 933,641 1,071,613
Commitments and contingent liabilities (note 11)
-----------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $2,402,385 2,461,948
-----------------------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE> 18
INSURANCE INVESTORS & HOLDING CO. AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended December 31, 1994, 1993 and 1992
<TABLE>
<CAPTION>
1994 1993 1992
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue:
Life insurance premiums $ 53,581 69,631 72,787
Net investment income (note 2) 106,508 123,074 147,638
Realized investment gains (note 2) 1,081 24,350 20,208
---------------------------------------------------------------------------------------------------
Total revenue 161,170 217,055 240,633
---------------------------------------------------------------------------------------------------
Benefits and expenses:
Policy benefits:
Death and other policy benefits 61,462 86,732 118,916
Endowments to policyholders 12,049 13,323 14,362
Dividends to policyholders (note 8) 13,996 15,135 18,422
Change in future life policy benefits 4,977 (25,719) (14,195)
Amortization of deferred acquisition costs (note 3) 3,648 9,833 10,370
Provision for deferred premium (94) (814) (1,378)
Recovery of uncollectible agents balances (1,309) (5,150) (4,375)
General insurance expenses 161,096 174,829 183,621
Interest expense 19,762 14,273 7,991
Taxes, licenses and fees 13,227 13,957 12,685
---------------------------------------------------------------------------------------------------
Total benefits and expenses 288,814 296,399 346,419
---------------------------------------------------------------------------------------------------
Loss from operations before income taxes
and minority interest (127,644) (79,344) (105,786)
Income taxes (note 7) -- -- --
---------------------------------------------------------------------------------------------------
Loss before minority interest (127,644) (79,344) (105,786)
Minority interest in (earnings) loss of subsidiary 1,813 (121) 2,635
---------------------------------------------------------------------------------------------------
Net loss $ (125,831) (79,465) (103,151)
---------------------------------------------------------------------------------------------------
Net loss per share $ (0.10) (0.06) (0.08)
---------------------------------------------------------------------------------------------------
Weighted average number of common shares
outstanding 1,280,072 1,280,072 1,280,072
---------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
18
<PAGE> 19
INSURANCE INVESTORS & HOLDING CO. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
Years ended December 31, 1994, 1993 and 1992
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
1994 1993 1992
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Class A common stock $ 819,249 819,249 819,249
---------------------------------------------------------------------------------------------------------
Class B common stock 47,242 47,242 47,242
---------------------------------------------------------------------------------------------------------
Paid-in-capital 576,347 576,347 576,347
---------------------------------------------------------------------------------------------------------
Net unrealized depreciation on investments, beginning
of year (9,728) (29,668) (29,463)
Change in unrealized appreciation (depreciation) on
investments (12,141) 19,940 (205)
---------------------------------------------------------------------------------------------------------
Unrealized depreciation on investments, end of year (21,869) (9,728) (29,668)
---------------------------------------------------------------------------------------------------------
Retained deficit, beginning of year (352,072) (272,607) (169,456)
Net loss (125,831) (79,465) (103,151)
---------------------------------------------------------------------------------------------------------
Retained deficit, end of year (477,903) (352,072) (272,607)
---------------------------------------------------------------------------------------------------------
Treasury stock (9,425) (9,425) (9,425)
---------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY $ 933,641 1,071,613 1,131,138
---------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
19
<PAGE> 20
INSURANCE INVESTORS & HOLDING CO. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Years ended December 31, 1994, 1993 and 1992
--------------------------------------------------------------------------------------------------------
1994 1993 1992
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(125,831) (79,465) (103,151)
--------------------------------------------------------------------------------------------------------
Adjustments to reconcile net loss to net cash used
by operating activities:
Depreciation 918 1,667 2,781
Change in:
Accrued investment income (4,564) 5,102 (11,339)
Deferred acquisition costs 6,544 5,585 8,435
Other assets -- 357 7,524
Future life policy benefits 4,977 (25,719) (14,195)
Deferred premium reserve (94) (814) (1,378)
Supplemental contracts (2,361) (2,292) (2,225)
Dividends and endowments payable (99) (2,697) (859)
Dividend accumulations (2,087) (9,968) (7,273)
Endowment accumulations (12,491) (17,822) (13,516)
Premiums received in advance 100 -- (424)
Accounts payable and accrued expenses 7,210 11,158 2,204
Minority interest (1,813) 121 (2,635)
Other liabilities (1,418) (1,421) (453)
-------------------------------------------------------------------------------------------------------
Total adjustments (5,178) (36,743) (10,675)
-------------------------------------------------------------------------------------------------------
Net cash used by operating activities (131,009) (116,208) (113,826)
-------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from sale and maturity of investments 716,012 820,870 717,338
Purchase of investments (668,003) (974,682) (335,138)
Purchase of furniture and equipment -- -- --
-------------------------------------------------------------------------------------------------------
Net cash provided (used) by investing
activities 48,009 (153,812) 382,200
-------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from bank borrowing -- 100,000 --
Principal payments on bank borrowing -- (150,000) --
Proceeds from other borrowing 87,400 108,000 47,500
-------------------------------------------------------------------------------------------------------
Net cash from financing activities 87,400 58,000 47,500
-------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash 4,400 (212,020) 315,874
Cash at beginning of year 203,106 415,126 99,252
-------------------------------------------------------------------------------------------------------
CASH AT END OF YEAR $ 207,506 203,106 415,126
-------------------------------------------------------------------------------------------------------
Supplemental disclosure of cash flow information:
CASH PAID DURING THE YEAR FOR INTEREST $ 2,136 6,693 7,506
-------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
20
<PAGE> 21
INSURANCE INVESTORS & HOLDING CO. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1994, 1993 and 1992
--------------------------------------------------------------------------------
(1) BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiary, C I Agency, Inc. and its 93.0%
owned subsidiary, Central Investors Life Insurance Company of Illinois.
All significant intercompany balances and transactions have been
eliminated in consolidation. The significant accounting policies are as
follows:
The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles prescribed for
stock life companies for all years presented.
(a) Premiums
Gross premium received in excess of the net premium on
limited-payment contracts is deferred and recognized in income
over the expected life of the business. Other premium income is
recognized as revenue ratably over the terms of the respective
policies calculated on the monthly pro rata basis and are stated
after deduction for reinsurance with other insurers.
(b) Deferred Policy Acquisition Costs
Policy acquisition costs such as commissions (net of
reinsurance), premium taxes, and certain other underwriting and
agency expenses which vary with and are directly related to the
production of business have been deferred. Such deferred policy
acquisition costs are being amortized as premium revenue is
recognized. The method followed in computing deferred policy
acquisition costs limits the amount of such deferred costs to
their estimated realizable value, which gives effect to the
premium to be earned, related investment income, losses and loss
settlement expenses, and certain other costs expected to be
incurred as the premium is earned.
(c) Future Policy Benefits
Liabilities for future life policy benefits and expenses have
been computed by a net level premium method based upon estimated
future investment yield, mortality and withdrawals.
(d) Depreciation
Furniture and equipment are depreciated over estimated useful
lives of 5 to 10 years. Provision for depreciation is computed
using the straight-line and accelerated methods.
(e) Federal Income Taxes
Effective January 1, 1993, the Company adopted the provisions of
Statement of Financial Accounting Standards (SFAS) No. 109,
Accounting for Income Taxes. Under the asset and liability
method of SFAS 109, deferred tax assets and liabilities are
21
<PAGE> 22
INSURANCE INVESTORS & HOLDING CO. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
recognized for future tax consequences attributable to
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases
(temporary differences) and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in
the years in which those temporary differences are expected to be
recovered or settled. Under SFAS 109, the effect on deferred tax
assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
The cumulative effect of the change in accounting for income
taxes was $-0- and has therefore not been separately stated in
the 1993 consolidated Statement of Operations.
Prior to January 1, 1993, in accordance with Accounting
Principles Board Opinion No. 11 (APB 11), amounts provided for
income tax expense by the Company were based on income reported
for financial statement purposes rather than amounts currently
payable under tax laws. Deferred taxes, which arose from timing
differences between the period in which certain income and
expenses were recognized for financial accounting purposes and
the period in which they affected taxable income, were included
in the amounts provided for income taxes.
(f) Earnings Per Share
Earnings per share have been computed using weighted average
number of shares of common stock outstanding during each period.
(g) Accounting Pronouncements
In May 1993, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 115, "Accounting
for Certain Investments in Debt and Equity Securities" (SFAS
115). SFAS 115, requires the classification of debt and equity
securities in one of three categories: trading,
held-to-maturity, or available-for-sale, based on established
criteria.
Held-to-maturity securities are stated at amortized cost which
represents actual cost adjusted for amortization of premium and
accretion of discount using methods that generally approximate
the effective interest method. Trading and available-for-sale
securities are stated at fair value. Unrealized holding gains
and losses, net of related taxes, on available-for-sale
securities are excluded from earnings and reported as a separate
component of stockholders' equity until realized, while
unrealized gains and losses for trading securities are included
in earnings. A decline in the market value of any
available-for-sale or held-to-maturity security below cost that
is deemed other than temporary is charged to earnings resulting
in the establishment of a new cost basis for the security.
22
<PAGE> 23
INSURANCE INVESTORS & HOLDING CO. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
The Company adopted SFAS 115 effective January 1, 1994 on a
prospective basis. There was no impact of adoption of SFAS 115
to the consolidated financial statements as all the debt
securities of the Company are classified as held to maturity.
(2) INVESTMENTS
(a) Bonds and U.S. Treasury bills are included in the consolidated
financial statements at amortized cost, as the Company intends to
hold all bond until maturity. The non-redeemable preferred
stocks are carried at market.
(b) Adjustments reflecting the revaluation of stocks at each
statement date on the basis described in paragraph (a) above, are
carried to the consolidated statements of stockholders equity as
unrealized appreciation (depreciation) on investments.
(c) The fair values of U.S. Treasury securities, bonds and stocks
represent quoted market values from published sources.
The amortized cost and estimated fair values of investments in debt securities
are as follows:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
December 31, 1994
-------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Corporate bonds 1,943,378 187 53,875 1,889,690
GNMA mortgage-backed
securities 12,504 -- -- 12,504
--------------------------------------------------------------------------------------------------------
Total: $1,955,882 187 53,875 1,902,194
--------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
December 31, 1993
-------------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U. S. Treasury securities $1,287,524 2,249 532 1,289,241
Corporate bonds 691,113 16,748 3,481 704,380
GNMA mortgage-backed
securities 16,132 -- -- 16,132
--------------------------------------------------------------------------------------------------------
Total: $1,994,769 18,997 4,013 2,009,753
--------------------------------------------------------------------------------------------------------
</TABLE>
23
<PAGE> 24
INSURANCE INVESTORS & HOLDING CO. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
The amortized cost and estimated market value of debt securities at December 31,
1994 by contractual maturity, are shown below. Expected maturities will differ
from contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
Estimated
Amortized market
cost value
----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Due in one year or less $1,038,231 633,391
Due after one year through five years 603,713 917,450
Due after five years through ten years 261,248 161,280
Due after ten years 40,186 36,400
----------------------------------------------------------------------------------------------------------------
1,943,378 1,889,690
Mortgage-backed securities 12,504 12,504
----------------------------------------------------------------------------------------------------------------
Total: $1,955,882 1,902,194
----------------------------------------------------------------------------------------------------------------
</TABLE>
The following information summarizes the components of investment income and
changes in realized and unrealized gains (losses):
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
Year ended December 31,
-----------------------
Investment income 1994 1993 1992
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest on bonds $ 84,325 88,172 119,494
Dividends on common stocks -- -- 66
Dividends on preferred stocks 4,983 12,405 15,943
Interest on policy loans 6,172 6,355 5,744
Interest on invested cash 15,926 21,215 12,148
----------------------------------------------------------------------------------------------------------------
Total investment income 111,406 128,147 153,395
Less allocated investment expenses 4,898 5,073 5,757
----------------------------------------------------------------------------------------------------------------
Net investment income $106,508 123,074 147,638
----------------------------------------------------------------------------------------------------------------
<CAPTION>
Year ended December 31,
-----------------------
Realized investments gains 1994 1993 1992
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed maturities - bonds $ 1,081 17,430 15,806
Equity securities:
Preferred stocks -- 6,920 --
Common stocks -- -- 4,402
----------------------------------------------------------------------------------------------------------------
Total: $ 1,081 24,350 20,208
----------------------------------------------------------------------------------------------------------------
</TABLE>
24
<PAGE> 25
INSURANCE INVESTORS & HOLDING CO. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
Changes in unrealized investment gains (losses) 1994 1993 1992
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed maturities (38,704) 4,709 27,469
----------------------------------------------------------------------------------------------------------------
Equity securities:
Common stocks -- -- (3,937)
Preferred stocks (12,141) 19,940 3,732
----------------------------------------------------------------------------------------------------------------
Total: (12,141) 19,940 (205)
----------------------------------------------------------------------------------------------------------------
</TABLE>
Gross unrealized gains and gross unrealized losses
at December 31 were as follows:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
1994 1993 1992
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Unrealized gains -- 1,000 4,761
Unrealized losses (23,516) (11,461) (35,779)
----------------------------------------------------------------------------------------------------------------
(23,516) (10,461) (31,018)
Less minority interest 1,647 733 1,350
----------------------------------------------------------------------------------------------------------------
Total: (21,869) (9,728) (29,668)
------------------------------------------------------------------------------------------------------------------
</TABLE>
(c) Net realized gain or loss on investments is determined on the basis
of specific identification.
Proceeds from sales of fixed maturity investments were $304,438 in
1993. Gross gains and losses realized on those sales were $25,131
and $781 for 1993. There were no sales of fixed maturities in
1994.
(d) At December 31, 1994 and 1993, the market value of investments on
deposit with government authorities in excess of the legal
requirements were $1,245,250 and $1,287,524, respectively.
25
<PAGE> 26
INSURANCE INVESTORS & HOLDING CO. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
(3) ACTUARIAL ASSUMPTIONS - DEFERRED ACQUISITION
COSTS AND FUTURE LIFE POLICY BENEFITS
INTEREST:
Policy reserves for most ordinary policies in force are computed on
the basis of interest rates for the first year of 6% graded over 20
years to 4%. Other policies use 4%.
MORTALITY:
Mortality rates assumed in the computation of most policy reserves are
based on the 1955-60 Select and Ultimate Mortality Tables.
EXPENSES:
Capitalized expenses include commissions, underwriting and policy issue
expenses, but exclude expenses which do not vary with the sales of new
business, such as developmental, advertising and sales promotion
expenses. Amortization of expenses is accomplished principally by using
actuarial techniques incorporating assumptions for interest, mortality
and withdrawals.
WITHDRAWALS:
Withdrawal rates for most policies in force are based upon Company
experience. Other policies use the Linton A Table.
(4) NOTES PAYABLE
Notes payable at December 31, 1994 and 1993 are as follows:
<TABLE>
<CAPTION>
1994 1993
---------------------------------------------------------------------------------------------------------
<S> <C> <C>
8% note payable to bank, due April 15, 1994, interest payable
quarterly, secured by 30,000 shares of Central Investors Life
Insurance Company of Illinois -- 25,000
9% note payable to United Republic Life Insurance Company,
due April 27, 1994, interest payable quarterly, secured by
18,750 shares of Central Investors Life Insurance Company
of Illinois -- 25,000
9% notes payable to shareholder, due May 11, 1995 through
September 30, 1995, secured by 200,925 and
79,125 shares of Central Investors Life Insurance Company
of Illinois in 1994 and 1993, respectively 267,900 105,500
</TABLE>
26
<PAGE> 27
INSURANCE INVESTORS & HOLDING CO. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
1994 1993
---- ----
<S> <C> <C>
8% notes payable to shareholder, due October 18, 1993, secured
by 18,750 shares of Central Investors Life Insurance Company
of Illinois -- 25,000
----------------------------------------------------------------------------------------------------------------
Total: $267,900 180,500
----------------------------------------------------------------------------------------------------------------
</TABLE>
5) STOCKHOLDERS EQUITY
The holders of each class of common stock are entitled to one vote for
each share held, with the right of cumulative voting for directors. In
the event of liquidation, Class A common stockholders shall first be
paid $2 a share; next, Class B common stockholders shall be paid $.10 a
share; thereafter, any remaining distribution would be on a
share-for-share basis.
Class B stockholders are not entitled to a cash dividend in any year
until Class A stockholders have been paid $.12 a share. In that event,
Class B stockholders are entitled to a dividend up to $.12 a share in
that year. Thereafter, any remaining distribution during that year is on
a share-for-share basis.
The Class B common shares are automatically convertible into Class A
common shares if, and when, the Company has had average net earnings of
$.12 a share per year (on the total number of Class A and Class B
common shares outstanding at time of conversion) for a period of not
less than 36, nor more than 60, consecutive months. Such conversion is
to be made on a share-for-share basis.
The payment of cash dividends by the Company is principally dependent
upon the amount of its insurance subsidiary s statutory surplus
available for dividend distribution.
Under the Illinois Insurance Code, dividends may be paid only from
unassigned surplus, as restricted by the provisions of the Code. As
defined by the Illinois Insurance Code provisions, no dividends or
other distributions can be paid by the insurance subsidiary unassigned
surplus reflects a statutory deficit at December 31, 1994, 1993 and
1992 (see note 7).
27
<PAGE> 28
(6) Reconciliation Between GAAP and Statutory Financial Statements for Net
Earnings (Loss) and Retained Deficit
The following reconciles net earnings (loss) and retained earnings
(deficit) determined in accordance with statutory accounting practices
prescribed or permitted by the Insurance Department of the State of Illinois
with such amounts determined in conformity with generally accepted accounting
principles:
<TABLE>
<CAPTION>
Net earnings (loss) Retained earnings (deficit)
Years ended December 31, December 31,
---------------------------------- -------------------------------------
1994 1993 1992 1994 1993 1992
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Insurance subsidiary on a
statutory basis (13,337) (12,520) (32,456) (297,677) (285,753) (290,381)
Adjustments for GAAP reporting
Deferred acquisition costs (6,544) (5,585) (14,020) 51,262 57,806 63,391
Future life policy benefits (2,221) 598 (8,632) 135,112 137,333 136,735
Deferred and uncollected
premiums (217) 4,509 1,916 (12,558) (12,341) (16,850)
Provision for deferred
premiums 94 814 1,378 (67,443) (67,537) (68,351)
Asset valuation reserve -- -- -- 13,108 14,521 31,669
Interest maintenance reserve (2,207) 14,956 10,278 23,027 25,234 10,278
Other (1,454) (1,036) (3,904) 6,885 11,817 12,853
-------------------------------------------------------------------------------------------------------------------
Insurance subsidiary reported
on a GAAP basis (25,886) 1,736 (37,632) (148,284) (118,920) (120,656)
Minority interest in (earnings)
loss of insurance subsidiary 1,813 (121) 2,635 19,602 17,789 17,910
All noninsurance companies (101,758) (81,080) (68,154) (349,221) (250,941) (169,861)
-------------------------------------------------------------------------------------------------------------------
Balances as reported in the
consolidated financial
statements (125,831) (79,465) (103,151) (477,903) (352,072) (272,607)
-------------------------------------------------------------------------------------------------------------------
</TABLE>
(7) Income Taxes
The Company and C I Agency, Inc. file a consolidated federal income
tax return, while Central Investors Life Insurance Company of Illinois
files a separate federal income tax return.
As discussed in note 1, the Company adopted Statement 109 as of January
1, 1993. The cumulative effect of this change in accounting for income
taxes was $-0- as of January 1, 1993 and therefore is not reported
separately in the consolidated statement of operations for the year
ended December 31, 1993. Prior years financial statements have not been
restated to apply the provisions of Statement 109.
28
<PAGE> 29
INSURANCE INVESTORS & HOLDING CO. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Total income tax benefit is less than the amount computed by applying
the applicable federal income tax rate to losses from operations before
income taxes for the following reasons:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------
1994 1993 1992
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Computed tax benefit $ (33,034) (15,242) (24,507)
Life insurance company additions (deductions) -- 34 367
Dividends received deduction (341) (216) (1,096)
Tax effect of loss for which credits are not available 33,375 15,242 24,507
Other, net -- 182 729
---------------------------------------------------------------------------------------------------------------
$ -- -- --
---------------------------------------------------------------------------------------------------------------
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31, 1994
and 1993 are presented below:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
1994 1993
-------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Operating loss carryforwards 128,925 95,550
Investment tax credit carryforwards 312 338
-------------------------------------------------------------------------------------------------
Total deferred tax assets 129,237 95,888
-------------------------------------------------------------------------------------------------
Less valuation allowance 129,237 95,888
-------------------------------------------------------------------------------------------------
NET DEFERRED TAX ASSETS -- --
-------------------------------------------------------------------------------------------------
</TABLE>
The change in the valuation allowance for deferred taxes for the year
ended December 31, 1994 and 1993 was an increase of $33,349 and $15,150,
respectively.
29
<PAGE> 30
INSURANCE INVESTORS & HOLDING CO. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
Subsequently recognized tax benefits relating to the valuation
allowance for deferred tax assets as of December 31, 1994 will be
allocated to income tax benefit that would be reported in the
consolidated statement of operations.
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of
the deferred tax assets will not be realized. The ultimate realization
of deferred tax assets is dependent upon the generation of future
taxable income during the periods in which those temporary differences
become deductible. Management considers the scheduled reversal of
deferred tax liabilities, projected future taxable income, and tax
planning strategies in making this assessment. In order to fully realize
the deferred tax asset, the Company will need to generate future
taxable income of approximately $637,000 in future years.
For federal income tax purposes, the Company's life insurance
subsidiary at December 31, 1994 had net operating loss carryforwards
of approximately $305,000 available to offset future taxable income.
These carryforwards expire as follows: $28,000 in 1995, $3,000 in
1996, $38,000 in 1997, $63,000 in 1998, $19,000 in 1999, $9,000 in
2002, $51,000 in 2003, $23,000 in 2004, $5,000 in 2006, $39,000 in 2007,
$24,000 in 2008 and $6000 in 2009.
For federal income tax purposes, the Company and C I Agency at
December 31, 1994 had net operating loss carryforwards of approximately
$343,000 available to offset future taxable income. These
carryforwards expire as follows: $9,500 in 2003, $56,300 in 2004,
$48,600 in 2005, $45,000 in 2006, $73,600 in 2007, $77,000 in 2008 and
$33,000 in 2009.
(8) Dividends to Policyholders
In 1994, 1993, and 1992, the Company provided for policyholder dividends
of $13,996, $15,135 and $18,422, respectively.
30
<PAGE> 31
INSURANCE INVESTORS & HOLDING CO. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
Certain of the life policies written by the Company are
"participating policies." Dividends on participating policies
generally are payable in the second and subsequent years on the basis of
90% of the earnings applicable to the sale of such policies. During 1994
and prior years, based on the allocations of income and expenses to the
various lines of business, the participating policies have produced
losses. Consequently, the accompanying consolidated financial
statements reflect no provision for additional dividends.
(9) Minority Interest
Minority interest in the equity of the consolidated subsidiary, Central
Investors Life Insurance Company of Illinois, is comprised of the
following:
<TABLE>
<CAPTION>
1994 1993 1992
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Capital stock $ 45,525 45,525 45,525
Paid-in-capital 59,613 59,613 59,613
Retained earnings (deficit) (10,223) (8,409) (8,530)
Net unrealized depreciation on investments (1,647) (733) (1,350)
------------------------------------------------------------------------------------------------------------
$ 93,268 95,996 95,258
------------------------------------------------------------------------------------------------------------
</TABLE>
(10) Segment Information
The Company operates primarily through its subsidiaries, Central Investors
Life Insurance Company of Illinois and C I Agency, Inc. The life insurance is
primarily personal lines sold by agents under contract by C I Agency, Inc.
Separate financial statements are not shown in this report for Central
Investors Life Insurance Company of Illinois and C I Agency, Inc. since their
financial position and results of operations are indicative of the
consolidated financial position and results of operations. The following
table presents certain information concerning Central Investors Life Insurance
Company of Illinois, (in 000's):
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Total assets $2,400,000 2,300,000
Total liabilities $2,500,000 2,400,000
Retained deficit $ 100,000 100,000
</TABLE>
Net income (loss) for each of the years in the three years ended December 31,
1994 was $(25,886), $1,736,and $(37,632), respectively.
31
<PAGE> 32
INSURANCE INVESTORS & HOLDING CO. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
(11) Commitments and Contingent Liabilities
The Company does not retain more than a $20,000 liability on any
one life. To the extent that any reinsuring companies are unable to
meet their obligations under the reinsurance agreements, the Company
would remain liable.
The amounts related to reinsurance ceded are as follows:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
1994 1993 1992
----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Ceded reinsurance in force $2,522,000 2,603,000 3,131,000
----------------------------------------------------------------------------------------
Ceded reinsurance premiums $ 18,444 21,638 21,450
----------------------------------------------------------------------------------------
Ceded reinsurance reserves $ 9,178 35,412 38,882
----------------------------------------------------------------------------------------
</TABLE>
32
<PAGE> 33
Schedule II
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
INSURANCE INVESTORS & HOLDING CO.
Condensed Balance Sheets
December 31, 1994, 1993 and 1992
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
Assets 1994 1993 1992
------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash $ 711 2,605 5,492
Accrued investment income 1 19 4
Investments in subsidiaries 1,226,207 1,261,851 1,248,842
------------------------------------------------------------------------------------------------------
1,226,919 $1,264,475 1,254,338
------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
------------------------------------------------------------------------------------------------------
Liabilities:
Accounts payable and accrued expenses 25,378 12,362 700
Notes payable 267,900 180,500 122,500
------------------------------------------------------------------------------------------------------
Total liabilities 293,278 192,862 123,200
------------------------------------------------------------------------------------------------------
Stockholders equity:
Common stock 866,491 866,491 866,491
Paid-in capital 576,347 576,347 576,347
Net unrealized depreciation on investments (21,869) (9,728) (29,668)
Retained earnings (deficit) (477,903) (352,072) (272,607)
------------------------------------------------------------------------------------------------------
943,066 1,081,038 1,140,563
Less cost of common stock in treasury 9,425 9,425 9,425
------------------------------------------------------------------------------------------------------
Total stockholders equity 933,641 1,071,613 1,131,138
------------------------------------------------------------------------------------------------------
Total liabilities and stockholders equity $1,226,919 1,264,475 1,254,338
------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying note to condensed financial information of Registrant.
33
<PAGE> 34
Schedule II Continued
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
INSURANCE INVESTORS & HOLDING CO.
Condensed Statements of Operations
Years ended December 31, 1994, 1993 and 1992
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
1994 1993 1992
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue:
Investment income $ 13 122 215
Rentals from subsidiary 4,800 4,800 4,800
---------------------------------------------------------------------------------------------------
Total revenue 4,813 4,922 5,015
Expenses 107,105 77,458 64,260
----------------------------------------------------------------------------------------------------
Loss before income taxes and equity in
undistributed loss of subsidiaries (102,292) (72,536) (59,245)
Income taxes -- -- --
----------------------------------------------------------------------------------------------------
Loss before equity in undistributed loss
of subsidiaries (102,292) (72,536) (59,245)
Equity in undistributed loss of subsidiaries (23,539) (6,929) (43,906)
----------------------------------------------------------------------------------------------------
Net loss $(125,831) (79,465) (103,151)
----------------------------------------------------------------------------------------------------
</TABLE>
See accompanying note to condensed financial information of Registrant.
34
<PAGE> 35
Scheduled II Continued
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
INSURANCE INVESTORS & HOLDING CO.
Condensed Statements of Cash Flows
Years ended December 31, 1994, 1993 and 1992
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
1994 1993 1992
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(125,831) (79,465) (103,151)
--------------------------------------------------------------------------------------------------------
Adjustment to reconcile net loss to cash used by
operating activities:
Change in:
Prepaid expenses -- -- (170)
Accrued investment income (18) (15) 14
Equity in undistributed loss of subsidiaries 23,539 6,929 43,906
Accounts payable and accrued expenses 13,016 11,664 487
--------------------------------------------------------------------------------------------------------
Total adjustments 36,537 18,578 44,577
--------------------------------------------------------------------------------------------------------
Net cash used in operating activities (89,294) (60,887) (58,574)
--------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchase of subsidiary stock -- -- (314)
--------------------------------------------------------------------------------------------------------
Net cash used by investing activities -- -- (314)
--------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from issuance of debt 87,400 208,000 47,500
Payments of debt -- (150,000) --
--------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 87,400 58,000 47,500
--------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash (1,894) (2,877) (11,388)
Cash at beginning of year 2,605 5,492 16,880
--------------------------------------------------------------------------------------------------------
CASH AT END OF YEAR $ 711 2,605 5,492
--------------------------------------------------------------------------------------------------------
Supplemental schedule of cash flow information:
CASH PAID DURING THE YEAR FOR INTEREST $ 2,136 6,693 7,506
--------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying note to condensed financial information of Registrant.
35
<PAGE> 36
Schedule II Continued
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
INSURANCE INVESTORS & HOLDING CO.
Note to Condensed Financial Information of Registrant
--------------------------------------------------------------------------------
Summary of Significant Accounting Policies
The Company normally prepares consolidated financial statements with
its subsidiaries. The Condensed Financial Information of the
Registrant (parent only) has been prepared to conform with the
requirements of the Securities and Exchange Commission. This
information should be read in conjunction with the consolidated
financial statements and notes contained elsewhere herein.
(a) Investment in Subsidiaries
The investment in common stock of subsidiaries is reflected at cost,
adjusted for equity in operations.
(b) Income Taxes
No Federal income tax expense was incurred in 1994, 1993 and 1992 due to
operating losses.
Effective January 1, 1993, the Company adopted the provisions of
Statement of Financial Accounting Standards (SFAS) No. 109, Accounting
for Income Taxes. Under the asset and liability method of SFAS 109,
deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases (temporary differences) and operating loss and tax
credit carryforwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered
or settled. Under SFAS 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
The cumulative effect of the change in accounting for income taxes
was $-0- and has therefore not been separately stated in the 1993
Condensed Statement of Operations.
Prior to January 1, 1993, in accordance with Accounting Principles Board
Opinion No. 11 (APB 11), amounts provided for income tax expense by
the Company were based on income reported for financial statement
purposes rather than amounts currently payable under tax laws.
Deferred taxes, which arose from timing differences between the
period in which certain income and expenses were recognized for
financial accounting purposes and the period in which they affected
taxable income, were included in the amounts provided for income taxes.
36
<PAGE> 37
Schedule III
INSURANCE INVESTORS & HOLDING CO. AND SUBSIDIARIES
Supplementary Insurance Information
December 31, 1994, 1993 and 1992
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
Future life
Deferred policy benefits, Other policy
policy losses, claims claims and
Ordinary life acquisition and loss Unearned benefits
insurance cost expenses premiums payable
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Year ended:
December 31, 1994 $51,262 717,441 * --
Year ended:
December 31, 1993 $57,806 712,464 * --
Year ended:
December 31, 1992 63,391 738,183 * --
---------------------------------------------------------------------------------------------------------
</TABLE>
* Not applicable
<TABLE>
<CAPTION>
Column F Column G Column H Column I Column J Column K
-------- -------- -------- -------- -------- --------
Benefits, Amortization
claims, of deferred
Net losses and policy Other
Premium investment settlement acquisition operating Premiums
revenue income expenses costs expenses written
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
53,581 123,074 73,871 3,648 161,096 *
69,631 123,074 100,055 9,833 171,376 *
72,787 147,638 133,548 10,370 184,349 *
----------------------------------------------------------------------------------------------------------
</TABLE>
37
<PAGE> 38
Schedule VI
INSURANCE INVESTORS & HOLDING CO. AND SUBSIDIARIES
Reinsurance
December 31, 1994, 1993 and 1992
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E Column F
-------- -------- -------- -------- -------- --------
Percentage
Ceded to Assumed of amount
Ordinary life Gross other from other Net assumed to
insurance amount companies companies amount net
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended:
December 31, 1994
In-force $6,016,000 2,522,000 -- 3,494,000 *
Premiums 72,025 18,444 -- 53,581
Year ended:
December 31, 1993
In-force $6,386,000 2,603,000 -- 3,783,000 *
Premiums 91,269 21,638 -- 69,631 *
Year ended:
December 31, 1992
In-force 7,745,000 3,131,000 -- 4,614,000 *
Premiums 94,237 21,450 -- 72,787 *
----------------------------------------------------------------------------------------------------
</TABLE>
* Not applicable
38
<PAGE> 39
Item 9. Disagreements on Accounting and Financial Disclosure
There have been no disagreements with accountants regarding any matter
of accounting principles or practices or financial statement disclosure.
PART III
Item 10. Directors and Executive Officers of the Registrant
The following information as of December 31, 1994 is furnished with
respect to each director and executive officer.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
Year first
elected as Position with Company
Name of director Age director (date elected)
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Frank J. Wilkins (1) 63 1964 President and Treasurer of the Company;
President and Treasurer of Central Investors
Life Insurance Company of Illinois (1971)
Robert W. Kreutz (1) 69 1965 Vice President and Secretary of the Company;
Vice President and Secretary of Central
Investors Life Insurance Company of
Illinois (1975)
Robert D. Wilkins 29 1990 Director (1990)
Robert W. McCallum (1) 66 1990 Executive and Investment Committee (1990)
President of ROMAC
Associates
-----------------------------------------------------------------------------------------------------
</TABLE>
(1) Member of Executive and Investment Committees
Full Board of Directors as Audit Committee
Note: All directors and officers are elected for a term of one year or
until their successors have been elected and qualified.
39
<PAGE> 40
Item 10. Directors and Executive Officers of the Registrant, Continued
Family Relationships
Frank J. Wilkins, Director, is the father of Robert D. Wilkins,
Director.
There are no family relationships among the officers listed, and
there are no arrangements or understandings pursuant to which any of them were
elected as officers.
Other
There have been no events under any bankruptcy act, no criminal
proceedings and no judgments or injunctions material to the evaluation of the
ability and integrity of any director or executive officer during the past five
years.
Item 11. Executive Compensation
Summary Compensation Table
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
Annual compensation
Name and -----------------------------------------
principal Other Long-term
position Year Salary compensation compensation
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Frank J. Wilkins, President (CEO) 1994 $18,000 1,044 None
1993 18,000 1,392 None
1992 27,000 1,781 None
---------------------------------------------------------------------------------------------------------
</TABLE>
Compensation Through Plans and Other Compensation
All employees are covered by a group insurance plan. No option has
been granted to any employee to purchase securities from the Company or any of
its subsidiaries. There are no pension or retirement benefit plans.
Compensation of Directors
Mr. McCallum and Mr. Robert D. Wilkins received a $250 yearly
director's fee from the Company and each of its two subsidiaries. Mr. Robert
W. Kreutz received a $750 yearly director's fee from the Company s life
subsidiary. Mr. Frank J. Wilkins received no director's fees.
Item 12. Security Ownership of Certain Beneficial Owners and Management
(a) Security Ownership of Certain Beneficial Owners
Set forth below is certain information concerning persons who are
known by the Registrant to own beneficially more than 5% of any class of the
Company's voting shares on December 31, 1994.
40
<PAGE> 41
Item 12. Security Ownership of Certain Beneficial Owners and Management,
Continued
(a) Security Ownership of Certain Beneficial Owners, Continued
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------
Name and Address
Title of of beneficial Number of Percent
class owner shares owned of class
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Class A Frank J. Wilkins, Peoria, Illinois 135,285 (1) 16.75%
Class B Frank J. Wilkins, Peoria, Illinois 203,582 (1) 43.09%
Class A Robert W. Kreutz, Peoria, Illinois 52,494 (2) 6.49%
Class B Robert W. Kreutz, Peoria, Illinois 30,890 6.54%
Class A Emma Jo Wilkins, Peoria, Illinois 82,252 10.18%
Class B Emma Jo Wilkins, Peoria, Illinois 68,001 14.40%
------------------------------------------------------------------------------------------------------------
</TABLE>
(1) See footnote (1) in Section (b) below.
(2) See footnote (2) in Section (b) below.
(b) Security Ownership of Management
The following table sets forth as of December 31, 1994 information
concerning the beneficial ownership of each class of equity securities by all
directors and all directors and officers of the Company as a group. Class A and
Class B shares are those of the Registrant.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------
Amount and nature of
beneficial ownership
--------------------
Name of Common shares Percent of class
-------------------------------------- -------------------------------
beneficial owner Central Class A Class B Central Class A Class B
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Frank J. Wilkins (1) 30,000 135,285 203,582 4.62% 16.75 43.09
Robert W. Kreutz 5,150 52,494(2) 30,890(2) .79 6.49 6.54
Robert W. McCallum 12 50 -- -- .01 --
Robert D. Wilkins 15 5,176 11,285 -- .64 2.39
-------------------------------------------------------------------------------------------------------------
All directors and officers as
a group 35,177 193,005 245,757 5.41% 23.89 52.02
-------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Inclusive of 14,000 Class A shares and 82,800 Class B shares held as
co-trustee with the First of America Bank of Peoria, for the benefit of
Frank J. Wilkins children; and exclusive of 103,428 Class A shares and
220,886 Class B shares owned by Frank J. Wilkins wife and children.
(2) Held jointly with wife.
(c) Changes in Control
Not applicable.
41
<PAGE> 42
Item 13. Certain Relationships and Related Transactions
Registrant had no such reportable transaction as described under Item
404 of Regulation S-K.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1. Financial Statements
The following consolidated financial statements of Insurance
Investors & Holding Co. and its subsidiaries are included in Part II, Item 8:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
Page(s)
---------------------------------------------------------------------------------------------------
<S> <C>
Auditor s Report --------------------------------------------------------------- 15
Consolidated Balance Sheets - December 31, 1994 and 1993 ----------------------------- 16-17
Consolidated Statements of Operations - Years ended December 31,
1994, 1993 and 1992 ------------------------------------------------------------ 18
Consolidated Statements of Stockholders Equity - Years ended
December 31, 1994, 1993 and 1992 -------------------------------------------------- 19
Consolidated Statements of Cash Flows - Years ended December 31,
1994, 1993 and 1992 --------------------------------------------------------------- 20
Notes to Consolidated Financial Statements --------------------------------------- 21-32
---------------------------------------------------------------------------------------------------
</TABLE>
(a) 2. Financial Statement Schedules
The following consolidated financial statement schedules of Insurance
Investors & Holding Co. and its subsidiaries, which are required under Rule 7 of
Regulation S-X, are included in Part II, Item 8:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
Page(s)
---------------------------------------------------------------------------------------------------
<S> <C>
Schedule III - Condensed Financial Information of the Registrant ---------------- 33-36
Schedule V - Supplementary Insurance Information ------------------------------------- 37
Schedule VI - Reinsurance ------------------------------------------------------------- 38
--------------------------------------------------------------------------------------------------
</TABLE>
42
<PAGE> 43
(a) 3. Exhibits Required Under Item 601 of Regulation S-K:
1) Articles of Incorporation and By-Laws (incorporated by
reference from Exhibit 3 from Form 10-K previously filed for the
year ended December 31, 1981)
2) Subsidiaries of the Registrant (incorporated by reference
to Part I, Item I, (Business) of this Form 10-K
3) Article III, Section 2, of the By-Laws was amended and a
complete copy of the By-Laws as amended was filed as an enclosure
with Form 10-K previously filed for the year ended December 31,
1990
27) Financial Data Schedule
(b) Reports on Form 8-K:
One report on Form 8-K was filed by Insurance Investors and Holding
Company, Inc., on December 9, 1994, relating to the proposed acquisition by
Citizens, Inc.
No other schedules or exhibits are included herein because they are
not required or are inapplicable.
Separate statements for Central Investors Life Insurance Company
have been omitted as their financial position and results of operations are
indicative of the consolidated financial position and results of operations.
43
<PAGE> 44
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
INSURANCE INVESTORS & HOLDING CO.
Registrant
BY /s/ Frank J. Wilkins
--------------------------------------
Frank J. Wilkins, President
Date: August 16, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
By /s/ Frank J. Wilkins
------------------------------------------
Frank J. Wilkins
President, Treasurer and Director
Date: August 16, 1995
By /s/ Robert W. Kreutz
------------------------------------------
Robert W. Kreutz
Vice-President, Secretary and Director
Date: August 16, 1995
By /s/ Robert W. McCallum
------------------------------------------
Robert W. McCallum
Director
Date: August 16, 1995
By /s/ Robert D. Wilkins
------------------------------------------
Robert D. Wilkins
Director
Date: August 16, 1995
<PAGE> 45
EXHIBIT INDEX
EXHIBIT NO. EXHIBIT DESCRIPTION PAGE
----------- ------------------- ----
1) Articles of Incorporation and By-Laws (incorporated by
reference from Exhibit 3 from Form 10-K previously filed
for the year ended December 31, 1981)
2) Subsidiaries of the Registrant (incorporated by
reference to Part I, Item I, (Business) of this Form 10-K)
3) Article III, Section 2, of the By-Laws was amended and
a complete copy of the By-Laws as amended was filed as an
enclosure with Form 10-K previously filed for the year
ended December 31, 1990
27) Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 7
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<DEBT-HELD-FOR-SALE> 0
<DEBT-CARRYING-VALUE> 1,955,882
<DEBT-MARKET-VALUE> 1,902,194
<EQUITIES> 57,957
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 2,115,588
<CASH> 207,506
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 51,262
<TOTAL-ASSETS> 2,402,385
<POLICY-LOSSES> 717,441
<UNEARNED-PREMIUMS> 277
<POLICY-OTHER> 67,443
<POLICY-HOLDER-FUNDS> 292,442
<NOTES-PAYABLE> 267,900
<COMMON> 866,491
0
0
<OTHER-SE> 67,150
<TOTAL-LIABILITY-AND-EQUITY> 2,402,385
53,581
<INVESTMENT-INCOME> 106,508
<INVESTMENT-GAINS> 1,081
<OTHER-INCOME> 0
<BENEFITS> 66,439
<UNDERWRITING-AMORTIZATION> 3,648
<UNDERWRITING-OTHER> 192,682
<INCOME-PRETAX> (127,644)
<INCOME-TAX> 0
<INCOME-CONTINUING> (125,831)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (125,831)
<EPS-PRIMARY> (.10)
<EPS-DILUTED> (.10)
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
