SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1995
Commission File Number 2-39310
INTERCONTINENTAL LIFE CORPORATION
New Jersey 22-1890938
(State of Incorporation) (I.R.S. Employer Identification Number)
The Austin Centre,701 Brazos, 12th Floor
Austin, Texas 78701
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (512)404-5000
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
Number of common shares outstanding ($.22 Par Value) at end of
period: 4,145,329.
INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
INDEX
Page No.
Part I - Financial Information
Consolidated Balance Sheets
September 30, 1995 and December 31, 1994..........
Consolidated Statements of Income
For the three and nine month periods ended
September 30, 1995 and 1994.......................
Consolidated Statements of Cash Flows
For the three and nine month periods ended
September 30, 1995 and 1994.......................
Notes to Consolidated Financial Statements.............
Management's Discussion and Analysis of
Financial Conditions and Results of Operations....
Part II
Computations of Earnings Per Share.....................
Part III
Other Information.......................................
Signature Page..........................................
Item 1. Financial Statements
INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands of dollars)
Sept. 30, December 31,
1995 1994
Unaudited
ASSETS
Investments:
Fixed maturities, at amortized cost
(market value approximates $18,879
and $24,175) $ 17,027 $ 23,776
Fixed maturities available for sale
at market value (amortized cost of
$463,268 and $388,263) 469,354 357,084
Equity securities at market (cost
approximates $408 and $368) 1,612 1,243
Policy loans 52,879 48,096
Mortgage loans 16,415 17,055
Invested real estate and other
invested assets 14,729 5,580
Short-term investments 83,925 94,841
Total investments 655,941 547,675
Cash and cash equivalents 1,118 5,563
Notes receivable from affiliates 60,985 60,759
Accrued investment income 8,868 8,495
Agent advances and other
receivables 15,879 19,778
Reinsurance receivables 13,315 14,066
Property and equipment, net 4,493 4,418
Real estate occupied by the
Company, net 36,169 34,418
Deferred policy acquisition costs 24,082 25,282
Present value of future profits of
acquired businesses 51,016 46,153
Deferred financing costs 1,855 2,462
Other assets 9,002 6,506
Separate account assets 409,095 373,419
Total Assets $1,291,818 $1,148,994
(See Notes to Consolidated Financial Statements)
INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands of dollars)
Sept. 30, December 31,
1995 1994
Unaudited
LIABILITIES & SHAREHOLDERS' EQUITY
Liabilities:
Policy liabilities and contractholder
deposit funds
Future policy benefits $ 126,527 $ 117,761
Contractholder deposit funds 550,187 490,232
Unearned premiums 11,514 12,203
Other policy claims & benefits
payable 7,864 8,621
696,092 628,817
Other policyholders' funds 2,740 2,669
Senior loans 63,885 66,585
Deferred federal income taxes 19,028 2,662
Other liabilities 19,165 24,781
Separate account liabilities 406,135 371,173
Total liabilities 1,207,045 1,096,687
Commitments and contingencies
Redeemable preferred stock:
Class A Preferred, $1 par value,
5,000,000 shares authorized and
issued 5,000 5,000
Class B Preferred, $1 par value,
15,000,000 shares authorized and
issued 15,000 15,000
20,000 20,000
Redeemable Preferred Treasury Stock at
cost, 20,000,000 shares (20,000) (20,000)
-0- -0-
Shareholders' equity:
Common stock, $.22 par value,
10,000,000 shares authorized;
5,136,239 and 5,107,239 shares
issued, 4,145,329 and 4,116,329
shares outstanding in 1995 and 1994 1,130 1,124
Additional paid-in capital 3,190 2,854
Net unrealized appreciation of equity
securities 782 568
Net unrealized gain (loss) on invest-
ments in fixed maturities available
for sale 3,956 (20,266)
Retained earnings 78,733 71,045
87,791 55,325
Common Treasury stock, at cost, 990,910
shares in 1995 and 1994 (3,018) (3,018)
Total Shareholders' equity 84,773 52,307
Total Liabilities and Shareholders' $1,291,818 $1,148,994
Equity
(See Notes to Consolidated Financial Statements)
INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTH PERIODS
ENDED SEPTEMBER 30, 1995 AND 1994
(Unaudited)
(in thousands of dollars, except per share data)
3 Months Ended
September 30,
1995 1994
Revenues:
Premiums $ 3,342 $ 4,429
Premiums ceded (805) (997)
Net premiums 2,537 3,432
Earned insurance charges 10,279 9,121
Net investment income 16,779 14,495
Other 858 547
Total 30,453 27,595
Benefits and expenses:
Interest expense 1,443 1,252
Interest on insurance policies 8,213 7,458
Benefits and other expenses 17,025 15,657
Total 26,681 24,367
Income from operations 3,772 3,228
Provision for federal income taxes 1,274 1,129
Net income $ 2,498 $ 2,099
Per Share Data:
Common stock and common stock
equivalents 5,372 5,378
Net income per share available to
common shareholders $ .50 $ .42
(See Notes to Consolidated Financial Statements)
INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE NINE MONTH PERIODS
ENDED SEPTEMBER 30, 1995 AND 1994
(Unaudited)
(in thousands of dollars, except per share data)
9 Months Ended
September 30,
1995 1994
Revenues:
Premiums $ 10,945 $ 14,173
Premiums ceded (2,733) (2,991)
Net premiums 8,212 11,182
Earned insurance charges 30,278 29,177
Net investment income 48,760 43,230
Other 2,639 2,768
Total 89,889 86,357
Benefits and expenses:
Interest expense 4,550 3,774
Interest on insurance policies 24,252 22,500
Benefits and other expenses 49,260 49,281
Total 78,062 75,555
Income from operations 11,827 10,802
Provision for federal income taxes 4,139 3,780
Net income $ 7,688 $ 7,022
Per Share Data:
Common stock and common stock
equivalents 5,372 5,378
Net Income per share available to
common shareholders $ 1.52 $ 1.37
(See Notes to Consolidated Financial Statements)
INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTH PERIODS
ENDED SEPTEMBER 30, 1995 AND 1994
(Unaudited)
(in thousands of dollars)
3 Months Ended
September 30,
CASH FLOWS FROM OPERATING ACTIVITIES 1995 1994
Net Income $ 2,498 $ 2,099
Adjustments to reconcile net income to net
cash (used in) provided by operating
activities:
Amortization of present value of future
profits of acquired businesses 1,447 1,990
Amortization of deferred policy acquisition
costs 1,014 1,214
Depreciation (11) 1,303
Net gain on sales of investments 54 (885)
Financing costs amortized 274 330
Changes in assets and liabilities
Decrease (increase) in accrued investment
income 57 (445)
Decrease in agent advances and other
receivables 7,608 6,842
Policy acquisition costs deferred (590) (959)
Decrease in policy liabilities
and contract holder deposit funds (4,911) (2,050)
Increase in other policyholders' funds 31 48
Decrease in other liabilities (6,975) (5,105)
Decrease (increase) in deferred federal
income taxes 1,661 (834)
Increase in other assets (1,478) (559)
Other, net (1,446) 278
Net cash (used in) provided by
activities $ (767) $ 3,267
(See Notes to Consolidated Financial Statements)
INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTH PERIODS
ENDED SEPTEMBER 30, 1995 AND 1994
(Unaudited)
(in thousands of dollars)
9 Months Ended
September 30,
CASH FLOWS FROM OPERATING ACTIVITIES 1995 1994
Net Income (Loss) $ 7,688 $ 7,022
Adjustments to reconcile net income to net
cash (used in) provided by operating
activities:
Amortization of present value of future
profits of acquired businesses 4,584 4,876
Amortization of deferred policy acquisition
costs 2,749 3,274
Depreciation -0- 1,314
Net gain on sales of investments -0- (1,105)
Financing costs amortized 607 1,074
Changes in assets and liabilities
Decrease (increase) in accrued investment
income 1,081 (129)
Decrease in agent advances and other
receivables 6,527 962
Policy acquisition costs deferred (1,549) (2,610)
(Decrease) increase in policy liabilities
and contract holder deposit funds (22,327) (11,501)
Decrease in other policyholders' funds (309) (34)
Decrease in other liabilities (7,029) (2,645)
Decrease (increase) in deferred federal
income taxes 16,141 (8,925)
Increase in other assets (2,496) (1,157)
Other, net (2,303) (1,050)
Net cash provided by (used in) operating
activities $ 3,364 $(10,634)
(See Notes to Consolidated Financial Statements)
INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTH PERIODS
ENDED SEPTEMBER 30, 1995 AND 1994
(Unaudited)
(In thousands of dollars)
3 Months Ended
September 30,
CASH FLOWS FROM INVESTING ACTIVITIES 1995 1994
Investments purchased $ (2,703) $(35,694)
Proceeds from sale and maturities of
investments 12,054 11,990
Net change in short-term investments (11,080) 24,099
Payment for purchase of insurance sub-
sidiary, net of cash acquired -0- -0-
Purchase & retirement of equipment, net 247 (3,216)
Net cash provided by investing activities (1,482) (2,821)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock 72 -0-
Issuance of senior loan -0- -0-
Repayment of debt -0- -0-
Net cash used in financing activities 72 -0-
Net (decrease) increase in cash and cash
equivalents (2,177) 446
Cash and cash equivalents, beginning of 3,295 5,622
period
$ 1,118 $ 6,068
Cash and cash equivalents, end of period
(See Notes to Consolidated Financial Statements)
INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTH PERIODS
ENDED SEPTEMBER 30, 1995 AND 1994
(Unaudited)
(In thousands of dollars)
9 Months Ended
September 30,
CASH FLOWS FROM INVESTING ACTIVITIES 1995 1994
Investments purchased $(17,561) $(103,419)
Proceeds from sale and maturities of
investments 18,682 84,899
Net change in short-term investments 10,916 51,227
Payment for purchase of insurance
subsidiary, net of cash acquired (17,492) -0-
Purchase & retirement of equipment, net 10 (3,213)
Net cash (used in) provided by investing
activities (5,445) 29,494
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock 336 42
Issuance of senior loan 15,000 -0-
Repayment of debt (17,700) (17,415)
Net cash used in financing activities (2,364) (17,373)
Net (decrease) increase in cash and cash
equivalents (4,445) 1,487
Cash and cash equivalents, beginning of
period 5,563 4,581
Cash and cash equivalents, end of period $ 1,118 $ 6,068
(See Notes to Consolidated Financial Statements)
INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Unaudited)
The financial statements included herein reflect all adjustments
which are, in the opinion of management, necessary to present a
fair statement of the interim results. The statements have been
prepared to conform to the requirements of Form 10-Q and do not
necessarily include all disclosures required by generally
accepted accounting principles (GAAP). The reader should refer
to Form 10-K for the year ended December 31, 1994 previously
filed with the Securities and Exchange Commission for financial
statements prepared in accordance with GAAP. Certain prior year
amounts have been reclassified to conform with current year
presentation.
Acquisition of Insurance Subsidiary
On February 14, 1995, the Company, through Investors-NA,
purchased from Meridian Mutual Insurance Company the stock of
Meridian Life Insurance Company, an Indianapolis-based life
insurer, for a cash purchase price of $17.1 million. After the
aquisition, Meridian Life changed its name to Investors Life
Insurance Company of Indiana ("Investors-IN"). Investors-IN is
licensed in ten states and markets a variety of individual life
and annuity products through independent agents. This is not
considered a significant subsidiary for Securities and Exchange
Commission reporting purposes.
Under the terms of the purchase agreement, the Company acquired
approximately 82% of the outstanding stock of Investors-IN for
$14 million and Investors-NA acquired approximately 18% of the
outstanding stock of Investors-IN for the remainder of the
purchase price. Immediately following the closing of the
transaction, the Company contributed the shares acquired by it to
the unassigned surplus of Investors-NA. As a result, Investors-
IN will be a wholly-owned subsidiary of Investors-NA. This
transaction was financed, in part, through a $15 million increase
in the Company's Senior Loan.
New Accounting Pronouncement
In May 1993, the FASB issued FAS No. 114, "Accounting by
Creditors for Impairment of a Loan", effective for fiscal years
beginning after December 15, 1994. This statement requires that
impaired loans be valued at the present value of the expected
future cash flows discounted at the loan's effective interest
rate or, as a practical expedient, at the loan's observable
market price or the fair value of the collateral if the loan is
collateral dependent. It further amends FAS No. 5, "Accounting
for Contingencies," to require that all contractual principal and
interest payments be considered in determining the impairment of
a loan. The adoption of FAS No. 114 in January 1995 did not have
a material effect on the Company's financial statements.
Item 2. Management's Discussion and Analysis of Financial
Conditions and Results of Operation:
For the nine-month period ended September 30, 1995, ILCO's net
income was $7,688,000 ($1.52 per common share), as compared to
$7,022,000 ($1.37 per common share) for the similar period in
1994.
The results for the first nine months of 1995 include the
operations of Investors Life Insurance Company of Indiana
(formerly known as Meridian Life Insurance Company) for the
period from February 14, 1995 to September 30, 1995. Investors
Life Insurance Company of Indiana (Investors-IN) was purchased by
ILCO and Investors Life Insurance Company of North America
(Investors-NA) for an adjusted purchase price of $17.1 million;
the transaction was completed on February 14, 1995. The name
change was completed in May, 1995.
The statutory earnings of the Company's insurance subsidiaries,
as required to be reported to insurance regulatory authorities,
before interest expense, capital gains and losses, and federal
income taxes were $18.4 million for the nine-month period ended
September 30, 1995, as compared to $15.2 million for the nine-
month period ended September 30, 1994. These statutory earnings
are the source to provide for the repayment of ILCO's
indebtedness.
The operating strategy of the Company's management emphasizes
several key objectives: expense management; marketing of
competitively priced insurance products which are designed to
generate an acceptable level of profitability; maintenance of a
high quality portfolio of investment grade securities; and the
provision of quality customer service.
Premium income, net of reinsurance, for the first nine months of
1995 was $8.2 million, as compared to $11.2 million in the same
period of 1994. The decline is primarily attributable to the
decision to discontinue the writing of credit life and accident
and health insurance, as well as the reduction in premiums
received for traditional (non-universal) life insurance and
accident and health insurance policies. This decline was
partially offset by the premium income resulting from the
inclusion of Investors-IN. Reinsurance premiums ceded were $2.7
million in the first nine months of 1995, as compared to $3.0
million for the similar period in 1994.
Earned insurance charges for the first nine months of 1995 were
$30.3 million, as compared to $29.2 million for the similar
period in 1994. This source of revenues is related to the
universal life insurance book of business of Investors-NA.
Interest expense was $4.6 million for the first nine months of
1995, as compared to $3.8 million for the first nine months of
1994. The increase is attributable to an increase in the average
rate of interest paid on the senior loan - 8.72% for the first
nine months of 1995 as compared to 6.56% for the 1994 period.
The decline in long-term interest rates during the first nine
months of 1995, which was related to general economic conditions,
had a positive effect upon the market value of the fixed
maturities available for sale segment of the portfolio. As of
September 30, 1995, the market value of the fixed maturities
available for sale segment was $469.4 million as compared to a
carrying value of $463.3 million, or an unrealized gain $6.1
million. There is no assurance that this unrealized gain may be
realized in the future.
The investment income earned on the Company's portfolio affects
the level of interest rates which the Company credits to its
universal life insurance, whole life insurance and annuity
products. The objective of the Company is to maintain an
appropriate margin between the rate of interest which it earns on
its investments and the rate which it credits to policyholders.
During the first six months of 1994, management completed its
review of the credit life and credit disability business of the
Company. As a result of this review, management determined that
these product lines were not producing desired profitability
objectives. Accordingly, management announced that the Company's
subsidiaries which underwrote credit insurance would discontinue
the writing of new credit life and credit disability insurance.
For the full year of 1995, this action is expected to have a
negative effect on premium income in the amount of $2.9 million.
Total assets as of September 30, 1995 ($1.29 billion) increased
from the level as of December 31, 1994 ($1.15 billion). The
increase in total assets is primarily attributable to (a) the
inclusion of Investors-IN and (ii) an increase in the amount of
separate account assets.
On January 31, 1995, ILCO, through Investors-NA, purchased, as an
investment property, an office building project known as One
Bridgepoint Office Square in Austin, Texas for a cash purchase
price of $9.75 million. The property, which is 100% leased to
third-party tenants, consists of 20 acres of land, a five-story
office building with 83,474 square feet of rentable space and a
550-car parking garage.
Results of Operations:
For the quarter ended September 30, 1995, the Company's income
from operations before Federal income taxes was $3,772,000 on
revenues of $30,453,000, as compared to $3,228,000, on revenues
of $27,595,000 for the third quarter of 1994.
For the three-month period ended September 30, 1995, the lapse
rate with respect to universal life insurance policies increased
from the lapse rate experienced in the similar period in 1994.
The rate for the 1995 period was 8.0%, as compared to 6.6% in the
1994 period. The lapse rate with respect to traditional (non-
universal) life insurance policies increased from the levels
experienced in the third quarter of 1994. The rate for the
three-month period ended September 30, 1995 was 9.8%, as
compared to 8.7% in the similar period in 1994. The lapse rates
experienced during these periods were within the ranges
anticipated by management.
Liquidity and Capital Resources:
ILCO is a holding company whose principal assets consist of the
common stock of Investors Life Insurance Company of North America
and its subsidiaries - Investors Life Insurance Company of
Indiana (formerly known as Meridian Life Insurance Company) and
InterContinental Life Insurance Company ("ILIC"). ILCO's primary
source of funds consists of payments under two Surplus Debentures
from Investors-NA.
As of December 31, 1994, the outstanding principal balance of the
ILCO's senior loan obligations was $66.6 million. On January 2,
1995, the Company made a scheduled payment of $4.5 million under
its Senior Loan. In connection with the acquisition of
Investors-IN in February, 1995, ILCO borrowed an additional $15
million under its Senior Loan to help finance the purchase. On
April 3, 1995, a principal payment in the amount of $13.2 million
was made, which prepaid the Senior Loan until October 1, 1995.
As a result, the Senior Loan had a principal balance at September
30, 1995 of $63.9 million.
ILCO's principal source of liquidity consists of the periodic
payment of principal and interest by Investors-NA, pursuant to
the terms of the Surplus Debentures. The Surplus Debentures were
originally issued by Standard Life Insurance Company and their
terms were previously approved by the Mississippi Insurance
Commissioner. Upon the merger of Standard Life into Investors-
NA, the obligations of the Surplus Debentures were assumed by
Investors-NA. As of September 30, 1995, the outstanding
principal balance of the Surplus Debentures was $7.2 million and
$64.3 million, respectively. Since Investors-NA is domiciled in
the State of Washington, the provisions of Washington insurance
law apply to the Surplus Debentures. Under the provisions of the
Surplus Debentures and current law, no prior approval of the
Washington Insurance Commissioner is required for Investors-NA to
pay interest or principal on the Surplus Debentures; provided
that, after giving effect to such payments, the statutory surplus
of Investors-NA is in excess of $10 million (the "surplus
floor"). However, Investors-NA has voluntarily agreed with the
Washington Insurance Commissioner that it will provide at least
five days advance notice of payments which it will make under the
surplus debenture. As of September 30, 1995, the statutory
surplus of Investors-NA was $60.0 million, an amount
substantially in excess of the surplus floor. The funds required
by Investors-NA to meet its obligations to the Company under the
terms of the Surplus Debentures are generated from operating
income generated from insurance and investment operations.
In addition to the payments under the terms of the Surplus
Debentures, ILCO has received dividends from Standard Life (now,
from Investors-NA). Effective July 25, 1993, Washington amended
its insurance code to retain the "greater of" standard for
payment of dividends to shareholders, but enacted requirements
that prior notification of a proposed dividend be given to the
Washington Insurance Commissioner and that cash dividends may be
paid only from earned surplus. Investors-NA does not presently
have earned surplus as defined by the regulations adopted by the
Washington Insurance Commissioner and, therefore, is not
permitted to pay a cash dividend. However, since the new law
applies only to dividend payments, the ability of Investors-NA to
make principal and interest payments under the Surplus Debentures
is not affected. ILCO does not anticipate that Investors-NA will
have any difficulty in making principal and interest payments on
the Surplus Debentures in the amounts necessary to enable ILCO to
service the Senior Loan for the foreseeable future.
Investors-IN is domiciled in the State of Indiana. Under the
Indiana insurance code, a domestic insurer may make dividend
distributions upon proper notice to the Department of Insurance,
as long as the distribution is reasonable in relation to adequate
levels of policyholder surplus and quality of earnings. Under
Indiana law the dividend must be paid from earned surplus.
Extraordinary dividend approval would be required where a
dividend exceeds the greater of 10% of surplus or the net gain
from operations for the prior fiscal year. Investors-IN
currently has earned surplus.
ILCO's net cash flow provided by (used in) operating activities
was $3,364,000 for the nine-month period ended September 30,
1995, as compared to $(10,634,000) for the same period in 1994.
This change is primarily due to fluctuations in the amount of
deferred federal income taxes, related to the market value of the
portion of investments assets that are fixed maturities available
for sale.
Management believes that its cash, cash equivalents and short
term investments are sufficient to meet the needs of its business
and to satisfy debt service.
Investments:
As of September 30, 1995, the book value of the Company's
invested assets totaled $655.9 million, as compared to $547.7
million as of December 31, 1994. This change was affected
primarily by the inclusion of Investors-IN, which added
approximately $93 million in investment assets.
The level of short-term investments as of September 30, 1995 was
$83.9 million, as compared to $94.8 million as of December 31,
1994. The decline in the level of short-term investments reflects
the actions of management to diversify the investment portfolio
of the Company.
The fixed maturities available for sale portion of invested
assets at September 30, 1995 was $469.4 million. The amortized
cost of the fixed maturities available for sale segment as of
September 30, 1995 was $463.3 million, representing a net
unrealized gain of $6.1 million. This unrealized gain
principally reflects changes in interest rates from the date the
respective investments were purchased. To reduce the exposure to
interest rate changes, portfolio investments are selected so that
diversity, maturity and liquidity factors approximate the
duration of associated policyholder liabilities.
The assets held by ILCO's life insurance subsidiaries must comply
with applicable state insurance laws and regulations. In
selecting investments for the portfolios of its life insurance
subsidiaries, the Company's emphasis is to obtain targeted profit
margins, while minimizing the exposure to changing interest
rates. This objective is implemented by selecting primarily short-
to medium-term, investment grade fixed income securities. In
making such portfolio selections, the Company does not select new
investments which are commonly referred to as "high yield" or
"non-investment grade."
The Company's fixed maturities portfolio (including short-term
investments), as of September 30, 1995, included a non-material
amount (0.57% of total fixed maturities and short-term
investments) of debt securities which, in the statements of the
companies as filed with state insurance departments, were
designated under the National Association of Insurance
Commissioners ("NAIC") rating system as "3" (medium quality) or
below. As of December 31, 1994, the comparable percentage was
1.1%. Of these non-investment grade investments, .30% were in
the medium quality (or "3") category, with only .27% receiving an
NAIC rating of "4" (low quality) or below.
The consolidated balance sheets of the Company as of September
30, 1995 include $60.985 million of "Notes receivable from
affiliates", represented by: (i) a loan of $22.5 million from
Investors-NA to Family Life Corporation and a $2.5 million loan
from Investors-CA to Financial Industries Corporation (which is
now owned by Investors-NA as a result of the merger of Investors-
CA into Investors-NA) and $1.485 million of additions to the $2.5
million note made in accordance with the terms of such note;
these loans were granted in connection with the 1991 acquisition
of Family Life Insurance Company by a wholly-owned subsidiary of
FIC, (ii) a loan of $30 million by Investors-NA to Family Life
Corporation made in July, 1993, in connection with the prepayment
by the FIC subsidiaries of indebtedness which had been previously
issued to Merrill Lynch as part of the 1991 acquisition and (iii)
a loan of $4.5 million by Investors-NA to Family Life Insurance
Investment Company made in July, 1993, in connection with the
same transaction described above. The NAIC has assigned a rating
of "3" to the $30 million note and the $4.5 million note
described above. These loans have not been included in the
preceding description of NAIC rating percentages.
Management believes that the absence of any material amounts of
"high-yield" or "non-investment grade" investments (as defined
above) in the portfolios of its life insurance subsidiaries
enhances the ability of the Company to service its debt, provide
security to its policyholders and to credit relatively consistent
rates of return to its policyholders.
Accounting Developments:
In May 1993, the FASB issued FAS No. 114, "Accounting by
Creditors for Impairment of a Loan", effective for fiscal years
beginning after December 15, 1994. This statement requires that
impaired loans be valued at the present value of the expected
future cash flows discounted at the loan's effective interest
rate or, as a practical expedient, at the loan's observable
market price or the fair value of the collateral if the loan is
collateral dependent. It further amends FAS No. 5, "Accounting
for Contingencies," to require that all contractual principal and
interest payments be considered in determining the impairment of
a loan. The adoption of FAS No. 114 in January, 1995, did not
have a material impact on the Company's financial statements.
INTERCONTINENTAL LIFE CORPORATION
PART II
ITEM 6(A)
Net income per share is based on the weighted average common and
common equivalent shares outstanding during each year.
3 Months Ended 9 Months Ended
Sept. 30, Sept. 30,
1995 1994 1995 1994
(in thousands)
Net income $ 2,498 $ 2,099 $ 7,688 $ 7,022
Interest expense reduc-
tion net of income tax
effect 162 136 484 354
Net income available to
common shareholders $ 2,660 $ 2,235 $ 8,172 $ 7,376
Divide by:
Common shares out-
standing, treasury
stock 4,145 3,291 4,145 3,291
Dilutive common share
equivalents 1,227 2,087 1,227 2,087
Common stock and common
stock equivalents 5,372 5,378 5,372 5,378
Net income per share
available to common
shareholders $ .50 $ .42 $ 1.52 $ 1.37
INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
Part III. Other Information
Item 1. Legal Proceedings
The Company and its subsidiaries are defendants in certain legal
actions related to the normal business operations of the Company.
Management believes that the resolution of such legal actions
will not have a material impact upon the financial statements.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Form 10-K Annual Report of Registrant for the year ended
December 31, 1994 heretofore filed by Registrant with the
Securities and Exchange Commission, which is hereby
incorporated by reference.
(b) Reports on Form 8-K:
None
INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act
of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
INTERCONTINENTAL LIFE CORPORATION
/s/ James M. Grace
James M. Grace
Treasurer
Date: November 13, 1995
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<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
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