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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OF THE SECURITIES EXCHANGE ACT OF
1934
For the quarterly period ended March 31, 1996
Commission File Number : 1-11396
JOHN ALDEN FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
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<S> <C>
DELAWARE 59-2840712
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
7300 CORPORATE CENTER DRIVE, MIAMI, FLORIDA 33126-1208
(Address of principal executive offices) (Zip Code)
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(305) 715-3767
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. / X / Yes / / No
As of May 6, 1996, 25,286,217 shares of Common Stock, par value $.01, were
outstanding.
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JOHN ALDEN FINANCIAL CORPORATION
FORM 10-Q
For the Quarter Ended March 31, 1996
Index
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Page
----
PART I. FINANCIAL INFORMATION
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Item 1. Condensed Consolidated Financial Statements as of March 31, 1996
(unaudited) and December 31, 1995, and for the three months
ended March 31, 1996 (unaudited) and March 31, 1995 (unaudited) ... 1
Notes to Condensed Consolidated Financial Statements (unaudited) .. 5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations ............................................. 7
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PART II. OTHER INFORMATION
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Item 1. Legal Proceedings ................................................. 19
Item 6. Exhibits and Reports on Form 8-K .................................. 19
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JOHN ALDEN FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
MARCH 31,
1996 DECEMBER 31,
ASSETS (Unaudited) 1995
------------- -------------
<S> <C> <C>
Debt securities:
Held-to-maturity securities, at amortized cost (market $635,248 and $609,599)............... $ 625,553 $ 584,330
Available-for-sale securities, at market (cost $3,660,946 and $3,652,408)................... 3,702,467 3,811,825
Trading account securities, at market (cost $5,446 and $5,450 )............................. 5,559 5,703
Equity securities, at market (cost $70,734 and $72,919)........................................ 78,666 82,639
Mortgage loans................................................................................. 1,491,085 1,506,874
Investment in real estate, at cost, less accumulated depreciation of $1,186 and $1,008......... 20,970 20,998
Real estate owned.............................................................................. 12,348 11,973
Policy loans and other notes receivable........................................................ 84,700 84,079
Short-term investments......................................................................... 4,106 6,349
------------- -------------
Total invested assets..................................................................... 6,025,454 6,114,770
Cash and cash equivalents...................................................................... 131,460 99,606
Deferred policy acquisition costs.............................................................. 251,205 197,667
Investment deposits recoverable................................................................ 802,061 806,333
Other assets................................................................................... 482,049 477,654
------------- -------------
Total assets............................................................................ $ 7,692,229 $ 7,696,030
============= =============
LIABILITIES, REDEEMABLE SECURITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Contract holder liabilities.................................................................. $ 6,895,871 $ 6,867,803
Short-term debt.............................................................................. 15,000 15,063
Long-term debt............................................................................... 92,000 92,000
Other liabilities............................................................................ 225,816 224,517
------------- -------------
Total liabilities...................................................................... 7,228,687 7,199,383
------------- -------------
Redeemable securities:
Series A 9% cumulative preferred stock, $.01 par value;
150,000 shares authorized, issued and outstanding;
mandatory redemption value of $100 per share; including
accrued dividends of $623 and $286; $104.15 and $101.91 per share........................ 15,623 15,286
Common stock, $.01 par value; 739,850 and 850,974 shares
authorized, issued and outstanding........................................................ 3,577 4,130
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Total redeemable securities............................................................ 19,200 19,416
------------- -------------
Stockholders' equity:
Common stock, $.01 par value; 74,260,150 and 74,149,026 shares
authorized; 24,970,550 and 24,822,322 shares issued; 24,546,367
and 24,398,139 shares outstanding........................................................ 250 248
Paid-in capital............................................................................ 181,348 181,154
Net unrealized gain (loss) on investments, net of income taxes............................. 13,770 58,041
Retained earnings.......................................................................... 260,884 250,167
Redemption value of common stock in excess of cost......................................... (2,581) (3,050)
Treasury stock, at cost; 424,183 shares.................................................... (9,329) (9,329)
------------- -------------
Total stockholders' equity............................................................ 444,342 477,231
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Total liabilities, redeemable securities and stockholders' equity..................... $ 7,692,229 $ 7,696,030
============= =============
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
1
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JOHN ALDEN FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
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<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------------------
1996 1995
-------------- ----------------
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Revenues:
Gross insurance premiums and contract charges earned..................... $ 483,200 $ 476,503
Ceded insurance premiums and contract charges earned..................... (215,572) (219,847)
-------------- ----------------
Net insurance premiums and contract charges earned.................. 267,628 256,656
Net investment income.................................................... 11,802 12,859
Other income, including experience refunds and expense allowances
on reinsurance ceded ................................................. 19,883 4,918
Net realized investment gains ........................................... 699 1,539
-------------- ----------------
Total revenues...................................................... 300,012 275,972
-------------- ----------------
Benefits and expenses:
Gross claims incurred on insurance products.............................. 347,019 349,589
Ceded claims incurred on insurance products.............................. (162,450) (177,378)
-------------- ----------------
Net claims incurred on insurance products........................... 184,569 172,211
Universal life and investment-type contract benefits..................... 4,524 3,600
Increase in life insurance reserves...................................... 115 205
Commissions, net of commissions ceded ................................... 21,305 20,602
General expenses, net of expenses ceded ................................. 72,833 67,873
Amortization of purchased intangibles.................................... 1,770 1,256
Amortization of deferred policy acquisition costs........................ 3,087 3,156
Interest expense......................................................... 1,706 2,079
Minority interest in joint venture's loss................................ (167) --
-------------- ----------------
Total benefits and expenses....................................... 289,742 270,982
-------------- ----------------
Income from continuing operations before provision for income taxes.......... 10,270 4,990
Provision for income taxes................................................... 4,087 2,273
-------------- ----------------
Net income from continuing operations........................................ 6,183 2,717
Net income from discontinued operations:
Annuity Operations (net of income taxes of $4,449 and $3,900)............ 7,451 7,091
Western Diversified Group (net of income taxes of $223 and $324).......... 202 854
-------------- ----------------
Net income .................................................................. $ 13,836 $ 10,662
============== ================
Net income applicable to common stock........................................ $ 13,498 $ 10,324
============== ================
Net income per common and common equivalent share (see Note 3):
Net income from continuing operations.................................. $ 0.23 $ 0.09
Net income from discontinued operations................................ 0.30 0.31
-------------- ----------------
Net income............................................................. $ 0.53 $ 0.40
============== ================
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
2
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JOHN ALDEN FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
(DOLLARS IN THOUSANDS)
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<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------------------
1996 1995
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Number of shares outstanding............................................. 24,546,637 24,477,248
============== ==============
Common stock, beginning of period........................................ $ 248 $ 245
Stock option exercises................................................ 1 1
Transfer from redeemable common stock................................. 1 1
-------------- --------------
Common stock, end of period.............................................. $ 250 $ 247
============== ==============
Paid-in capital, beginning of period..................................... $ 181,154 $ 180,401
Stock option exercises................................................ 111 281
Transfer from redeemable common stock................................. 83 111
-------------- --------------
Paid-in capital, end of period........................................... $ 181,348 $ 180,793
============== ==============
Net unrealized gain (loss) on investments, net of income taxes,
beginning of period................................................... $ 58,041 $ (20,348)
Change in net unrealized gain (loss) on investments,
net of income taxes .................................................. (44,271) 16,866
-------------- --------------
Net unrealized gain (loss) on investments, net of income taxes,
end of period......................................................... $ 13,770 $ (3,482)
============== ==============
Retained earnings, beginning of period................................... $ 250,167 $ 256,252
Net income............................................................ 13,836 10,662
Dividends on redeemable preferred stock ($2.25 per share) ............ (338) (338)
Dividends on common stock ($0.11 per share)........................... (2,781) (2,794)
-------------- --------------
Retained earnings, end of period......................................... $ 260,884 $ 263,782
============== ==============
Redemption value of common stock in excess of cost,
beginning of period................................................... $ (3,050) $ (3,645)
Adjustment of put holder shares to market value....................... (24) --
Change in redemption value of common stock in excess of cost......... 493 1,351
-------------- --------------
Redemption value of common stock in excess of cost, end of period........ $ (2,581) $ (2,294)
============== ==============
Treasury stock, beginning and end of period.............................. $ (9,329) $ (6,181)
============== ==============
Stockholders' equity, beginning of period................................ $ 477,231 $ 406,724
Net income............................................................ 13,836 10,662
Change in net unrealized gain (loss) on investments,
net of income taxes................................................... (44,271) 16,866
Dividends on redeemable preferred stock ($2.25 per share) ............ (338) (338)
Dividends on common stock ($0.11 per share)........................... (2,781) (2,794)
Change in redemption value of common stock in excess of cost.......... 493 1,351
Stock option exercises................................................ 112 282
Adjustment of put holder shares to market value....................... (24) --
Transfer from redeemable common stock................................. 84 112
-------------- --------------
Stockholders' equity, end of period...................................... $ 444,342 $ 432,865
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</TABLE>
See Notes to Condensed Consolidated Financial Statements.
3
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JOHN ALDEN FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
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<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------------
1996 1995
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Net cash provided by operating activities....................................... $ 84,187 $ 68,052
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Cash flows from investing activities:
Proceeds from investments sold:
Available-for-sale.................................................. 28,940 8,397
Equity securities................................................... 1,383 33,099
Real estate owned................................................... 3,519 1,985
Maturities, calls and scheduled loan payments:
Held-to-maturity.................................................... 16,775 15,144
Available-for-sale.................................................. 50,776 14,016
Mortgage loans and other notes receivable........................... 99,795 39,992
Investments purchased:
Held-to-maturity.................................................... (57,431) (23,611)
Available-for-sale.................................................. (85,794) (216,682)
Equity securities................................................... -- (25,979)
Mortgage loans and other notes receivable........................... (88,340) (40,915)
Investment in real estate........................................... (150) (395)
Inflows from net sales and purchases of short-term investments ............ 1,995 10,615
Acquisitions............................................................... -- (8,804)
Purchases of property and equipment........................................ (629) (4,232)
------------- --------------
Net cash used in investing activities........................................ (29,161) (197,370)
------------- --------------
Cash flows from financing activities:
Repayments of borrowings of short-term and long-term debt.................. (63) (3,341)
Receipts from universal life and investment-type contracts................. 175,334 228,940
Payments on universal life and investment-type contracts................... (195,778) (136,250)
Payment of dividends....................................................... (2,777) (2,532)
Stock option exercises..................................................... 112 282
------------- --------------
Net cash (used in) provided by financing activities.......................... (23,172) 87,099
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Net increase (decrease) in cash and cash equivalents............................ 31,854 (42,219)
Cash and cash equivalents, beginning of period ................................. 99,606 58,474
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Cash and cash equivalents, end of period ....................................... $ 131,460 $ 16,255
============= ==============
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
4
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JOHN ALDEN FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 -- BASIS OF PRESENTATION
The condensed consolidated financial statements of John Alden Financial
Corporation and its subsidiaries (the "Company") have been prepared pursuant to
the rules and regulations of the Securities and Exchange Commission. Certain
information and note disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted. The interim financial data is unaudited; however, in the
opinion of management, the interim data includes all adjustments, consisting
only of normal recurring adjustments, necessary for a fair statement of the
results of operations for the interim periods presented. The results of
operations for the three months ended March 31, 1996 are not necessarily
indicative of the results to be expected for the full year. As described in
Note 2, the Company is anticipating disposing of certain operations. Certain
reclassifications have been made to prior period condensed consolidated
financial statements to conform to current period presentation.
These condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1995, as
amended.
NOTE 2 -- DISCONTINUED OPERATIONS
On March 27, 1996, the Board of Directors of the Company authorized the
sale of its Annuity Operations and the Western Diversified Group. The Annuity
Operations includes substantially all of the annuity business of John Alden
Life Insurance Company ("JALIC") and all of the business of John Alden Life
Insurance Company of New York ("JANY"). JANY primarily markets annuity
products in the State of New York, as well as certain individual life
insurance. The Western Diversified Group markets credit life and disability
and retail service warranty coverage, primarily through automobile dealers.
The Company anticipates that the potential sales of these businesses will occur
within one year from the above date and will result in a net gain. Such sales
will be subject to applicable regulatory approvals. There can be no assurance
that such sales will occur.
It is anticipated that the sale of the JALIC annuity business will be
accomplished through a coinsurance transaction whereby invested assets
supporting the annuity business will be transferred to the reinsurer. This
amount will be reflected as investment deposits recoverable subsequent to the
effective date of the coinsurance agreement. As of March 31, 1996, total
contract holder liabilities, net of reinsurance, related to such annuities were
$3,938.0 million. It is anticipated that the sales of JANY and the Western
Diversified Group will be accomplished through the sale of the common stock of
the respective subsidiaries. As of March 31, 1996, the net assets of JANY and
the Western Diversified Group aggregated approximately $79.2 million and $49.8
million, respectively. Total contract holder liabilities, net of reinsurance,
related to JANY annuities were $1,304.5 million as of March 31, 1996.
The results of operations relating to the Annuity Operations and the
Western Diversified Group are reflected as discontinued operations in the
accompanying condensed consolidated statements of income. Operating results
relating to continuing operations primarily relate to the Company's healthcare
business. As a result, beginning with the condensed consolidated financial
statements for the quarter ended March 31, 1996, the Company has discontinued
the reporting of segment information.
5
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JOHN ALDEN FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - (CONTINUED)
NOTE 3 -- EARNINGS PER SHARE
Net income per common and common equivalent share was determined by
dividing net income, as adjusted below, by applicable average shares
outstanding (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------
1996 1995
------ ------
<S> <C> <C>
Net income ................................................... $13,836 $10,662
Dividends on redeemable preferred stock ...................... (338) (338)
------- -------
Net income applicable to common stock ........................ $13,498 $10,324
======= =======
Average common and common equivalent shares outstanding ...... 25,627 26,029
======= =======
</TABLE>
Average common and common equivalent shares outstanding include common
shares outstanding and common stock equivalents attributable to outstanding
stock options. All potentially dilutive securities are considered to be common
stock equivalents.
NOTE 4 -- ACCOUNTING CHANGES
The Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 114, "Accounting by Creditors for Impairment of a Loan" and SFAS No. 118,
"Accounting by Creditors for Impairment of a Loan-Income Recognition and
Disclosures" effective January 1, 1995. SFAS No. 114 addresses the accounting
by creditors for the measurement and recognition of loan impairments. SFAS No.
118 amends certain provisions of SFAS No. 114. There was no effect on the
Company's results of operations or financial position upon adoption of these
statements.
The Company adopted SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" effective
January 1, 1996. This statement addresses the recognition and measurement of
impairments of long-lived assets, certain identifiable intangibles and goodwill
related to those assets to be held as well as to be disposed of. There was no
effect on the Company's results of operations or financial position upon
adoption of this statement.
6
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
ACCOUNTING CHANGES
See Note 4 to the Condensed Consolidated Financial Statements for a
discussion of the impact of the adoption of new accounting pronouncements.
RESULTS OF OPERATIONS
KEY FINANCIAL DATA
CONSOLIDATED RESULTS
<TABLE>
<CAPTION>
PERCENTAGE
THREE MONTHS ENDED CHANGE
MARCH 31, POSITIVE
------------------------------------ (NEGATIVE)
1996 1995 EFFECT
----------------- --------------- -------------
In millions, except per share data)
<S> <C> <C> <C>
Gross insurance premiums and contract charges earned $483.2 $476.5 1.4%
Net realized investment gains....................... 0.7 1.5 (53.3)
Interest expense.................................... 1.7 2.1 19.0
Pre-tax income from continuing operations........... 10.3 5.0 106.0
Net income from continuing operations............... 6.2 2.7 129.6
Operating income(1):
Continuing operations............................. 5.5 1.4 292.9
Discontinued operations........................... 8.3 8.9 (6.7)
Total........................................... 13.8 10.3 34.0
Net income.......................................... 13.8 10.6 30.2
Net income applicable to common stock............... 13.5 10.3 31.1
Operating income per common share(1):
Continuing operations............................. 0.21 0.05 320.0
Discontinued operations........................... 0.33 0.35 (5.7)
Total........................................... 0.54 0.40 35.0
Net income per common share......................... 0.53 0.40 32.5
Average common equivalent shares outstanding........ 25,627 26,029 1.5
</TABLE>
- - -------------------
(1) Applicable to common stock, which excludes net realized investment gains
(losses) and is after preferred stock dividends.
Operating income from continuing operations applicable to common stock
increased 292.9% to $5.5 million for the three months ended March 31, 1996 from
$1.4 million for the three months ended March 31, 1995. Operating income from
continuing operations for the three months ended March 31, 1996 was reduced by
$4.4 million for severance and other charges resulting from the Company's
comprehensive strategic evaluation of its non-core product lines and increased
focus on its core product lines. Operating income from continuing operations
for the three months ended March 31, 1995 was reduced by $6.5 million due to an
increase in the medical claim reserves relating to medical services provided
(claims incurred) in 1994. Excluding these adjustments in each of the
respective periods, operating income from continuing operations increased 25.3%
to $9.9 million for the three months ended March 31, 1996 from
7
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$7.9 million for the three months ended March 31, 1995. This increase was due
to an improved gross group expense ratio, partially offset by an increase in
corporate expenses. Operating income from discontinued operations decreased
6.7% to $8.3 million for the three months ended March 31, 1996 from $8.9
million for the three months ended March 31, 1995.
Net realized investment gains decreased to $0.7 million for the three
months ended March 31, 1996 from $1.5 million for the three months ended March
31, 1995. The net increase in operating income, coupled with the decrease in
net realized investment losses, resulted in a 31.1% increase in net income
applicable to common stock to $13.5 million for the three months ended March
31, 1996 from $10.3 million for the three months ended March 31, 1995.
Operating income from continuing operations increased 320.0% to $0.21 per
share for the three months ended March 31, 1996 from $0.05 per share for the
three months ended March 31, 1995. Operating income from discontinued
operations decreased 5.7% to $0.33 per share for the three months ended March
31, 1996 from $0.35 per share for the three months ended March 31, 1995. Net
income increased 32.5% to $0.53 per share for the three months ended March 31,
1996 from $0.40 per share for the three months ended March 31, 1995.
CONTINUING OPERATIONS
HEALTHCARE OPERATIONS
<TABLE>
<CAPTION>
PERCENTAGE
THREE MONTHS ENDED CHANGE
MARCH 31, POSITIVE
------------------------------ (NEGATIVE)
1996 1995 EFFECT
------------ --------------- -------------
(In millions)
<S> <C> <C> <C>
Gross insurance premiums and contract charges
earned....................................... $ 479.2 $ 468.5 2.3%
Group insured data at end of year:
Employers (1)................................ 228,000 247,000 (7.7)
Employee lives............................... 600,000 657,000 (8.7)
Group covered lives............................ 1,147,000 1,289,000 (11.0)
HMO covered lives.............................. 55,000 20,000 175.0
Total covered lives.......................... 1,202,000 1,309,000 (8.2)
Gross group data:
Insurance premiums and contracts
charges earned.............................. $ 406.9 $ 422.6 (3.7)
Insurance premiums earned per group employee
life (in dollars)........................... 667.0 642.7 3.8
Persistency rates............................ 68.4% 72.4% (4.0)
Medical loss ratio........................... 72.5 75.0 2.5
Expense ratio................................ 24.4 24.9 0.5
Combined ratio............................... 96.9 99.9 3.0
Pre-tax income............................... $ 17.2 $ 6.1 182.0
</TABLE>
(1) Includes 37,000 and 42,000 groups, each group made up of one individual,
as of March 31, 1996 and 1995, respectively, marketed through an
association group trust.
Pre-tax income for healthcare operations increased 182.0% to $17.2 million
for the three months ended March 31, 1996 from $6.1 million for the three
months ended March 31, 1995. Pre-tax income for the three months ended March
31, 1996 was reduced by $5.3 million for the charges discussed above related to
healthcare operations. Pre-tax
8
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income for the three months ended March 31, 1995 was reduced by $10.0 million
due to an increase in medical loss reserves relating to claims incurred in
1994, as discussed below. Excluding these adjustments in each of the
respective periods, pre-tax income increased 39.8% to $22.5 million for the
three months ended March 31, 1996 from $16.1 million for the three months ended
March 31, 1995. This increase is primarily due to a lower group gross expense
ratio, as explained below. The medical loss ratio for the three months ended
March 31, 1996 was 72.5% compared to 72.6% for the three months ended March 31,
1995, excluding the $10.0 million for claims incurred in 1994.
In early 1995, the Company experienced an increase in the group gross
medical loss ratio over the already heightened 1994 levels resulting primarily
from increased utilization of medical services and lack of historical
experience in pricing in an environment of healthcare reform, primarily at the
state level, pertaining to small group and individual healthcare. The Company
believes it was among the first major participants in the small group market to
recognize the increasing medical cost trends. The Company identified the
increase during its periodic hindsight review of its estimates of unpaid claims
based on its actual claims experience. Upon such a review completed in late
March of 1995 utilizing the most recent available submitted claims data, the
Company discovered that claims submitted in 1995 relating to medical services
provided in 1994 were at higher levels than originally estimated. As a result
of this review, the Company increased its claim reserves as of December 31,
1994 by $15.0 million. Upon a hindsight review performed in April 1995, based
on claims received in April 1995 for medical services provided in 1994, it
became apparent that the claim reserves for 1994 would have to be further
increased to reflect an even higher level of utilization. Therefore, the
Company recorded a pre-tax charge of $10.0 million in the first quarter of 1995
for claims incurred in 1994. During the remainder of 1995, the Company
continued to experience loss ratio increases over the 1994 levels. The group
gross medical loss ratio increased to 75.0% for the year ended December 31,
1995 from 69.7% for the year ended December 31, 1994.
Premium rate increases are established approximately three months prior to
the quarter in which they become effective. Subsequent to establishing the
first quarter 1996 premium rate increases in October 1995, the Company
identified several factors, in addition to increased utilization, that
contributed to the relatively high medical loss ratio during 1995. These
factors were primarily a result of small group and individual healthcare reform
legislation, primarily at the state level. Such reform included guaranteed
issue, mandated benefits, premium rate limits (including community rating and
modified community rating), guaranteed renewability, minimum medical loss ratio
mandates, risk adjustment mechanisms which allocate losses of individual
carriers to group carriers and other reforms. The Company also increased its
ability to analyze claims experience by various specific characteristics.
These included, among other things, initial group size, current group size,
duration of policy, geographic location, level of deductibles and utilization
of particular benefits. As a result, the Company identified certain blocks of
business with profit margins lower than that which the Company deems
acceptable. These higher risk blocks of the business accounted for
approximately 30% of the total group gross insurance premiums and contract
charges earned in 1995, and incurred a 1995 "hindsighted" loss ratio of 82.0%.
Hindsighted loss ratios are calculated based on the ultimate claim payout over
time for a particular period. On the same basis, the remaining block of
business, representing approximately 70% of 1995 group gross insurance premiums
and contract charges earned, generated a hindsighted loss ratio for 1995 of
70.4%.
As the first year and renewal premium rate increases that were effective
on January 1, 1996 were established in October 1995, they were developed
without benefit of this new information. The average rate increases for the
quarter beginning on January 1, 1996 were approximately 15%. Consistent with
the Company's objective of maintaining profit margins at the risk of reducing
market share, and utilizing the new information discussed above, the Company
significantly increased rates on its new business and increased rates on its
renewal business for the second and third quarters of 1996 by approximately 22%
and 23%, respectively. The Company has taken additional actions that it
believes will enable it to better control the future medical loss ratios on its
group business with a strong emphasis on the high risk business. These actions
include, where appropriate or available, improving discounts from providers,
redesigning benefits, improving underwriting techniques, implementing a lower
commission structure and discontinuing portions of such business, if warranted.
In total, these actions may result in a decrease in the total group gross
insurance premiums and contract charges earned over the next several
9
<PAGE> 12
quarters and possibly thereafter. There can be no assurance that these actions
will restore profit margins to acceptable levels.
As recently announced, the Company will be significantly increasing
development of its managed care networks and products. This increased effort
is part of the Company's strategy to provide needs-based products to its
marketplace and to capitalize on the evolution of more effective provider
systems. The Company is accelerating its development of Scheduled Network
Products. These products offer an even more active managed care option and a
higher level of premium savings. All benefits will be paid based on
negotiated, or scheduled, amounts regardless of whether the insureds choose
network doctors and hospitals.
The Company believes it was among the first major participants in the
small group market to recognize the increasing medical cost trends and, as a
result, it raised its rates in 1995 and the first quarter of 1996 generally
above the competition. The number of group covered lives decreased 11.0% to
1,147,000 at March 31, 1996 from 1,289,000 at March 31, 1995. This decrease,
partially offset by premium rate increases, resulted in a decrease in group
gross premiums and contract charges earned of 3.7% to $406.9 million for the
three months ended March 31, 1996 from $422.6 million for the three months
ended March 31, 1995.
During the three months ended March 31, 1996, the Company further
centralized processing functions by closing its Sacramento, California
processing office, resulting in a charge of approximately $1.0 million. During
this same period, the Company recorded a liability of approximately $1.9
million for the remaining lease obligation related to a computer software
system that will no longer be utilized due to the centralizing of various
functions and offices. The combined total for these severance and other
charges aggregates approximately $2.9 million, or 0.7% of the total group
gross insurance premiums and contract charges earned in this period.
The group gross expense ratio for the three months ended March 31, 1996,
excluding the 0.7% of severance and other charges discussed above, was 23.7%
compared to 24.9% for the three months ended March 31, 1995. This decrease was
primarily attributable to a reduction in the number of employees.
Additionally, reductions in renewal commissions were announced in late 1994 for
business sold subsequent to that announcement, which lowered commission expense
for the three months ended March 31, 1996 compared to the three months ended
March 31, 1995.
Although the Company's medical loss ratio has generally been higher in the
fourth quarter than the other quarters of the year, the Company has recently
recognized an increase in this disparity. The Company cannot predict the
extent to which this disparity may increase or decrease in the future. As
discussed below, the Company is anticipating the sale of its Annuity
Operations. Such operations have generally resulted in fairly stable earnings
per share, which has had the effect of reducing the volatility in the Company's
earnings per share caused by fluctuations in the gross group medical loss
ratio. The Company believes, therefore, that the relative volatility of the
earnings per share may increase following the proposed sale of the Annuity
Operations.
10
<PAGE> 13
OTHER CONTINUING OPERATIONS
<TABLE>
<CAPTION>
PERCENTAGE
THREE MONTHS ENDED CHANGE
MARCH 31, POSITIVE
----------------------- (NEGATIVE)
1996 1995 EFFECT
----------- ---------- -----------
(In millions)
<S> <C> <C> <C>
Gross premiums and fees...... $4.0 $8.0 (50.0)%
Net investment income........ 9.0 10.2 (11.8)
Pre-tax operating loss....... (7.7) (2.7) (185.2)
Net realized investment gains 0.7 1.5 (53.3)
Pre-tax loss................. (7.0) (1.2) (483.3)
</TABLE>
Other continuing operations include JALIC's individual life business and
products no longer marketed by the Company. Also included are investment
income on equity, net corporate realized investment gains and losses and
corporate expenses for the Company and all of its subsidiaries, excluding JANY
and the Western Diversified Group. Pre-tax loss from other continuing
operations increased 483.3% to $7.0 million for the three months ended March
31, 1996 from $1.2 million for the three months ended March 31, 1995. The 1996
amount includes the other continuing operations' share of the severance and
other charges, as discussed above, of approximately $1.4 million.
Additionally, lower-yielding invested assets resulted in reduced investment
income for the 1996 period compared to the 1995 period. Finally, net realized
investment gains were reduced 53.3% to $0.7 million for the three months ended
March 31, 1996 from $1.5 million for the three months ended March 31, 1995. If
the Company completes the anticipated sales of the discontinued operations
discussed below, certain corporate expenses in other continuing operations may
be reduced. However, there can be no assurance as to when and to the extent
which such expense reductions will occur.
DISCONTINUED OPERATIONS
On March 27, 1996, the Board of Directors of the Company authorized the
sale of its Annuity Operations and the Western Diversified Group. The Annuity
Operations includes substantially all of the annuity business of John Alden
Life Insurance Company ("JALIC") and all of the business of John Alden Life
Insurance Company of New York ("JANY"). JANY primarily markets annuity
products in the State of New York, as well as certain individual life
insurance. The Western Diversified Group markets credit life and disability
and retail service warranty coverage, primarily through automobile dealers.
The Company anticipates that the potential sales of these businesses will occur
within one year from the above date and will result in a net gain. Such sales
will be subject to applicable regulatory approvals. There can be no assurance
that such sales will occur.
11
<PAGE> 14
ANNUITY OPERATIONS
<TABLE>
<CAPTION>
PERCENTAGE
THREE MONTHS ENDED CHANGE
MARCH 31, POSITIVE
------------------------- (NEGATIVE)
1996 1995 EFFECT
----------- ----------- ----------
(In millions)
<S> <C> <C> <C>
Deposits received..................................... $166.2 $217.2 (23.5)%
Net investment income................................. 100.8 97.6 3.3
Benefit and surrender payments........................ 190.8 131.6 (45.0)
Interest credited to policyholders.................... 71.1 71.7 0.8
Account balances, net of reinsurance, at end of period 5,284.8 5,228.1 1.1
Pre-tax operating income (net spread earned).......... 13.1 12.6 4.0
Net realized investment losses........................ (1.2) (1.6) 25.0
Pre-tax income........................................ 11.9 11.0 8.2
</TABLE>
The net spread earned increased 4.0% to $13.1 million for the three months
ended March 31, 1996 from $12.6 million for the three months ended March 31,
1995. Average account balances, net of reinsurance, increased 1.1% to $5,284.8
million from $5,228.1 million for these same periods, respectively. Net
realized investment losses decreased 25.0% to $1.2 million from $1.6 million
for these same periods, respectively. Pre-tax income increased 8.2% to $11.9
million for the three months ended March 31, 1996 from $11.0 million for the
three months ended March 31, 1995.
WESTERN DIVERSIFIED GROUP
<TABLE>
<CAPTION>
PERCENTAGE
THREE MONTHS ENDED CHANGE
MARCH 31, POSITIVE
---------------------- (NEGATIVE)
1996 1995 EFFECT
----------- -------- ----------
(In millions)
<S> <C> <C> <C>
Written premiums....................................... $20.0 $21.1 (5.2)%
Gross insurance premiums and contract charges earned... 17.4 16.1 8.1
Pre-tax operating income............................... 0.4 1.2 (66.7)
</TABLE>
Pre-tax income in the Western Diversified Group decreased to $0.4 million
for the three months ended March 31, 1996 from $1.2 million for the three
months ended March 31, 1995.
LIQUIDITY AND CAPITAL RESOURCES
INDEBTEDNESS
The Credit Agreement is collateralized by the capital stock and the
surplus debentures of Houston National Life Insurance Company ("HNLIC"), as
well as the stock of all of the Company's other direct and indirect
non-insurance subsidiaries, other than those owned through an insurance
subsidiary. The Credit Agreement contains restrictive covenants which, among
other things, limit additional indebtedness, payments of dividends, sale of
assets and reinsurance arrangements. It also requires the Company to satisfy
certain financial covenants. The Credit Agreement's interest rate per annum is
based on certain economic indices. The Company made a scheduled principal
payment of $15.0 million in April 1996. Also in April 1996, the Company
borrowed $12.0 million
12
<PAGE> 15
pursuant to the revolving credit facility. Future required principal payments
are $25.0 million in 1997, $32.0 million in 1998 and $47.0 million in 1999.
The principal amounts of outstanding indebtedness of the Company at March
31, 1996 and December 31, 1995 were $107.0 million and $107.1 million,
respectively. At March 31, 1996, the Company's ratio of debt and redeemable
securities to stockholders' equity was 0.28 to 1 compared to 0.27 to 1 at
December 31, 1995. The weighted average annualized interest rates on the
Company's indebtedness were approximately 6.5% and 6.9% for the three months
ended March 31, 1996 and 1995, respectively.
DIVIDENDS
During the fourth quarter of 1995, the Company declared a cash dividend of
$0.11 per share of common stock, aggregating approximately $2.8 million, which
was paid in January 1996. In March 1996, the Company declared a cash dividend
of $0.11 per share of common stock, aggregating approximately $2.8 million,
which was paid in April 1996. The Company paid accrued preferred stock
dividends of approximately $0.7 million in April 1996.
CASH FLOWS
Net cash provided by operating activities increased to $84.2 million for
the three months ended March 31, 1996 from $68.1 million for the three months
ended March 31, 1995.
Net cash used in investing activities decreased to $29.2 million for the
three months ended March 31, 1996 from $197.4 million for the three months
ended March 31, 1995. This was primarily due to the decrease in net cash
provided by financing activities as explained below. Additionally, the Company
reduced its investing activities to maintain a relatively high balance of cash
and cash equivalents as of March 31, 1996 of $131.5 million. The Company
maintained such a high balance as it anticipated spending approximately $36.3
million to exercise an option to purchase a building in the second quarter of
1996, had mortgage commitments as of March 31, 1996 to be advanced in April
1996 of approximately $19.2 million and believed it was prudent to maintain
funds invested in short-term assets due to anticipated surrender activity in
the Company's Annuity Operations.
Net cash used in financing activities aggregated $23.2 million for the
three months ended March 31, 1996 compared to net cash provided by financing
activities of $87.1 million for the three months ended March 31, 1995. This was
primarily due to a decrease in receipts from universal life and investment type
contracts to $175.3 million for the three months ended March 31, 1996 from
$228.9 million for the three months ended March 31, 1995 and an increase in
payments relating to universal life and investments type contracts to $195.8
million from $136.3 million for the same periods, respectively. The decrease
in receipts and the increase in payments for universal life and investment-type
contracts may be due, in part, to the Company's recent downgrades in ratings,
as discussed below.
The Company believes that operating cash flows, together with loan
repayments and investment maturities, are sufficient to meet anticipated
operating liquidity needs.
REINSURANCE RECEIVABLES
Receivables from reinsurers and investment deposits recoverable,
consisting primarily of contract holder liabilities transferred to reinsurers,
aggregated $972.9 million. Of the total, $784.0 million, or 80.6%, has been
placed in trusts. These trust agreements generally require that assets be
maintained at least equal to 100% of the underlying regulatory liabilities and
that the assets in trust be left on deposit with an independent trustee. The
Company generally requires that its reinsurers be rated "A (Excellent)" or
better by A.M. Best and Company ("A.M. Best").
13
<PAGE> 16
Significant reinsurance recoverables due to the Company and premiums ceded
as of and for the three months ended March 31, 1996 are as follows (dollars in
thousands):
<TABLE>
<CAPTION>
PREMIUMS CEDED
RECOVERABLES FOR THE THREE
A. M. BEST -------------------------- MONTHS ENDED
RATING PAID LOSSES UNPAID LOSSES MARCH 31, 1996
-------------- ----------- ------------- --------------
<S> <C> <C> <C> <C>
London Life Insurance Company ........ A++ (Superior) $-- $80,599 $117,839
Mercantile & General Life Reassurance
Company ............................. A+ (Superior) 9,517 15,147 10,918
Transamerica Occidental Life Insurance
Company ............................. A+ (Superior) -- 53,732 78,560
</TABLE>
INVESTMENTS
The Company's investment portfolio is managed by its internal investment
professionals with the objectives of maintaining credit quality and liquidity,
maximizing current income within acceptable levels of risk, minimizing interest
rate exposure and matching the anticipated maturity of the investments with the
anticipated maturity of the liabilities they support. To achieve a balancing
of these objectives, the portfolio emphasizes investment grade publicly traded
debt securities and commercial and residential mortgages meeting the Company's
specific underwriting standards.
14
<PAGE> 17
The Company's investment portfolio at March 31, 1996 is summarized in the
table below (dollars in thousands):
<TABLE>
<CAPTION>
PERCENTAGE
OF TOTAL
CARRYING VALUE CARRYING VALUE
-------------- --------------
<S> <C> <C>
Held-to-maturity securities (1):
U.S. government and agency debt securities (2) ... $ 151,582 2.5%
Municipal debt securities ........................ 22,878 0.4
Investment grade corporate debt securities ....... 194,123 3.2
Non-investment grade corporate debt securities ... 1,721 --
Mortgage-backed debt securities (3) .............. 123,098 2.0
Asset-backed debt securities ..................... 132,151 2.2
---------- ------
Total held-to-maturity securities .............. 625,553 10.3
---------- ------
Available-for-sale securities (4):
U.S. government and agency debt securities (2) ... 1,217,209 20.2
Municipal debt securities ........................ 2,891 0.1
Debt securities issued by foreign governments (5). 15,896 0.3
Investment grade corporate debt securities ....... 1,291,239 21.4
Non-investment grade corporate debt securities ... 3,104 0.1
Mortgage-backed debt securities (3) .............. 921,277 15.3
Asset-backed debt securities ..................... 250,851 4.2
---------- ------
Total available-for-sale securities ............ 3,702,467 61.6
---------- ------
Trading account securities (6) ..................... 5,559 0.1
Equity securities (7) .............................. 78,666 1.3
Commercial mortgages (8) ........................... 1,096,642 18.2
Residential mortgages (8) .......................... 394,443 6.5
Investment in real estate (10) ..................... 20,970 0.3
Real estate owned (11) ............................. 12,348 0.2
Policy loans and other notes receivable (9) ........ 84,700 1.4
Short-term investments (12) ........................ 4,106 0.1
---------- ------
Total investments (13) ........................... $6,025,454 100.0%
========== ======
</TABLE>
- - ------------------
(1) Carried at amortized cost, adjusted for impairments in value which are
considered other than temporary. Total market value was approximately
$635,248,000, representing net unrealized investment gains of
approximately $9,695,000.
(2) Includes $1,105,727,000 of agency collateralized mortgage obligations.
(3) Includes $1,026,375,000 of non-agency and private placement
collateralized mortgage obligations.
(4) Carried at market value. Total amortized cost was approximately
$3,660,946,000, representing net unrealized investment gains of
approximately $41,521,000.
(5) Consist principally of Canadian provincial government bonds.
(6) Carried at market value. Total cost was approximately $5,446,000,
representing net unrealized investment gains of approximately $113,000.
(7) Carried at market value. Total cost was approximately $70,734,000,
representing net unrealized investment gains of approximately $7,932,000.
(8) Carried at the unpaid principal balance less unamortized discounts, a
$6,547,000 valuation reserve and $8,177,000 in write-downs for impairments
in value, which are considered other than temporary.
(9) Consist of policy, collateral loans and provider notes receivable.
(10) Real estate acquired as investment property is carried at cost less
accumulated depreciation of $1,186,000.
15
<PAGE> 18
(11) Acquired in satisfaction of debt. Carried at cost less allowances for
impairments in value which are considered other than temporary.
(12) Carried at amortized cost, which approximates market value.
(13) Includes Annuity Operations invested assets of approximately $5.3
billion. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Discontinued Operations" for a discussion of
the proposed sale of the Annuity Operations.
The following table sets forth the composition of the Company's debt
securities portfolio by rating at March 31, 1996 (dollars in thousands):
<TABLE>
<CAPTION>
TRADING % OF TOTAL
HELD-TO-MATURITY AVAILABLE-FOR-SALE ACCOUNT TOTAL CARRYING
SECURITIES SECURITIES SECURITIES CARRYING VALUE VALUE
---------------- ------------------ ---------- -------------- ----------
<S> <C> <C> <C> <C> <C>
Rating (1)
- - -----------------------------
AAA(2) ...................... $354,867 $2,334,626 $5,559 $2,695,052 62.2%
AA .......................... 55,857 316,771 -- 372,628 8.6
A ........................... 167,670 792,557 -- 960,227 22.2
BBB ......................... 45,438 255,409 -- 300,847 6.9
-------- ---------- ------ ---------- ------
Total investment grade ...... 623,832 3,699,363 5,559 4,328,754 99.9
-------- ---------- ------ ---------- ------
BB .......................... -- -- -- -- --
B ........................... -- -- -- -- --
Other ....................... 1,721 3,104 -- 4,825 0.1
-------- ---------- ------ ---------- ------
Total non-investment grade .. 1,721 3,104 -- 4,825 0.1
-------- ---------- ------ ---------- ------
Total ...................... $625,553 $3,702,467 $5,559 $4,333,579 100.0%
======== ========== ====== ========== ======
</TABLE>
- - ---------------------
(1) Debt securities are classified according to the lowest rating by a
nationally recognized statistical rating organization. Debt securities
not rated by any such organization are classified according to the rating
assigned to them by the NAIC as follows: NAIC class 1 is considered
equivalent to an A or higher rating; class 2, BBB; class 3, BB; and
classes 4-6, B and below.
(2) Includes approximately $1,374,055,000 of U.S. government and agency debt
securities.
Commercial and residential mortgages comprised 24.7% of the Company's
invested assets at March 31, 1996. Mortgage loans are diversified as to
property type, location and loan size, and are collateralized by the related
properties. At March 31, 1996, mortgages more than 30 days delinquent
accounted for 1.7% of the carrying value of the Company's mortgage portfolio of
$1,491.1 million and, together with real estate owned by the Company, accounted
for 0.6% of the carrying value of the Company's total investment portfolio.
16
<PAGE> 19
The following table sets forth information regarding the Company's
delinquent and other problem mortgage loans as of March 31, 1996 (dollars in
thousands):
<TABLE>
<CAPTION>
COMMERCIAL RESIDENTIAL TOTAL
---------- ----------- -----
<S> <C> <C> <C>
Delinquent 31 days or more:
In non-accrual status(1) ........................... $18,011 $2,424 $20,435
Other .............................................. 2,697 2,331 5,028
------- ------ -------
Total delinquent .................................. 20,708 4,755 25,463
Restructured on other than market terms(2) .......... 35,113 -- 35,113
------- ------ -------
Delinquent and other problem loans .................. $55,821 $4,755 $60,576
======= ====== =======
Delinquent and other problem loans as a percentage of
loans outstanding at March 31, 1996 ................ 5.1% 1.2% 4.1%
</TABLE>
- - -----------------------------
(1) The Company continues to accrue interest payments on mortgage loans which
are up to 90 days contractually past due as to principal or interest.
After such 90-day period, no additional interest is accrued. For mortgage
loans which are in process of foreclosure, all accrued interest is reduced
to zero.
(2) Excludes loans in this category included in delinquency totals.
CURRENT TRENDS AND DEVELOPMENTS
As recently announced, the Company will be significantly increasing
development of its managed care networks and products. This increased effort
is part of the Company's strategy to provide needs-based products to its
marketplace and to capitalize on the evolution of more effective provider
systems. The Company is accelerating its development of Scheduled Network
Products. These products offer an even more active managed care option and a
higher level of premium savings. All benefits will be paid based on
negotiated, or scheduled, amounts regardless of whether the insureds choose
network doctors and hospitals.
In April 1995, A.M. Best completed its annual review of JALIC and assigned
it a rating of "A (Excellent)". JALIC had previously been rated "A+
(Superior)". In October 1995, Standard & Poor's Rating Group ("S&P") assigned
JALIC a claims-paying ability rating of "A (Good)". JALIC had previously been
assigned a rating of "A+ (Good)". In November 1995, Moody's Investors Service
assigned JALIC and JANY initial insurance financial strength ratings of "A3".
On March 7, 1996, S&P lowered JALIC's "A (Good)" claims-paying ability rating
to "BBB+" and placed JANY's "A (Good)" claims-paying ability rating on "Credit
Watch with Developing Implications," meaning that JANY's rating could be raised
or lowered in connection with the potential sale of the Company's Annuity
operations. S&P stated that if that sale does not occur, JANY's rating will be
downgraded to reflect JALIC's current rating. On March 11, 1996, A.M. Best
lowered JALIC's and JANY's "A (Excellent)" ratings to "A-(Excellent)" and has
placed such ratings under review with developing implications pending further
discussions with the Company. The Company believes that these actions may
materially adversely affect future sales of the Company's products and
surrenders in the Company's Annuity Operations. Although the Company cannot
predict the ultimate effect of these actions, it is possible that they could
have a material adverse effect on the Company's financial position, results of
operations, cash flows and liquidity.
On March 27, 1996, the Board of Directors of the Company authorized the
sale of its Annuity Operations and the Western Diversified Group. The Annuity
Operations includes substantially all of the annuity business of JALIC and all
of the business of JANY. JANY primarily markets annuity products in the State
of New York, as well as certain individual life insurance. The Western
Diversified Group markets credit life and disability and retail service
warranty coverage, primarily through automobile dealers. The Company
anticipates that the potential sales of these businesses
17
<PAGE> 20
will occur within one year from the above date and will result in a net gain.
Such sales will be subject to applicable regulatory approvals. There can be no
assurance that such sales will occur.
Although the Company's medical loss ratio has generally been higher in the
fourth quarter than the other quarters of the year, the Company has recently
recognized an increase in this disparity. The Company can not predict the
extent to which this disparity may increase or decrease in the future. As
discussed below, the Company is anticipating the sale of its Annuity
Operations. Such operations have generally resulted in fairly stable earnings
per share, which has had the effect of reducing the volatility in the Company's
earnings per share caused by fluctuations in the gross group medical loss
ratio. The Company believes, therefore, that the relative volatility of the
earnings per share may increase following the proposed sale of the Annuity
Operations.
18
<PAGE> 21
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is involved in various legal proceedings incidental to the
conduct of its business. While it is not possible to determine the ultimate
disposition of each of these proceedings, the Company believes that the
ultimate disposition of such proceedings, individually and in the aggregate
(including the lawsuit discussed below), will not have a material adverse
effect on the Company's financial position, results of operations or cash
flows.
During the period of April 1995 through May 1995, the Company and certain
of its officers and directors were named as defendants in a series of putative
class actions alleging violations of the federal securities laws. The actions,
all of which were filed in the United States District Court for the Southern
District of Florida (the "Court"), have been consolidated. In October 1995,
the plaintiffs filed a Consolidated Amended Complaint purportedly on behalf of
a class of persons who purchased the Company's common stock, par value $.01 per
share (the "Common Stock") during the period of October 27, 1994 through May 3,
1995 seeking unspecified damages, fees, costs and interest. The first of the
original complaints was filed after the Company revised its previously
announced earnings for the fourth quarter of 1994 to reflect an unanticipated
increase in claims received in 1995 for medical services rendered in 1994. The
remainder of the original complaints were filed after the Company increased
reserves during the first quarter of 1995 to reflect a further increase in such
claims. Discovery has begun. The plaintiffs' motion for class certification,
which the defendants have opposed, is currently pending before the Court. The
defendants' motion to dismiss the Consolidated Amended Complaint, which the
plaintiffs have opposed, is also pending before the Court. The Company and
individual defendants deny any wrongdoing, believe they have meritorious
defenses against the claims asserted, and intend to vigorously defend the
lawsuits.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27. Financial Data Schedule
(b) Reports on Form 8-K
None
19
<PAGE> 22
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed by the undersigned
thereunto duly authorized.
JOHN ALDEN FINANCIAL CORPORATION
Date: May 14, 1996 By: /s/ Scott L. Stanton
------------------------------
Scott L. Stanton
Senior Vice President and
Chief Financial Officer
20
<PAGE> 23
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description Page No.
- - ----------- ----------------------- --------
<S> <C> <C>
27 Financial Data Schedule 22
</TABLE>
21
<TABLE> <S> <C>
<ARTICLE> 7
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<DEBT-HELD-FOR-SALE> 3,708,026
<DEBT-CARRYING-VALUE> 625,553
<DEBT-MARKET-VALUE> 635,248
<EQUITIES> 78,666
<MORTGAGE> 1,491,085
<REAL-ESTATE> 33,318
<TOTAL-INVEST> 6,025,454
<CASH> 131,460
<RECOVER-REINSURE> 972,866
<DEFERRED-ACQUISITION> 251,205
<TOTAL-ASSETS> 7,692,229
<POLICY-LOSSES> 6,351,913
<UNEARNED-PREMIUMS> 136,895
<POLICY-OTHER> 407,062
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 107,000
15,623
0
<COMMON> 182,594
<OTHER-SE> 265,325
<TOTAL-LIABILITY-AND-EQUITY> 7,692,229
267,628
<INVESTMENT-INCOME> 11,802
<INVESTMENT-GAINS> 699
<OTHER-INCOME> 19,883
<BENEFITS> 189,208
<UNDERWRITING-AMORTIZATION> 3,087
<UNDERWRITING-OTHER> 1,770
<INCOME-PRETAX> 10,270
<INCOME-TAX> 4,087
<INCOME-CONTINUING> 6,183
<DISCONTINUED> 7,653
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,836
<EPS-PRIMARY> 0.53
<EPS-DILUTED> 0.53
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
