<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): January 30, 1997
AMBAC INC.
(Exact name of Registrant as specified in its charter)
Delaware 1-10777 13-3621676
(State of incorporation) (Commission file number) (I.R.S. employer
identification no.)
One State Street Plaza
New York, New York 10004
(Address of principal executive offices) (Zip code)
(212) 668-0340
(Registrant's telephone number, including area code)
Page 1 of 13 Pages
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Index to Exhibits on Page 4
<PAGE> 2
ITEM 5. OTHER EVENTS
On January 30, 1997, AMBAC Inc. (the "REGISTRANT") issued a press release
containing unaudited interim financial information and accompanying discussion
for the 1996 fourth quarter and full-year earnings. Exhibit 99.06 is a copy of
such press release and is incorporated herein by reference.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(c) Exhibits.
Exhibit Number Item
99.06 Unaudited interim financial statements and
accompanying discussion for the three months
ended December 31, 1996 and the year ended
December 31, 1996 contained in the press
release issued by the Registrant on January 30,
1997.
PAGE 2 OF 13
<PAGE> 3
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED.
AMBAC INC.
(REGISTRANT)
DATED: FEBRUARY 14, 1997 BY: /S/ RICHARD G. GROSS
--------------------------
RICHARD B. GROSS
SENIOR VICE PRESIDENT,
GENERAL COUNSEL AND SECRETARY
PAGE 3 OF 13
<PAGE> 4
INDEX TO EXHIBIT
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
99.06 Unaudited interim financial statements and
accompanying discussion for the three months ended
December 31, 1996 and the year ended December 31,
1996 contained in the press release issued by the
Registrant on January 30, 1997.
PAGE 4 OF 13
<PAGE> 1
INDEX TO EXHIBIT
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
99.06 Unaudited interim financial statements and
accompanying discussion for the three months ended
December 31, 1996 and the year ended December 31,
1996 contained in the press release issued by the
Registrant on January 30, 1997.
PAGE 4 OF 13
<PAGE> 2
FOR IMMEDIATE RELEASE
Contact: Frank J. Bivona
(212) 208-3236
Website: http://www.ambac.com
AMBAC INC. ANNOUNCES FOURTH QUARTER NET INCOME
OF $52.0 MILLION, UP 9%
-- FOURTH QUARTER CORE EARNINGS UP 17%, OPERATING EARNINGS UP 10% --
January 30, 1997-New York, NY: AMBAC Inc. (NYSE: ABK) today announced
fourth quarter 1996 net income of $52.0 million, or $1.49 per share, an increase
of 9% from $47.8 million, or $1.36 per share in the fourth quarter of 1995. The
increase in net income was the result of increased financial guarantee insurance
operating income partially offset by lower financial services operating income.
The fourth quarter 1996 increase over the comparable prior period also reflects
the Company's equity in the loss of an affiliate (HCIA Inc.) of $3.1 million in
the fourth quarter of 1995.
Net income for full year 1996 was $276.3 million, or $7.90 per share,
an increase of 65% from $167.6 million, or $4.78 per share for full year 1995.
The increase in net income in 1996 was largely due to the second quarter
realized gain of $155.6 million (which had a net income per common share effect
of $2.88) from the sale of the Company's remaining holdings of HCIA Inc., a
former affiliate of the Company. In the third quarter of 1995 the Company had
recognized a realized gain of $19.1 million (which had a net income per common
share effect of $0.34) from the sale of 1.1 million shares of HCIA Inc.
Excluding the effects of the respective gains from the sales of HCIA Inc. stock
in both 1996 and 1995, net income for full year 1996 increased 13% over full
year 1995. This increase in net income is primarily the result of higher
financial guarantee insurance and financial services operating income.
Commenting on the results, AMBAC Chairman and CEO, Phillip B. Lassiter,
stated, "The fourth quarter capped off an excellent year for AMBAC as results
for the quarter and the year as a whole handily surpassed our long-term
financial targets. AMBAC is well positioned for the future and our business
prospects continue to appear very attractive as we begin to move through the new
year."
--MORE--
<PAGE> 3
AMBAC Fourth Quarter 1996 Earnings/2
Core earnings(1) for the fourth quarter of 1996 were $44.8 million, an
increase of 17% from $38.1 million in the fourth quarter of 1995. The increase
in core earnings was primarily the result of continued growth in net insurance
premiums earned from the underlying book of business and net investment income
from financial guarantee insurance operations. Core earnings for the full year
1996 were $170.5 million, an increase of 17% from $145.5 million in 1995. Core
earnings, which the Company reports as analytical data, exclude the effect on
consolidated net income from net realized gains and losses, net insurance
premiums earned from refundings and calls and certain non-recurring items.
Operating earnings(1) for the fourth quarter of 1996 were $48.3
million, an increase of 10% from $44.0 million in the fourth quarter of 1995.
Operating earnings for the full year 1996 were $188.3 million, an increase of
19% from $158.2 million in 1995. The Company defines operating earnings as net
income, less the effect of net realized gains and losses and certain
non-recurring items.
The Company also announced that it completed its acquisition of
substantially all of the assets of Cadre Financial Services, Inc. (Cadre) on
December 31, 1996, for approximately $20.0 million in Company stock and cash.
Cadre, based in Ronkonkoma, New York, is a provider of cash management and
investment advisory services to local school districts, hospitals and health
care organizations and municipalities. As a result of this acquisition, AMBAC
has decided to close its Westport, Connecticut office and plans to consolidate
its financial services businesses in Ronkonkoma. The consolidation is expected
to occur in early 1997 and the Company anticipates that it will record a
restructuring charge in the first quarter of 1997 which is not expected to
exceed $4 million.
Mr. Lassiter stated, "This acquisition goes a long way toward building
the desired critical mass for our municipal investment services business."
FINANCIAL GUARANTEE INSURANCE
The Company provides financial guarantee insurance through its
principal operating subsidiary, AMBAC Indemnity Corporation (AMBAC Indemnity),
which is a leading insurer of municipal and structured finance obligations.
Financial guarantee insurance operating income for the fourth quarter of 1996
was $68.3 million, an increase of 1% from $67.5 million in the fourth quarter of
1995, primarily due to increased premiums earned and higher net investment
income for the period, partially offset by lower net realized gains on sales of
securities. Financial guarantee insurance operating income for full year 1996
was $225.3 million, an increase of 7% from $210.8 million in full year 1995,
primarily due to increased premiums earned and higher net investment income,
partially offset by net realized losses on sales of securities and higher
expenses.
AMBAC Indemnity insured $13.0 billion in par value bonds during the
fourth quarter of 1996, an increase of 27% from the $10.2 billion insured in the
fourth quarter of 1995. Par value written for the fourth quarter of 1996
comprised $8.2 billion from municipal bond insurance and $4.8 billion from
structured finance insurance, versus $7.1 billion and $3.1 billion,
respectively, in the fourth quarter of 1995. According to estimates based on
industry sources, AMBAC Indemnity's new issue municipal market share for the
fourth quarter of 1996 was approximately 26%, versus approximately 24% in the
fourth quarter of 1995. AMBAC Indemnity's new issue municipal market share for
the full year 1996 was approximately 29% as compared to approximately 25% in
1995.
--MORE--
<PAGE> 4
AMBAC Fourth Quarter 1996 Earnings/3
Gross premiums written for the fourth quarter of 1996 were $71.2
million, a decrease of 3% from the $73.2 million written in the fourth quarter
of 1995. This decrease was primarily due to a decrease in structured finance
premiums written of $11.2 million in the fourth quarter of 1996, which was
partially offset by an increase of $10.3 million in new issue municipal bond
premiums written. Gross premiums written for the full year 1996 were $247.2
million, an increase of 28% from the $193.3 million written in 1995. This
increase was driven by a $57.7 million increase in new issue municipal bond
premiums written.
While most of AMBAC Indemnity's premiums written are collected up-front
at policy issuance, a growing portion of premiums are collected on an
installment basis. The net present value of estimated future installment
premiums written in the fourth quarter of 1996 was $27.7 million, an increase of
24% from the $22.4 million written in the fourth quarter of 1995. The aggregate
net present value of estimated future installment premiums written was $157.7
million and $110.0 million as of December 31, 1996 and 1995, respectively.
AMBAC Indemnity reported adjusted gross premiums written, which are
defined as up-front premiums plus the present value of estimated future
installment premiums, of $90.6 million in the fourth quarter of 1996,
essentially flat from the $90.7 million written in the comparable prior period.
Adjusted gross premiums written for the full year 1996 were $296.4 million, a
34% improvement from the $221.3 million written in 1995.
Ceded premiums written for the fourth quarter of 1996 were $8.5
million, versus the $24.3 million written in the fourth quarter of 1995. The 65%
decrease in ceded premiums written is primarily due to a decrease in premiums
ceded under facultative reinsurance agreements during the fourth quarter of
1996. Ceded premiums written for the full year 1996 were $37.8 million, versus
$28.6 million written in 1995. Ceded premiums written in 1995 were reduced by
$18.1 million in return premiums from the cancellation of reinsurance contracts
in the second quarter of 1995. Excluding the 1995 return premiums, ceded
premiums written in 1996 decreased 19% from 1995, primarily due to less premiums
ceded under facultative reinsurance agreements in 1996.
Net premiums written for the fourth quarter of 1996 were $62.7 million,
an increase of 28% from the $48.9 million written in the fourth quarter of 1995.
Net premiums written for the full year 1996 were $209.4 million, versus $164.7
million written in 1995, a 27% increase.
Net premiums earned for the fourth quarter of 1996 were $35.0 million,
an increase of 4% from the $33.5 million earned in the fourth quarter of 1995.
This increase was primarily the result of the growth in premiums earned from the
underlying book of business during the period, partially offset by lower
premiums earned from refundings and calls in the fourth quarter of 1996. Net
premiums earned in the fourth quarter of 1996 included $6.2 million from
refundings, calls and other accelerations (which had a net income per common
share effect of $0.10) compared to the fourth quarter of 1995, which included
$10.4 million of net premiums earned from refundings, calls and other
accelerations (which had a net income per common share effect of $0.17). Net
premiums earned for the full year 1996 were $136.6 million, an increase of 22%
from the $111.8 million earned in 1995.
Net investment income for the fourth quarter of 1996 was $37.7 million,
an increase of 12% from $33.8 million in the fourth quarter of 1995. The
increase was primarily due to the growth of the investment portfolio partially
offset by lower yields. Net investment income for the full year 1996 was $144.9
million, an increase of 11% from $131.0 million in 1995. AMBAC Indemnity's
investments in tax-exempt securities were 79% of the total market value of the
portfolio as of December 31, 1996, as compared to 69% at December 31, 1995.
--MORE--
<PAGE> 5
AMBAC Fourth Quarter 1996 Earnings/4
Underwriting and operating expenses for the fourth quarter of 1996 were
$9.4 million, an increase of 3% from $9.1 million in the fourth quarter of 1995.
This increase was primarily the result of higher gross underwriting expenses.
Underwriting and operating expenses for the full year 1996 were $37.2 million,
an increase of 8% from $34.5 million in 1995.
FINANCIAL SERVICES
Through its financial services subsidiaries, the Company provides
investment contracts, interest rate swaps and investment management principally
to states, municipalities and municipal authorities. Financial services
operating income for the fourth quarter of 1996 was $2.2 million, versus $3.5
million in the fourth quarter of 1995. Financial services revenues for the
fourth quarter of 1996 were $6.1 million, versus $5.8 million in the fourth
quarter of 1995. The increase was primarily due to higher net interest income
related to municipal investment contracts, partially offset by lower revenues on
interest rate swaps during the fourth quarter of 1996. Financial services
expenses for the fourth quarter of 1996 were $3.9 million versus $2.3 million in
the fourth quarter of 1995. The increased expenses resulted primarily from
higher operating and acquisition-related expenses for the investment management
business.
Financial services operating income for the full year 1996 was $10.9
million on revenues of $22.1 million and expenses of $11.2 million, as compared
to operating income of $5.2 million on revenues of $13.0 million and expenses of
$7.8 million for the full year 1995.
CORPORATE ITEMS
Interest expense for the fourth quarter of 1996 was $5.3 million, flat
compared to the fourth quarter of 1995. Income taxes for the fourth quarter of
1996 were at an effective rate of 21.3%, versus 23.6% in 1995. The effective
income tax rate for the full year 1996 was 26.4%, compared to 21.7% for the full
year 1995. This increase in the effective tax rate for the year was primarily
due to the realized gain from the sale of HCIA stock in the second quarter of
1996.
BALANCE SHEET ANALYSIS
Total assets as of December 31, 1996 were $5.88 billion, an increase of
11% over $5.31 billion at December 31, 1995. This increase was primarily due to
continued growth of the Company's financial guarantee insurance and financial
services operations and the sale of HCIA in the second quarter of 1996,
partially offset by a decline in market value of investments resulting from the
increase in interest rates during 1996.
As of December 31, 1996, the Company's stockholders' equity was $1.62
billion, an increase of 15% over year end 1995. This increase was primarily due
to the Company's 1996 operating results, including the sale of HCIA, partially
offset by the decline in market value of investments. Book value per common
share increased 15% to $46.02 at December 31, 1996, from $40.04 at December 31,
1995. Adjusted book value (ABV)(2) per common share increased 11% to $62.50 at
December 31, 1996, from $56.47 at December 31, 1995.
--MORE--
<PAGE> 6
AMBAC Fourth Quarter 1996 Earnings/5
REGULAR QUARTERLY CASH DIVIDEND DECLARED
The Board of Directors of AMBAC Inc. declared the regular quarterly
cash dividend of $0.165 per share of common stock. The dividend is payable on
March 5, 1997 to stockholders of record on February 10, 1997.
ANNUAL MEETING OF STOCKHOLDERS
The Board of Directors also set the 1997 Annual Meeting of Stockholders
for Wednesday, May 14, 1997, at 11:30 a.m. in New York City. The record date for
determining stockholders entitled to notice of, and to vote at, the Annual
Meeting will be the close of business, March 21, 1997.
********************
AMBAC Inc., headquartered in New York City, is a holding company that
provides through its affiliates financial guarantee insurance and financial
services to clients in both the public and private sectors. The Company's
principal operating subsidiary, AMBAC Indemnity Corporation, a leading insurer
of municipal and structured finance obligations, has been assigned triple-A
claims-paying ability ratings from Moody's Investors Service, Inc., Standard &
Poor's Ratings Group, Fitch Investors Service, L.P. and Nippon Investors
Service, Inc.
********************
(1) Core earnings and operating earnings are not substitutes for net income
computed in accordance with Generally Accepted Accounting Principles (GAAP) but
are important measures used by management, equity analysts and investors to
measure the financial results of the Company.
(2) Adjusted book value (ABV), which is not promulgated under GAAP, is used by
management, equity analysts and investors as a measurement of the Company's
intrinsic value with no benefit given for ongoing business activity. Management
derives adjusted book value by beginning with stockholders' equity (book value)
and adding or subtracting the after-tax value of: the net unearned premium
reserve; deferred acquisition costs; the present value of estimated net future
installment premiums; the unrealized gain on the investment in HCIA (prior to
sale on May 6, 1996); and the unrealized gain or loss on investment contract
liabilities. The definition of ABV used by the Company may differ from
definitions of ABV used by other public holding companies of financial guarantee
insurers. The adjustments described above will not be realized until future
periods and may differ materially from the amounts used in determining ABV.
--TABLES WILL FOLLOW--
<PAGE> 7
AMBAC INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
(DOLLARS IN THOUSANDS EXCEPT COMMON SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEARS ENDED
DECEMBER 31, DECEMBER 31,
--------------------------------- --------------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Financial guarantee insurance operations:
Gross premiums written $ 71,193 $ 73,197 $ 247,208 $ 193,326
Ceded premiums written (8,532) (24,292) (37,793) (28,606)
------------ ------------ ------------ ------------
Net premiums written 62,661 48,905 209,415 164,720
Increase in unearned premiums (27,615) (15,382) (72,786) (52,900)
------------ ------------ ------------ ------------
Net premiums earned 35,046 33,523 136,629 111,820
Net investment income 37,729 33,810 144,941 131,049
Net realized gains (losses) 4,594 9,508 (20,531) 177
Other income 328 893 5,261 5,580
------------ ------------ ------------ ------------
Total financial guarantee revenues 77,697 77,734 266,300 248,626
------------ ------------ ------------ ------------
Losses and loss adjustment expenses (33) 1,167 3,778 3,377
Underwriting and operating expenses 9,437 9,067 37,182 34,450
------------ ------------ ------------ ------------
Total financial guarantee expenses 9,404 10,234 40,960 37,827
------------ ------------ ------------ ------------
Financial guarantee insurance operating income 68,293 67,500 225,340 210,799
Financial services operating income 2,198 3,506 10,943 5,216
Equity in income (loss) of affiliate -- (3,146) 627 (185)
Interest expense (5,252) (5,309) (20,925) (20,934)
Other income (deductions), net 98 66 3,208 175
Other net realized gains 700 -- 156,313 19,103
------------ ------------ ------------ ------------
Income before income taxes 66,037 62,617 375,506 214,174
------------ ------------ ------------ ------------
Income tax expense:
Current taxes 16,757 8,701 106,664 33,286
Deferred taxes (2,709) 6,092 (7,475) 13,293
------------ ------------ ------------ ------------
Total income taxes 14,048 14,793 99,189 46,579
------------ ------------ ------------ ------------
Net income $ 51,989 $ 47,824 $ 276,317 $ 167,595
============ ============ ============ ============
Per share amounts -
Net income per common share $ 1.49 $ 1.36 $ 7.90 $ 4.78
============ ============ ============ ============
Weighted average number of
Common shares outstanding 34,984,340 35,113,691 34,964,814 35,100,881
============ ============ ============ ============
</TABLE>
<PAGE> 8
AMBAC INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND DECEMBER 31, 1995
(DOLLARS IN THOUSANDS EXCEPT COMMON SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- -----------------
<S> <C> <C>
ASSETS
- ------
Investments:
Bonds, at fair value
(amortized cost of $4,979,017 in 1996 and $4,082,791 in 1995) $ 5,088,031 $ 4,264,904
Short-term investments, at cost (approximates fair value) 112,511 176,689
------------ ------------
Total investments 5,200,542 4,441,593
Cash 7,734 12,167
Securities purchased under agreements to resell 201,169 240,280
Receivable for municipal investment contracts 33,299 204,797
Receivable for securities 18,467 14,523
Investment income due and accrued 65,920 56,370
Investment in affiliate -- 45,019
Deferred acquisition costs 94,212 82,620
Prepaid reinsurance 168,786 153,372
Other assets 85,836 58,538
------------ ------------
Total assets $ 5,875,965 $ 5,309,279
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Unearned premiums $ 991,224 $ 903,026
Losses and loss adjustment expenses 60,220 65,996
Ceded reinsurance balances payable 7,438 14,654
Obligations under municipal investment contracts 2,417,817 2,185,746
Obligations under municipal investment repurchase contracts 336,773 241,112
Deferred income taxes 67,815 103,697
Current income taxes 18,809 5,125
Debentures 223,798 223,732
Accrued interest payable 29,958 25,494
Accounts payable and other liabilities 57,689 44,578
Payable for securities 49,408 92,131
------------ ------------
Total liabilities 4,260,949 3,905,291
------------ ------------
Stockholders' equity:
Preferred stock -- --
Common stock, class A -- --
Common stock 353 353
Additional paid-in capital 498,401 492,495
Unrealized gains on investments, net of tax 58,911 102,470
Retained earnings 1,072,418 819,479
Common stock held in treasury at cost (15,067) (10,809)
------------ ------------
Total stockholders' equity 1,615,016 1,403,988
------------ ------------
Total liabilities and stockholders' equity $ 5,875,965 $ 5,309,279
============ ============
Number of common shares outstanding (net of treasury shares) 35,090,385 35,063,573
============ ============
Book value per common share $ 46.02 $ 40.04
============ ============
Adjusted book value per common share $ 62.50 $ 56.47
============ ============
</TABLE>
<PAGE> 9
AMBAC INC. AND SUBSIDIARIES
COMPONENTS OF CORE EARNINGS
FOR THE PERIODS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEARS ENDED
DECEMBER 31, DECEMBER 31,
------------------------- ---------------------------
1996 1995 1996 1995
-------- -------- --------- ---------
<S> <C> <C> <C> <C>
Net income $ 51,989 $ 47,824 $ 276,317 $ 167,595
Adjustments:
Net realized (gains) losses (3,730) (6,239) (88,066) (11,890)
Non-recurring items -- 2,456 -- 2,456
-------- -------- --------- ---------
Operating earnings 48,259 44,041 188,251 158,161
Refundings, calls and
Other accelerations (3,506) (5,926) (17,770) (12,677)
-------- -------- --------- ---------
Core earnings $ 44,753 $ 38,115 $ 170,481 $ 145,484
======== ======== ========= =========
</TABLE>
AMBAC INC. AND SUBSIDIARIES
COMPONENTS OF ADJUSTED BOOK VALUE PER SHARE (1)
DECEMBER 31, 1996 AND DECEMBER 31,1995
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1995
---- ----
<S> <C> <C>
Book value $46.02 $40.04
After-tax value of:
Net unearned premium reserve less
deferred acquisition costs 13.51 12.35
Present value of installment premiums 2.91 2.05
Unrealized gain on investment in HCIA -- 2.77
Unrealized gain (loss) on investment
contract liabilities 0.06 (0.74)
------ ------
Adjusted book value $62.50 $56.47
====== ======
</TABLE>
(1) Numbers may not add due to rounding.
<PAGE> 10
AMBAC INDEMNITY CORPORATION
SELECTED STATUTORY DATA
DECEMBER 31, 1996 AND DECEMBER 31, 1995
(DOLLARS IN THOUSANDS, EXCEPT RATIOS)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
Capital and claim-paying resources:
Contingency reserve $ 567,537 $ 495,793
Capital and surplus 886,751 862,976
------------ ------------
Qualified statutory capital 1,454,288 1,358,769
Unearned premium reserve 1,003,510 904,873
Losses and loss adjustment expenses 21,623 39,249
------------ ------------
Policyholders' reserves 2,479,421 2,302,891
Present value of installment premiums 157,689 110,000
Third party capital support (1) 350,000 300,000
------------ ------------
Total $ 2,987,110 $ 2,712,891
============ ============
Net insurance in force $227,234,512 $199,078,405
Capital ratio (2) 156:1 147:1
Financial resources ratio (3) 76:1 73:1
</TABLE>
(1) Third party capital support represents a limited recourse irrevocable line
of credit with AAA/Aaa-rated Deutsche Bank, individually and as Agent.
(2) Capital ratio is net insurance in force divided by qualified statutory
capital.
(3) Financial resources ratio is net insurance in force divided by the
aggregate of total policyholders' reserves, third party capital support and
present value of installment premiums.